SIXTH AMENDED AND RESTATED

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ASUVIGDLJrxc3byVTobhrCP8AY6XbNHHTHMYouWhRYO+YjQJ99bEgJXx6StWJmNX VgwKzio4wAldwG5yu7Bw8g== 0000906555-00-000011.txt : 20000428 0000906555-00-000011.hdr.sgml : 20000428 ACCESSION NUMBER: 0000906555-00-000011 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 16 CONFORMED PERIOD OF REPORT: 20000130 FILED AS OF DATE: 20000427 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SAKS INC CENTRAL INDEX KEY: 0000812900 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-DEPARTMENT STORES [5311] IRS NUMBER: 620331040 STATE OF INCORPORATION: TN FISCAL YEAR END: 0201 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-13113 FILM NUMBER: 610256 BUSINESS ADDRESS: STREET 1: 750 LAKESHORE PARKWAY CITY: BIRMINGHAM STATE: AL ZIP: 35211 BUSINESS PHONE: 2059404000 MAIL ADDRESS: CITY: ALCOA STATE: TN ZIP: 37701 FORMER COMPANY: FORMER CONFORMED NAME: PROFFITTS INC DATE OF NAME CHANGE: 19920703 10-K 1 Commission File Number: 1-13113 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) (X) Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For Fiscal Year Ended: January 29, 2000 or ______________ ( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from __________ to ____________ Commission File Number: 1-13113 Exact name of registrant as specified in its charter: SAKS INCORPORATED State of Incorporation: Tennessee I.R.S. Employer Identification Number: 62-0331040 Address of principal executive offices (including zip code): 750 Lakeshore Parkway, Birmingham, Alabama 35211 Registrant's telephone number, including area code: (205) 940-4000 Securities registered pursuant to Section 12(b) of the Act: Common Stock, Par Value $.10 and Preferred Stock Purchase Rights Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and 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 (X) No ( ) 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 the Registrant's knowledge, in definitive proxy or information statement incorporated by reference in Part II of this Form 10-K or any amendment to this Form 10-K. (X) The aggregate market value of the voting stock held by non- affiliates of the Registrant as of March 15, 2000 was approximately $1,872,271,091. As of March 15, 2000, the number of shares of the Registrant's Common Stock outstanding was 142,016,505. DOCUMENTS INCORPORATED BY REFERENCE (1) Portions of the Saks Incorporated Annual Report to Shareholders for the Fiscal Year Ended January 29, 2000 are incorporated by reference into Part II. (2) Portions of the Saks Incorporated Proxy Statement dated April 29, 2000 for the Annual Shareholders' Meeting to be held on June 21, 2000 are incorporated by reference into Part III. The Exhibit Index is on page 2 of this document. TABLE OF CONTENTS Item Page Part I 1 Business. 3 2 Properties. 10 3 Legal Proceedings. 11 4 Submission of Matters to a Vote of Security Holders. 11 Executive Officers of the Registrant. 12 Part II 5 Market for Registrant's Common Equity and Related Stockholder Matters. 14 6 Selected Financial Data. 14 7 Management's Discussion and Analysis of Financial Condition and Results of Operations. 14 7A Quantitative and Qualitative Disclosures About Market Risk. 14 8 Financial Statements and Supplementary Data. 14 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. 14 Part III 10 Directors and Executive Officers of the Registrant. 15 11 Executive Compensation. 15 12 Security Ownership of Certain Beneficial Owners and Management. 15 13 Certain Relationships and Related Transactions. 15 Part IV 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K. 16 Signatures 18 PART I Item 1. Business General Founded in 1919, Saks Incorporated (formerly Proffitt's, Inc.; the "Company") is a national retailer currently operating 359 stores throughout 39 states under the following names: Saks Fifth Avenue (61 stores), Parisian (43 stores), Proffitt's (31 stores), McRae's (30 stores), Younkers (51 stores), Herberger's (40 stores), Carson Pirie Scott (32 stores), Bergner's (14 stores), Boston Store (11 stores), and Off 5th (46 stores). The Company's stores are principally anchor stores in leading regional or community malls, and the stores typically offer a broad selection of fashion apparel, shoes, accessories, jewelry, cosmetics, decorative home furnishings, and furniture in selected locations. In addition, the Company operates a direct response business called Saks Direct, which currently includes the Folio and Bullock & Jones catalogs and will include its Internet retail site, saksfifthavenue.com, which the Company expects to launch in the summer of 2000. The Company has experienced significant growth since 1994, primarily through a series of acquisitions. The Company's major acquisitions are outlined below:

In addition to acquisitions, the Company historically has grown through opening new stores and by expanding and renovating selected stores. The Company opened 13 new stores (including two replacement stores) during the year. The Company has announced plans to open six additional stores in 2000. The Company also closes stores in the normal course of business. The Company closed five unproductive units in 1999 and four additional stores during the first quarter of 2000. On occasion, the Company may convert certain stores under one nameplate into another nameplate to enhance distribution and advertising economies. The Company made three such conversions during 1999. No conversions have been announced for 2000. Merchandising, sales promotion, and certain store operating support functions are conducted in multiple locations. Certain back office administrative support functions for the Company, such as accounting, credit card administration, store planning, and management information systems, are centralized. Merchandising The Company's merchandising strategy is to provide its customers a wide assortment of quality fashion apparel, shoes, accessories, cosmetics, and decorative home furnishings at appropriate prices. The Company's commitment to a branded merchandising strategy, enhanced by its merchandise presentation and high level of customer service, makes it a preferred distribution channel for premier brand-name merchandise. Key brands featured in the Company's more traditional department stores include Liz Claiborne, Calvin Klein, Polo/Ralph Lauren, Tommy Hilfiger, Nautica, Estee Lauder, Clinique, Lancome, Nine West, Enzo, Waterford, and Bali. In addition to the above brands, Parisian stores carry certain brands typically carried only at specialty stores which include: Robert Talbott, Tommy Bahama, Bobbi Brown, Trish McEvoy, BCBG, and Brighton. Saks Fifth Avenue has key relationships with the leading fashion houses, including Giorgio Armani, Chanel, Dolce and Gabbana, Salvatore Ferragamo, Gucci, Donna Karan, Calvin Klein, Ralph Lauren, Judith Leiber, Prada, Oscar de la Renta, St. John, Yves St. Laurent, J.P. Tod, Ermenegildo Zegna, and Max Mara. The Company supplements its branded assortments with private brand merchandise in selected areas. Management expects to continue to enhance the Company's private brand program and increase its sales penetration of private brand merchandise. Management believes that this enhanced program will improve merchandise margins and create differentiation from competitors through unique, high-quality product offerings at attractive prices. The Company has developed a knowledge of each of its trade areas and customer bases. This knowledge is gained through the Company's regional merchandising structure in conjunction with store visits by senior management and merchandising personnel and use of on-line merchandise information. The Company strives to tailor each store's merchandise assortment to the unique characteristics of its trade areas. Certain departments in the Company's stores are leased to independent companies in order to provide high quality service and merchandise where specialization and expertise are critical and economics do not justify the Company's direct investment in the business. The leased departments vary by store to complement the Company's own merchandising departments. The principal leased department is fine jewelry, except at Saks Fifth Avenue where this is an owned business. The terms of the lease agreements typically are between one and four years and require the lessee to pay for fixtures and provide its own employees. Management regularly evaluates the performance of the leased departments and requires compliance with established customer service guidelines. For the year ended January 29, 2000, the Company's percentages of owned sales by major merchandise category were as follows (excludes sales generated from Off 5th stores and Saks Direct): Women's 30.8% Men's 16.5 Cosmetics 13.0 Women's Accessories 9.9 Children's 5.0 Home 9.6 Shoes 7.2 Intimate Apparel 3.5 Junior's Apparel 2.9 Outerwear 1.6 ----- Total 100.0% ===== Pricing The Company's primary merchandise focus is on upper-moderate to better-priced nationally branded merchandise in the more traditional department stores, a greater assortment of better-priced nationally branded merchandise in the Parisian stores, a greater assortment of luxury-priced and designer goods at Saks Fifth Avenue, and value- priced merchandise in the Off 5th stores. Management believes that many customers respond to promotional events more favorably than they do to "everyday low pricing." Accordingly, although the Company continues to maintain a pricing structure that provides value to its customers, the Company runs various promotional events in its department stores throughout the year. Management recognizes that competitors in the traditional and specialty department store arena sometimes price merchandise below the Company's prices. In such situations, it is the Company's policy to match competitors' prices, if the lower price is brought to the attention of a sales associate. Accordingly, sales associates in these stores have the authority to reduce the price of any merchandise if the customer has seen the same item advertised or sold at a lower price in the same trade area. Purchasing and Distribution The Company purchases merchandise from many vendors. Management monitors profitability and sales history with each supplier and believes it has alternative sources available for each category of merchandise it purchases. Management believes it has good relationships with its suppliers. The Company has nine distribution facilities serving its stores. Refer to "Item 2. Properties" for a listing of these facilities. The Company's distribution facilities are linked electronically to the Company's merchandising staffs through a computerized purchase order management system, facilitating rapid re-order and replenishment of merchandise. The Company utilizes UPC barcode technology which is designed to move merchandise onto the selling floor more quickly and cost-effectively by allowing vendors to deliver floor-ready merchandise to the distribution facilities. For example, high speed automated conveyor systems are capable of scanning bar coded labels and diverting cartons to the proper merchandise processing areas. Some types of merchandise are being 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 check-in merchandise. Management Information Systems Company management believes that technological investments are necessary to support its business strategy, and, as a result, the Company has continually upgraded its information systems to improve operations and support future growth. The Company's information systems provide information necessary for management operating decisions, cost reduction programs, and customer service enhancements. Individual data processing systems include point-of-sale and sales reporting, purchase order management, receiving, merchandise planning and control, payroll, human resources, general ledger, credit card administration, and accounts payable systems. Bar code ticketing is used, and scanning is utilized at all point-of-sale terminals. Information is made available on-line to merchandising staff and store management on a timely basis. The Company uses electronic data interchange technology ("EDI") with many of its top vendors. EDI allows the Company to speed the flow of information and merchandise in order to capitalize on emerging sales trends, maximize inventory turnover, and minimize out-of-stock conditions. The Company's use of EDI technology includes an advance shipping notice system ("ASN"). The ASN system identifies discrepancies between merchandise that is ready to be shipped from a vendor's warehouse and that which was ordered from the vendor. This early identification provides the Company with a window of time to resolve any discrepancies in order to speed merchandise through the distribution facilities and into its stores. The Company completed the necessary systems modifications to become Year 2000 compliant in a timely manner. The Company experienced no material systems or operational problems related to these modifications. Marketing The Company's advertising and promotions are coordinated to reinforce its image as a fashion leader in its trade areas selling quality merchandise at appropriate prices. Advertising is balanced among fashion advertising, price promotions, and special events. The Company uses a multi-media approach, including newspaper, television, radio, and direct mail. The Company's advertising and special events are produced by regional in-house sales promotion staffs in conjunction with outside advertising agencies. The Company utilizes data captured through the use of proprietary credit cards to develop segmented advertising and promotional events targeted at specific customers who have established purchasing patterns for certain brands, departments, and store locations. To promote its image as the fashion leader in its trade areas, the Company also sponsors fashion shows and in-store special events highlighting the Company's key brands and key apparel designers. Proprietary Credit Cards The Company's credit card bank, National Bank of the Great Lakes (the "Bank"), issues all of the proprietary credit cards for each of the Company's department store nameplates. Frequent use of these proprietary credit cards by customers is an important element in the Company's marketing and growth strategies. The Company believes that proprietary credit card holders shop more frequently with the Company, purchase more merchandise, and are generally more loyal to the Company than are customers who pay with cash or third-party credit cards. As previously mentioned, the Company also makes frequent use of the names and addresses of its proprietary credit card holders in direct marketing efforts. The Company seeks to expand the number and use of the Bank's proprietary credit cards by, among other things, providing incentives to sales associates to open "instant credit" accounts, which can generally be opened within approximately three minutes. Also, customers who open accounts are entitled to certain discounts on initial and subsequent purchases. The Company has created various loyalty programs that reward customers for frequency and volume of proprietary charge card usage. Proprietary credit card customers are offered private shopping nights, direct mail catalogs, special discounts, and advance notice of sale events. The Bank has approximately 4.0 million credit accounts that have been active within the prior six months. Approximately 42% of the Company's 1999 sales were transacted on these proprietary credit cards. The Bank's credit card programs are subject to government regulations, including consumer protection laws, that impose restrictions on the making and collection of consumer loans and on other aspects of credit card operations. There can be no assurance that the existing laws and regulations will not be amended or that new laws or regulations will not be adopted, in a manner that could adversely affect the Bank's credit card operations. E-Commerce The Company plans to initiate its E-commerce presence in the summer of 2000 with the launch of saksfifthavenue.com. Management believes the Company will capture a meaningful share of the growing, underserved, and fragmented luxury E-tailing market. The Company is positioned to leverage existing Company assets, including the brand equity of Saks Fifth Avenue, valuable relationships with vendors and customers, marketing resources, and existing catalog fulfillment capabilities. Saksfifthavenue.com will offer a broad selection of Saks Fifth Avenue merchandise as well as complementary new product offerings, service that the Company believes will be best in its class and that will be integrated with Saks Fifth Avenue stores, a highly personalized user- customizable shopping experience, and the opportunity for millions of on-line shoppers, not proximate to a physical location, to experience shopping at Saks Fifth Avenue. At launch, the Company expects to offer over 10,000 SKUs of premier luxury goods on the site and to expand that number to nearly 100,000 by mid-2001. Trademarks and Service Marks The Company owns many federally registered trademarks and service marks, including, but not limited to, "Saks Fifth Avenue," "SFA," "S5A," "The Fifth Avenue Club," and "Off 5th," along with its various other store names and its private brands. The Company has filed a federal trademark registration for the name "Saks." Management believes its trademarks and service marks are important and that the loss of certain of its trademarks or trade names, particularly the store nameplates, could have a material adverse effect on the Company. Many of the Company's trademarks and service marks are registered in the United States Patent and Trademark Office. The term of these registrations is generally ten years, and they are renewable for additional ten-year periods indefinitely, so long as the marks are still in use at the time of renewal. Saks Incorporated is not aware of any claims of infringement or other challenges to its right to register or use its marks in the United States. Reliance on Fifth Avenue Store The Company's flagship Saks Fifth Avenue store on Fifth Avenue in New York City accounted for approximately 7% of total Company owned sales in 1999 and plays a significant role in marketing the Saks Fifth Avenue name. Customer Service The Company believes that personal customer attention builds loyalty and that the Company's sales associates generally provide a level of customer service superior to its competitors. The Company's strategy is to staff each store with knowledgeable, friendly sales associates skilled in salesmanship and customer service. Sales associates maintain customer records, send personalized thank-you notes, and communicate personally with customers to advise them of new merchandise offerings and special promotions. Superior customer service is encouraged through the development and monitoring of sales/productivity goals and through specific award and recognition programs. Seasonality The Company's business, like that of most retailers, is subject to seasonal influences, with a significant portion of its net sales and net income realized during the fourth quarter of each year, which includes the Christmas selling season. Generally, more than 30% of the Company's sales and over 50% of its net income are generated during the fourth quarter. Competition The retail department store business is highly competitive. The Company's stores compete with several national and regional department stores, specialty apparel stores, designer boutiques, outlet stores, discount stores, general and mass merchandisers, and mail-order and electronic commerce retailers, some of which have greater financial and other resources than those of the Company. Management believes that its knowledge of its trade areas and customer base, combined with providing superior customer service and a broad selection of quality fashion merchandise at appropriate prices in prime store locations, provides a competitive advantage. Associates As of March 15, 2000, the Company employed approximately 56,000 associates, of which approximately 40% were employed on a part-time basis. The Company hires additional temporary employees and increases the hours of part-time employees during seasonal peak selling periods. Approximately 200 of the Company's associates are covered by collective bargaining agreements. The Company considers its relations with its employees to be good. Item 2. Properties. The Company currently operates nine distribution facilities as follows:

The Company's principal administrative offices are as follows:

The Company has announced its plans to close and consolidate its three southern distribution facilities located in Birmingham, Alabama, Jackson, Mississippi, and Maryville, Tennessee and to build a new 180,000 square foot state-of-the-art facility in Steele, Alabama to serve its Parisian, McRae's, and Proffitt's stores. The new center will be operational in mid-2001. The Company also announced its plans to consolidate its St. Cloud distribution facility currently serving the Herberger's stores into its Rockford, Illinois center. The Company plans to merge the support functions for the McRae's stores into the Proffitt's support offices located in Alcoa, Tennessee and the support functions for the Herberger's stores into the Carson Pirie Scott support offices located in Milwaukee, Wisconsin in the third quarter of 2000. The following table sets forth information about the Company's stores as of March 15, 2000. The majority of the Company's stores are leased. Store leases generally require the Company to pay the greater of a fixed minimum rent or an amount based on a percentage of sales. Generally, the Company is responsible under its store leases for a portion of mall promotion and common area maintenance expenses and for certain utility, property tax, and insurance expenses. Typically, the Company contributes to common mall promotion, maintenance, property tax, and insurance expenses at its owned locations. Generally, store leases have primary terms ranging from 20 to 30 years and include renewal options ranging from 5 to 15 years.

Item 3. Legal Proceedings. The Company is involved in several legal proceedings arising from its normal business activities and has accruals for losses where appropriate. Management believes that none of these legal proceedings will have an ongoing material adverse effect on the Company's consolidated financial position, results of operations, or liquidity. Item 4. Submission of Matters to a Vote of Security Holders. None. Executive Officers of the Registrant. The name, age, and position held with the Company for each of the executive officers of the Company are set forth below. Name Age Position - ---------------------------------------------- R. Brad Martin 48 Chairman of the Board of Directors and Chief Executive Officer James A. Coggin 58 President and Chief Administrative Officer; Director Robert M. Mosco 51 President of Merchandising and Chief Operating Officer; Director Douglas E. Coltharp 38 Executive Vice President and Chief Financial Officer Brian J. Martin 43 Executive Vice President of Law and General Counsel Julia A. Bentley 41 Senior Vice President of Investor Relations and Communications; Corporate Secretary Donald E. Wright 42 Senior Vice President of Finance and Chief Accounting Officer R. Brad Martin has served as a Director since 1984 and became Chairman of the Board in February 1987 and Chief Executive Officer in July 1989. Mr. Martin previously served as President from July 1989 until March 1994 and from September 1994 to March 1995. R. Brad Martin is the brother of Brian J. Martin. James A. Coggin was named President and Chief Administrative Officer of Saks Incorporated in November 1998. Mr. Coggin served as President and Chief Operating Officer of the Company from March 1995 to November 1998 and served as Executive Vice President and Chief Administrative Officer of the Company from March 1994 to March 1995. From June 1978 to March 1994, Mr. Coggin served as Executive Vice President and Chief Administrative Officer of McRae's, Inc. Mr. Coggin joined McRae's, Inc. in 1971. Robert M. Mosco was named President of Merchandising and Chief Operating Officer of Saks Incorporated in November 1998. Mr. Mosco served as President and Chief Executive Officer of Proffitt's Merchandising Group from October 1996 until November 1998. Between February 1996 and October 1996, he served as President and Chief Executive Officer of Younkers. Mr. Mosco served as President and Chief Operating Officer of Younkers, Inc. between 1992 and January 1996. From 1989 to 1992, he held the position of Executive Vice President of Merchandising and Marketing for Younkers, Inc. Mr. Mosco joined Younkers, Inc. in 1987. Mr. Mosco began his retail career with Gimbel's and later worked for Rich's. Douglas E. Coltharp joined the Company in November 1996 as Executive Vice President and Chief Financial Officer. Mr. Coltharp was with NationsBank (now Bank of America) from 1987 to November 1996, where he held a variety of senior positions including the post of Senior Vice President of Corporate Finance. Brian J. Martin was promoted to Executive Vice President of Law and General Counsel of the Company in May 1997. He served as Senior Vice President of Human Resources and Law and General Counsel from August 1995 to May 1997 and served as Senior Vice President and General Counsel of Proffitt's from March 1995 to August 1995. He joined the Company in 1994 as Vice President and General Counsel. From June 1990 to May 1994, Mr. Martin was affiliated with the Indianapolis, Indiana law firm of Barnes and Thornburg. Mr. Martin served as Assistant Solicitor General of the United States between January 1988 and June 1990. Brian J. Martin is the brother of R. Brad Martin. Julia A. Bentley has served as Senior Vice President of Investor Relations and Communications and Secretary of the Company since September 1997. Between March 1994 and September 1997, she held the post of Senior Vice President of Investor Relations and Planning and Secretary. Ms. Bentley joined the Company in 1987 and has held various financial positions, including Chief Financial Officer. Prior to joining the Company, she was an audit manager with an international accounting firm. Donald E. Wright has served as Senior Vice President of Finance and Chief Accounting Officer for the Company since April 1997. Mr. Wright is a Certified Public Accountant and was a Partner with the international accounting firm of Coopers & Lybrand LLP (now PricewaterhouseCoopers LLP). He joined Coopers & Lybrand LLP in 1979. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. The information set forth under the caption "Market Information," appearing on page 60 of the Saks Incorporated Annual Report to Shareholders for the Fiscal Year Ended January 29, 2000 (the "Annual Report"), is incorporated herein by reference. Item 6. Selected Financial Data. The information set forth under the caption "Five-Year Financial Summary" appearing on page 17 of the Annual Report is incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. The information set forth under the caption "Management's Discussion and Analysis" appearing on pages 18 through 26 of the Annual Report is incorporated herein by reference. Item 7A. Quantitative and Qualitative Disclosures About Market Risk. The Company's exposure to market risk primarily arises from changes in interest rates. Changes in interest rates may adversely affect the Company's financial position, results of operations, and cash flows. The Company seeks to manage exposure to adverse interest rate changes through its normal operating and financing activities, and if appropriate, through the use of derivative financial instruments. The Company does not enter into derivative financial instruments for trading purposes. The Company is exposed to interest rate risk primarily through its securitization, borrowing, and derivative financial instrument activities, which are described in Notes 4, 7, and 13 to the Consolidated Financial Statements appearing on pages 35 and 36, 38 through 40, and 47, respectively, of the Annual Report are incorporated herein by reference. Based on the Company's market risk sensitive instruments (including variable rate debt and derivative financial instruments) outstanding at January 29, 2000, the Company has determined that there was no material market risk exposure to the Company's consolidated financial position, results of operations, or cash flows as of such date. Item 8. Financial Statements and Supplementary Data. The consolidated Financial Statements and the Report of Independent Accountants appearing on pages 27 through 59 of the Annual Report are incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None. PART III Item 10. Directors and Executive Officers of the Registrant. The information set forth under the caption "Election of Directors" contained on pages 5 through 8 of the Saks Incorporated Proxy Statement dated April 29, 2000 (the "Proxy Statement"), with respect to Directors of the Company, is incorporated herein by reference. The information required under this item with respect to the Company's Executive Officers is incorporated by reference from Part I of this report under "Executive Officers of the Registrant." The information set forth under the caption "Section 16(a) of the Securities Exchange Act of 1934" contained on page 17 of the Proxy Statement, with respect to Director and Executive Officer compliance with Section 16(a), is incorporated herein by reference. Item 11. Executive Compensation. The information set forth under the captions "Directors' Fees" and "Executive Compensation" contained on pages 9 and 10 through 12, respectively, of the Proxy Statement with respect to executive compensation is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management. The information set forth under the caption "Outstanding Voting Securities" contained on pages 3 through 5 of the Proxy Statement with respect to security ownership of certain beneficial owners and management is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions. The information set forth under the captions "Further Information Concerning Directors" contained on page 9 of the Proxy Statement with respect to certain relationships and related transactions is incorporated herein by reference. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (a)(1), (2), and (3) The responses to these portions of Item 14 are submitted as a separate section of this report. (b) Reports on Form 8-K filed during the fourth quarter. A Report on Form 8-K was filed with the Commission on February 11, 1999 regarding sales for the four weeks ended January 30, 1999. A Report on Form 8-K was filed with the Commission on February 12, 1999 regarding the offering for sale of $200 million of 7-3/8% notes. A Report on Form 8-K was filed with the Commission on February 19, 1999 regarding the completion of issuance and sale of $200 million of 7-3/8% notes. A Report on Form 8-K was filed with the Commission on July 6, 1999 regarding the disposition of all assets of Saks Stores Partnership, L.P. A Report on Form 8-K was filed with the Commission on July 27, 1999 regarding the completion of issuance and sale of $350 million of 7% notes. Reports on Form 8-K were filed with the Commission on November 16, 1999, December 15, 1999, and January 18, 2000 regarding the Company's accounts receivable master trust. (c) Exhibits The response to this portion of Item 14 is submitted as a separate section of this report. (d) Financial statement schedules The response to this portion of Item 14 is submitted as a separate section of this report. ITEM 14(a)(1) AND (2) AND (d) LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES (a) The following documents are filed as a part of this report: (1) Consolidated Financial Statements The following Consolidated Financial Statements and Report of Independent Accountants of Saks Incorporated and Subsidiaries, included on pages 27 through 58 of the Saks Incorporated Annual Report to Shareholders for the Fiscal Year Ended January 29, 2000, are incorporated by reference in Item 8: * Consolidated Balance Sheets as of January 29, 2000 and January 30, 1999 * Consolidated Statements of Income for Fiscal Years Ended January 29, 2000, January 30, 1999, and January 31, 1998 * Consolidated Statements of Changes in Shareholders' Equity for Fiscal Years Ended January 29, 2000, January 30, 1999, and January 31, 1998 * Consolidated Statements of Cash Flows for Fiscal Years Ended January 29, 2000, January 30, 1999, and January 31 1998 * Notes to Consolidated Financial Statements (2) Schedules to Financial Statements The following Consolidated Financial Statement Schedule of Saks Incorporated and Subsidiaries and the Related report of Independent Accountants are included in item 14(d): Valuation and Qualifying Accounts All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted. 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. Saks Incorporated Date: April 26, 2000 /s/ Douglas E. Coltharp ________________________________ Douglas E. Coltharp Executive Vice President and Chief Financial Officer Principal Accounting Officer /s/ Donald E. Wright ________________________________ Donald E. Wright Senior Vice President of Finance and Accounting Principal Accounting Officer Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities on the dates indicated. /s/ R. Brad Martin ________________________________ R. Brad Martin Chairman of the Board and Chief Executive Officer Principal Executive Officer /s/ Ronald de Waal ________________________________ Ronald de Waal Vice Chairman of the Board /s/ James A. Coggin ________________________________ James A. Coggin President and Chief Administrative Officer Director /s/ Robert M. Mosco ________________________________ Robert M. Mosco President of Merchandising and Chief Operating Officer Director /s/ Bernard E. Bernstein ________________________________ Bernard E. Bernstein Director /s/ Stanton J. Bluestone ________________________________ Stanton J. Bluestone Director /s/ John W. Burden, III ________________________________ John W. Burden, III Director /s/ Edmond D. Cicala ________________________________ Edmond D. Cicala Director /s/ Julius W. Erving ________________________________ Julius W. Erving Director /s/ Michael S. Gross ________________________________ Michael S. Gross Director /s/ Donald E. Hess ________________________________ Donald E. Hess Director /s/ G. David Hurd _______________________________ G. David Hurd Director /s/ Philip B. Miller _______________________________ Philip B. Miller Director /s/ C. Warren Neel _______________________________ C. Warren Neel Director /s/ Charles J. Philippin _______________________________ Charles J. Philippin Director /s/ Stephen I. Sadove _______________________________ Stephen I. Sadove Director _______________________________ Marguerite W. Sallee Director /s/ Gerald Tsai, Jr. _______________________________ Gerald Tsai, Jr. Director /s/ Julia A. Bentley _______________________________ Julia A. Bentley Senior Vice President and Secretary FORM 10-K -- ITEM 14(a)(3) AND 14(c) SAKS INCORPORATED AND SUBSIDIARIES (formerly Proffitt's, Inc.) EXHIBITS Exhibit No. Description -------- ---------------- 3.1 *Amended and Restated Charter of the Company 3.2 Amended and Restated Bylaws of the Company (incorporated by reference from the Exhibits to the Form 10-K of Saks Incorporated for the fiscal year ended January 30, 1999) 4.1 Indenture, dated as of November 9, 1998, among the Company, the Subsidiary Guarantors, and The First National Bank of Chicago, as trustee ($500 million of 8-1/4% Notes due 2008) (incorporated by reference from the Exhibits to the Form 8-K of Saks Incorporated dated November 9, 1998) 4.2 Indenture, dated as of November 25, 1998, among the Company, the Subsidiary Guarantors, and The First National Bank of Chicago, as trustee ($350 million of 7-1/4% Notes due 2004) (incorporated by reference from the Exhibits to the Form 8-K of Saks Incorporated dated December 2, 1998) 4.3 Indenture, dated as of December 2, 1998, among the Company, the Subsidiary Guarantors, and The First National Bank of Chicago, as trustee ($250 million of 7-1/2% Notes due 2010) (incorporated by reference from the Exhibits to the Form 8-K of Saks Incorporated dated December 2, 1998) 4.4 Indenture, dated as of February 17, 1999, among the Company, the Subsidiary Guarantors, and The First National Bank of Chicago, as trustee ($200 million, 7-3/8% Notes, due 2019) (incorporated by reference from the Exhibits to the Form 8-K of Saks Incorporated dated February 18, 1999) 4.5 Supplemental Indenture dated as of September 17, 1998, between Saks Holdings, Inc. and Bankers Trust Company, as trustee (incorporated by reference from the Exhibits to the Form 8-K of Saks Incorporated dated September 23, 1998) 4.6 Registration Rights Agreement between Proffitt's, Inc. and Parisian, Inc. dated July 8, 1996 (incorporated by reference from the Exhibits to the Form S-4 Registration Statement No. 333-09043 of Proffitt's, Inc. dated August 16, 1996) 4.7 Registration Rights Agreement between Proffitt's, Inc. and certain specified stockholders of Saks Holdings, Inc. dated July 4, 1998 (incorporated by reference from the Exhibits to the Form 8-K of Proffitt's, Inc. dated July 8, 1998) 4.8 Stockholders' Agreement between Proffitt's, Inc. and certain specified stockholders of Saks Holdings, Inc. dated July 4, 1998 (incorporated by reference from the Exhibits to the Form 8-K of Proffitt's, Inc. dated July 8, 1998) 4.9 Rights Agreement, dated as of March 28, 1995, by and between Proffitt's, Inc. and Union Planters National Bank, as Rights Agent (incorporated by reference from the Exhibits to the Form 8-K of Proffitt's, Inc. dated April 3, 1995) 4.10 Amendment No. 1, dated as of March 25, 1998, to the Rights Agreement, dated as of March 28, 1995, between the Registrant and Union Planters Bank, N.A., as Rights Agent (incorporated by reference to the Exhibits to the Form 8-K of Proffitt's, Inc. dated March 26, 1998). 4.11 Indenture, dated as of July 23, 1999, by and among the Company, the Subsidiary Guarantors and The First National Bank of Chicago, as trustee ($350 million, 7% Notes, due 2004 (incorporated by reference from the Exhibits to the Saks Incorporated 8-K dated July 27, 1999) 10.1 LC Account Agreement dated February 2, 1998, by and between Proffitt's, Inc. and NationsBank, N.A., as Agent (incorporated by reference from the Exhibits to the Form 8-K of Proffitt's, Inc. dated February 17, 1998) 10.2 Pooling and Servicing Agreement among Younkers Credit Corporation, Younkers, Inc., and Union Planters National Bank, as rights agent, dated March 28, 1995 (incorporated by reference from the Exhibits to the Form 10-Q of Younkers, Inc. for the quarter ended July 29, 1995) 10.3 Series 1995-1 Supplement to Pooling and Servicing Agreement among Younkers Credit Corporation, Younkers, Inc., and Chemical Bank, as Trustee, dated June 13, 1995 (incorporated by reference from the Exhibits to the Form 10-Q of Younkers, Inc. for the quarter ended July 29, 1995) 10.4 Amendment No. 2 to Pooling and Servicing Agreement among Younkers Credit Corporation, Proffitt's, Inc. (successor-by-merger to Younkers, Inc.), and The Chase Manhattan Bank (formerly known as Chase Bank), as Trustee, dated February 1, 1997 (incorporated by reference from the Exhibits to the Form 10-K of Proffitt's, Inc. for the fiscal year ended February 1, 1997) 10.5 Amendment No. 3 to Pooling and Servicing Agreement among Younkers Credit Corporation, Proffitt's, Inc. (successor-by-merger to Younkers, Inc.), and The Chase Manhattan Bank (formerly known as Chase Bank), as Trustee, dated May 6, 1998 (incorporated by reference from the Exhibits to the Form 10-K of Saks Incorporated for the fiscal year ended January 30, 1999) 10.6 Receivables Purchase Agreement between Younkers Credit Corporation and Younkers, Inc. dated June 13, 1995 (incorporated by reference from the Exhibits to the Form 10-Q of Younkers, Inc. for the quarter ended July 29, 1995) 10.7 First Amendment to the Receivables Purchase Agreement between Younkers Credit Corporation and Proffitt's, Inc. (as successor-by-merger to Younkers, Inc.) dated February 2, 1998 (incorporated by reference from the Exhibits to the Form 10-K of Proffitt's, Inc. for the fiscal year ended January 31, 1998) 10.8 Series 1995-2 Supplement to Pooling and Servicing Agreement dated as of June 13, 1995 among Younkers Credit Corporation, Younkers, Inc., and Chemical Bank, as Trustee, dated July 18, 1995 (incorporated by reference from the Exhibits to the Form 10-Q of Younkers, Inc. for the quarter ended July 29, 1995) 10.9 Series 1997-2 Supplement dated as of August 21, 1997, by and among Proffitt's Credit Corporation, as Transferor, Proffitt's, Inc., as Servicer, and Norwest Bank Minnesota, National Association, as Trustee (incorporated by reference from the Exhibits to the form 8-K/A filed by the Proffitt's Credit Card Master Trust and Proffitt's Credit Corporation on September 23, 1997) 10.10 Series 1998-1 Supplement dated as of May 6, 1998, by and among Proffitt's Credit Corporation, as Transferor, Proffitt's, Inc., as Servicer, and Norwest Bank Minnesota, National Association, as Trustee (incorporated by reference from the Exhibits to the Form 10-K of Saks Incorporated for the fiscal year ended January 30, 1999) 10.11 Series 1998-2 Supplement dated as of May 21, 1998, by and among Proffitt's Credit Corporation, as Transferor, Proffitt's, Inc., as Servicer, and Norwest Bank Minnesota, National Association, as Trustee (incorporated by reference from the Exhibits to the Form 10-K of Saks Incorporated for the fiscal year ended January 30, 1999) 10.12 Credit Agreement among Saks Incorporated, Bank of America, N.A. as Agent, several Banks as Agents, and several Banks as Lenders, dated as of August 26, 1999 (incorporated by reference from the Saks Incorporated Form 10-Q for the fiscal quarter ended July 31, 1999) 10.13 Second Amended and Restated Credit Agreement among Saks Incorporated, Bank of America, N.A. as Agent, several other Banks as Agents, and several Banks as Lenders, dated as of August 26, 1999 (incorporated by reference from the Saks Incorporated Form 10-Q for the fiscal quarter ended July 31, 1999) 10.14 Series 1999-1 Supplement dated as of July 21, 1999, to the Master Pooling and Servicing Agreement dated as of August 21, 1997, among Saks Credit Corporation, as Transferor, Saks Incorporated, as Servicer, and Norwest Bank Minnesota, National Association, as Trustee (incorporated by reference from the Saks Credit Card Master Trust Form 8-K dated July 28, 1999) 10.15 Master Pooling and Servicing Agreement dated as of August 21, 1997, by and among Saks Credit Corporation, Saks Incorporated, and Norwest Bank Minnesota, National Association, as Trustee, as amended by Amendment No. 1 dated as of February 2, 1998, and Amendment No. 2 dated as of July 1, 1999 (incorporated by reference to Exhibits to the Saks Credit Card Master Trust Current Report on Form 8- K filed on September 23, 1997, Exhibits to the Registrant's Current Report on Form 8-K filed on February 18, 1998 and Exhibits to the Registrant's Current Report on Form 8-K filed on July 2, 1999). 10.16 Receivables Purchase Agreement dated as of July 1, 1999 by and among National Bank of the Great Lakes, Saks Credit Corporation, and Saks Incorporated (incorporated by reference to Exhibits to the Saks Credit Card Master Trust Current Report on Form 8-K filed on July 2, 1999). 10.17 *Transfer and Administration Agreement dated as of July 1, 1999 among Enterprise Funding Corporation, Saks Transitional Credit Corporation, Saks Incorporated, and NationsBank, N.A. 10.18 *Receivables Purchase Agreement dated as of July 1, 1999 among National Bank of the Great Lakes, Saks Transitional Credit Corporation, and Saks Incorporated MANAGEMENT CONTRACTS, COMPENSATORY PLANS, OR ARRANGEMENTS, ETC. 10.19 Proffitt's, Inc. 1987 Stock Option Plan, as amended (incorporated by reference from the Exhibits to the Form S-8 Registration Statement No. 33-46306 of Proffitt's, Inc. dated March 10, 1992) 10.20 Saks Incorporated Amended and Restated Employee Stock Purchase Plan (incorporated by reference from the Exhibits to the Form 10-K of Saks Incorporated for the fiscal year ended January 30, 1999) 10.21 Saks Incorporated Amended and Restated 1994 Long- Term Incentive Plan (incorporated by reference from the Exhibits to the Form 10-K of Saks Incorporated for the fiscal year ended January 30, 1999) 10.22 Saks Incorporated Amended and Restated 1997 Stock- Based Incentive Plan (incorporated by reference from the Exhibits to the Form 10-K of Saks Incorporated for the fiscal year ended January 30, 1999) 10.23 Saks Incorporated 401(k) Retirement Plan (incorporated by reference from the Exhibits to the Form 10-K of Saks Incorporated for the fiscal year ended January 30, 1999) 10.24 Trust Agreement for the Saks Incorporated 401(k) Retirement Plan (incorporated by reference from the Exhibits to the Form 10-K of Saks Incorporated for the fiscal year ended January 30, 1999) 10.25 Saks Incorporated Supplemental Savings Plan (incorporated by reference from the Exhibits to the Form 10-K of Saks Incorporated for the fiscal year ended January 30, 1999) 10.26 Trust Agreement for the Saks Incorporated Supplemental Savings Plan (incorporated by reference from the Exhibits to the Form 10-K of Saks Incorporated for the fiscal year ended January 30, 1999) 10.27 First Amendment to Proffitt's, Inc. Supplemental Savings Plan (incorporated by reference from the Exhibits to the Form 10-K of Proffitt's, Inc. for the fiscal year ended January 31, 1998) 10.28 Second Amendment to Proffitt's, Inc. Supplemental Savings Plan (incorporated by reference from the Exhibits to the Form 10-K of Proffitt's, Inc. for the fiscal year ended January 31, 1998) 10.29 G.R. Herberger's, Inc. 401(k) Employee Stock Purchase Plan and Employee Stock Ownership Plan (incorporated by reference from the Exhibits to the Form S-8 Registration Statement No. 333-27813 of Proffitt's, Inc. dated May 27, 1997) 10.30 Third Amendment and Restatement of the Parisian, Inc. Stock Option Plan for Officers (incorporated by reference from the Exhibits to the Form 10-K of Proffitt's, Inc. for the fiscal year ended February 1, 1997) 10.31 First Amendment and Restatement of The Parisian, Inc. Management Incentive Plan(incorporated by reference from the Exhibits to the Form 10-K of Proffitt's, Inc. for the fiscal year ended February 1, 1997) 10.32 Younkers, Inc. Stock and Incentive Plan (incorporated by reference from the Exhibits to the Form S-1 Registration Statement No. 33-45771 of Younkers, Inc.) 10.33 Younkers, Inc. Management Stock Option Plan (incorporated by reference from the Exhibits to the Form S-1 Registration Statement No. 33-45771 of Younkers, Inc.) 10.34 Younkers, Inc. 1993 Long-Term Incentive Plan (incorporated by reference from the Exhibits to the Form S-8 Registration Statement No. 33-59224 of Younkers, Inc.) 10.35 Form of Younkers, Inc. Deferred Compensation Plan (incorporated by reference from the Exhibits to the Form 10-Q of Younkers, Inc. for the quarter ended May 1, 1993) 10.36 Carson Pirie Scott & Co. Supplemental Executive Retirement Plan (incorporated by reference to Carson Pirie Scott & Co. Common Shares Registration Statement No. 33-67514) 10.37 Carson Pirie Scott & Co. Deferred Compensation Plan (incorporated by reference from the Exhibits to the Form 10-K of Carson Pirie Scott & Co. for the fiscal year ended January 28, 1995) 10.38 Carson Pirie Scott & Co. 1993 Stock Incentive Plan as Amended and Restated as of March 19, 1997 (incorporated by reference from the Exhibits to the Form 10-K of Carson Pirie Scott & Co. for the fiscal year ended February 2, 1997) 10.39 Carson Pirie Scott & Co. 1996 Long-Term Incentive Plan (incorporated by reference from the Exhibits to the Form 10-K of Carson Pirie Scott & Co. for the fiscal year ended February 2, 1997) 10.40 Carson Pirie Scott & Co. Savings Plan (incorporated by reference from the Exhibits to the Form S-8 Carson Pirie Scott & Co. Registration Statement No. 33-93012) 10.41 Saks Fifth Avenue Retirement Savings Plan (incorporated by reference from the Exhibits to the Form S-8 Saks Incorporated Registration Statement No. 333-66759) 10.42 Saks Holdings, Inc. 1996 Management Stock Incentive Plan (incorporated by reference from the Exhibits to the Form S-1 of Saks Holdings, Inc. filed with the Commission on August 29, 1996) 10.43 Saks Fifth Avenue Supplemental Pension Plan, effective July 2, 1990 (incorporated by reference from the Exhibits to the Form 10-K of Saks Holdings, Inc. for the fiscal year ended January 31, 1998) 10.44 Saks Holdings, Inc. Senior Management Stock Incentive Plan, dated as of October 17, 1990 (incorporated by reference from the Exhibits to the Form 10-K of Saks Holdings, Inc. for the fiscal year ended January 31, 1998) 10.45 Saks Holdings, Inc. 1996 Management Stock Incentive Plan, dated as of February 1, 1996 (incorporated by reference from the Exhibits to the Form 10-K of Saks Holdings, Inc. for the fiscal year ended January 31, 1998) 10.46 Amendment to the Saks Holdings, Inc. 1996 Management Stock Incentive Plan, dated as of February 1, 1996 (incorporated by reference from the Exhibits to the Form 10-K of Saks Holdings, Inc. for the fiscal year ended January 31, 1998) 10.47 $500,000 Loan Agreement between Proffitt's, Inc. and R. Brad Martin dated February 1, 1989 (incorporated by reference from the Exhibits to the Form 10-K of Proffitt's, Inc. for the fiscal year ended January 28, 1989) 10.48 Form of Deferred Compensation Agreement between Younkers, Inc. and Robert M. Mosco, as amended (incorporated by reference from the Exhibits to the Form S-1 Registration Statement No. 33-45771 of Younkers, Inc.) 10.49 *Form of Sixth Amended and Restated Employment Agreement by and between R. Brad Martin, Chairman and Chief Executive Officer, and Saks Incorporated dated March 1, 2000 10.50 Form of Restricted Stock Grant Agreement under the Proffitt's, Inc. 1994 Long-Term Incentive Plan granted to R. Brad Martin dated October 11, 1996 (incorporated by reference from the Exhibits to the Form 10-Q of Proffitt's, Inc. for the quarter ended November 2, 1997) 10.51 Form of Restricted Stock Grant Agreement under the Proffitt's, Inc. 1997 Stock-Based Incentive Plan granted to R. Brad Martin dated January 31, 1998 (incorporated by reference from the Exhibits to the Form 10-K of Proffitt's, Inc. for the fiscal year ended January 31, 1998) 10.52 *Form of Employment Agreement between Saks Incorporated and Robert M. Mosco, President of Merchandising and Chief Operating Officer dated March 1, 2000 10.53 Form of Restricted Stock Grant Agreement under the Proffitt's, Inc. 1994 Long-Term Incentive Plan granted to Robert M. Mosco dated October 28, 1996 (incorporated by reference from the Exhibits to the Form 10-Q of Proffitt's, Inc. for the quarter ended November 2, 1997) 10.54 Form of Restricted Stock Grant Agreement under the Proffitt's, Inc. 1997 Stock-Based Incentive Plan granted to Robert M. Mosco dated January 31, 1998 (incorporated by reference from the Exhibits to the Form 10-K of Proffitt's, Inc. for the fiscal year ended January 31, 1998) 10.55 *Form of Employment Agreement by and between Saks Incorporated and James A. Coggin, President and Chief Administrative Officer dated March 1, 2000 10.56 Form of Restricted Stock Grant Agreement under the Proffitt's, Inc. 1994 Long-Term Incentive Plan granted to James A. Coggin dated October 28, 1996 (incorporated by reference from the Exhibits to the Form 10-Q of Proffitt's, Inc. for the quarter ended November 2, 1997) 10.57 Form of Restricted Stock Grant Agreement under the Proffitt's, Inc. 1997 Stock-Based Incentive Plan granted to James A. Coggin dated January 31, 1998 (incorporated by reference from the Exhibits to the Form 10-K of Proffitt's, Inc. for the fiscal year ended January 31, 1998) 10.58 *Form of Employment Agreement between Saks Incorporated and Douglas E. Coltharp, Executive Vice President and Chief Financial Officer dated March 1, 2000 10.59 Form of Restricted Stock Grant Agreement under the Proffitt's, Inc. 1994 Long-Term Incentive Plan granted to Douglas E. Coltharp dated November 25, 1996 (incorporated by reference from the Exhibits to the Form 10-Q of Proffitt's, Inc. for the quarter ended November 2, 1997) 10.60 Form of Restricted Stock Grant Agreement under the Proffitt's, Inc. 1997 Stock-Based Incentive Plan granted to Douglas E. Coltharp dated January 31, 1998 (incorporated by reference from the Exhibits to the Form 10-K of Proffitt's, Inc. for the fiscal year ended January 31, 1998) 10.61 *Form of Employment Agreement between Saks Incorporated and Brian J. Martin, Executive Vice President and General Counsel dated March 1, 2000 10.62 Form of Restricted Stock Grant Agreement under the Proffitt's, Inc. 1994 Long-Term Incentive Plan granted to Brian J. Martin dated October 28, 1996 (incorporated by reference from the Exhibits to the Form 10-Q of Proffitt's, Inc. for the quarter ended November 2, 1997) 10.63 Form of Restricted Stock Grant Agreement under the Proffitt's, Inc. 1997 Stock-Based Incentive Plan granted to Brian J. Martin dated January 31, 1998 (incorporated by reference from the Exhibits to the Form 10-K of Proffitt's, Inc. for the fiscal year ended January 31, 1998) 10.64 *Form of Employment Agreement by and between Saks Incorporated and Donald E. Wright dated March 1, 2000 10.65 Form of Restricted Stock Grant Agreement under the Proffitt's, Inc. 1997 Stock-Based Incentive Plan granted to Donald E. Wright dated January 31, 1998 (incorporated by reference from the Exhibits to the Form 10-K of Proffitt's, Inc. for the fiscal year ended January 31, 1998) 10.66 Form of Employment Agreement by and between Proffitt's, Inc. and Stanton J. Bluestone dated October 29, 1997 (incorporated by reference from the Exhibits to the Form 10-K of Proffitt's, Inc. for the fiscal year ended January 31, 1998) 10.67 Form of Employment Agreement by and between Saks Holdings, Inc., Proffitt's, Inc. and Philip B. Miller dated as of September 3, 1998 (incorporated by reference from the Exhibits to the Form 8-K of Saks Incorporated dated September 23, 1998) 10.68 *Form of Saks Incorporated 1998 Senior Executive Bonus Plan 10.69 *Form of Saks Fifth Avenue Pension Plan 13.1 *Annual Report to Shareholders for the fiscal year ended January 29, 2000 (not to be deemed filed except for those portions thereof which are incorporated herein by reference in this filing) 21.1 *Subsidiaries of the registrant 23.1 *Consents of Independent Accountants 27.1 *Financial Data Schedule 99.1 *Cautionary Statements Relating to Forward-Looking Information *Filed as a current year Exhibit. EX-3 2 AMENDED AND RESTATED CHARTER AMENDED AND RESTATED CHARTER OF SAKS INCORPORATED (As amended effective September 17, 1998) ARTICLE I Name The name of the Corporation is SAKS INCORPORATED. ARTICLE II Duration The duration of the Corporation is perpetual. ARTICLE III Address The address of the principal office of the Corporation is 750 Lakeshore Parkway, Birmingham, Alabama 35211. ARTICLE IV For Profit The corporation is for profit. ARTICLE V Purpose The purpose or purposes for which the Corporation are organized are: (a) To purchase, rent, lease, construct or otherwise acquire adequate facilities and to operate therein general department stores and related services enterprises. (b) To enter into partnerships and/or joint ventures with individuals, partnerships and/or corporations for the purpose of transacting and carrying out the business which the Corporation is authorized to conduct. (c) To borrow or raise money for any of the purposes of the Corporation and to issue, make, and/or draw notes, drafts, warrants, bonds, debentures and/or other negotiable or non- negotiable instruments and to secure the payment thereof by mortgage, pledge, conveyance, deed of trust and/or other instrument upon any property of the Corporation. (d) To perform such other acts and things as may be necessary and/or incident to any of the purposes aforesaid. (e) To engage in any other lawful business permitted under the Tennessee General Corporation Act. ARTICLE VI Shares The maximum number of shares of all classes of stock which the Corporation shall have the authority to issue is 510,000,000 shares consisting of (a) 10,000,000 shares of Series Preferred Stock, with a par value of $1.00 per share (herein called the "Series Preferred Stock"), and (b)500,000,000 shares of Common Stock, with a par value of $.10 per share (herein called the "Common Stock"). The following is a statement of the powers, preferences and rights, and the qualifications, limitations or restrictions thereof, in respect to each class of stock of the Corporation. Section 1. Series Preferred Stock. 1A. Conditions of Issuance. Series Preferred Stock may be issued from time to time and in such amounts and for such consideration as may be determined by the Board of Directors of the Corporation ("Board"). The designation and relative rights and preferences of each series, except to the extent such designations and relative rights and preferences may be required by Tennessee law or this Charter, shall be such as are fixed by the Board and stated in a resolution or resolutions adopted by the Board authorizing such series (herein called the "Series Resolution"). A Series Resolution authorizing any series shall fix: (i) The designation of the series which may be by distinguishing number, letter or title; (ii) The number of shares of such series; (iii) The dividend rate or rates of such shares, the date at which dividends, if declared, shall be payable, and whether or not such dividends are to be cumulative, in which case such Series Resolution shall state the date or dates from which dividends shall be cumulative; (iv) The amounts payable on shares of such series in the event of voluntary or involuntary liquidation, dissolution or winding up; (v) The redemption rights and price or prices, if any, for the shares of such series; (vi) The terms and amount of any sinking fund or analogous fund providing for the purchase or redemption of the shares of such series, if any; (vii) The voting rights, if any, granted to the holders of the shares of such series in addition to those required by Tennessee law or this Charter; (viii) Whether the shares of such series shall be convertible into shares of the Corporation's Common Stock or any other class of the Corporation's capital stock, and if convertible, the conversion price or prices, any adjustment thereof and any other terms and conditions upon which such conversion shall be made; and (ix) Any other rights, preferences, restrictions or conditions relative to the shares of such series as may be permitted by Tennessee law or this Charter. 1B. Restrictions. In no event, so long as any Series Preferred Stock shall remain outstanding, shall any dividend whatsoever be declared or paid upon, nor shall any distribution be made upon, the Common Stock, other than a dividend or distribution payable in shares of such Common Stock, nor (without the written consent of such number of the holders of the outstanding Series Preferred Stock as shall have been specified in the Series Resolution authorizing the issuance of such outstanding Series Preferred Stock) shall any shares of Common Stock be purchased or redeemed by the Corporation, nor shall any monies be paid to or made available for a sinking fund for the purchase or redemption of any Common Stock, unless in each instance full dividends on all outstanding shares of the Series Preferred Stock for all past dividend periods shall have been paid and the full dividend on all outstanding shares of the Series Preferred Stock for the current dividend period shall have been paid or declared and sufficient funds for the payment thereof set apart and any arrears in the mandatory redemption of the Series Preferred Stock shall have been made good. 1C. Priority. Series Preferred Stock, with respect to both dividends and distribution of assets on liquidation, dissolution or winding up, shall rank prior to the Common Stock. 1D. Voting Rights. Holders of Series Preferred Stock shall have no right to vote for the election of directors of the Corporation or on any other matter unless a vote of such class is required by Tennessee law, this Charter or a Series Resolution. 1E. Filing of Amendments. The Board shall adopt amendments to this Charter fixing, with respect to each series of Series Preferred Stock, the matters described in Paragraph 1A of this Section 1. 1F. Series C Junior Preferred Stock. A series of authorized preferred stock is hereby established having a par value of $1.00 per share, which series shall be designated as "Series C Junior Preferred Stock" (the "Series C Junior Preferred Stock"), shall consist of 2,500,000 shares and shall have the following voting powers, preferences and relative, participating, optional and other special rights, and the qualifications, limitations and restrictions thereof as follows: (i) Dividends and Distributions. (a) Subject to the rights of the holders of any shares of any series of Preferred Stock (or any similar stock) ranking prior and superior to the Series C Junior Preferred Stock with respect to dividends, the holders of shares of Series C Junior Preferred Stock, in preference to the holders of Common Stock of the Corporation, and of any other junior stock, shall be entitled to receive, when, as and if declared by the Board out of funds legally available for the purpose, quarterly dividends payable in cash on the first day of March, June, September and December in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series C Junior Preferred Stock in an amount per share (rounded to the nearest cent) equal to the greater of (a) $1.00 or (b) subject to the provision for adjustment hereinafter set forth, 100 times the aggregate per share amount of all cash dividends, and 100 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions, other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series C Junior Preferred Stock. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount to which holders of shares of Series C Junior Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (b) The Corporation shall declare a dividend or distribution on the Series C Junior Preferred Stock as provided in paragraph (a) of this Section immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $1.00 per share on the Series C Junior Preferred stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date. (c) Dividends shall begin to accrue and be cumulative on outstanding shares of Series C Junior Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case, dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series C Junior Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series C Junior Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board may fix a record date for the determination of holders of shares of Series C Junior Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not more than sixty (60) days prior to the date fixed for the payment thereof. (ii) Voting Rights. The holders of shares of Series C Junior Preferred Stock shall have the following voting rights: (a) Subject to the provision for adjustment hereinafter set forth, each share of Series C Junior Preferred Stock shall entitle the holder thereof to 100 votes on all matters submitted to a vote of the shareholders of the Corporation. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the number of votes per share to which holders of shares of Series C Junior Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (b) Except as otherwise provided herein, in any other Articles of Amendment creating a series of Preferred Stock or any similar stock, or Bylaw, the holders of shares of Series C Junior Preferred Stock and the holders of shares of Common Stock and any other capital stock of the Corporation having general voting rights shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation. (c) Except as set forth herein, or as otherwise provided by law, holders of Series C Junior Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action. (iii) Certain Restrictions. (a) Whenever quarterly dividends or other dividends or distributions payable on the Series C Junior Preferred Stock as provided in Section 1 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series C Junior Preferred Stock outstanding shall have been paid in full, the Corporation shall not: (1) declare or pay dividends, or make any other distributions, on any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series C Junior Preferred Stock; (2) declare or pay dividends, or make any other distributions, on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series C Junior Preferred Stock, except dividends paid ratably on the Series C Junior Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (3) redeem or purchase or otherwise acquire for consideration shares of any stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series C Junior Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of the Corporation ranking junior (as to dividends and upon dissolution, liquidation and winding up) to the Series C Junior Preferred Stock; or (4) redeem or purchase or otherwise acquire for consideration any shares of Series C Junior Preferred Stock, or any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series C Junior Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board) to all holders of such shares upon such terms as the Board, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (b) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Company unless the Corporation could, under paragraph (a) of this Section 1F(iii), purchase or otherwise acquire such shares at such time and in such manner. (iv) Reacquired Shares. Any shares of Series C Junior Preferred Stock purchased or otherwise acquired by the Company in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock subject to the conditions and restrictions on issuance set forth herein, in the Charter, or in any other Articles of Amendment creating a series of Preferred Stock or any similar stock or otherwise required by law. (v) Liquidation Dissolution or Winding Up. Upon any liquidation, dissolution or winding up of the Corporation, no distribution shall be made (1) to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series C Junior Preferred Stock unless, prior thereto, the holders of shares of Series C Junior Preferred Stock shall have received $1.00 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, provided that the holders of shares of Series C Junior Preferred Stock shall be entitled to receive an aggregate amount per share, subject to the provision for adjustment hereinafter set forth, equal to 100 times the aggregate amount to be distributed per share to holders of shares of Common Stock, or (2) to the holders of shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series C Junior Preferred Stock except distributions made ratably on the Series C Junior Preferred Stock and all such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. In the event the Corporation shall, at any time, declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the aggregate amount to which holders of shares of Series C Junior Preferred Stock were entitled immediately prior to such event under the proviso in clause (1) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (vi) Consolidation, Merger, etc. In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case each share of Series C Junior Preferred Stock shall at the same time be similarly exchanged or changed into an amount per share, subject to the provision for adjustment hereinafter set forth, equal to 100 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series C Junior Preferred Stock shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (vii) No Redemption. The shares of Series C Junior Preferred Stock shall not be redeemable. (viii) Rank. The Series C Junior Preferred Stock shall rank, with respect to the payment of dividends and the distribution of assets, junior to all series of any other class of the Corporation's Preferred Stock. (ix) Amendment. The Charter of the Corporation shall not be amended in any manner which would materially alter or change the powers, preferences or special rights of the Series C Junior Preferred Stock so as to affect them adversely without the affirmative vote of the holders of at least a majority of the outstanding shares of Series C Junior Preferred Stock, voting together as a single class. Section 2. Common Stock. All shares of Common Stock shall be identical and shall entitle the holders thereof to the same rights and privileges. 2A. Dividends. When and as dividends are declared upon the Common Stock, whether payable in cash, in property or in shares of stock of the Corporation, the holders of the Common Stock shall be entitled to share equally, share per share, in such dividends. 2B. Voting Rights. Except as otherwise provided by law or this Charter, the holders of Common Stock shall have equal voting rights on the basis of one vote per share. 2C. Issuance. Shares of Common Stock may be issued from time to time as the Board shall determine and on such terms and for such consideration as may be fixed by the Board. Section 3. Preemptive Rights. No holder of shares of the Corporation of any class now or hereafter authorized shall, as such holder, have any preferential or preemptive right to subscribe for, purchase or receive any shares of the Corporation of any class, now or hereafter authorizing, or any options or warrants for such shares, or any rights to subscribe to or purchase such shares or any securities convertible into or exchangeable for such shares, which may at any time be issued, sold or offered for sale by the Corporation. The Board shall have the right to issue the authorized and treasury shares of the Corporation at such time and upon such terms and conditions and for such consideration as the Board shall determine. ARTICLE VII Commencement of Business The Corporation will not commence business until consideration of an amount not less than $1,000.00 has been received for the issuance of shares. ARTICLE VIII Shareholders Any action required or permitted to be taken by the shareholders of the Corporation must be effected at a duly called annual or special meeting of such holders and may not be effected by any consent in writing by such holders. Notwithstanding anything in this Charter to the contrary, the affirmative vote of the holders of at least 80% of the voting power of all shares of the Corporation entitled to vote generally in the election of Directors, voting together as a class, shall be required to alter, amend, adopt any provisions inconsistent with or repeal this Article VIII. ARTICLE IX Directors The number of directors and the removal of directors shall be determined as follows: Section 1. Number of Directors. The affairs of this Corporation shall be managed by a Board of up to eighteen (18) directors. Effective as of the annual meeting of shareholders in 1997, the Board shall be divided into three classes, designated as Class I, Class II, and Class III, as nearly equal in number as possible. The initial term of office of Class I shall expire at the annual meeting of shareholders in 1998, that of Class II shall expire at the annual meeting in 1999, and that of Class III shall expire at the annual meeting in 2000, and in all cases as to each director until his or her successor shall be elected and shall qualify, or until his or her earlier resignation, removal from office, death, or incapacity. Subject to the foregoing, at each annual meeting of shareholders the successors to the class of directors whose term shall then expire shall be elected to hold office for a term expiring at the third succeeding annual meeting and until their successors shall be elected and qualified. Vacancies on the Board, for any reason, and newly created directorships resulting from any increase in the authorized number of directors may be filled by a vote of the majority of the directors then in office, although less than a quorum, or by a sole remaining director. If the number of directors is changed, the Board shall determine the class or classes to which the increased or decreased number of directors shall be apportioned; provided that the directors in each class shall be as nearly equal in number as possible. No decrease in the number of directors shall have the effect of shortening the term of any incumbent director. Notwithstanding any other provisions of this Charter or the Bylaws of the Corporation (and notwithstanding that a lesser percentage may be specified by law, this Charter, or the Bylaws of the Corporation), the affirmative vote of the holders of 80% or more of the voting power of the shares of the then outstanding Voting Stock, voting together as a single class, shall be required to amend or repeal, or adopt any provisions inconsistent with, this Article IX, Section 1 of this Charter. Section 2. Removal of Directors. Directors may be removed by shareholders only for cause as defined in the Tennessee General Corporation Act. ARTICLE X Shareholder Approval The holders of shares shall have the right to approve certain business combinations as follows: Section 1. Vote Required for Certain Business Combinations. 1A. Higher Vote for Certain Business Combinations. In addition to any affirmative vote required by law or this Charter, and except as otherwise expressly provided in Section 2 of this Article X: (i) any merger or consolidation of the Corporation or any Subsidiary (as hereinafter defined) with (a) any Interested Shareholder (as hereinafter defined) or (b) any other corporation (whether or not itself an Interested Shareholder) which is, or after such merger or consolidation would be, an Affiliate (as hereinafter defined) of an Interested Shareholder; or (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions) to or with any Interested Shareholder or any Affiliate of any Interested Shareholder of any assets of the Corporation or any Subsidiary having an aggregate fair market value (as hereinafter defined) of $1,000,000 or more; or (iii) the issuance or transfer by the Corporation or any Subsidiary (in one transaction or a series of transactions) of any securities of the Corporation or any Subsidiary to any Interested Shareholder or any Affiliate of any Interested Shareholder in exchange for cash, securities or other property (or a combination thereof) having an aggregate fair market value of $1,000,000 or more; or (iv) the adoption of any plan or proposal for the liquidation or dissolution of the Corporation proposed by or on behalf of an Interested Shareholder or any Affiliate of any Interested Shareholder; or (v) any reclassification of securities (including any reverse stock split), or recapitalization of the Corporation, or any merger or consolidation of the Corporation with any of its Subsidiaries or any other transaction (whether or not with or into or otherwise involving an Interested Shareholder) which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of equity or convertible securities of the Corporation or any Subsidiary which is directly or indirectly owned by any Interested Shareholder or any Affiliate of any Interested Shareholder; or (vi) any agreement, contract or other arrangement providing directly or indirectly for the foregoing; shall require the affirmative vote of the holders of at least 80% of the voting power of the then outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (the "Voting Stock"), voting together as a single class. Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that a lesser percentage may be specified, by law or in any agreement with any national securities exchange or otherwise. 1B. Definition of "Business Combination". The term "Business Combination" as used in this Article X shall mean any transaction which is referred to in any one or more of clauses (i) through (vi) of paragraph 1A of this Section 1. Section 2. When Higher Vote is Not Required. The provisions of this Article X shall not be applicable to any particular Business Combination, and such Business Combination shall require only such affirmative vote as is required by law and any other provision of this Charter, if all of the conditions specified in either of the following paragraphs 2A or 2B are met: 2A. Approval by Continuing Directors. The Business Combination shall have been approved by a majority of the Continuing Directors (as hereinafter defined). 2B. Price and Procedure Requirements. All of the following conditions shall have been met: (i) The aggregate amount of the cash and the Fair Market Value as of the date of the consummation of the Business Combination of consideration other than cash to be received per share by holders of Common Stock in such Business Combination shall be at least equal to the highest of the following: (a) (if applicable) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by the Interested Shareholder for any shares of Common Stock acquired by it (1) within the two-year period immediately prior to the first public announcement of the proposal of the Business Combination (the "Announcement Date") or (2) in the transaction in which it became an Interested Shareholder, whichever is higher; or (b) the Fair Market Value per Share of Common Stock on the Announcement Date or on the date on which the Interested Shareholder became an Interested Shareholder (such latter date is referred to in this Article X as the "Determination Date"), whichever is higher; or (c) (if applicable) the price per share equal to the Fair Market Value per share of Common Stock determined pursuant to paragraph 2B(i)(b) above, multiplied by the ratio of (1) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by the Interested Shareholder for any shares of Common Stock acquired by it within the two-year period immediately prior to the Announcement Date to (2) the Fair Market Value per share of Common Stock on the first day in such two-year period upon which the Interested Shareholder acquired any shares of Common Stock. (ii) The aggregate amount of the cash and the Fair Market Value as of the date of the consummation of the Business Combination of consideration other than cash to be received per share by holders of shares of any other class of outstanding Voting Stock shall be at least equal to the highest of the following (it being intended that the requirement of this paragraph 2B(ii) shall be required to be met with respect to every class of outstanding Voting Stock, whether or not the Interested Shareholder has previously acquired any shares of a particular class of Voting Stock). (iii) The consideration to be received by holders of a particular class of outstanding Voting Stock (including Common Stock) shall be in cash or in the same form as the Interested Shareholder had previously paid for shares of such class of Voting Stock. If the Interested Shareholder had previously paid for shares of such class of Voting Stock with varying forms of consideration, the form of consideration for such class of Voting Stock shall be either cash or the form used to acquire the largest number of shares of such class of Voting Stock previously acquired by it. (iv) After such Interested Shareholder has become an Interested Shareholder and prior to the consummation of such Business Combination: (a) except as approved by a majority of the Continuing Directors, there shall have been no failure to declare and pay at the regular date therefore any full quarterly dividends (whether or not cumulative) on any outstanding Preferred Stock; (b) there shall have been (1) no reduction in the annual rate of dividends paid on the Common Stock (except as necessary to reflect any subdivision of the Common Stock), except as approved by a majority of the Continuing Directors, and (2) an increase in such annual rate of dividends as necessary to reflect any reclassification (including any reverse stock split), recapitalization, reorganization or any similar transaction which has the effect of reducing the number of outstanding shares of the Common Stock, unless the failure to increase such annual rate is approved by a majority of the Continuing Directors; and (c) such Interested Shareholder shall have not become the beneficial owner of any additional shares of Voting Stock except as part of the transaction which results in such Interested Shareholder becoming an Interested Shareholder. (v) After such Interested Shareholder has become an Interested Shareholder, such Interested Shareholder shall not have received the benefit, directly or indirectly (except proportionately as a shareholder), of any loans, advances, guarantees, pledges or other financial assistance or any tax credits or other tax advantages provided by the Corporation, whether in anticipation of, or in connection with, such Business Combination or otherwise. (vi) A proxy or information statement describing the proposed Business Combination and complying with the requirements of the Securities Exchange Act of 1934 and the rules and regulations thereunder (or any subsequent provisions replacing such Act, rules or regulations) shall be mailed to public shareholders of the Corporation at least 30 days prior to the consummation of such Business Combination (whether or not such proxy or information statement is required to be mailed pursuant to such Act or subsequent provisions). Section 3. Certain Definitions. For the purposes of this Article X: 3A. A "person" shall mean any individual, firm, corporation or other entity. 3B. An "Interested Shareholder" shall mean any person (other than the Corporation, any Subsidiary, RBM Acquisition Company, the sole shareholder of the Corporation, or any Shareholder of RBM Acquisition Company) who or which: (i) is the beneficial owner, directly or indirectly, of more than 10% of the voting power of the outstanding Voting Stock; or (ii) is an Affiliate of the Corporation and at any time within the two-year period immediately prior to the date in question was the beneficial owner, directly or indirectly, of 10% or more of the voting power of the then outstanding Voting Stock; or (iii) is an assignee of or has otherwise succeeded to any shares of Voting Stock which were at any time within the two-year period immediately prior to the date in question beneficially owned by any interested Shareholder, if such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933. For the purposes of determining whether a person is an Interested Shareholder pursuant to paragraph 3B of this Section 3, the number of shares of Voting Stock deemed to be outstanding shall include shares deemed owned through application of paragraph 3C of this Section 3, but shall not include any other shares of Voting Stock which may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise. 3C. A person shall be a "beneficial owner" of any Voting Stock: (i) which such person or any of its Affiliates or Associates (as hereinafter defined) beneficially owns, directly or indirectly; or (ii) which such person or any of its Affiliates or Associates has (a) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (b) the right to vote pursuant to any agreement, arrangement or understanding; or (iii) which are beneficially owned, directly or indirectly, by any other person with which such person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of Voting Stock. 3D. "Affiliate" or "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on June 1, 1985. 3E. "Subsidiary" means any corporation of which a majority of any class of equity security is owned, directly or indirectly, by the Corporation; provided, however, that for the purposes of the definition of an Interested Shareholder set forth in paragraph 3B of this Section 3, the term "Subsidiary" shall mean only a corporation of which a majority of each class of equity security is owned, directly or indirectly, by the Corporation. 3F. "Continuing Director" means any member of the Board who is unaffiliated with the Interested Shareholder and was a member of the Board prior to the time that the Interested Shareholder became an Interested Shareholder, and any successor of a Continuing Director who is unaffiliated with the Interested Shareholder and is recommended to succeed a Continuing Director by a majority of Continuing Directors who are then members of the Board. 3G. "Fair Market Value" means: (i) in the case of stock, the highest closing sale price during the 30-day period immediately preceding the date in question of a share of such stock on the Composite Tape for New York Stock Exchange-Listed Stocks, or, if such stock is not quoted on the Composite Tape, on the New York Stock Exchange, on the principal United States securities exchange registered under the Securities Exchange Act of 1934 on which such stock is listed, or, if such stock is not listed on any such exchange, the highest closing bid quotation with respect to a share of such stock during the 30- day period preceding the date in question on the National Association of Securities Dealers, Inc. Automated Quotations System or any system then in use, or if no such quotations are available, the fair market value on the date in question of a share of such stock as determined by the Board in good faith; and (ii) in the case of property other than cash or stock, the fair market value of such property on the date in question as determined by the Board in good faith. 3H. In the event of any Business Combination in which the Corporation survives, the phrase "consideration other than cash to be received" as used in subparagraphs 2B(i) and (ii) of Section 2 of this Article X shall include the share of Common Stock and/or the shares of any other class of outstanding Voting Stock retained by the holders of such shares. Section 4. Power of Majority of Continuing Directors. A majority of the Continuing Directors of the Corporation shall have the power and duty to determine for the purposes of this Article X, on the basis of information known to them after reasonable inquiry, (1) whether a person is an Interested Shareholder, (2) the number of shares of Voting Stock beneficially owned by any person, (3) whether a person is an Affiliate or Associate of another, (4) whether a class of Voting Stock is Institutional Voting Stock and (5) whether the assets which are the subject of any Business Combination have, or the consideration to be received for the issuance or transfer of securities by the Corporation or any Subsidiary in any Business Combination has, an aggregate Fair Market Value of $1,000,000 or more. Section 5. No Effect on Fiduciary Obligations of Interested Shareholders. Nothing contained in this Article X shall be construed to relieve any Interested Shareholder from any fiduciary obligation imposed by law. Section 6. Amendment, Repeal, Etc. Notwithstanding any other provisions of this Charter or the Bylaws of the Corporation (and notwithstanding the fact that a lesser percentage may be specified by law, this Charter or the Bylaws of the Corporation), the affirmative vote of the holders of 80% or more of the voting power of the shares of the then outstanding Voting Stock, voting together as a single class, shall be required to amend or repeal, or adopt any provisions inconsistent with, Article X of this Charter. ARTICLE XI Repurchase of Shares The holders of shares shall have the right to approve the repurchase of the Corporation's shares by the Corporation from certain Interested Shareholders as follows: Section 1. Vote of Shareholders Required for Certain Repurchases of Shares. The affirmative vote or consent of the holders or not less than a majority of the non-interested outstanding shares (as hereinafter defined) of stock of the Corporation entitled to vote in elections of directors (the "Voting Stock"), voting for the purposes of this Article XI as one class, shall be required to approve any direct or indirect purchase by the Corporation of any shares of stock at a purchase price known by the Corporation to be above the Fair Market Value (as hereinafter defined and as determined on the date on which any such purchase by the Corporation occurs or is to occur) of such stock from a person who is known by the Corporation to be an Interested Shareholder (as hereinafter defined), unless such purchase is made by the Corporation pursuant to: (a) a tender offer or exchange offer by the Corporation for some or all of the outstanding shares of such stock made on the same terms to all holders of such shares, or (b) an open market purchase program approved by a majority of the Continuing Directors. Section 2. Certain Definitions. For purposes of this Article XI: 2A. "Person", "Beneficial Owner", "Affiliate", "Associate", and "Subsidiary" shall have the respective meanings ascribed to such terms in Section 3 of Article X above. 2B. "Interested Shareholder" shall have the same meaning ascribed to such term in Section 3 of Article X above, except that for purposes of this Article XI all references therein to 10% shall be to 5%. 2C. "Non-interested outstanding shares" are the shares of the Corporation entitled to vote in elections of directors (other than any shares beneficially owned by a person who is an Interested Shareholder) which are issued and outstanding on the record date for the determination of shareholders entitled to notice of, and to vote at, any meeting of shareholders. 2D. "Fair Market Value" shall mean the last sale price, on the last trading day immediately preceding the date upon which the purchase of a share of the Corporation's stock by the Corporation occurs or is to occur, as such last sale price may be reported by the National Association of Securities Dealers, Inc. Automated Quotations National Market System or any system then in use, or if such stock is listed on a National Securities Exchange, the highest closing sale price on the day in question, of a share of such stock on such exchange, or if no such quotations are available, the fair market value on the day in question of a share of such stock as determined by the Board in good faith. Section 3. No Effect on Fiduciary Obligations of Interested Shareholders. Nothing contained in this Article XI shall be construed to relieve any Interested Shareholder from any fiduciary obligation imposed by law. Section 4. Determinations by the Board. The Board shall have the power and duty to determine, for purposes of this Article XI, on the basis of information known to such Board after reasonable inquiry: (a) the number of shares of stock of the Corporation beneficially owned by any person; (b) whether a person is an Interested Shareholder; (c) the number of non-interested outstanding shares on the record date for any shareholders' meeting; (d) whether a person is an Affiliate or Associate of another; (e) whether Section 1 of this Article XI is or has become applicable with respect to a proposed purchase of shares by the Corporation; and (f) if so, the Fair Market Value of such shares and whether the purchase price thereof is above such Fair Market Value. Any such determination made in good faith shall be conclusive and binding for all purposes of this Article XI. For the purposes of determining whether a person is an Interested Shareholder and determining the number of non-interested outstanding shares, the number of shares of stock of the Corporation deemed to be outstanding and entitled to vote in elections of Directors shall include shares deemed beneficially owned by such Interested Shareholder through application of clauses (i), (ii) or (iii) of paragraph 3B of Section 3 of Article X above but shall not include any other shares which may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise. Section 5. Amendment, Repeal, Etc. The provisions of this Article XI may not be amended, modified or repealed unless authorized and approved by the affirmative vote of the holders of not less than a majority of the non-interested outstanding shares of stock of the Corporation entitled to vote in elections of directors, voting as one class. ARTICLE XII Indemnification The Corporation shall have the authority and right to indemnify and hold harmless its officers, directors, employees, and agents from and against any claim, liability, loss, or expense (including attorney's fees) with respect to which such indemnification is permitted under the applicable provisions of the Tennessee General Corporation Act, the Bylaws of the Corporation, or any duly adopted resolution of the Board or shareholders; provided, however, that absent any limitation or modification set forth in the Bylaws or any resolution, this Article XII shall require the Corporation to indemnify and hold harmless its officers, directors, employees and agents to the fullest extent permitted under the applicable provisions of the Tennessee General Corporation Act. Such right of indemnification shall not be deemed exclusive of any other rights to which such director, officer or employee may be entitled apart from this provision. ARTICLE XIII Bylaws The Board shall have power to make, alter, amend and repeal the Bylaws (except so far as the Bylaws adopted by the shareholders shall otherwise provide). Any Bylaws made by the directors under the powers conferred hereby may be altered, amended or repealed by the Board or by the shareholders. Notwithstanding the foregoing and anything contained in this Charter to the contrary, Article II of the Bylaws relating to action taken at annual and special meetings of shareholders, cannot be altered, amended or repealed and no provision inconsistent therewith shall be adopted without the affirmative vote of the holders of at least 80% of the voting power of all shares of the Corporation entitled to vote generally in the election of directors, voting together as a single class. Notwithstanding anything contained in this Charter to the contrary, the affirmative vote of the holders of at least 80% of the voting power of all shares of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to alter, amend, adopt any provision inconsistent with or repeal this Article XIII. ARTICLE XIV Special Meeting of Shareholders No special meeting of shareholders shall be held upon the demand of shareholders of the Corporation unless the holders of at least twenty-five percent (25%) of all the votes entitled to be cast on each issue proposed to be considered at the special meeting shall have signed, dated, and delivered to the Corporation's Secretary one or more written demands for the meeting describing the purpose of purposes for which it is to be held. EX-10 3 EXHIBIT 10.17 TRANSFER & ADMINISTRATION AGT TRANSFER AND ADMINISTRATION AGREEMENT TRANSFER AND ADMINISTRATION AGREEMENT (this "Agreement"), dated as of June 30, 1999, by and among SAKS CREDIT CORPORATION, a Delaware corporation, as transferor (the "Transferor"), SAKS INCORPORATED, a Tennessee corporation ("Saks") as servicer (the "Servicer"), ENTERPRISE FUNDING CORPORATION, a Delaware corporation ("EFC"), as a Conduit, NATIONSBANK, N.A., a national banking association (together with its successors, "NationsBank"), as agent for the Conduits and the Bank Investors (in such capacity, the "Agent"), as a Class Agent, and individually as a Bank Investor and the other Class Agents, Conduits and Bank Investors party hereto. PRELIMINARY STATEMENT WHEREAS, the Transferor desires to convey, transfer and assign, undivided percentage interests in certain accounts receivable, and the Conduits and the Bank Investors desire to accept conveyance, transfer and assignment of such undivided percentage interests, subject to the terms and conditions of this Agreement, NOW, THEREFORE, the parties hereby agree as follows: ARTICLE I DEFINITIONS SECTION 1.1. Certain Defined Terms. As used in this Agreement, the following terms shall have the following meanings: "Account" shall mean each credit card account established pursuant to an Account Agreement that is identified by account number and by the Outstanding Principal Balance as of the Cut-Off Date and listed on the Account Schedule. [List should include current list of Mercantile accounts and existing list of transitional accounts.] "Account Agreement" shall mean the agreements and Federal Truth in Lending Statement for Accounts, in substantially the form attached as Exhibit A to this Agreement as such agreements or statement may be amended, modified or otherwise changed from time to time. [Attach forms for both Mercantile and transitional accounts] "Account Schedule" shall mean the schedule of Accounts (which schedule may be in the form of a computer file or microfiche) of the Transferor attached as Schedule A to this Agreement. "Accrued Interest Component" means, with respect to each Conduit, for any Collection Period, that portion of the Interest Component of all Related Commercial Paper of such Conduit outstanding at any time during such Collection Period which has accrued from the first day through the last day of such Collection Period, whether or not such Related Commercial Paper matures during such Collection Period, based on the actual number of days in such Collection Period that such Related Commercial Paper was outstanding. "Additional Investment Certificate" shall mean a certificate, in substantially the form of Exhibit _ attached hereto, appropriately completed and signed by an authorized officer of the Servicer. "Adjusted LIBOR Rate" means, with respect to each Class, with respect to any period during which the return to the Bank Investors or the Liquidity Provider of such Class is to be calculated by reference to the London interbank offered rate, a rate which is 0.50% in excess of a rate per annum equal to the sum (rounded upwards, if necessary, to the next higher 1/100 of 1%) of (A) the rate obtained by dividing (i) the applicable LIBOR Rate by (ii) a percentage equal to 100% minus the reserve percentage, if any, that is used for determining any maximum reserve requirement as specified in Regulation D (including, without limitation, any marginal, emergency, supplemental, special or other reserves) that is applicable to the applicable Class Agent during such period in respect of eurocurrency or eurodollar funding, lending or liabilities (or, if more than one percentage shall be so applicable, the daily average of such percentage for those days in such period during which any such percentage shall be applicable) plus (B) the then daily net annual assessment rate (rounded upwards, if necessary, to the nearest 1/100 of 1%) as estimated by such Class Agent for determining the current annual assessment, if any, payable by such Class Agent to the Federal Deposit Insurance Corporation in respect of eurocurrency or eurodollar funding, lending or liabilities. "Administrative Agent" shall mean (i) NationsBank, as administrative agent for EFC, (ii) [other Conduits], and (iii) with respect to any other Conduit the financial institution or other Person identified as Administrative Agent for such Conduit in any supplement hereto. "Adverse Claim" means a lien, security interest, charge or encumbrance, or other right or claim in, of or on any Person's assets or properties in favor of any other Person (including any UCC financing statement or any similar instrument filed against such Person's assets or properties), provided, however, that an Adverse Claim shall not be considered to exist with respect to a Receivable solely as a result of an interest in such Receivable existing in favor of either (x) the consignor of the merchandise sold in connection with the creation of such Receivable or (y) the owner of a leased department which sold the merchandise the sale of which resulted in the creation of such Receivable. "Affected Assets" means, collectively, the Receivables and the Related Security, Collections and Proceeds relating thereto. "Affiliate" means, with respect to any Person, any other Person directly or indirectly controlling, controlled by, or under direct or indirect common control with, such Person. A Person shall be deemed to control another Person if the controlling Person possesses, directly or indirectly, the power to direct or cause the direction of the management or policies of the controlled Person, whether through ownership of voting stock, by contract or otherwise. "Agent" means NationsBank, N.A., in its capacity as agent for each Conduit and each Bank Investor, and any successor thereto appointed pursuant to Article IX "Aggregate Interest Component" means, with respect to each Conduit, the sum of the Interest Components of all issued and outstanding Related Commercial Paper of such Conduit. "Aggregate Unpaids" means, with respect to each Class and the Agent, at any time, an amount equal to the sum of (i) the aggregate accrued and unpaid Carrying Costs for such Class at such time, (ii) all amounts of the type included in the definition of "Carrying Costs," with respect to each Conduit, which may accrue after such time, (iii) the Net Investment for such Class at such time, (iv) all other amounts owed (whether due or accrued) hereunder by the Transferor to Class Agent, the Conduit and the Bank Investors of such Class at such time, and (v) such Class's Class Share of all other amounts owed (whether due or accrued) to the Agent at such time. "Arrangement Fee" means the fee payable by the Transferor to the Administrative Agent of each Class pursuant to Section 2.7 hereof, the terms of which are set forth in the Fee Letter for each such Class. "Assignment Amount" with respect to a Bank Investor shall mean at any time an amount equal to the lesser of (i) such Bank Investor's Pro Rata Share of the Net Investment of its Class at such time, (ii) such Bank Investor's unused Commitment, and (iii) such Bank Investor's Pro Rata Share of the Net Receivables Balance at such time. "Assignment and Assumption Agreement" means an Assignment and Assumption Agreement substantially in the form of Exhibit G attached hereto. "Bank Investors" shall mean, (i) with respect to the Class of which EFC is a member, NationsBank and its successors and assigns,(ii) [other Classes], and (iii) with respect to any other Class, the financial institutions specified as such in any supplement hereto and their respective successors and permitted assigns. "Bank Loan Agreement" means the Credit Agreement (364 Day Facility) by and among Saks as Borrower, NationsBank as Administrative Agent NationsBanc Montgomery Securities LLC as Lead Arranger, Morgan Guaranty Trust Company of New York and The Chase Manhattan Bank, as Co-Syndication Agents, Citibank, N.A., as Documentation Agent and the Lenders from time to time party thereto, dated September 17, 1998. "Bankruptcy Code" means Title 11 of the United States Code, as amended and modified from time to time. "Base Rate" means, a rate per annum equal to the greater of (i) the prime rate of interest announced by the applicable Liquidity Provider (or, if there is more than one Liquidity Provider with respect to a Class, then by the related Class Agent) from time to time, changing when and as said prime rate changes (such rate not necessarily being the lowest or best rate charged by such Liquidity Provider (or, if there is more than one Liquidity Provider with respect to a Class, then by the related Class Agent)) and (ii) the sum of (a) 1.50% and (b) the rate equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for such day for such transactions received by such Liquidity Provider (or, if there is more than one Liquidity Provider with respect to a Class, then by the related Class Agent) from three Federal funds brokers of recognized standing selected by it. "Benefit Plan" means any employee benefit plan as defined in Section 3(3) of ERISA in respect of which the Transferor, or any ERISA Affiliate of the Transferor is, or at any time during the immediately preceding six years was, an "employer" as defined in Section 3(5) of ERISA. "Business Day" means any day excluding Saturday, Sunday and any day on which banks in New York, New York, Charlotte, North Carolina, Birmingham, Alabama or Chicago, Illinois are authorized or required by law to close, and, when used with respect to the determination of any Adjusted LIBOR Rate or any notice with respect thereto, any such day which is also a day for trading by and between banks in United States dollar deposits in the London interbank market. "Buyer's Percentage Interest" shall mean; for each Class, the percentage equivalent of the fraction computed in accordance with Section 2.1(e) hereof as follows: NI ----- RB Where: NI = the Net Investment for such Class at the time of such computation less. RB = the aggregate Net Receivables Balance at the time of such computation. Notwithstanding the foregoing computation, the Buyer's Percentage Interest for any Class shall not exceed 100% and upon the Termination Date, the Buyer's Percentage Interest with respect to each Class shall be and remain fixed until such time as all Aggregate Unpaids shall have been paid in full. "Capitalized Leases" shall mean capital leases and subleases, as defined in the Financial Accounting Standards Board Statement of Financial Accounting Standards No. 13, dated November 1976, as amended. "Carrying Costs" shall mean, with respect to each Class, for any Collection Period, the sum of (i) the sum of the dollar amount of the related Conduit's obligations for such Collection Period determined on an accrual basis in accordance with GAAP consistently applied (a)(1) to pay interest with respect to Purchased Interests pursuant to the provisions of the applicable Liquidity Provider Agreement (such interest to be calculated based on the Adjusted LIBOR Rate, provided that if a Termination Event shall have occurred (other than a Termination Event set forth in Section 7.1(i) or 7.1(j)), such interest shall be calculated at the Base Rate plus 2.00%) outstanding at any time during such Collection Period accrued from the first day through the last day of such Collection Period, whether or not such interest is payable during such Collection Period and (2) to pay interest with respect to amounts disbursed by the applicable Credit Support Provider pursuant to the related Credit Support Agreement outstanding at any time during such Collection Period, accrued from the first day through the last day of such Collection Period, whether or not such interest is payable during such Collection Period, (b) to pay the Accrued Interest Component of its Related Commercial Paper with respect to any Collection Period (for purposes of this clause (b), Related Commercial Paper shall include Commercial Paper issued by such Conduit to fund its Net Investment-even if such Commercial Paper is issued in an amount in excess of such Net Investment), (c) to pay the Dealer Fee with respect to such Related Commercial Paper issued during such Collection Period, (d) to pay any past due interest not paid in clauses (a) and (b) with respect to prior Collection Periods and (e) to pay the costs of such Conduit with respect to the operation of Sections 8.1 8.2. 8.3 and 8.4, (ii) the Program Fee and the Facility Fee accrued from the first day through the last day of such Collection Period whether or not such amount is payable during such Collection Period and (iii) all interest amounts due the related Bank Investors in accordance with Section 2.3(c), (d) and (e). "Certificate" means the certificate issued to the Agent for the benefit of the Conduits and the Bank Investors pursuant to Section 2.1(d) hereof. "Class" shall mean, as applicable, each of the following groups: (i) EFC, as the Conduit for such Class, and the Bank investors for such Class (as designated in the definition of "Bank Investors"), (ii) [other Classes], and (iii) any other group which is designated as a Class in any supplement hereto, which group shall consist of a single multi-seller commercial paper conduit and one or more related Bank Investors, in each case which Class shall include the respective assigns and participants of the members thereof. "Class Agent" shall mean, (i) with respect to the Class of which EFC is a member, NationsBank, (ii) [other Classes], and (iii) with respect to any other Class, the financial institution or other Person identified as the Class Agent for such Class in any supplement hereto. "Class Share" means, for each Class, the Net Investment of such Class divided by the sum of the Net Investments of all Classes or, if the Net Investment for all Classes have been reduced to zero and any Aggregate Unpaids remain unpaid, "Class Share" shall be determined for each Class by dividing the Aggregate Unpaids with respect to that Class by the aggregate Aggregate Unpaids for all Classes. "Closing Date" means July 1, 1999. "Code" means the Internal Revenue Code of 1986, as amended. "Collateral Agent" means, with respect to any Class, such Person to which the related Conduit shall have granted a security interest to secure its obligations under Commercial Paper or its obligations to any Liquidity Provider or, if such a security interest has not been so granted, the applicable Class Agent. "Collection Account" means the account, established by the Agent, for the benefit of the Conduits and the Bank Investors, pursuant to Section 2.12. "Collection Period" shall mean each calendar month; provided, that the first Collection Period shall begin on the Closing Date and shall end on the last day of the calendar month containing the Closing Date. "Collections" means, with respect to any Receivable, all cash collections and other cash proceeds of such Receivable, including, without limitation, all Recoveries and collections of Finance Charges, if any, and cash proceeds of Related Security with respect to such Receivable. "Commercial Paper" means, with respect to each Conduit the promissory notes of such Conduit issued by such Conduit in the commercial paper market. "Commitment" shall mean, for each Bank Investor, the commitment of such Bank Investor to make acquisitions from the Transferor or the related Conduit in accordance herewith in an amount not to exceed (i) for NationsBank, [other current Bank Investors], the dollar amount set forth opposite such Bank Investor's signature on the signature pages hereto under the heading "Commitment" minus the dollar amount of any Commitment or portion thereof assigned pursuant an Assignment and Assumption Agreement in accordance with Section 9.7 hereof prior to the time of determination, plus the dollar amount of any increase to such Bank Investor's Commitment consented to by such Bank Investor prior to the time of determination, (ii) in the case of a Bank Investor for any other Class, the amount set forth in any supplement hereto for the related Class, minus the dollar amount of any Commitment or portion thereof assigned pursuant an Assignment and Assumption Agreement in accordance with Section 9.7 hereof prior to the time of determination, plus the dollar amount of any increase to such Bank Investor's Commitment consented to by such Bank Investor prior to the time of determination, and (iii) in the case of any permitted assignee of a Bank Investor pursuant to Section 9.7 hereof, the amount set forth in the Assignment and Assumption Agreement pursuant to which such assignee acquired its interest in the applicable Transferred Interest and the applicable Net Investment, minus the dollar amount of any Commitment or portion thereof assigned pursuant an Assignment and Assumption Agreement in accordance with Section 9.7 hereof prior to the time of determination, plus the dollar amount of any increase to such Bank Investor's Commitment consented to by such Bank Investor prior to the time of determination. "Commitment Termination Date" means, with respect to each Class, June 29, 2000, or such later date to which the Commitment Termination Date for a Class may be extended by Transferor, the Class Agent for such Class and the Bank Investors of such Class not later than 30 days prior to the then current Commitment Termination Date for such Class. "Conduit" shall mean, with respect to any Class, the member of such Class which is a multi-seller commercial paper conduit. "Conduit Assignee" shall mean any commercial paper conduit administered by (i) NationsBank or Bank of America National Trust and Savings Association and designated by NationsBank from time to time to accept an assignment from EFC of all or a portion of the Net Investment or (ii) any other Class Agent and designated by such Class Agent from time to time to accept an assignment from the related Conduit of all or a portion of the Net Investment. "Credit Guidelines" shall mean the Servicer's credit and collection policy or policies and practices relating to Accounts and Receivables existing on the date hereof and referred to in Exhibit B attached hereto, subject to the terms of the respective Account Agreements, as modified and as supplemented from time to time in compliance with Section 5.2(c). "Credit Support Agreement" means, with respect to each Conduit, the agreement between such Conduit and the applicable Credit Support Provider evidencing the obligation of such Credit Support Provider to provide credit support to such Conduit in connection with the issuance by such Conduit of its Commercial Paper. "Credit Support Provider" means, with respect to each Conduit, the Person or Persons who provides credit support to such Conduit in connection with the issuance by such Conduit of its Commercial Paper. "Cut-Off Date" shall mean [June] 1999. "DAF" shall mean Dillard Asset Funding Company, a Delaware business trust. "Dealer Fee" shall, with respect to each Conduit, have the meaning assigned in the applicable Fee Letter for such Conduit. "Deemed Collections" means any Collections on any Receivable deemed to have been received pursuant to Section 2.8(a) or (b) hereof "Defaulted Receivable" means a Receivable: (i) as to which any payment, or part thereof, remains unpaid on the last day7of the seventh calendar month in which the related Obligor has failed to make a qualifying minimum payment on a delinquent Account; (ii) as to which the Transferor or the Servicer has received notice of the death of, or the filing of a bankruptcy petition against, the Obligor more than 30 days before the date of determination; (iii) that has been identified by the Transferor or the Servicer as uncollectible; or (iv) which, consistent with the Credit Guidelines, should be written off as uncollectible. "Delinquent Receivable" means a Receivable: (i) as to which any payment or part thereof, remains unpaid for more than 30 days from the original due date for such Receivable and (ii) which is not a Defaulted Receivable. "Determination Date" shall mean with respect to any Collection Period, the twelfth day of the succeeding calendar month or, if such twelfth day is not a Business Day, the Business Day next succeeding such twelfth day. "Discount Percentage" shall mean the percentage designated by the Transferor pursuant to Section 2.5(e). "Discount Receivables" shall have the meaning specified in Section 2.5(e). "Discount Receivable Collections" shall mean, for any day, the product of (a) a fraction the numerator of which is the amount of Discount Receivables and the denominator of which is the sum of the Outstanding Principal Balance of the Receivables and the Discount Receivables, in each case at the end of the prior Collection Period and (b) Principal Collections (without giving effect to Discount Receivables Collections) on such day. "Early Collection Fee" means, with respect to each Class, for any funding period during which the portion of the Net Investment of such Class that was allocated to such funding period is reduced for any reason whatsoever, the excess, if any, of (i) the additional interest that would have accrued during such funding period if such reductions had not occurred over (ii) the income, if any, received by the recipient of such reductions from investing the proceeds of such reductions. "Eligible Account" shall mean, as of the Closing Date, each Account in existence and owned by NGBL: (a) that is payable in United States Dollars in the United States; (b) the credit card or cards related to which have not been reported lost or stolen or designated fraudulent; (c) that is not an Account as to which any of the Receivables existing thereunder are Defaulted Receivables; (d) that was created by [Saks Fifth Avenue], Mercantile or NBGL in accordance with, or under standards no less stringent than, the Credit Guidelines and, if created by [Saks Fifth Avenue] or Mercantile, was purchased by NGBL from [Saks Fifth Avenue] or Mercantile, respectively; and (e) that respect to which NGBL has good title thereto, free and clear of all Adverse Claims; and (f) the Obligor on which has not been identified by the Servicer or the Transferor in its computer files as having (i) died, (ii) commenced, or had commenced in respect of such Obligor, a case, action or proceeding under any law of any jurisdiction relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking relief with respect to such Obligor's debts, or seeking to have such Obligor adjudicated bankrupt or insolvent, or to have a receiver, trustee, custodian or other similar official appointed for such Obligor or for all or any substantial part of such Obligor's assets or (iii) made a general assignment of such Obligor's assets for the benefit of such Obligor's creditors, which assignment is then in full force and effect. "Eligible Investments" means any of the following (a) negotiable instruments or securities represented by instruments in bearer or registered or in book-entry form which evidence (i) obligations fully guaranteed by the United States of America; (ii) time deposits in, or bankers' acceptances issued by, any depositary institution or trust company incorporated under the laws of the United States of America or any state thereof and subject to supervision and examination by Federal or state banking or depositary institution authorities; provided, however, that at the time of investment or contractual commitment to invest therein, the certificates of deposit or short-term deposits, if any, or long-term unsecured debt obligations (other than such obligation whose rating is based on collateral or on the credit of a Person other than such institution or trust company) of such depositary institution or trust company shall have a credit rating from Moody's and S&P of at least "P-1" and "A-1" respectively, in the case of the certificates of deposit or short-term deposits, or a rating not lower than one of the two highest investment categories granted by Moody's and by S&P; (iii) certificates of deposit having, at the time of investment or contractual commitment to invest therein, a rating from Moody's and S&P of at least "P-1" and "A-1," respectively; or (iv) investments in money market funds rated in the highest investment category or otherwise approved in writing by the applicable rating agencies; (b) demand deposits in any depositary institution or trust company referred to in clause (a)(ii) above; (c) commercial paper (having original or remaining maturities of no more than 30 days) having, at the time of investment or contractual commitment to invest therein, a credit rating from Moody's and S&P of at least "P-1" and "A-1," respectively; (d) Eurodollar time deposits having a credit rating from Moody's and S&P of at least "P-1" and "A-1," respectively; and (e) repurchase agreements involving any of the Eligible Investments described in clauses (a)(i), (a)(iii) and (d) hereof so long as the other party to the repurchase agreement has, at the time of investment therein, a rating from Moody's and S&P of at least "P-1" and "A-1," respectively. "Eligible Receivable" means, at any time, any Receivable: (a) with respect to which, the related Account is an Eligible Account; (b) that (i) was originated by [Saks Fifth Avenue], Mercantile or an Affiliate of Mercantile, or NBGL; (ii) was purchased by the Transferor from [Saks Fifth Avenue], Mercantile or an Affiliate of Mercantile or N`BGL pursuant to the Receivable Purchase Agreement; and (iii) to which the Transferor has good title thereto, free and clear of all Adverse Claims; (c) that (together with the Collections and Related Security related thereto) has been the subject of a valid transfer and assignment from the Transferor to the Agent, on behalf of the Conduits and the Bank Investors, of all of the Transferor's right, title and interest therein; (d) that arises pursuant to an Account with respect to which [Saks Fifth Avenue] or Mercantile (if and to the extent applicable), the Transferor and NGBL have performed their respective obligations, including, without limitation, shipment of the merchandise and/or the performance of the services purchased thereunder; (e) a purchase of which with the proceeds of Commercial Paper would constitute a "current transaction" within the meaning of Section 3(a)(3) of the Securities Act of 1933, as amended; (f) that is an "account," a "general intangible" or "chattel paper" within the meaning of Article 9 of the UCC of all applicable jurisdictions; (g) that has arisen under an Account that is in full force and effect and constitutes the legal, valid and binding obligation of the related Obligor, enforceable against such Obligor in accordance with its terms and is not subject to any litigation, right of rescission, dispute, offset counterclaim or other defense (except any potential reduction for returned merchandise); (h) that was created in compliance, in all material respects, with all laws, rules and regulations applicable thereto (including, without limitation, laws, rules and regulations relating to truth in lending, fair credit billing, fair credit reporting, equal credit opportunity, fair debt collection practices, privacy and usury) and pursuant to an Account Agreement which complies, in all material respects, with all such laws, rules and regulations; (i) that (A) unless originated by [Saks Fifth Avenue] or Mercantile or an Affiliate of Mercantile prior to the Closing Date, satisfies all applicable requirements of the Credit Guidelines, (B) has not been waived or modified except in accordance with the Credit Guidelines and (C) is assignable without the consent of, or notice to, the Obligor thereunder; (j) with respect to which all material consents, licenses, approvals or authorizations of, or registrations or declarations with, any Governmental Authority required to be obtained, effected or given by [Saks Fifth Avenue] or Mercantile, of applicable, or NBGL in connection with the creation of such Receivable or the execution, delivery, creation and performance by [Saks Fifth Avenue] or Mercantile, if applicable, or by NBGL of the Account Agreement pursuant to which such Receivable was created have been duly obtained, effected or given and are in full force and effect; (k) the assignment of which by the Transferor does not violate, conflict or contravene any applicable law, rules, regulations, orders or writs or any contractual or other restriction, limitation or encumbrance; (1) is not, on the Closing Date, a Defaulted Receivable; and (m) is serviced by the Servicer or by a sub-servicer that is an Affiliate of the Servicer or that is otherwise satisfactory to the Agent and each Class Agent. "ERISA" means the U. S. Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder. "ERISA Affiliate" means, with respect to any Person, (i) any corporation which is a member of the same controlled group of corporations (within the meaning of Section 414(b) of Code) as such Person; (H) a trade or business (whether or not incorporated) under common control (within the meaning of Section 414(c) of the Code) with such Person; or (iii) a member of the same affiliated service group (within the meaning of Section 414(n) of the Code) as such Person, any corporation described in clause (i) above or any trade or business described in clause (ii) above. "Event of Bankruptcy" means, with respect to any Person, (i) that such Person (a) shall generally not pay its debts as such debts become due, (b) shall admit in writing its inability to pay its debts generally or (c) shall make a general assignment for the benefit of creditors; (ii) that any proceeding shall be instituted by or against such Person seeking to adjudicate it as bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee or other similar official for it or any substantial part of its property or (iii) if such Person is a corporation or other business entity, such Person or any Subsidiary of such Person shall take any corporate or other formal action as applicable, to authorize any of the actions set forth in the preceding clauses (i) or (ii). "Excluded Taxes" shall have the meaning specified in Section 8.3 hereof. "Facility Fee" means, with respect to each Class, the fee payable by the Transferor to the applicable Class Agent for distribution to the Bank Investors of such Class pursuant to Section 2.7(a) hereof, the terms of which are set forth in the Fee Letter for such Class. "Facility Limit" shall mean, (i) with respect to the Class of which EFC is a member, $__________________ and (ii) [other Classes], (iii) with respect to any other Class, the amount indicated in any supplement hereto for such Class; provided that in each case such amount may not at any time exceed the aggregate Commitments for the related Bank Investors. "Fee Letter" means, with respect to each Class, the letter agreement dated the date hereof among the Transferor, Saks, the applicable Conduit and the applicable Class Agent on behalf of the Bank Investors of such Class, in each case with respect to the fees to be paid by the Transferor hereunder, as amended, modified or supplemented from time to time. "Finance Charge Collections" shall mean that portion of the Collections with respect to the Receivables which are properly designated in the Accounts as Finance Charges, together with (i) any Recoveries (net of liquidation expenses, if any) in respect of Defaulted Receivables and Related Security with respect thereto and (ii) all Discount Receivable Collections. "Finance Charges" means, with respect to an Account any periodic finance charges, late fees, returned check or NSF charges or similar charges owing by an Obligor pursuant to such Account. "GAAP" means generally accepted accounting principles as set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such accounting profession, which are in effect as of the date of this Agreement. "Governmental Authority" shall mean the United States of America, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Guarantor" means Saks, as the Guarantor under the Saks Guaranty, and its successors and assigns. "Guaranty" means, with respect to any Person any agreement by which such Person assumes, guarantees, endorses, contingently agrees to purchase or provide funds for the payment of, or otherwise becomes liable upon, the obligation of any other Person, or agrees to maintain the net worth or working capital or other financial condition of any other Person or otherwise assures any other creditor of such other Person against loss, including, without limitation, any comfort letter, operating agreement or take-or-pay contract and shall include, without limitation, the contingent liability of such Person in connection with any application for a letter of credit. "Incremental Transfer" means a Transfer which is made pursuant to Section 2.2(a) hereof. "Indebtedness" means, with respect to any Person, without duplication, such Person's (i) obligations for borrowed money evidenced by a promissory note, bond or similar written obligation, including, without limitation, conditional sales or similar title retention agreements, (ii) obligations representing the deferred purchase price of property other than accounts payable arising in the ordinary course of such Person's business on terms customary in the trade, (iii) obligations, whether or not assumed, secured by hens or payable out of the proceeds or production from property now or hereafter owned or acquired by such Person, (iv) obligations which are evidenced by notes, acceptances, or other instruments, and all liabilities of such Person by way of endorsements (other than for collection or deposit in the ordinary course of business), (v) Capitalized Lease obligations, (vi) obligations for which such Person is obligated pursuant to a Guaranty, (vii) all Contingent Obligations (as defined in the Bank Loan Agreement), (viii) all obligations arising in connection with such Person's interest rate hedging activities, but excluding all accounts payable and accruals, in each case in the ordinary course of business and only so long as payment therefor is due within one year; provided, that in no event shall the term Indebtedness include surplus and retained earnings, minority interest in Subsidiaries, lease obligations (other than pursuant to Capitalized Lease obligations), reserves for deferred income taxes and investment credits, other deferred credits and reserves, and deferred compensation obligations. "Indemnified Amounts" has the meaning specified in Section 8.1 hereof. "Indemnified Parties" has the meaning specified in Section 8.1 hereof. "Interest Component" shall mean, (i) with respect to any Commercial Paper issued on an interest-bearing basis, the interest payable on such Commercial Paper at its maturity and (ii) with respect to any Commercial Paper issued on a discount basis, the portion of the face amount of such Commercial Paper representing the discount incurred in respect thereof (including any dealer commissions to the extent included as part of such discount). "Investor Report" means a report, in substantially the form attached hereto as Exhibit E or in such other form as is mutually agreed to by the Transferor and the Agent, furnished by the Servicer pursuant to Section 2.10 or 4.1(bb) hereof. "Law" means any law (including common law), constitution, statute, treaty, regulation, rule, ordinance, order, injunction, writ, decree or award of any Official Body. "LIBOR Rate" means, with respect to any Collection Period, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Telerate Page 3750 (or any successor page) as the London interbank offered rate for deposits in U. S. dollars at approximately 11: 00 a.m. (London time) two London Business Days before the first day of such Collection Period for a term of one month. If for any reason such rate is not available, the term "LIBOR Rate" shall mean, for any Collection Period, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Reuters Screen LIBO Page as the London interbank offered rate for deposits in dollars at approximately 11:00 a.m. (London time) two London Business Days before the first day of such Collection Period for a term of one month; provided, however, if more than one rate is specified on the Reuters Screen LIBO Page, the applicable rate shall be the arithmetic mean of all such rates. "Liquidity Provider" means, with respect to each Conduit, the Person or Persons who will provide liquidity support to such Conduit in connection with the issuance by such Conduit of its Commercial Paper. "Liquidity Provider Agreement" means the agreement between a Conduit and the applicable Liquidity Provider evidencing the obligation of the Liquidity Provider to provide liquidity support to such Conduit in connection with the issuance by such Conduit of its Commercial Paper. "Majority Investors" shall mean, at any time, the Agent and those Bank Investors which hold Commitments aggregating in excess of 5 1 % of the aggregate of the Facility Limits for all Classes as of such date. "Material Adverse Effect" means any event or condition which would have a material adverse effect on (i) the collectability of the Receivables, (ii) the condition (financial or otherwise), businesses or properties of the Transferor or Saks and its Subsidiaries, taken as a whole, (iii) the ability of the Transferor or Saks and its Subsidiaries, taken as a whole, to perform its respective obligations under the Transaction Documents to which it is a party or (iv) the interests of the Agent any Conduit or any Bank Investor under the Transaction Documents. "Maximum Buyer's Percentage Interest" means 88.5%. "Mercantile" means Mercantile Stores Company Inc., a Delaware corporation, and any Affiliate thereof, which shall include DAF. "Moody's" means Moody's Investors Service, Inc. "Multiemployer Plan" means a "multiemployer plan" as defined in Section 4001 (a)(3) of ERISA which is or was at any time during the current year or the immediately preceding five years contributed to by the Transferor or any ERISA Affiliate of the Transferor on behalf of its employees. "NBGL" means National Bank of the Great Lakes, a national banking association, or any successor thereto by merger or consolidation. "Net Investment" means, with respect to each Class, the Transfer Price paid by the Conduit or the related Bank Investors of such Class, as applicable, less the aggregate amount of Collections received and applied by the Agent to reduce such Net Investment pursuant to Section 2.4 hereof, provided that such Net Investment shall be restored and reinstated in the amount of any Collections so received and applied if at any time the distribution of such Collections is rescinded or must otherwise be returned for any reason, and provided further that such Net Investment may be increased by the amount described in Section 9.9(c) as described therein. "Net Portfolio Yield" shall mean, with respect to any Collection Period, the annualized percentage equivalent of a fraction, the numerator of which is the amount of Finance Charge Collections allocated to the Net Investment during the Collection Period less the sum of the Carrying Costs for all Classes for such Collection Period less the aggregate Outstanding Principal Balance of all Receivables which became Defaulted Receivables during such Collection Period and allocated to the Net Investment during the Collection Period less the Servicing Fee with respect to such Collection Period and the denominator of which is the daily average Net Investment for all Classes during such Collection Period. "Net Receivables Balance" means the aggregate Outstanding Principal Balance of Eligible Receivables, excluding the aggregate balance of any Discount Receivables at such time. "Net Worth" means, with respect to any Person and at any time, an amount equal to such Person's net worth, calculated in accordance with GAAP. "Obligor" means any Person obligated to make payments under an Account including any guarantor thereunder. "Official Body" means any government or political subdivision or any agency, authority, bureau, central bank, commission, department or instrumentality of any such government or political subdivision, or any court, tribunal, grand jury or arbitrator, in each case whether foreign or domestic. "Other Transferor" means any Person other than the Transferor that has entered into a receivables purchase agreement or transfer and administration agreement with the Company. "Outstanding Principal Balance" means, with respect to any Receivable at any time, the then outstanding principal amount thereof excluding any accrued and outstanding Finance Charges related thereto and giving effect to the amount of any credit balances and other adjustments existing with respect to such Receivable on such day. The outstanding principal amount of any Defaulted Receivables shall be considered to be zero for the purposes of any determination hereunder of the aggregate Outstanding Principal Balance of the Receivables or the Net Receivables Balance. "Person" means any corporation, limited liability company, natural person, firm, joint venture, partnership, trust unincorporated organization, enterprise, government or any department agency or instrumentality of any government. "Potential Termination Event" means an event that, but for the passage of time or the giving of notice, or both, would constitute a Termination Event. "Principal Collections" shall mean with respect to any Collection Period, all Collections received during such period other than Finance Charge Collections. "Pro Rata Share" means, for a Bank Investor, the Commitment of such Bank Investor divided by the sum of the Commitments of all Bank Investors in such Bank Investor's Class. "Proceeds" means "proceeds" as defined in Section 9-306(l) of the applicable UCC. "Program Fee" means, with respect to each Class, the fee payable by the Transferor to the Conduit of such Class pursuant to Section 2.7 hereof, the terms of which are set forth in the Fee Letter for such Class. "Purchased Interest" means the interest in the Receivables acquired by a Liquidity Provider through purchase pursuant to the terms of the Liquidity Provider Agreement. "Receivable" means the indebtedness owed to NBGL by any Obligor under an Account (without giving effect to any transfer under the Receivable Purchase Agreement or the predecessor agreement thereto), whether constituting an account chattel paper, instrument investment property or general intangible, arising originally in connection with the sale or lease of merchandise or the rendering of services, and includes the right to payment of any Finance Charges and other obligations of such Obligor with respect thereto. "Receivable Purchase Agreement" means the Receivable Purchase Agreement dated as of June 30, 1999 by and between the Transferor, as buyer, and NBGL, as seller, as such agreement may be amended, modified or supplemented from time to time. Such term shall include any agreement document or instrument (including any bill of sale) pursuant to which the Transferor may have acquired any interest in any Receivables originated by [Saks Fifth Avenue] or Mercantile or any Affiliate of Mercantile. [NBGL in this agreement should provide representations and warranties as to the receivables-even those it did not create (or at a minimum, NBGL should have a buy-back obligation similar to that which it would have if it actually made representations and warranties as to the receivables it did not create).] "Records" means all Account Agreements and other documents, books, records and other information (including, without limitation, computer programs, tapes, discs, punch cards, data processing software and related property and rights) maintained with respect to Receivables and the related Obligors. "Recoveries" shall mean all amounts received or collected by the Servicer with respect to Defaulted Receivables. "Related Commercial Paper" shall mean, with respect to each Conduit Commercial Paper issued by such Conduit the proceeds of which were used to acquire, or refinance the acquisition of, an interest in Receivables. "Related Security" means with respect to any Receivable, all of the Transferor's rights, title and interest, if any, in, to and under: (i) the merchandise (including returned or repossessed merchandise), if any, the sale of which gave rise to such Receivable; (ii) all other security interests or liens and property subject thereto from time to time, if any, purporting to secure payment of such Receivable, whether pursuant to the Account related to such Receivable or otherwise, together with all financing statements signed by an Obligor describing any collateral securing such Receivable; (iii) all guarantees, indemnities, warranties, insur- ance (and proceeds and premium refunds thereof) or other agreements or arrangements of any kind from time to time supporting or securing payment of such Receivable whether pursuant to the Account related to such Receivable or otherwise; (iv) all Records related to such Receivable; and (v) all rights and remedies of the Transferor under the Receivable Purchase Agreement, together with all financing statements filed by the Transferor against NBGL in connection therewith; and (vi) all Proceeds of any of the foregoing. "Remittance Date" shall mean the sixteenth day of each month of the Transferor beginning July 16, 1999, or, if such day is not a Business Day, the Business Day next succeeding such sixteenth day. "Requirements of Law" for any Person shall mean the certificate of incorporation or articles of association and by-laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation, or determination of an arbitrator or Governmental Authority, in each case applicable to or binding upon such Person or to which such Person is subject whether Federal, state or local (including, without limitation, usury laws, the Federal Truth in Lending Act and Regulations B and Z of the Board of Governors of the Federal Reserve System). "Saks" means Saks Incorporated, a Tennessee corporation. "Saks Guaranty" means the Guaranty and Purchase Agreement dated as of the date hereof, between Saks and the Agent, on behalf of each Conduit and each Bank Investor, substantially in the form attached hereto as Exhibit C. "Section 8.2 Costs" has the meaning specified in Section 8.2(d) hereof. "Section 8.2 Item" means this Agreement, the other Transaction Documents, the ownership, maintenance or financing of the Transferred Interest the Receivables or payments of amounts due under this Agreement or any Indemnified Party's obligation to advance funds hereunder, under the Liquidity Provider Agreement or the credit support furnished by the Credit Support Provider or otherwise in respect of this Agreement, the other Transaction Documents, the ownership, maintenance or financing of the Transferred Interest or the Receivables. "Servicer" means at any time the Person then authorized pursuant to Section 6.1 to service, administer and collect Receivables. "Servicer Advance" shall have the meaning specified in Section 2.5(d). "Servicer Default" has the meaning specified in Section 6.4 hereof. "Servicing Fee" means the fee payable by the Conduits and/or the Bank Investors to the Servicer in an amount equal to 2.0% per annum (calculated on the basis of actual days elapsed divided by a year consisting of 360 days) on the average daily amount of the sum of the Net Investments for all classes, subject to adjustment as set forth in Section 6.2(b) hereof. Such fee shall accrue from the date of the initial purchase of an interest in the Receivables to the date on which the Buyer's Percentage Interest for each Class is reduced to zero. Such fee shall be payable only from Collections pursuant to, and subject to the priority of payments set forth in, Section 2.4 hereof, except as otherwise provided in Section 6.2(b) hereof. "Standard & Poor's" or "S&P" means Standard & Poor's Ratings Services, a division of McGraw-Hill Companies, Inc. "Subsidiary" of a Person means any Person more than 50% of the outstanding voting interests of which shall at any time be owned or controlled, directly or indirectly, by such Person or by one or more Subsidiaries of such Person or any similar business organization which is so owned or controlled. "Taxes" shall have the meaning specified in Section 8.3 hereof. "Telerate Page 3750" shall mean the British Bankers Association Libor Rates (determined at 11:00 a.m. London time) that are published by Telerate. "Termination Date" means the earliest of (i) the Business Day designated by the Transferor to each Conduit and/or each Bank Investor as the Termination Date at any time following 30 days' written notice to each such Person, (ii) the date of termination of the commitment of any Liquidity Provider under any Liquidity Provider Agreement (iii) the date of termination of the commitment of any Credit Support Provider under any Credit Support Agreement, (iv) the day upon which a Termination Date is declared or automatically occurs pursuant to Section 7.2(a) hereof and (v) the Commitment Termination Date for any Class. "Termination Event" means an event described in Section 7.1 hereof. "Transaction Costs" has the meaning specified in Section 8.4(a) hereof. "Transaction Documents" means, collectively, this Agreement, each Fee Letter, the Certificate, the Transfer Certificate, the Receivable Purchase Agreement the Saks Guaranty and all of the other instruments, documents and other agreements executed and delivered by the Transferor, NBGL or Saks in connection with any of the foregoing, in each case, as the same may be amended, restated, supplemented or otherwise modified from time to time. "Transfer" means a conveyance, transfer and assignment by the Transferor to a Conduit or to the Bank Investors of a Class, as applicable, of an undivided percentage ownership interest in Receivables hereunder. "Transfer Certificate" has, with respect to each Class, the meaning specified in Section 2.1(a) hereof. "Transfer Date" shall mean the date of any Incremental Transfer hereunder. "Transfer Price" means with respect to any Incremental Transfer, the amount paid to the Transferor by the Conduit or related Bank Investors of a Class as described in the applicable Transfer Certificate. "Transferor" means Saks Credit Corporation, a Delaware corporation, and its successors and permitted assigns. "Transferred Interest" means, with respect to each Class, at any time of determination, an undivided percentage ownership interest of the members of such Class in (i) each and every then outstanding Receivable, (ii) all Related Security, if any, with respect to each such Receivable, (iii) all Collections with respect thereto and (iv) any Proceeds of the foregoing, which undivided ownership interest shall be equal to the Buyer's Percentage Interest for the applicable Class at such time, and only at such time (without regard to prior calculations). The Transferred Interest for each Class in each Receivable, together with Related Security, Collections and Proceeds with respect thereto, shall at all times be equal to the Transferred Interest for such Class in each other Receivable, together with Related Security, Collections and Proceeds with respect thereto. To the extent that the Transferred Interest for a Class shall decrease as a result of a recalculation of the Buyer's Percentage Interest for such Class, the Agent on behalf of the Conduit or the Bank Investors in such Class, as applicable, shall be considered to have reconveyed to the Transferor an undivided percentage ownership interest in each Receivable, together with Related Security, Collections and Proceeds with respect thereto, in an amount equal to such decrease such that in each case the Transferred Interest for such Class in each Receivable shall be equal to the Transferred Interest for such Class in each other Receivable. "UCC" means, with respect to any state, the Uniform Commercial Code as from time to time in effect in such state. "U.S." or "United States" means the United States of America. "United States Dollars" or "$" means lawful currency of the United States. SECTION 1.2. Other Terms. All accounting terms not specifically defined herein shall be construed in accordance with GAAP. All terms used in Article 9 of the UCC in the State of New York, and not specifically defined herein, are used herein as defined in such Article 9. SECTION 1.3. Computation of Time Periods. Unless otherwise stated in this Agreement, in the computation of a period of time from a specified date to a later specified date, the word "from" means "from and including" the words "to" and "until" each means "to but excluding" and the word "within" means "from and excluding a specified date and to and including a later specified date." ARTICLE II PURCHASES AND SETTLEMENTS SECTION 2.1. Facility. Upon the terms and subject to the conditions herein set forth, the Transferor shall sell, convey, transfer and assign to the Conduit or the Bank Investors of any Class, as applicable, and (x) each Conduit may, at its sole option, accept such conveyance, transfer and assignment from the Transferor, and (y) the Bank Investors of each Class shall, if the related Conduit determines not to so accept and if requested, accept such conveyance, transfer and assignment from the Transferor, in each case without recourse except as provided herein, of an undivided percentage ownership interest in each of the Receivables, together with Related Security, Collections and Proceeds with respect thereto, from time to time. By accepting any conveyance, transfer and assignment hereunder, none of any Conduit any Bank Investor nor the Agent assumes or shall have any obligations or liability under any of the Accounts. SECTION 2.2. Transfers, Certificates, Eligible Receivables. (a) Transfers. (i) Upon the terms and subject to the conditions herein set forth and provided that neither the Termination Date nor the Commitment Termination Date for the applicable Class shall have occurred, the Transferor may sell, convey, transfer and assign to the Conduit or the Bank Investors of any Class, as applicable, and (x) each Conduit may, at its sole option, accept such conveyance, transfer and assignment from the Transferor, and (y) the Bank Investors of each Class shall, if the related Conduit determines not to so accept and if requested, accept such conveyance, transfer and assignment from the Transferor, in each case without recourse except as provided herein, of an undivided percentage ownership interest in each of the Receivables, together with Related Security, Collections and Proceeds with respect thereto (each, an "Incremental Transfer)"; provided that after giving effect to the issuance of Related Commercial Paper, if applicable, by any Conduit accepting an Incremental Transfer to fund the applicable Transfer Price of any Incremental Transfer and the payment to the Transferor of such Transfer Price, the sum of the Net Investment of the related Class plus the Interest Component of all outstanding Related Commercial Paper of such Conduit would not exceed the Facility Limit for such Class; and, provided further, that, after giving effect to such Incremental Transfer, the Buyer's Percentage Interest for such Class, shall not exceed such Class's Class Share of the Maximum Buyers Percentage Interest; and provided further however, that the representations and warranties set forth in Sections 3. 1 and 3.2 shall be true and correct both immediately before and immediately after giving effect to any such Incremental Transfer and the payment to the Transferor of the applicable Transfer Price and an Additional Investment Certificate, dated a date within two (2) days of date of the proposed Incremental Transfer shall have been delivered by the Servicer to each Class Agent with respect to such Incremental Transfer. The Transferor shall, by notice to the Agent given by telecopy, offer to convey, transfer and assign to either the Conduit or the Bank Investors of any Class, as applicable, undivided percentage ownership interests in the Receivables and the other Affected Assets relating thereto at least two (2) Business Days prior to the proposed date of any Incremental Transfer. Each such notice shall specify (w) whether such request is made to the Conduit or the Bank Investors of such Class (it being understood and agreed that once the Bank Investors of such Class acquire any Transferred Interest hereunder, such Bank Investors shall be required to purchase all Transferred Interest held by the related Conduit in accordance with Section 9.9 and thereafter such Conduit shall no longer accept any additional Incremental Transfers hereunder), (x) the desired Transfer Price (which shall be at least $1,000,000 or integral multiples of $100, 000 in excess thereof) or, to the extent that the then available unused portion of the Facility Limit for such Class is less than such amount such lesser amount equal to such available portion of such Facility Limit), and (y) the desired date of such Incremental Transfer. The Agent will promptly notify the applicable Conduit or each of the applicable Bank Investors (which such notice shall be deemed given if given to the related Class Agent), as the case may be, of the Agent's receipt of any request for an Incremental Transfer to be made to such Person. To the extent that any such Incremental Transfer is requested of a Conduit, such Conduit shall accept or reject such offer by notice given to the Transferor and the Agent by telephone or telecopy by no later than the close of its business on the Business Day following its receipt of any such request. Each notice of proposed Transfer shall be irrevocable and binding on the Transferor and the Transferor shall indemnify each Conduit and each Bank Investor against any loss or expense incurred by such Conduit or such Bank Investor, either directly or indirectly (including through the related Liquidity Provider Agreement) as a result of any failure by the Transferor to complete such Incremental Transfer including, without limitation, any loss or expense incurred by any Conduit or any Bank Investor, either directly or indirectly (including pursuant to the related Liquidity Provider Agreement) by reason of the liquidation or reemployment of funds acquired by such Conduit (or the related Liquidity Provider) or any Bank Investor (including, without limitation, funds obtained by issuing commercial paper or promissory notes or obtaining deposits as loans from third parties) for any Conduit or any Bank Investor to fund such Incremental Transfer. On the date of the initial Incremental Transfer with respect to each Class, the Agent (at the direction of the applicable Class Agent), on behalf of the Conduit or the Bank Investors of such Class, as applicable, shall deliver written confirmation to the Transferor of the Transfer Price applicable to such initial Incremental Transfer and the Transferor shall deliver to the Agent (with a copy to the applicable Class Agent) a Transfer Certificate in the form of Exhibit F hereto (for each Class, a "Transfer Certificate"). The Agent shall indicate the amount of the initial Incremental Transfer for each Class together with the date thereof on the grid attached to the applicable Transfer Certificate. On the date of each subsequent Incremental Transfer with respect to a Class, the Agent (at the direction of the applicable Class Agent) shall send written confirmation to the Transferor of the Transfer Price applicable to such Incremental Transfer for such Class. The Agent shall indicate the amount of each Incremental Transfer for a Class together with the date thereof as well as any decrease in the Net Investment for a Class on the grid attached to the applicable Transfer Certificate. The Transfer Certificate of each Class shall evidence the Incremental Transfers of such Class. Upon the request of any Class Agent the Agent shall provide a copy, by facsimile, of the Transfer Certificate of any Class. By no later than 11:00 a.m. (New York time) on any Transfer Date, the Conduit or each Bank Investor of the applicable Class, as the case may be, shall remit its share (which, in the case of an Incremental Transfer to such Bank Investors, shall be equal to such Bank Investor's Pro Rata Share) of the aggregate Transfer Price for such Class for such Incremental Transfer to the account of the Agent specified therefor from time to time by the Agent by notice to such Persons. The obligation of each Bank Investor to remit its Pro Rata Share of any such Transfer Price shall be several from that of each other Bank Investor in such Class, and the failure of any such Bank Investor to so make such amount available to the Agent shall not relieve any other Bank Investor of such Class of its obligation hereunder. Following each Incremental Transfer and the Agent's receipt of funds from the Conduit or the related Bank Investors of a Class as aforesaid, the Agent shall remit the Transfer Price for such Class to the Transferor's account at the location indicated in Section 10.3 hereof, in immediately available funds. Unless the Agent shall have received notice from the Conduit or any related Bank Investor of a Class, as applicable, that such Person will not make its share of any Transfer Price relating to any Incremental Transfer available on the applicable Transfer Date therefor, the Agent may (but shall have no obligation to) make such Conduit's or any such related Bank Investor's share of any such Transfer Price available to the Transferor in anticipation of the receipt by the Agent of such amount from such Conduit or such related Bank Investor. To the extent such Conduit or any such Bank Investor fails to remit any such amount to the Agent after any such advance by the Agent on such Transfer Date, such Conduit or such related Bank Investor, on the one hand, and the Transferor, on the other hand, shall be required to pay such amount, together with interest thereon at a per annum. rate equal to the Federal funds rate (as determined in accordance with clause (ii) of the definition of "Base Rate"), in the case of such Conduit or any such related Bank Investor, or the Base Rate, in the case of the Transferor, to the Agent upon its demand therefor (provided that such Conduit shall have no obligation to pay such interest amounts except to the extent that it shall have sufficient funds to pay the face amount of its Commercial Paper in full). Until such amount shall be repaid, such amount shall be deemed to be Net Investment for the applicable Class paid by the Agent and the Agent shall be deemed to be the owner of a Transferred Interest hereunder. Upon the payment of such amount to the Agent (x) by the Transferor, the amount of the aggregate Net Investment for such Class shall be reduced by such amount or (y) by such Conduit or such related Bank Investor, such payment shall constitute such Person's payment of its share of the applicable Transfer Price for such Transfer. (b) Reinvestment Transfers. On each Business Day occurring after the initial Incremental Transfer with respect to a Class hereunder and prior to the Termination Date the Transferor hereby agrees to convey, transfer and assign to the Agent on behalf of the Conduit or the related Bank Investors of each Class, as applicable, then owning Transferred Interest, and in consideration of the Transferor's agreement to maintain at all times prior to the Termination Date a Net Receivables Balance in an amount at least sufficient to maintain the Buyers' Percentage Interest for each Class at an amount not greater than such Class's Class Share of the Maximum Buyers' Percentage Interest each Conduit of such Class may, and the related Bank Investors of such Class shall (in either case, to the extent such Persons then own any Transferred Interest), agree to purchase from the Transferor undivided percentage ownership interests in each and every Receivable, together with Related Security, Collections and Proceeds with respect thereto, to the extent that Collections are available for such Transfer in accordance with Section 2.5 hereof, such that after giving effect to such Transfer, (i) the amount of the Net Investment of such Class at the close of business on such Business Day shall be equal to the amount of Net Investment of such Class at the close of the business on the Business Day immediately preceding such Business Day plus the Transfer Price of any Incremental Transfer for such Class made on such day, if any, and (ii) the Transferred Interest of such Class in each Receivable, together with Related Security, Collections and Proceeds with respect thereto, shall be equal to the Transferred Interest of such Class in each other Receivable, together with Related Security, Collections and Proceeds with respect thereto. (c) All Transfers. Each Transfer with respect to a Class shall constitute a purchase by the Conduit or the Bank Investors' of such Class of undivided percentage ownership interests in each and every Receivable, together with Related Security, Collections and Proceeds with respect thereto, then existing, as well as in each and every Receivable, together with Related Security, Collections and Proceeds with respect thereto, which arises at any time after the date of such Transfer. The Conduit's or the Bank Investors' of each Class, as applicable, aggregate undivided percentage ownership interest in the Receivables, together with the Related Security, Collections and Proceeds with respect thereto, shall equal the Buyers' Percentage Interest for such Class in effect from time to time. Each Conduit's and each Bank Investor's undivided percentage ownership interest in the Affected Assets shall equal such Person's ratable share (determined on the basis of the relationship that such Person's share of the Net Investment for such Person's Class bears to the aggregate Net Investment for the Conduit and all Bank Investors in such Person's Class at such time) of the Buyers' Percentage Interest for such Person's Class of the Affected Assets at such time. (d) Certificate. The Transferor shall issue to the Agent the Certificate, in the form of Exhibit M, on or before the date hereof. SECTION 2.3. Fundings. (a) Before the Termination Date; Transferred Interest Held by Conduit. At all times hereafter before the Termination Date, if a Conduit has not transferred its interest in the Transferred Interest to the Bank Investors of such Class, the Transferor may, subject to such Conduit's approval and the limitations described below, request that the Net Investment of such Class be allocated among one or more funding periods, so that the aggregate amounts so allocated at a times shall equal the Net Investment of such Class. The Transferor shall give such Conduit irrevocable notice by telephone of the new requested funding period(s) at least two Business Days before the expiration of any then existing funding period; provided, however, that the related Class Agent may select, in its sole discretion, any such new funding period if (i) the Transferor fails to provide such notice on a timely basis or (ii) the related Class Agent determines, in its sole discretion, that the funding period requested by the Transferor is unavailable or for any reason commercially undesirable. Each Conduit confirms that it is its intention to fund all or substantially all of the Net Investment of its Class held by it by issuing its Related Commercial Paper; provided that the related Class Agent may determine, from time to time, in its sole discretion, that funding such Net Investment by means of the related Conduit's Commercial Paper is not possible or is not desirable for any reason. With respect to any Conduit if the related Liquidity Provider acquires from such Conduit a Purchased Interest with respect to the Receivables pursuant to the terms of the applicable Liquidity Provider Agreement the related Liquidity Provider, may exercise the right of selection granted to such Conduit hereby. The initial funding period applicable to any such Purchased Interest of any Conduit shall be a period of not greater than 14 days and shall accrue Carrying Costs on the basis of the Base Rate. Thereafter, provided that the Termination Date shall not have occurred, Carrying Costs with respect thereto shall accrue on the basis of either the Base Rate or the Adjusted L113OR Rate, as determined by the related Class Agent. In the case of any funding period outstanding upon the Termination Date, such funding period shall end on such date. (b) After the Termination Date, Transferred Interest Held by a Conduit. At all times on and after the Termination Date, with respect to the Transferred Interest of a Class held by any Conduit if such Transferred Interest has not been transferred to the related Bank Investors, the related Class Agent shall select all funding periods and rates applicable thereto. With respect to any Conduit, if the related Liquidity Provider acquires from such Conduit (or continues to hold) a Purchased Interest with respect to the Receivables pursuant to the terms of the applicable Liquidity Provider Agreement the related Class Agent shall determine all funding periods applicable thereto and Carrying Costs with respect thereto shall accrue on the basis of the Base Rate. (c) Before the Termination Date, Transferred Interest Held by Bank Investors. If the Transferred Interest of any Class has been transferred to the Bank Investors of such Class pursuant to Section 9.9 before the Termination Date, the initial funding period applicable to the portion of the Net Investment of a Class held by such Bank Investors shall be a period of not greater than 14 days and shall accrue Carrying Costs for such Bank Investors on the basis of the Base Rate. Thereafter, provided that the Termination Date shall not have occurred, Carrying Costs for such Bank Investors shall accrue with respect thereto on the basis of either the Base Rate or the Adjusted LIBOR Rate, at the Transferor's option. The Transferor shall give the applicable Class Agent irrevocable notice by telephone of the new requested funding period and rate at least two Business Days before the expiration of any then existing funding period. In the case of any funding period outstanding upon the occurrence of the Termination Date, such funding period shall end on the date of such occurrence. (d) After the Termination Date, Transferred Interest Held by Bank Investors. At all times on and after the Termination Date, if the Transferred Interest of a Class held by the related Conduit shall have been transferred to the Bank Investors of such, the related Class Agent shall select all funding periods and rates applicable thereto. (e) Eurodollar Rate Protection, Illegality. (i) If the applicable Class Agent is unable to obtain on a timely basis the information necessary to determine the LIBOR Rate for any proposed funding period, then: (A) such Class Agent shall forthwith notify the related Conduit or the related Bank Investors, as applicable, and the Transferor and the Agent that the Adjusted LIBOR Rate cannot be determined for such funding period, and (B) while such circumstances exist none of the Conduit any Bank Investor or the Class Agent of such Class shall reallocate the Net Investment for such Class allocated to any then existing funding period ending during such period, to a funding period which Carrying Costs for such Class accrue on the basis of the Adjusted LIBOR Rate. (ii) If, with respect to any outstanding funding period during which Carrying Costs for any Class accrue on the basis of the Adjusted L103OR Rate, the related Liquidity Provider or the related Bank Investors; as applicable, notify the related Class Agent that they are unable to obtain matching deposits in the London interbank market to fund the purchase or maintenance of the applicable Transferred Interest or that the Adjusted LE30R Rate applicable to such Transferred Interest will not adequately reflect the cost to the Person of funding or maintaining its respective Transferred Interest for such funding period, then the related Class Agent shall forthwith so notify the Transferor, whereupon neither such Class Agent nor such Liquidity Provider nor any related Bank Investor, as applicable, shall, while such circumstances exist, reallocate the Net Investment of its Class allocated to any funding period ending during such period, to a funding period which accrues Carrying Costs of such Class on the basis of the Adjusted LIBOR Rate. (iii) Notwithstanding any other provision of this Agreement, if the Conduit or any related Bank Investor of a Class, as applicable, shall notify the applicable Class Agent that such Person has determined (or has been notified by the related Liquidity Provider) that the introduction of or any change in or in the interpretation of any Law makes it unlawful (either for such Conduit such related Bank Investor, or such Liquidity Provider, as applicable), or any central bank or other governmental authority asserts that it is unlawful, for such Conduit, such related Bank Investor or such Liquidity Provider, as applicable, to fund the purchases or maintenance of the applicable Transferred Interest at the Adjusted LIBOR Rate, then (x) as of the effective date of such notice from such Person to the applicable Class Agent the obligation or ability of such Conduit or such related Bank Investor, as applicable, to fund its purchase or maintenance of such Transferred Interest at the Adjusted LI13OR Rate shall be suspended until such Person notifies such Class Agent that the circumstances causing such suspension no longer exist and (y) the Net Investment of such Class held by such Person allocated to each funding period which accrues Carrying Costs on the basis of the Adjusted LIBOR Rate in which such Person owns an interest shall either (1) if such Person may lawfully continue to maintain such Transferred Interest at the Adjusted LIBOR Rate until the last day of the applicable funding period, be reallocated on the last day of such funding period to another funding period in respect of which the Net Investment of such Person's Class allocated thereto accrues Carrying Costs on a basis other than the Adjusted LIBOR Rate or (2) if such Person shall determine that it may not lawfully continue to maintain such Transferred Interest at the Adjusted LIBOR Rate until the end of the applicable funding period, such Person's share of the Net Investment of such Person's Class allocated to such funding period shall be deemed to accrue Carrying Costs on the basis of the Base Rate from the effective date of such notice until the end of such funding period. SECTION 2.4. Carrying Costs, Fees and Other Costs and Expenses. Notwithstanding the limitation on recourse under Section 2.1 hereof, the Transferor shall pay, as and when due in accordance with this Agreement, all fees hereunder, including any Early Collection Fee, Carrying Costs, all amounts payable pursuant to Article VIII hereof, if any, and the Servicing Fees. On each Remittance Date, the Transferor shall pay to the Agent, on behalf of each Conduit or the related Bank Investors, as applicable, an amount equal to the accrued and unpaid Carrying Costs with respect to such Class for the related Collection Period. The Transferor shall pay to the Agent, on behalf of each Conduit, on each day on which Related Commercial Paper that is issued by such Conduit, the Dealer Fee for such Conduit with respect to such Related Commercial Paper. Nothing in this Agreement shall limit in any way the obligations of the Transferor to pay the amounts set forth in this Section 2.3. Any amounts received by the Agent on behalf of any Conduit or any Bank Investor pursuant to this Section 2.4 shall be paid by the Agent to the applicable Class Agent for the benefit of the related Conduit and/or the related Bank Investors, as applicable, at such account as such Class Agent shall designate to the Agent from time to time. Each Class Agent shall pay such amounts to the related Conduit and the related Bank Investors, as applicable, at such account as such Person shall designate to such Class Agent from time to time. SECTION 2.5. Allocations of Collections; Non-Liquidation Settlement and Reinvestment Procedures, Servicer Advances. (a) On each Determination Date, the Servicer shall allocate all Collections received during the preceding Collection Period as Finance Charge Collections or Principal Collections. Principal Collections shall be applied by the Servicer as described in subsection (b) below. On each Remittance Date, with respect to each Class, the product of (A) the daily average of the Buyers' Percentage Interest for such Class over the preceding Collection Period and (B) the aggregate Finance Charge Collections for such preceding Collection Period shall be applied, without duplication, by the Servicer as follows: (i) first, to the retention by the Servicer of any unreimbursed Servicer Advances made by the Servicer in respect of such Class for costs accrued with respect to such Collection Period and; (ii) second, to the Agent for the benefit of the Conduit or the Bank Investors of such Class, as applicable, the payment of any accrued and unpaid Carrying Costs for such Class for such Collection Period; (iii) third, if Sak's, Inc. or an Affiliate is not the Servicer, to the payment to the Servicer of such Class's Class Share of any Servicing Fee due and owing; (iv) fourth, to the payment of all amounts due and unpaid from the Transferor under Section 2.9(a) as a result of such Class's Class Share of dilutive items and the Buyer's Percentage Interest for such Class being greater than such Class's Class Share of the Maximum Buyer's Percentage Interest, which payment shall be treated as a portion of Principal Collections allocable to such Class and applied pursuant to Section 2.5(b) below; (v) fifth, with respect to any Remittance Date occurring on or after the Termination Date, to the payment of the Buyers' Percentage Factor for such Class of the outstanding balance of Receivables which have become Defaulted Receivables during such Collection Period, which payment shall be treated as a portion of Principal Collections allocable to such Class and applied pursuant to Section 2.5(b) below; (vi) sixth, to the extent any Finance Charge Collections remain after application in accordance with clauses (i) through (v) above, to the other Classes (on a pro rata basis based on the relation of the respective Net Investments of each such Class to the sum of the respective Net Investments of all such Classes; provided, that with respect to any Class for which all amounts in clauses (i) through (v) have been paid in full, such Class shall receive no Finance Charge Collections pursuant to this clause (vi) and such Class's Net Investment shall not be considered for purposes of this parenthetical) to be applied with respect to each such Class in accordance with clauses (i) through (v) above; (vii) seventh, if Sak's, Inc. or an Affiliate is the Servicer, to the retention by the Servicer of such Class's Class Share of any Servicing Fee due and owing; (viii) eighth, to the extent any Finance Charge Collections remain after application in accordance with clauses (i) through (vii) above, (A) if prior to the Termination Date such excess amounts shall be paid to the Transferor and (B) if on or after the Termination Date such excess amounts shall be paid to the Agent for the benefit of the Conduit or the Bank Investors of such Class, as applicable, in reduction of the Net Investment of such Class. On each Remittance Date, subject to Section 2.5(c), the product of (A) one minus the sum of the daily average of the Buyer's Percentage Interest for all Classes over the preceding Collection Period and (B) the aggregate Finance Charge Collections for the preceding Collection Period shall be remitted to the Transferor. (b) On each Remittance Date prior to the Termination Date, (i) the Servicer shall allocate to each Class the Buyers' Percentage Interest for such Class of Principal Collections received during the related Collection Period and not previously applied or accounted for and, at the Transferor's option, (A) pay such amount to the Transferor, for the benefit of the Conduit and/or the Bank Investors of such Class, and the Transferor shall apply such amount toward the purchase of additional undivided percentage interests in each Receivable pursuant to Section 2.2(b), or (B) pay such amount to the Agent for the benefit of the Conduit or the Bank Investors of such Class, as applicable, in reduction of the Net Investment for such Class and (ii) the Servicer shall pay to the Transferor the portion of such Principal Collections not allocated to any Transferred Interest and remaining after any reallocations pursuant to Section 2.5(c) below. On each Remittance Date on or subsequent to the Termination Date, the Servicer shall allocate to each Class the Buyers' Percentage Interest for such Class of all Principal Collections received during the related Collection Period and not previously applied or accounted for and pay such amount to the Agent for the benefit of the Conduit or the Bank Investors of such Class, as applicable, in reduction of the Net Investment for such Class. In the event the Termination Date occurs as a result of a Termination Event, the portion of such Principal Collections not allocated to the Transferred Interest and remaining after any reallocations pursuant to Section 2.5(c) below shall be distributed to the Agent, for the benefit of the Conduit or the Bank Investors of each Class, allocated to each Class, based on each Class's Class Share of such remaining Principal Collections, in reduction of the Net Investment for the related Class and, in the case of any other Termination Date, the portion of such Principal Collections not allocated to the Transferred Interest and remaining after any allocations pursuant to Section 2.5(c) below shall be distributed to the Transferor. (c) If on any Remittance Date, after giving effect to clauses (i) through (vi) of Section 2.5(a), an insufficiency exists for any Class with respect to the Buyers' Percentage Factor for such Class of Finance Charge Collections, then, in such event, on such Remittance Date such Class's Class Share of the amount of Finance Charge Collections distributable or allocable to the Transferor, and to the extent any such insufficiency continues to remain, such Class's Class Share of the amounts distributable to the Transferor pursuant to Section 2.5(b), shall be reduced by the amount of such insufficiency, and such amount(s) shall be applied as Finance Charge Collections allocable to the Transferred Interest for such Class and shall be applied and distributed with respect to such Class in accordance with the priority set forth in clauses (i) through (vi) of Section 2.5(a). (d) In the event that, on any date, any Conduit does not have sufficient funds to pay the Interest Component of such Conduit's matured or maturing Related Commercial Paper or any Dealer Fee due and payable by such Conduit on such day, the Servicer, acting upon written notice from the applicable Administrative Agent shall make an advance in an amount equal to such costs and any such Dealer Fee due and payable on such day (in respect of any such Class, a "Servicer Advance") and pay to the Agent for the benefit of such Conduit, the amount of such advance. (e) The Transferor shall have the option to designate a fixed or variable percentage (the "Discount Percentage") of up to 4% of all Receivables other than Receivables constituting Finance Charges and Receivables in Defaulted Accounts, created on and after any date of determination to be treated as finance charge receivables ("Discount Receivables") in accordance with the provisions of this Section 2.5(e), which percentage shall remain fixed and in effect until such time as the Transferor has provided a subsequent designation to the Class Agents. The Transferor shall have the option to increase the Discount Percentage to a percentage not greater than 4% or to reduce the Discount Percentage, provided that no such designation shall become effective that would cause a Termination Event to occur and the Servicer shall so certify to the Class Agents, the Conduits and the Bank Investors prior to any such change becoming effective. (f) Any amounts received by the Agent on behalf of any Conduit or any Bank Investor pursuant to this Section 2.5 shall be paid by the Agent to the applicable Class Agent for the benefit of the related Conduit and/or the related Bank Investors, as applicable, at such account as such Class Agent shall designate to the Agent from time to time. Each Class Agent shall pay such amounts to the related Conduit and the related Bank Investors, as applicable, at such account as such Person shall designate to such Class Agent from time to time. SECTION 2.6. Liquidation Settlement Procedures. If, on the Termination Date the Buyers' Percentage Interest for any Class is greater than such Class's Class Share of the Maximum Buyers' Percentage Interest then the Transferor shall immediately pay to the Agent, for the benefit of the Conduit or the Bank Investors of such Class, as applicable, an amount equal to the amount that, when applied in reduction of the Net Investment for such Class, will result in a Buyers' Percentage Interest for such Class less than or equal to such Class's Class Share of the Maximum Buyers' Percentage Interest. Any and all such amounts shall be paid by the Agent to the applicable Class Agent for the benefit of the related Conduit or the related Bank Investors, as applicable, and applied by such Class Agent to the reduction of the Net Investment for such Class. On each Remittance Date occurring on and following the Termination Date, Principal Collections shall be applied in accordance with Section 2.5(b). Following the date on which the Net Investment for a Class shall be reduced to zero and all other Aggregate Unpaids due to such Class have been paid in full, (i) the Servicer shall recompute the Buyers' Percentage Interest for such Class as zero, (ii) the Agent, on behalf of the Conduit and the Bank Investors of such Class, shall be considered to have reconveyed to the Transferor all of such Conduit's and such Bank Investors' right, title and interest in and to the Affected Assets (including the Transferred Interest for such Class), (iii) the Servicer shall pay to the Transferor such Class's Class Share of any remaining Collections set aside and held by the Servicer and (iv) the Agent on behalf of the Conduit and the Bank Investors of such Class, shall execute and deliver to the Transferor, at the Transferor's expense, such documents or instruments as are necessary to terminate such Conduit' s and such Bank Investors' respective interests in the Affected Assets. Any such documents shall be prepared by or on behalf of the Transferor. SECTION 2.7. Fees. The Transferor shall pay the following non-refundable fees: (a) On each Remittance Date, to each Conduit solely for its own account the Program Fee due to such Conduit, and to the Class Agents, for distribution to the Bank Investors of each Class, the Facility Fee related to such Class. (b) On the date of execution hereof, to each Administrative Agent solely for its own account, the Arrangement Fee due to such Administrative Agent. SECTION 2.8. Protection of Ownership Interest of the Conduits and the Bank Investors. (a) The Transferor agrees that it will from time to time, at its expense, promptly execute and deliver all instruments and documents and take all actions as may be necessary or as the Agent may reasonably request in order to perfect or protect the Transferred Interests of each Class or to enable the Agent, the Class Agents, the Conduits or the Bank Investors to exercise or enforce any of their respective rights hereunder. Without limiting the foregoing the Transferor will upon the request of the Agent or any Class Agent, in order to accurately reflect this purchase and sale transaction, execute and file such financing or continuation statements or amendments thereto or assignments thereof (as permitted pursuant to Section 10.7 hereof) as may be requested by them. The Transferor will, upon request of the Agent or any Class Agent obtain such additional search reports as the Agent or any Class Agent shall request. To the fullest extent permitted by applicable law, the Agent shall be permitted to sign and file continuation statements and amendments thereto and assignments thereof without the Transferor's signature. Photographic or other reproduction of this Agreement or any financing statement shall be sufficient as a financing statement. The Transferor agrees that it will, at the Transferor's expense, on or before the Closing Date, indicate clearly and unambiguously in its master data processing records and on any storage containers containing Records that an interest in each of the Receivables created in connection with the Accounts that has been transferred to the Agent for the benefit of the Conduits and the Bank Investors pursuant to this Agreement by affixing thereon the following legend: "AN INTEREST IN EACH OF THE RECEIVABLES IN THESE FILES HAS BEEN ASSIGNED TO NATIONSBANK, N.A., AS AGENT FOR THE BENEFIT OF CERTAIN INVESTORS AND FOR NATIONSBANK, N.A., AS A BANK INVESTOR PURSUANT TO THE TRANSFER AND ADMINISTRATION AGREEMENT DATED AS OF JUNE 30,1999, AS AMENDED FROM TIME TO TIME, AMONG SAKS CREDIT CORPORATION, SAKS INCORPORATED, NATIONSBANK, N.A. AND CERTAIN INVESTORS." The Transferor further agrees to deliver or to cause the Servicer to deliver to the Agent a computer file or microfiche list containing a true and complete list of all Accounts, identified by account number and by Receivable balance as of a date as near in time to the Cut-Off Date as is reasonably practicable. Such file or list shall be marked as the Account Schedule and Schedule A to this Agreement, delivered to the Agent as confidential and proprietary property of the Transferor, and is incorporated into and made a part of this Agreement. The Transferor will not change its name, identity or corporate structure (within the meaning of Section 9-402(7) of the UCC as in effect in the state in which the Transferor's principal business office is located), nor relocate its chief executive office or any office where Records are kept unless it shall have: (i) given the Agent at least thirty days prior notice thereof and (ii) prepared at Transferor's expense and delivered to the Agent all financing statements, instruments and other documents necessary to preserve and protect the Transferred Interest of each Class or reasonably requested by the Agent in connection with such change or relocation. Any filings under the UCC or otherwise that are occasioned by such change in name or location shall be made at the expense of the Transferor. SECTION 2.9. Deemed Collections, Application of Payments. (a) If on any day the Outstanding Principal Balance of a Receivable is either (x) reduced as a result of any defective, rejected or returned merchandise or services, any discount, credit, rebate, dispute, warranty claim, repossessed or returned goods, chargeback allowance or any billing adjustment or (y) reduced or canceled as a result of a setoff or offset in respect of any claim by any Person (whether such claim arises out of the same or a related transaction or an unrelated transaction) or (z) any other downward adjustments to the balance of such Receivable without receiving Collections therefor and before such Receivable becomes a Defaulted Receivable, the amount of such cancellation, reduction or adjustment shall thereafter be deducted from the aggregate Outstanding Principal Balance of the Receivables. (b) If on any day any of the representations or warranties in Article III was or becomes untrue with respect to a Receivable (whether on or after the date of any transfer of an interest therein to the Agent the Conduits or the Bank Investors as contemplated hereunder), such Receivable shall thereafter not be included in any calculation of the aggregate Outstanding Principal Balance of the Receivables. (c) On or before each Remittance Date, the Transferor will pay, with respect to each Class, to the Agent, for the benefit of the Conduit or the Bank Investors of such Class, as applicable, an amount equal to the lesser of (1) such Class's Class Share of the amount, if any, of cancellations, reductions or adjustments pursuant to Section 2.9(a) for the related Collection Period and (2) such Class's Class Share of the amount, if any, by which the Net Investment of the related Class would otherwise exceed the product of (A) such Class's Class Share of the Maximum Buyer's Percentage Interest on such Remittance Date and (B) the Net Receivables Balance on such Remittance Date (after giving effect to the adjustments of Sections 2.9(a) and (b) and to all other Collections with respect to the related Collection Period). Any amount paid pursuant to this Section 2.9(c) shall be treated as a Collection and allocated, with other Collections, in accordance with Section 2.5(a) on such Remittance Date. SECTION2.10. Payments and Computations, Etc. All amounts to be paid or deposited by the Transferor or the Servicer hereunder shall be paid or deposited in accordance with the terms hereof no later than 11:00 a.m. (New York City time) on the day when due in immediately available funds; if such amounts are payable to or for the benefit or account of a Conduit or a Bank Investor they shall be paid to or deposited with the Agent in the account indicated in Section 10.3 hereof, until otherwise notified by the Agent or the applicable Class Agent. The Transferor shall, to the extent permitted by law, pay, with respect to each Class, to the Agent, for the benefit of the Conduit or the Investors of such Class, as applicable, upon demand, interest on all amounts not paid or deposited when due hereunder at a rate equal to 2% per annum plus the Base Rate. All computations of interest and all per annum fees hereunder shall be made on the basis of a year of 360 days for the actual number of days (including the first but excluding the last day) elapsed. Any computations by the Agent or the applicable Class Agent of amounts payable by the Transferor hereunder shall be binding upon the Transferor absent manifest error. SECTION 2.11. Reports. On each Determination Date, the Servicer shall prepare and forward to the Agent, each Class Agent and each Administrative Agent (i) an Investor Report as of the end of the last day of the immediately preceding Collection Period and (ii) such other information as the Agent, each Class Agent or each Administrative Agent may reasonably request. SECTION 2.12. Collection Account. There shall be established by the Agent on the day of the initial Transfer hereunder and maintained, for the benefit of the Conduits and the Bank Investors, with the Agent a segregated account (the "Collection Account"), bearing a designation clearly indicating that the funds deposited therein are held for the benefit of the Conduits and the Bank Investors. On and after the occurrence of (i) a Servicer Default or (ii) a Termination Event the Servicer shall remit daily and before the close of business on the second Business Day following receipt to the Collection Account all Collections received with respect to any Receivables. Funds on deposit in the Collection Account (other than investment earnings) shall be invested by the Agent in Eligible Investments that will mature so that such funds will be available before the Remittance Date following such investment. On each Remittance Date, all interest and earnings (net of losses and investment expenses) on funds on deposit in the Collection Account shall be retained in the Collection Account and be available to make any distributions required to be made pursuant to Section 2.5(a). On the date on which the Net Investment for each Class and all other Aggregate Unpaids for each Class have been paid in full, any funds remaining on deposit in the Collection Account shall be paid to the Transferor. SECTION 2.13. Sharing of Payments, Etc. If a Conduit or a Bank Investor (for purposes of this Section only, being a "Recipient") shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of setoff, or otherwise) on account of Transferred Interest owned by it (other than pursuant to Section 2.6, or Article VIII and other than as a result of the differences in the timing of the applications of Collections pursuant to Section 2.4 or 2.5) in excess of its ratable share of payments on account of Transferred Interest obtained by the Conduits and/or the Bank Investors entitled thereto, such Recipient shall forthwith purchase from the Conduits and/or the Bank Investors entitled to a share of such amount participations in the Transferred Interests owned by such Persons as shall be necessary to cause such Recipient to share the excess payment ratably with each such other Person entitled thereto; provided, however, that if all or any portion of such excess payment is thereafter recovered from such Recipient, such purchase from each such other Person shall be rescinded and each such other Person shall repay to the Recipient the purchase price paid by such Recipient for such participation to the extent of such recovery, together with an amount equal to such other Person's ratable share (according to the proportion of (a) the amount of such other Person's required payment to (b) the total amount so recovered from the Recipient) of any interest or other amount paid or payable by the Recipient in respect of the total amount so recovered. SECTION 2.14. Right of Setoff. Without in any way limiting the provisions of Section 2.13, each of each Conduit and each Bank Investor is authorized (in addition to any other rights it may have) at any time after the occurrence of the Termination Date or during the continuance of a Potential Termination Event to set-off, appropriate and apply (without presentment demand, protest or other notice which are hereby expressly waived) any deposits and any other indebtedness held or owing by any such Conduit or any such Bank Investor to, or for the account of, the Transferor against the amount of the Aggregate Unpaids owing by the Transferor to such Person (even if contingent or unmatured). ARTICLE III REPRESENTATIONS AND WARRANTIES SECTION 3.1. Representations and Warranties of the Transferor. The Transferor represents and warrants to the Agent, each Class Agent each Conduit and each Bank Investor that: (a) Corporate Existence and Power. The Transferor is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation and has all corporate power and all material governmental licenses, authorizations, consents and approvals required to carry on its business in each jurisdiction in which its business is now conducted. The Transferor is duly qualified to do business in, and is in good standing in, every other jurisdiction in which the nature of its business requires it to be so qualified, except where the failure to be so qualified or in good standing would not have a Material Adverse Effect. (b) Corporate and Governmental Authorization; Contravention. The execution, delivery and performance by the Transferor of this Agreement, each Fee Letter, the Certificate, the Transfer Certificate and the other Transaction Documents to which the Transferor is a party are within the Transferor's corporate powers, have been duly authorized by all necessary corporate action, require no action by or in respect of, or filing with, any Official Body or official thereof (except as contemplated by Section 2.8 hereof), and do not contravene, or constitute a default under, any provision of applicable law, rule or regulation or of the Certificate of Incorporation or Bylaws of the Transferor or of any agreement, judgment, injunction, order, writ, decree or other instrument binding upon the Transferor or result in the creation or imposition of any Adverse Claim on the assets of the Transferor or any of its Subsidiaries (except as contemplated by Section 2.8 hereof). (c) Binding Effect. Each of this Agreement, each Fee Letter, the Certificate and the other Transaction Documents to which the Transferor is a party constitutes, and the Transfer Certificate upon payment of the Transfer Price set forth therein will constitute, the legal, valid and binding obligation of the Transferor, enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium or other similar laws affecting the rights of creditors generally. (d) Perfection. Immediately preceding each Transfer, the Transferor shall be the owner of all of the Receivables, free and clear of all Adverse Claims. Within ten days following any Transfer and each recomputation of any Transferred Interest all financing statements and other documents required to be recorded or filed in order to perfect and protect such Transferred Interest against all creditors of and purchasers from the Transferor will have been duly filed in each filing office necessary for such purpose and all filing fees and taxes, if any, payable in connection with such filings shall have been paid in full. (e) Accuracy of Information. All information heretofore furnished by the Transferor to any Conduit, any Bank Investor, the Agent, any Class Agent or any Administrative Agent for purposes of or in connection with this Agreement or any transaction contemplated hereby is, and all such information hereafter furnished by the Transferor to any such Person will be, true and accurate in every material respect, on the date such information is stated or certified. (f) Tax Status. The Transferor has filed all tax returns (federal, state and local) required to be filed and has paid or made adequate provision for the payment of all taxes, assessments and other governmental charges. (g) Action, Suits. Except as set forth in Exhibit H hereof, there are no actions, suits or proceedings pending, or to the knowledge of the Transferor threatened, against or affecting the Transferor or any Affiliate of the Transferor or their respective properties, in or before any court, arbitrator or other body, which may, individually or in the aggregate, have a Material Adverse Effect. (h) Use of Proceeds. No proceeds of any Transfer will be used by the Transferor to acquire any "Margin Stock" as defined in Regulations T, U and X of the Federal Reserve Board. (i) Place of Business. The principal place of business and chief executive office of the Transferor is located at the address of the Transferor indicated in Section 11.3 hereof and the offices where the Transferor keeps all its Records are located at the address(es) described on Exhibit I or at such other locations notified to the Agent in accordance with Section 2.8 hereof in jurisdictions where all action required by Section 2.8 hereof has been taken and completed. (j) Good Title. Upon each Incremental Transfer and each recomputation. of any Transferred Interest of a Class, the Agent on behalf of the Conduits and the Bank Investors shall acquire or maintain, as applicable a valid and perfected first priority undivided percentage ownership interest to the extent of such Transferred Interest or a first priority perfected security interest in the Receivables existing on the date of such Transfer and recomputation and in the Related Security and Collections with respect thereto free and clear of any Adverse Claim. (k) Tradenames, Etc. As of the date hereof: (i) the Transferor has only the subsidiaries and divisions listed on Exhibit J hereto and (ii) the Transferor has, within the last five years, operated only under the tradenames identified in Exhibit J hereto, and, within the last five years, has not changed its name or organizational form, merged with or into or consolidated with any other corporation or business entity (except Younkers Credit Corporation which was merged with and into the Transferor in 1998) or been the subject of any proceeding under Title 11, United States Code (Bankruptcy). (1) Nature of Receivables. Each Receivable represented by the Transferor or the Servicer to be an Eligible Receivable (including in any Investor Report or other report delivered pursuant to Section 2.11 hereof), in fact satisfies at such time the definition of "Eligible Receivable" set forth herein and is an "eligible asset" as defined in Rule 3a-7 under the Investment Company Act of 1940, as amended. (m) Coverage Requirement. Amount of Receivables. The Buyer's Percentage Interest for each Class does not exceed the Maximum Buyer's Percentage Interest for such Class. As of the Cut-Off Date, the aggregate Outstanding Principal Balance of the Receivables in existence was at least $______________. (n) Credit Guidelines. Since June 2, 1999, there have been no material changes in Saks' Credit Guidelines other than as permitted hereunder. (o) Collections and Servicing, Material Adverse Effect. Since June 2, 1999, there has been no material adverse change in the ability of the Servicer (to the extent it is an Affiliate of the Transferor) to service and collect the Receivables or a Material Adverse Effect. (p) No Termination Event. No event has occurred and is continuing and no condition exists which constitutes a Termination Event or a Potential Termination Event. (q) Not an Investment Company. The Transferor is not, and is not controlled by, an "investment company" within the meaning of the Investment Company Act of 1940, as amended, or is exempt from all provisions of such Act. (r) ERISA. Each of the Transferor and its ERISA Affiliates is in compliance in all material respects with ERISA and no lien exists in favor of the Pension Benefit Guaranty Corporation on any of the Receivables. (s) Bulk Sales. No transaction contemplated hereby requires compliance with any bulk sales act or similar law. (t) Year 2000 Compliance. The Transferor has initiated a review and assessment of all computer applications (including, but not limited to those of its suppliers, vendors, customers and any third party servicers), which are related to or involved in the origination, collection, management or servicing of the Receivables (the "Receivables Systems") and presently believes that such Receivables Systems are reasonably expected to be able to perform properly in all material respects date-sensitive functions for all dates before and after January 1, 2000 (that is be "Year 2000 Compliant"). Any document, instrument, certificate or written notice delivered to the Company hereunder shall be deemed a representation and warranty by the Transferor. SECTION 3.2. Representations and Warranties of Saks. Saks represents and warrants to the Agent each Class Agent each Conduit and each Bank Investor that'. (a) Corporate Existence and Power. Saks is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation and has all corporate power and all material governmental licenses, authorizations, consents and approvals required to carry on its business in each jurisdiction in which its business is now conducted. The Servicer is duly qualified to do business in, and is in good standing in, every other jurisdiction in which the nature of its business requires it to be so qualified, except where the failure to be so qualified or in good standing would not have a Material Adverse Effect. (b) Corporate and Governmental Authorization; Contravention. The execution, delivery and performance by Saks of this Agreement and the other Transaction Documents to which it is a party are within Saks' corporate powers, have been duly authorized by all necessary corporate action, require no action by or in respect of, or filing with, any governmental body, agency or official (except as contemplated by Section 2.8), and do not contravene, or constitute a default under, any provision of applicable law or regulation or of the charter or Bylaws of Saks or of any agreement, judgment, injunction, order, decree or other instrument binding upon Saks or result in the creation or imposition of any lien on assets of Saks or any of its Subsidiaries (except as contemplated by Section 2.8. (c) Binding Effect. Each of this Agreement and each other Transaction Document to which it is a party constitutes the legal, valid and binding obligation of Saks enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, moratorium or other similar laws affecting the rights of creditors generally. (d) Accuracy of Information. All information heretofore furnished by Saks in writing to the Transferor, any Conduit, any Bank Investor, the Agent, any Class Agent or any Administrative Agent for purposes of or in connection with this Agreement and each other Transaction Document to which it is a party, or any transaction contemplated hereby or thereby is, and all such information hereafter furnished by Saks to any such Person will be, true and accurate in every material respect on the date such information is stated or certified. (e) Tax Status. Saks has filed all tax returns (federal, state and local) required to be filed and has paid or made adequate provision for the payment of all taxes, assessments and other governmental charges except those taxes, assessments and governmental charges that Saks is challenging in good faith and with respect to which adequate reserves have been established. (f) Action, Suits. Except as set forth in Exhibit H attached hereto (as such exhibit may be amended from time to time), there are no actions, suits or proceedings pending, or to the knowledge of Saks threatened, against or seeking to prevent the issuance of the Certificate or the consummation of any of the transactions contemplated by this Agreement, or otherwise affecting Saks or any Affiliate of Saks or their respective properties, in or before any court, arbitrator or other body, which may, individually or in the aggregate, have a Material Adverse Effect. (g) Collections and Servicing. Since June 2, 1999, there has been no material adverse change in the ability of Saks to service and collect the Receivables. (h) Not an Investment Company. Saks is not an "investment company" within the meaning of the Investment Company Act of 1940, as amended, or is exempt from all provisions of such Act. (i) ERISA. Saks is in compliance in all material respects with ERISA. (j) Year 2000 Compliance. Saks has initiated a review and assessment of all computer applications (including, but not limited to those of its suppliers, vendors, customers and any third party servicers), which are related to or involved in the origination, collection, management or servicing of the Receivables (the "Receivables System") and presently believes that such Receivable Systems are reasonably expected to be able to perform properly in all material respects date-sensitive functions for all dates before and after January 1, 2000 (that is be "Year 2000 Compliant"). (k) Collections and Servicing, Material Adverse Effect. Since June 2, 1999, there has been no material adverse change in the ability of the Servicer to service and collect the Receivables or any other Material Adverse Effect relating to the Servicer. ARTICLE IV CONDITIONS PRECEDENT SECTION 4.1. Conditions to Closing. On or before the date of execution hereof, the Transferor shall deliver to the Agent the following documents, instruments and fees all of which shall be in form and substance acceptable to the Agent and to each Class Agent: (a) A copy of the resolutions of the Board of Directors of the Transferor, certified by its Secretary or Assistant Secretary, approving the execution, delivery and performance by the Transferor of this Agreement and the other Transaction Documents to which the Transferor is a party. (b) A copy of the resolutions of the Board of Directors of Saks, certified by its Secretary or Assistant Secretary approving the execution, delivery and performance by Saks of the Saks Guaranty and the other Transaction Documents to which Saks is a party. (c) The Articles of Incorporation of the Transferor certified by the Secretary of State or other similar official of the State of Delaware dated a date reasonably near to the date hereof. (d) The Articles of Incorporation of Saks, certified by the Secretary of State or other similar official of the State of Tennessee dated a date reasonably near to the date hereof. (e) A Good Standing Certificate for the Transferor issued by the Secretary of State or a similar official of the State of Delaware and certificates of qualification as a foreign corporation issued by the Secretaries of State or other similar officials of each jurisdiction where such qualification is material to the transactions contemplated by this Agreement and the other Transaction Documents, in each case, dated a date reasonably near to the date hereof. (f) A Good Standing Certificate for Saks issued by the Secretary of State or a similar official of the State of Tennessee and certificates of qualification as a foreign corporation issued by the Secretary of State or a similar official of the State of Alabama, dated a date reasonably near to the date hereof (g) A Certificate of the Secretary or an Assistant Secretary of the Transferor substantially in the form of Exhibit L attached hereto. (h) A Certificate of the Secretary or an Assistant Secretary of Saks, substantially in the form of Exhibit L attached hereto. (i) Copies of proper financing statements (Form UCC-1), dated a date reasonably near to the date hereof, naming the Transferor as the debtor in favor of the Agent, for the benefit of the Conduits and the Bank Investors, as secured party, or other similar instruments or documents as may be necessary or in the reasonable opinion of the Agent desirable under the UCC of all appropriate jurisdictions or any comparable law to perfect the Agent's undivided percentage interest in all Receivables and the Related Security and Collections relating thereto. (j) Copies of proper financing statements (Form UCC-1), dated a date reasonably near to the date hereof naming [each of] NBGL and [Saks Fifth Avenue] as the seller/debtor in favor of the Transferor as buyer/secured party and the Agent, for the benefit of the Conduits and the Bank Investors, as assignee of the secured party or other similar instruments or documents as may be necessary or in the reasonable opinion of the Agent desirable under the UCC of all appropriate jurisdictions or any comparable law to perfect the Transferor's ownership interest in all Receivables. (k) Copies of proper financing statements (Form UCC-3), if any, necessary to terminate all security interests and other rights of any person in Receivables previously granted by Transferor or NBGL. (1) Certified copies of request for information or copies (Form UCC-11) (or a similar search report certified by parties acceptable to the Agent) dated a date reasonably near to the date hereof listing all effective financing statements that name the Transferor, NBGL and [Saks Fifth Avenue] (under their present names and any previous names) as debtor and that are filed in jurisdictions in which the filings were made pursuant to items (i) and (j) above, together with copies of such financing statements (none of which shall cover any Receivables, Accounts or Account Agreements). (m) One or more legal opinions of Alston & Bird, LLP, special counsel to the Transferor and Saks, in form and substance satisfactory to the Agent and each Class Agent addressing (i) nonconsolidation matters and (ii) the effectiveness of the interest in the receivables granted or conveyed by NBGL to the Transferor in the event of the insolvency, liquidation or receivership of NBGL [a so-called "FIREA opinion"]. (n) An opinion of Alston & Bird, LLP, special counsel to the Transferor and Saks, covering perfection and enforceability matters, and an opinion from Charles Hansen, Vice President and Associate General Counsel of Saks, with respect to certain corporate matters, in form and substance satisfactory to the Agent and each Class Agent. (o) A computer tape setting forth, as of the Cut-Off Date, all of the Receivables, the Outstanding Principal Balances thereon as of the Cut-Off Date and such other information as the Agent may reasonably request. (p) An executed copy of this Agreement, each Fee Letter, the Saks Guaranty and each of the other Transaction Documents to be executed by Saks, the Servicer or the Transferor. (q) The Transfer Certificate, duly executed by the Transferor. (r) The Certificate, duly executed by the Transferor and appropriately completed. (r) The Arrangement Fees in accordance with Section 2.7(b). (t) Such other documents, instruments, certificates and opinions as the Agent shall reasonably request. ARTICLE V COVENANTS SECTION 5.1. Affirmative Covenants of Transferor. At all times from the date hereof to the later to occur of (i) the Termination Date or (ii) the date on which the Net Investment for each Class and all other Aggregate Unpaids for each Class have been paid in full, in cash, unless the Agent shall otherwise consent in writing: (a) Financial Reporting. The Transferor will maintain, for itself and each of its Subsidiaries, if any, a system of accounting established and administered in accordance with GAAP, and furnish to the Agent and each Class Agent: (i) Annual Reporting. Within one hundred days after the close of the Transferor's and the Servicer's fiscal years, (beginning with the fiscal year ending January 31, 1999) audited financial statements, prepared in accordance with GAAP on a consolidated basis for (x) the Transferor and (y) for the Servicer and its Subsidiaries, in each case, including balance sheets as of the end of such period, related statements of operations, shareholder's equity and cash flows, accompanied by an unqualified audit report certified by independent certified public accountants, acceptable to the Agent, prepared in accordance with GAAP and, upon the Agent's request any management letter prepared by said accountants and accompanied by a certificate of the Chief Financial Officer, Chairman, President, Treasurer or any Executive Vice President of the Transferor stating that no Termination Event or Potential Termination Event exists, or, if any Termination Event or Potential Termination Event exists, stating the nature and status thereof. (ii) Quarterly Reporting. Within fifty days after the close of the first three quarterly periods of each of the Transferor's and the Servicer's fiscal years, for (x) the Transferor and (y) for the Servicer's and its Subsidiaries, in each case, consolidated unaudited balance sheets as at the close of each such period and consolidated related statements of operations and cash flows for the period from the beginning of such fiscal year to the end of such quarter, all certified by its Chief Financial Officer, Chairman, President Treasurer or any Executive Vice President. (iii) Compliance Certificate. Together with the financial statements required hereunder, a compliance certificate signed by the Chief Financial Officer, Chairman, President Treasurer or any Executive Vice President of the Transferor or the Servicer, as applicable, stating that (x) the attached financial statements have been prepared in accordance with GAAP and accurately reflect the financial condition of the Transferor or the Servicer, as applicable, and (y) to the best of such Person's knowledge, no Termination Event or Potential Termination Event exists, or if any Termination Event or Potential Termination Event exists, stating the nature and status thereof. (iv) Shareholders Statements and Reports. Promptly upon the furnishing thereof to the shareholders of the Servicer, copies of all financial statements, reports and proxy statements so furnished. (v) S.E.C. Filings. Promptly upon the effectiveness thereof, copies of all effective registration statements (excluding any registration statements on Form S-8 or any successor thereto), and promptly upon the filing thereof, copies of annual, quarterly, monthly or other regular reports which the Servicer or any Subsidiary of the Servicer files with the Securities and Exchange Commission. (vi) Notice of Termination Events or Potential Termination Events. As soon as possible, and in any event within two days after the occurrence of each Termination Event or each Potential Termination Event, a statement of the Chief Financial Officer or Chief Accounting Officer of the Transferor setting forth details of such Termination Event or Potential Termination Event and the action that the Transferor proposes to take with respect thereto. (vii) Change in Credit Guidelines and Debt Ratings. Within thirty days after the date any material change in or amendment to the Credit Guidelines is made, a copy of the Credit Guidelines then in effect indicating such change or amendment. Within fifteen days after the date of any change in the Servicer's public or private debt rating from any rating agency that has been requested by the Servicer to provide such rating, if any, a written certification of the Servicer's public and private debt ratings after giving effect to any such change. (viii) Credit Guidelines. Within ten Business Days of the request of the Agent or any Class Agent, a complete copy of the Credit Guidelines then in effect. (ix) ERISA. Promptly after the filing or receiving thereof, copies of all reports and notices with respect to any Reportable Event (as defined in Article IV of ERISA) which the Transferor, any ERISA Affiliate of the Transferor files under ERISA with the Internal Revenue Service, the Pension Benefit Guaranty Corporation or the U.S. Department of Labor or which the Transferor or any ERISA Affiliates of the Transferor receives from the Internal Revenue Service, the Pension Benefit Guaranty Corporation or the U.S. Department of Labor. (x) Other Information. Such other information (including non-financial information) as the Agent, any Class Agent or any Administrative Agent may from time to time reasonably request with respect to Saks, the Transferor or any Subsidiary of any of the foregoing. (b) Conduct of Business. The Transferor will carry on and conduct its business in substantially the same manner and in substantially the same fields of enterprise as it is presently conducted and do all things necessary to remain validly existing and in good standing in its jurisdiction of incorporation and maintain all requisite authority to conduct its business in each jurisdiction in which its business is conducted. (c) Compliance with Laws. The Transferor will comply with all laws, rules, regulations, orders, writs, judgments, injunctions, decrees or awards to which it or its respective properties may be subject. (d) Furnishing of Information and Inspection of Records. The Transferor will furnish to the Agent or any Class Agent from time to time such information with respect to the Receivables as such Person may reasonably request including, without limitation, listings identifying the Obligor and the Outstanding Principal Balance for each Receivable. The Transferor will at any time and from time to time during regular business hours permit the Agent any Class Agent or their respective agents or representatives, (i) to examine and make copies of and take abstracts from all Records and (ii) to visit the offices and properties of the Transferor for the purpose of examining such Records, and to discuss matters relating to Receivables or the Transferor's performance hereunder and under the other Transaction Documents to which such Person is a party with any of the officers, directors, employees or independent public accountants of the Transferor having knowledge of such matters. (e) Keeping of Records and Books of Account. The Transferor will maintain and implement administrative and operating procedures (including without limitation, an ability to recreate records evidencing Receivables in the event of the destruction of the originals thereof), and keep and maintain, all documents, books, records and other information reasonably necessary or advisable for the collection of all Receivables (including, without limitation, records adequate to permit the daily identification of each new Receivable and all Collections of and adjustments to each existing Receivable). The Transferor will give the Agent and each Class Agent notice of any material change in the administrative and operating procedures of the Transferor referred to in the previous sentence. (f) Performance and Compliance with Accounts. The Transferor, at its expense, will timely and fully perform and comply with all material provisions, covenants and other promises required to be observed by the Transferor under the Accounts related to the Receivables. (g) Credit Guidelines. The Transferor will comply in all material respects with the Credit Guidelines in regard to each Receivable and the related Account. (h) Collections Received. The Transferor will hold in trust, and deposit immediately, but in any event not later than the close of business on the second Business Day following its receipt thereof, to the Collection Account all Collections received from time to time by the Transferor, as the case may be. (i) Sale Treatment. The Transferor will not account for (other than for tax purposes) or otherwise treat the transactions contemplated hereby in any manner other than a sale of an undivided percentage ownership interest in the Receivables by the Transferor to the Conduits and/or the Bank Investors, as applicable. In addition, the Transferor shall, and shall cause Saks or any other direct or indirect parent of the Transferor to, disclose (in a footnote or otherwise) in all of its respective financial statements (including any such financial statements consolidated with any other Persons' financial statements) the existence and nature of the transaction contemplated hereby and the interest of the Transferor (in the case of any such parent's financial statements), the Conduits and the Bank Investors in the Affected Assets. (j) Separate Business. The Transferor shall at all times (a) to the extent the Transferor's office is located in the offices of Saks or any Affiliate of Saks, pay fair market rent for its executive office space located in the offices of Saks or any Affiliate of Saks, (b) have at all times at least two members of its board of directors who are not and, within the immediately preceding two years, have not been employees, officers or directors of Saks or any Affiliate of Saks or of any major creditor of Saks or any Affiliate of Saks and are persons who are familiar and have experience with asset securitization, (c) maintain the Transferor's books, financial statements, accounting records and other corporate documents and records separate from those of Saks or any other entity, (d) not commingle the Transferor's assets with those of Saks or any other entity, (e) act solely in its corporate name and through its own authorized officers and agents, (f) make investments directly or through brokers engaged and paid by the Transferor or its agents (provided that if any such agent is an Affiliate of the Transferor it shall be compensated at a fair market rate for its services), (g) separately manage the Transferor's liabilities from those of Saks or any Affiliates of Saks and pay its own liabilities, including all administrative expenses, from its own separate assets, and (h) pay from the Transferor's assets all obligations and indebtedness of any kind incurred by the Transferor. The Transferor shall abide by all corporate formalities, including the maintenance of current minute books and the holding of regular board of directors meetings, and the Transferor shall cause its financial statements to be prepared in accordance with GAAP in a manner that indicates the separate existence of the Transferor and its assets and liabilities. The Transferor shall (i) pay all its liabilities, (ii) not assume the liabilities of Saks or any Affiliate of Saks, (iii) not lend funds or extend credit to Saks or any Affiliate of Saks except pursuant to the purchase of accounts receivable, (iv) not guarantee the liabilities of Saks or any Affiliates of Saks and (v) not own the stock of, or any other beneficial interest in, any subsidiaries or any other entity. The officers and directors of the Transferor (as appropriate) shall make decisions with respect to the business and daily operations of the Transferor independent of, and not dictated by, any controlling entity. The Transferor shall not engage in any business not permitted by its Certificate of Incorporation as in effect on the Closing Date. (k) Corporate Documents. The Transferor shall not amend, alter, change or repeal any Articles of its Articles of Incorporation without the prior written consent of the Agent. (1) Year 2000 Compliance. The Transferor will promptly notify the Agent (and the Agent shall forward such notice to each Class Agent) in the event the Transferor discovers or determines that any computer application (including those of its suppliers, vendors and customers) that is necessary for the origination, collection, management, or servicing of the Receivables will not be Year 2000 Compliant on or before September 1, 1999 and thereafter. The Transferor will deliver simultaneously with any quarterly or annual financial statements or reports to be delivered under this Agreement, a letter or other statement signed by an appropriate officer that to the knowledge of such officer, no material event problems or conditions have occurred which would prevent or delay in any material respect the Transferor's plan to become Year 2000 Compliant. SECTION 5.2. Negative Covenants of the Transferor. During the term of this Agreement, unless the Agent and each Class Agent shall otherwise consent in writing: (a) No Sales, Liens, Etc. Except as otherwise provided herein, the Transferor will not sell, assign (by operation of law or otherwise) or otherwise dispose of, or create or suffer to exist any Adverse Claim upon (or the filing of any financing statement) or with respect to (i) any of the Affected Assets, or (ii) any account in which Collections may be deposited, or assign any right to receive income in respect thereof. (b) No Extension or Amendment of Receivables. Except as otherwise permitted in this Section 5.2 and in Section 6.2 hereof, the Transferor will not extend, amend or otherwise modify the terms of any Receivable, or amend, modify or waive any term or condition of any Account related thereto. The Transferor further covenants that, except as otherwise required by any Requirement of Law, it shall not and shall not cause, give consent or otherwise permit the Servicer at any time to, reduce the periodic finance charges assessed on any Receivable or other fees on any Account if, as a result of such reduction, the reasonable expectation of the Net Portfolio Yield as of such date would be less than 1.00% and unless (a) such reduction is made applicable to the comparable segment of the consumer revolving credit accounts owned and serviced by the Transferor or the Servicer, and their respective Affiliates, as applicable that have characteristics the same as, or substantially similar to, the Accounts that are the subject of such change or (b) if it does not own such a comparable segment, it will not make any such change with the intent to materially benefit itself over any Conduit or any Bank Investor. (c) Performance of Account Agreements. The Transferor will comply with and perform its obligations under the applicable Account Agreements, if any, relating to the Accounts and the Credit Guidelines except insofar as any such failure to comply or perform would not materially and adversely affect the rights of any Conduit the Agent, or any Bank Investor in the Receivables or the collectability of the Receivables. The Transferor shall not change the terms and provisions of the Account Agreements or the Credit Guidelines in any respect (including, without limitation, the calculation of the amount and the timing of uncollectible Receivables) except to the extent (a) such change is made applicable to the comparable segment of the consumer revolving credit accounts owned and serviced by the Transferor or the Servicer, and their respective Affiliates, as applicable that have characteristics the same as, or substantially similar to, the Accounts that are the subject of such change or (b) if it does not own such a comparable segment, it will not make any such change with the intent to materially benefit itself over any Conduit, the Agent, or any Bank Investor, and such change does not materially and adversely affect the rights of any Conduit, the Agent or any Bank Investor in the Receivables or the collectability of the Receivables. References to the Receivables in this paragraph shall be deemed to refer to the Receivables in the aggregate. (d) No Change in Business or Credit Guidelines. The Transferor will not make any change in the character of its business or in the Credit Guidelines, which change would, in either case, impair the collectability of any substantial portion of the Receivables or otherwise result in a Material Adverse Effect. (e) No Mergers, Etc. The Transferor will not (i) consolidate or merge with or into any other Person (except any Subsidiary of Saks that is a special purpose entity designed to be a bankruptcy- remote financing vehicle where the successor entity, if not the Transferor, assumes the obligations of the Transferor hereunder) or (ii) sell, lease or transfer all or substantially all of its assets to any other Person except in securitization transactions in the ordinary course of business. (f) Change of Name, Etc. The Transferor will not change its name, identity or structure or the location of its chief executive office, unless at least 10 days before the effective date of any such change the Transferor delivers to the Agent such documents, instruments or agreements, executed by the Transferor as are necessary to reflect such change and to continue the perfection of the Agent's ownership interests or security interests in the Affected Assets. (g) Other Debt. Except as provided for herein, the Transferor will not create, incur, assume or suffer to exist any indebtedness whether current or funded, or any other liability other than (i) indebtedness of the Transferor representing fees, expenses and indemnities arising hereunder, (ii) except in connection with the purchase of accounts receivable and (iii) other indebtedness incurred in the ordinary course of its business in an amount not to exceed $9,750 at any time outstanding, to be past due. (h) ERISA Matters. The Transferor will not (i) engage or permit any of its ER1SA Affiliates to engage in any prohibited transaction (as defined in Section 4975 of the Code and Section 406 of ERISA) for which an exemption is not available or has not previously been obtained from the U.S. Department of Labor; (ii) permit to exist any accumulated funding deficiency (as defined in Section 302(a) of ERISA and Section 412(a) of the Code) or funding deficiency with respect to any Benefit Plan other than a Multiemployer Plan; (iii) fail to make any payments to any Multiemployer Plan that the Transferor or any ERISA Affiliate of the Transferor is required to make under the agreement relating to such Multiemployer Plan or any law pertaining thereto; (iv) terminate any Benefit Plan so as to result in any liability; or (v) permit to exist any occurrence of any reportable event described in Title IV of ERISA which represents a material risk of a liability to the Transferor or any ERISA Affiliate of the Transferor under ERISA or the Code. SECTION 5.3. Minimum Net Worth of Transferor. On or after the Closing Date, the Transferor shall at all times have a Net Worth of at least $10,000,000. SECTION 5.4. Covenants of the Servicer. At all times from the date hereof to the later to occur of (i) the Termination Date or (ii) the date on which the Net Investment for each Class and all other Aggregate Unpaids for each Class have been paid in full, in cash, the Servicer covenants that unless the Agent and each Class Agent shall otherwise consent in writing: (a) Compliance with Requirements of Law. The Servicer shall duly satisfy its obligations in all material respects on its part to be fulfilled under or in connection with each Receivable and the related Account, will maintain in effect all material qualifications required under Requirements of Law in order to service properly each Receivable and the related Account and will comply in all material respects with all other Requirements of Law in connection with servicing each Receivable and the related Account the failure to comply with which would have a material adverse effect on the Conduits or the Bank Investors. (b) No Rescission or Cancellation. The Servicer shall not permit any rescission or cancellation of a Receivable except as ordered by a court of competent jurisdiction or other Governmental Authority or in the ordinary course of its business and in accordance with the Credit Guidelines. (c) Protection of Rights. The Servicer shall take no action, nor omit to take any action, which would impair the rights of the Agent, any Conduit or any Bank investor in any Receivable or the related Account. (d) All Consents Required. All approvals, authorizations, consents, orders or other actions of any Person or of any governmental body or official required in connection with the execution and delivery by the Servicer of this Agreement, the performance by the Servicer of the transactions contemplated by this Agreement and the fulfillment by the Servicer of the terms hereof, have been obtained. (e) Custodian. The Servicer will, at its own cost and expense, (i) maintain the books and records with respect to the Accounts and the Receivables and copies of all documents relating to each Account as custodian for the Conduits and the Bank Investors and (ii) clearly and unambiguously mark such books and records that indicate the Receivables have been sold to the Transferor and simultaneously assigned to the Agent, for benefit of the Conduits and the Bank Investors, pursuant to this Agreement. (f) No Extension or Amendment of Receivables. Except as otherwise permitted in Sections 5.2 and 6.2 hereof, the Servicer will not extend, amend or otherwise modify the terms of any Receivable, or amend, modify or waive any term or condition of any Account related thereto. The Servicer further covenants that, except as otherwise required by any Requirement of Law, it shall not reduce the periodic finance charges assessed on any Receivable or other fees on any Account if, as a result of such reduction, the reasonable expectation of the Net Portfolio Yield as of such date would be less than 1.00% and unless (a) such reduction is made applicable to the comparable segment of the consumer revolving credit accounts owned and serviced by the Servicer that have characteristics the same as, or substantially similar to, the Accounts that are the subject of such change or (b) if it does not own such a comparable segment, it will not make any such change with the intent to materially benefit the Servicer or any Affiliate of the Servicer over any Conduit or any Bank Investor. (g) No Change in Business. The Servicer will not make any change in the character of its business which would impair the collectability of any Receivable or otherwise result in a Material Adverse Effect. (h) No Mergers, Etc. Saks shall not (i) consolidate with or merge into any other Person unless Saks shall be the surviving corporation or (ii) sell, lease or transfer substantially all of its assets except to a wholly owned subsidiary of Saks. (i) Year 2000 Compliance. The Servicer will promptly notify the Agent (and the Agent shall forward such notice to each Class Agent) in the event the Servicer discovers or determines that any computer application (including those of its suppliers, vendors and customers) that is necessary for the origination, collection, management or servicing of the Receivables will not be Year 2000 Compliant on or before September 1, 1999 and thereafter. The Servicer will deliver simultaneously with any quarterly or annual financial statements or reports to be delivered under this Agreement, a letter or other statement signed by an appropriate officer that to the knowledge of such officer, no material event problems or conditions have occurred which would prevent or delay in any material respect the Servicer's plan to become Year 2000 Compliant. ARTICLE VI ADMINISTRATION AND COLLECTIONS SECTION 6.1. Appointment of Servicer. The servicing, administering and collection of the Receivables shall be conducted by such Person (the "Servicer") so designated from time to time in accordance with this Section 6.1. Saks is hereby designated as, and hereby agrees to perform the duties and obligations of, the Servicer pursuant to the terms hereof. The Servicer may not delegate any of its rights, duties or obligations hereunder, or designate a substitute Servicer, without the prior written consent of each Class Agent (except to an Affiliate of the Servicer), and provided that the Servicer shall continue to remain solely liable for the performance of the duties as Servicer hereunder notwithstanding any such delegation hereunder. The Agent may, and upon the direction of the Majority Investors, the Agent shall, after the occurrence of a Servicer Default or any other Termination Event, designate as Servicer any Person (including itself) to succeed Saks or any successor Servicer, on the condition in each case that any such Person so designated shall agree to perform the duties and obligations of the Servicer pursuant to the terms hereof. The Servicer and the Agent may notify any Obligor of the Transferred Interests. SECTION 6.2. Duties of Servicer. (a) The Servicer shall take or cause to be taken all such action as may be necessary or advisable to collect each Receivable from time to time, all in accordance with applicable laws, rules and regulations, with reasonable care and diligence, and in accordance with the Credit Guidelines. Each of the Transferor, each Conduit, the Agent, each Class Agent and each Bank Investor hereby appoints as its agent the Servicer, from time to time designated pursuant to Section 6. 1 hereof, to enforce its respective rights and interests in and under the Affected Assets. To the extent permitted by applicable law, the Transferor hereby grants to any Servicer appointed hereunder an irrevocable power of attorney to take any and all steps in the Transferor's name and on behalf of the Transferor necessary or desirable, in the reasonable determination of the Servicer, to collect all amounts due under any and all Receivables, including, without limitation, endorsing the Transferor's name on checks and other instruments representing Collections and enforcing such Receivables and the related Accounts. The Servicer shall set aside for the account of the Transferor and the Conduits and/or the Bank Investors their respective allocable shares of the Collections of Receivables in accordance with Sections 2.5 and 2.6 hereof. The Servicer shall segregate and deposit to the Agent's account the Agent's (on behalf of the Conduits and the Bank Investors) allocable share of Collections of Receivables when required pursuant to Article II hereof. The Transferor shall deliver to the Servicer and the Servicer shall hold in trust for the Transferor and the Agent on behalf of each Conduit and each Bank Investor, in accordance with their respective interests, all Records which evidence or relate to Receivables or Related Security. Notwithstanding anything to the contrary contained herein, the Agent shall have the absolute and unlimited right to direct the Servicer (whether the Servicer is Saks or any other Person) to commence or settle any legal action to enforce collection of any Receivable or to foreclose upon or repossess any Related Security. The Servicer shall not make the Agent, any Class Agent, any Conduit or any Bank Investor a party to any litigation without the prior written consent of such Person. (b) The Servicer shall, as soon as practicable following receipt thereof, turn over to the Transferor any collections of any indebtedness of any Person which is not on account of a Receivable. If the Servicer is not the Transferor or an Affiliate of the Transferor, the Servicer, by giving three Business Days' prior written notice to the Agent, may revise the percentage used to calculate the Servicing Fee for each Class, so long as the revised percentage will not result in a Servicing Fee for such Class that exceeds 110% of the reasonable and appropriate out-of-pocket costs and expenses of such Servicer incurred in connection with the performance of its obligations hereunder as documented to the reasonable satisfaction of the applicable Class Agent for each Class, provided, however, that at any time the Buyer's Percentage Interest for any Class would otherwise equal or exceeds 100%, any compensation to the Servicer in excess of the 2.0% Servicing Fee initially provided for herein shall be an obligation of the Transferor and shall not be payable, in whole or in part, from Collections. The Servicer, if other than the Transferor or an Affiliate of the Transferor, shall, as soon as practicable upon demand, deliver to the Transferor all Records in its possession which evidence or relate to indebtedness of an Obligor which is not a Receivable. (c) On or before March 31 of each year, beginning March 31, 2000, the Servicer shall cause a firm of independent public accountants (who may also render other services to the Servicer, the Transferor, or any Affiliate of any of the foregoing) to furnish a report to the Agent to the effect that they have (i) compared the information contained in a sample of the Investor Reports delivered during the immediately preceding calendar year with the information contained in the Accounts and the Servicer's records and computer systems for such period, and that, on the basis of such examination and comparison, such firm is of the opinion that the information contained in the Investor Reports selected reconciles with the information contained in the Accounts and the Servicer's records and computer system and that the servicing of the Receivables has been conducted in compliance with this Agreement, and (ii) confirmed by testing the mathematical accuracy of the information set forth in the Investor Reports delivered during such calendar year, except, in each case for (A) such exceptions as such firm shall believe to be immaterial (which exceptions need not be enumerated) and (B) such other exceptions as shall be set forth in such statement. (d) Notwithstanding anything to the contrary contained in this Article VI, the Servicer, if not the Transferor or any Affiliate of the Transferor, shall have no obligation to collect enforce or take any other action described in this Article VI with respect to any indebtedness that is not included in the Transferred Interest other than to deliver to the Transferor the collections and documents with respect to any such indebtedness as described in Section 6.2(b) hereof. SECTION 6.3. Rights After Designation of New Servicer. At any time following the designation of a Servicer (other than the Transferor or any Affiliate of the Transferor) pursuant to Section 6. 1 hereof: (i) The Agent (at the direction of the Majority Investors) may direct that payment of all amounts payable under any Receivable be made directly to the Agent or its designee. (ii) The Transferor shall, at the Agent's (at the direction of the Majority Investors) request and at the Transferor's expense, give notice of the Agent's, the Transferor's and/or the Bank Investors' ownership of Receivables to each Obligor and direct that payments be made directly to the Agent or its designee. (iii) The Transferor shall, at the Agent's (at the direction of the Majority Investors) request (A) assemble all of the Records, and shall make the same available to the Agent or its designee at a place selected by the Agent or its designee, and (B) segregate all cash, checks and other instruments received by it from time to time constituting Collections of Receivables in a manner acceptable to the Agent and shall, promptly upon receipt, remit all such cash, checks and instruments, duly endorsed or with duly executed instruments of transfer, to the Agent or its designee. (iv) The Transferor hereby authorizes the Agent to take any and all steps in the Transferor's name and on behalf of the Transferor and the Seller necessary or desirable, in the determination of the Agent to collect all amounts due under any and all Receivables, including, without limitation, endorsing the Transferor's name on checks and other instruments representing Collections and enforcing such Receivables and the related Accounts. SECTION 6.4. Servicer Default. The occurrence of any one or more of the following events shall constitute a Servicer Default: (a) the Servicer or, to the extent that the Transferor or any Affiliate of the Transferor is then acting as Servicer, the Transferor or such Affiliate, as applicable, shall fail (i) to observe or perform any term, covenant or agreement hereunder (other than as referred to in clauses (ii) or (iii) of this Section 6.4(a)) or under any of the other Transaction Documents to which such Person is a party or by which such Person is bound, and such failure shall remain unremedied for 30 days, or (ii) to make any payment or deposit required to be made by it hereunder when due or the Servicer shall fail to observe or perform any term, covenant or agreement on the Servicer's part to be performed under Section 2.7 hereof or (iii) to observe or perform any term, covenant or agreement under Sections 5.4(a), 5.4(b), 5.4(c), 5.4(f) or 5.4(g); (b) any representation, warranty, certification or statement made by the Servicer or the Transferor or any Affiliate of the Transferor (in the event that the Transferor or such Affiliate is then acting as the Servicer) in this Agreement the Saks Guaranty or in any of the other Transaction Documents or in any certificate or report delivered by it pursuant to any of the foregoing shall prove to have been incorrect in any material respect when made or deemed made; (c) failure or the default by the Servicer or any of its Subsidiaries in the performance of any material term, provision or condition contained in any agreement under which any Indebtedness greater than $20,000,000 was created or is governed, if such event is an "event of default" or "default" under any such agreement; (d) any Event of Bankruptcy shall occur with respect to the Servicer or any of its Subsidiaries; or (e) there shall have occurred any material adverse change in the operations of the Servicer and its Subsidiaries, taken as a whole, since the end of the last fiscal year ending before the date of its appointment as Servicer hereunder or any other event shall have occurred which, in the commercially reasonable judgment of the Agent, materially and adversely affects the Servicer's ability to either collect the Receivables or to perform under this Agreement. SECTION 6.5. Responsibilities of the Transferor. Anything herein to the contrary notwithstanding the Transferor shall (i) perform all of the Transferor's obligations under the Accounts related to the Receivables, if any, to the same extent as if interests in such Receivables had not been sold hereunder and the exercise by the Agent any Class Agent any Conduit and any Bank Investor of their rights hereunder shall not relieve the Transferor from such obligations and (ii) pay when due any taxes, including without limitation, any sales taxes, if any, payable in connection with the Receivables and their creation and satisfaction. Neither the Agent, any Class Agent any Conduit nor any Bank Investor shall have any obligation or liability with respect to any Receivable or related Accounts, nor shall it be obligated to perform any of the obligations of the Transferor thereunder. ARTICLE VII TERMINATION EVENTS SECTION 7.1. Termination Events. The occurrence of any one or more of the following events shall constitute a Termination Event: (a) the Transferor or the Servicer shall fail to make any payment or deposit to be made by it hereunder when due hereunder, or Saks shall fail to make any payment or deposit to be made under the Saks Guaranty when due thereunder; or (b) any representation, warranty, certification or statement made by the Transferor, the Servicer or Saks in this Agreement, the Saks Guaranty, any other Transaction Document to which it is a party or in any other document delivered pursuant hereto or thereto shall prove to have been incorrect in any material respect when made or deemed made; or (c) the Transferor, Saks or the Servicer shall default in the performance of any payment or undertaking (other than those covered by clause (a) above) (i) to be performed or observed under Sections 5.1(a)(vi), 5.1(a)(vii), 5.1(b), 5.1(c), 5.1(f), 5.1(g), 5.1(h), 5.1(i), 5.1(k), 5.2(a), 5.2(c), 5.2(e) or 5.2(h) or Section 5.3 or (ii) to be performed or observed under any other provision hereof and such default in the case of this clause (ii) shall continue for ten days; or (d) any Event of Bankruptcy shall occur with respect to the Transferor, Saks or any Subsidiary of the Transferor or Saks; or (e) the Agent on behalf of the Conduits and/or the Bank Investors, shall, for any reason, fail or cease to have a valid and perfected first priority ownership or security interest in the Affected Assets free and clear of any Adverse Claims; or (f) a Servicer Default shall have occurred; or (g) (i) the Buyer's Percentage Interest for any Class exceeds such Class's Class Share of the Maximum Buyer's Percentage Interest, unless the Transferor reduces the Net Investment for such Class or increases the balance of the Affected Assets on the next Business Day so as to reduce the Buyer's Percentage Interest for such Class to less than or equal to such Class's Class Share of the Maximum Buyer's Percentage Interest, (ii) at any time any Class's Class Share of the Net Receivables Balance shall be less than the Net Investment for such Class or (iii) the Net Investment for any Class plus the Aggregate Interest Component of all outstanding Related Commercial Paper of the related Conduit shall exceed the Facility Limit for such Class at any time; or (h) the average Net Portfolio Yield for any three consecutive Collection Periods is less than 1.00%; or (i) any Liquidity Provider shall have given notice that an event of default has occurred and is continuing under any of its respective agreements with the related Conduit; or (j) the Commercial Paper issued by a Conduit shall not be rated at least "A2" by Standard & Poor's and at least "P2" by Moody's; or (k) Saks' or the Servicer's senior unsecured long-term debt rating falls below "BB" or "Bal" by S&P or Moody's, respectively, or the breach of any covenant set forth in the Bank Loan Agreement; or (1) NGBL sells, assigns, hypothecates, grants a security interest in or otherwise transfers or purports to transfer any interest in any Account other than pursuant to the Receivable Purchase Agreement. SECTION 7.2. Termination. (a) Upon the occurrence of any Termination Event, the Agent may, or at the direction of the Majority Investors shall, by notice to the Transferor and the Servicer declare the Termination Date to have occurred; provided, however, that in the case of any event described in Section 7.1(d), 7.1(e), 7.1(g)(i) or 7.1(j) above, Termination Date shall be deemed to have occurred automatically upon the occurrence of such event. Upon any such declaration or automatic occurrence, the Agent shall have, in addition to all other rights and remedies under this Agreement or otherwise, all other rights and remedies provided under the UCC of the applicable jurisdiction and other applicable laws, all of which rights shall be cumulative. (b) At all times after the declaration or automatic occurrence of the Termination Date pursuant to Section 7.2(a) (unless only a Termination Event set forth in Section 7.1(i) or 7.1(j) shall have occurred), the Carrying Costs for each Class shall thereafter be calculated on the basis of the Base Rate plus 2.00% for all existing and future funding periods. ARTICLE VIII INDEMNIFICATION; EXPENSES; RELATED MATTERS SECTION 8.1. Indemnities by the Transferor. Without limiting any other rights which the Agent, any Class Agent, any Conduit or any Bank Investor may have hereunder or under applicable law, the Transferor hereby agrees to indemnify each Conduit each Bank Investor, the Agent, each Class Agent, each Administrative Agent, each Liquidity Provider and each Credit Support Provider and any successors and permitted assigns and their respective officers, directors and employees (collectively, the "Indemnified Parties") from and against any and all damages, losses, claims, liabilities, costs and expenses, including, without limitation, reasonable attorneys' fees (which such attorneys may be employees of any Indemnified Party) and disbursements (all of the foregoing being collectively referred to as "Indemnified Amounts") awarded against or incurred by any of them in any action or proceeding between the Transferor, the Servicer and any of the Indemnified Parties or between any of the Indemnified Parties and any third party or otherwise arising out of or as a result of this Agreement, the other Transaction Documents, the ownership or maintenance, either directly or indirectly, by the Agent, any Conduit or any Bank Investor of any Transferred Interest or any of the other transactions contemplated hereby or thereby, excluding, however, (i) Indemnified Amounts to the extent resulting from gross negligence or willful misconduct on the part of an Indemnified Party or (ii) recourse (except as otherwise specifically provided in this Agreement) for uncollectible Receivables. Without limiting the generality of the foregoing the Transferor shall indemnify each Indemnified Party for Indemnified Amounts relating to or resulting from: (i) any representation or warranty made by the Transferor or the Servicer or any officers of the Transferor or the Servicer under or in connection with this Agreement any of the other Transaction Documents, any Investor Report or any other information or report delivered by the Transferor or the Servicer pursuant hereto, which shall have been false or incorrect in any material respect when made or deemed made; (ii) the failure by the Transferor, the Servicer or (in the case of an Account) [Saks Fifth Avenue] or NGBL to comply with any applicable law, rule or regulation with respect to any Receivable or the related Account, or the nonconformity of any Receivable or the related Account with any such applicable law, rule or regulation; (iii) the failure to vest and maintain vested in the Agent, an undivided first priority, perfected percentage ownership interest, to the extent of any Transferred Interest, in the Affected Assets free and clear of any Adverse Claim or (y) to create or maintain a valid and perfected first priority security interest in favor of the Agent for the benefit of the Conduits and/or the Bank Investors, in the Affected Assets as contemplated pursuant to Section 11.11, free and clear of any Adverse Claim; (iv) the failure to file, or any delay in filing, financing statements, continuation statements, or other similar instruments or documents under the UCC of any applicable jurisdiction or other applicable laws with respect to any of the Affected Assets; (v) any dispute, claim, offset or defense (other than discharge in bankruptcy) of the Obligor to the payment of any Receivable (including without limitation, a defense based on such Receivable or the related Account not being the legal, valid and binding obligation of such Obligor enforceable against it in accordance with its terms), or any other claim resulting from the sale of merchandise or services related to such Receivable or the furnishing or failure to furnish such merchandise or services; (vi) any products liability claim or personal injury or property damage suit or other similar or related claim or action of whatever sort arising out of or in connection with merchandise or services which are the subject of any Receivable; (vii) the transfer of an ownership interest in any Receivable other than an Eligible Receivable; (viii) the failure by the Transferor, NBGL or the Servicer to comply with any term, provision or covenant contained in this Agreement or any of the other Transaction Documents to which it is a party or to perform any of its respective duties under the Accounts; (ix) any repayment by any Indemnified Party of any amount previously distributed in reduction of Net Investment for such Indemnified Party's Class which such Indemnified Party believes in good faith is required to be made; (x) the commingling by the Transferor, Saks or the Servicer of Collections of Receivables at any time with other funds; (xi) any investigation, litigation or proceeding related to this Agreement any of the other Transaction Documents, the use of proceeds of Transfers by the Transferor or Saks, the ownership of Transferred Interests, or any Receivable, Related Security or Account; (xii) any inability to obtain any judgment in or utilize the court or other adjudication system of, any state in which an Obligor may be located as a result of the failure of the Transferor or the Servicer to qualify to do business or file any notice of business activity report or any similar report; and (xiii) any action taken by the Transferor, NBGL or the Servicer in the enforcement or collection of any Receivable; provided, however, that if any Conduit enters into agreements for the purchase of interests in receivables from one or more Other Transferors, such Conduit shall allocate such Indemnified Amounts which are in connection with the related Liquidity Provider Agreement the related Credit Support Agreement or the credit support furnished by the related Credit Support Provider to the Transferor and each Other Transferor; and provided, further, that if such Indemnified Amounts are attributable to the Transferor or the Servicer and not attributable to any Other Transferor, the Transferor shall be solely liable for such Indemnified Amounts or if such Indemnified Amounts are attributable to Other Transferors and not attributable to the Transferor or the Servicer, such Other Transferors shall be solely liable for such Indemnified Amounts. SECTION 8.2. Indemnity for Taxes, Reserves and Expenses. (a) If after the date hereof, the adoption of any Law or bank regulatory guideline or any amendment or change in the interpretation of any existing or future Law or bank regulatory guideline by any Official Body charged with the administration, interpretation or application thereof, or the compliance with any directive of any Official Body (in the case of any bank regulatory guideline, whether or not having the force of Law): (i) shall subject any Indemnified Party to any tax, duty or other charge (other than Excluded Taxes) with respect to this Agreement, the other Transaction Documents, the ownership, maintenance or financing of any Transferred Interest, the Receivables or payments of amounts due hereunder, or shall change the basis of taxation of payments to any Indemnified Party of amounts payable in respect of any Section 8.2 Item (except for changes in the rate of general corporate, franchise, net income or other income tax imposed on such Indemnified Party by the jurisdiction in which such Indemnified Party's principal executive office is located); (ii) shall impose, modify or deem applicable any reserve, special deposit or similar requirement (including, without limitation, any such requirement imposed by the Board of Governors of the Federal Reserve System (other than any such requirement used to determine any Adjusted LIBOR Rate)) against assets of, deposits with or for the account of, or credit extended by, any Indemnified Party or shall impose on any Indemnified Party or on the United States market for certificates of deposit or the London interbank market any other condition affecting any Section 8.2 Item; or (iii) imposes upon any Indemnified Party any other expense (including, without limitation, reasonable attorneys! fees and expenses, and expenses of litigation or preparation therefor in contesting any of the foregoing) with respect to any Section 8.2 Item, and the result of any of the foregoing is to increase the cost to such Indemnified Party with respect to this Agreement the other Transaction Documents, the ownership, maintenance or financing of any Transferred Interest the Receivables, the obligations hereunder, the funding of any purchases hereunder, any Liquidity Provider Agreement or any Credit Support Agreement by an amount deemed by such Indemnified Party to be material, then, within ten days after demand by such Indemnified Party through the Agent, the Transferor shall pay to the Agent (and the Agent shall pay to the applicable Class Agent), for the benefit of such Indemnified Party, such additional amount or amounts as will compensate such Indemnified Party for such increased cost or reduction. (b) If any Indemnified Party shall have determined that after the date hereof, the adoption of any applicable Law or bank regulatory guideline regarding capital adequacy, or any change therein, or any change in the interpretation thereof by any Official Body, or any directive regarding capital adequacy (in the case of any bank regulatory guideline, whether or not having the force of law) of any such Official Body, has or would have the effect of reducing the rate of return on capital of such Indemnified Party (or its parent) as a consequence of such Indemnified Party's obligations hereunder or with respect hereto to a level below that which such Indemnified Party (or its parent) could have achieved but for such adoption, change, request or directive (taking into consideration its policies with respect to capital adequacy) by an amount deemed by such Indemnified Party to be material, then from time to time, within ten days after demand by such Indemnified Party through the Agent the Transferor shall pay to the Agent for the benefit of such Indemnified Party, such additional amount or amounts as will compensate such Indemnified Party (or its parent) for such reduction. (c) The Agent will promptly notify the Transferor of any event of which it has knowledge, occurring after the date hereof, which will entitle an Indemnified Party to compensation pursuant to this Section 8.2. A notice by the Agent or the applicable Indemnified Party claiming compensation under this Section and setting forth the additional amount or amounts to be paid to it hereunder shall be conclusive in the absence of manifest error. In determining such amount the Agent or any applicable Indemnified Party may use any reasonable averaging and attributing methods. (d) Anything in this Section 8.2 to the contrary notwithstanding if a Conduit enters into agreements for the acquisition of interests in receivables from one or more Other Transferors, such Conduit shall allocate the liability for any amounts under this Section 8.2 which are in connection with a related Liquidity Provider Agreement a related Credit Support Agreement or the credit support provided by a related Credit Support Provider ("Section 8.2 Costs") to the Transferor and each Other Transferor; provided, however, that if such Section 8.2 Costs are attributable to the Transferor, or the Servicer and not attributable to any Other Transferor, the Transferor shall be solely liable for such Section 8.2 Costs or if such Section 8.2 Costs are attributable to Other Transferors and not attributable to the Transferor or the Servicer, such Other Transferors shall be solely liable for such Section 8.2 Costs. SECTION 8.3. Taxes. All payments made hereunder by the Transferor or the Servicer (each, for purposes of this Section 8.3, a "Payor") to any Conduit, any Bank Investor, any Class Agent or the Agent (each, for purposes of this Section 8.3, a "recipient") shall be made free and clear of, and without deduction for, any present or future income, excise, stamp or franchise taxes and any other taxes, fees, duties, withholdings or other charges of any nature whatsoever imposed by any taxing authority on any recipient (or any assignee of such parties) (such non-excluded items being called "Taxes"), but excluding franchise taxes and taxes imposed on or measured by the recipient' s net income or gross receipts ("Excluded Taxes"). In the event that any withholding or deduction from any payment made by the payor hereunder is required in respect of any Taxes, then such payor shall: (a) pay directly to the relevant authority the full amount required to be so withheld or deducted; (b) promptly forward to the Agent an official receipt or other documentation satisfactory to the Agent evidencing such payment to such authority; and (c) pay to the recipient such additional amount or amounts as is necessary to ensure that the net amount actually received by the recipient will equal the full amount such recipient would have received had no such withholding or deduction been required. Moreover, if any Taxes are directly asserted against any recipient with respect to any payment received by such recipient hereunder, the recipient may pay such Taxes and the payor will promptly pay such additional amounts (including any penalties, interest or expenses) as shall be necessary in order that the net amount received by the recipient after the payment of such Taxes (including any Taxes on such additional amount) shall equal the amount such recipient would have received had such Taxes not been asserted. If the payor fails to pay any Taxes when due to the appropriate taxing authority or fails to remit to the recipient the required receipts or other required documentary evidence, the payor shall indemnify the recipient for any incremental Taxes, interest or penalties that may become payable by any recipient as a result of any such failure. SECTION 8.4. Other Costs, Expenses and Related Matters. (a) The Transferor agrees, upon receipt of a written invoice, to pay or cause to be paid, and to save each Conduit each Bank Investor, each Class Agent and the Agent harmless against liability for the payment of, all reasonable out-of-pocket expenses (including without limitation, attorneys', accountants' and other third parties' fees and expenses, any filing fees and expenses incurred by officers or employees of any such Person or intangible, documentary or recording taxes incurred by or on behalf of any such Person (i) in connection with the negotiation, execution, delivery and preparation of this Agreement, the other Transaction Documents and any documents or instruments delivered pursuant hereto and thereto and the transactions contemplated hereby or thereby (including, without limitation, the perfection or protection of any Transferred Interest) and (ii) from time to time (a) relating to any amendments, waivers or consents under this Agreement and the other Transaction Documents, (b) arising in connection with any such Persons' enforcement or preservation of rights (including without limitation, the perfection and protection of any Transferred Interest under this Agreement), or (c) arising in connection with any audit dispute, disagreement litigation or preparation for litigation involving this Agreement or any of the other Transaction Documents (all of such amounts, collectively, "Transaction Costs"). (b) The Transferor shall pay the allocable Class Agent for the account of the related Conduit and the related Bank Investors, as applicable, on demand any Early Collection Fee due to the related Class on account of the receipt by such Conduit or such Bank Investors of any amounts applied in reduction of the Net Investment for such Class on any day other than a Remittance Date or the last day of any applicable funding period (in the case of any LIBOR-based funding). SECTION 8.5. Reconveyance Under Certain Circumstances. The Transferor agrees to accept the reconveyance from the Agent, on behalf of the Conduits and/or the Bank Investors, of all Transferred Interests if the Agent notifies the Transferor of a material breach of any representation or warranty made or deemed made pursuant to Article III of this Agreement and Transferor shall fail to cure such breach within 15 days (or, in the case of the representations and warranties in Sections 3.1(d) and 3.1(j), three days) of such notice. The reconveyance price shall be paid by the Transferor to the Agent, for the account of the Conduits and/or the Bank Investors, as applicable, in immediately available funds on such 15th day (or 3rd day, if applicable) in an amount equal to the aggregate of the Aggregate Unpaids for each Class. ARTICLE IX THE AGENT; BANK COMMITMENT SECTION 9.1. Authorization and Action of Agent. (a) Each Conduit and each Bank Investor hereby irrevocably appoints and authorizes the Agent to act as its agent under this Agreement and the other Transaction Documents with such powers and discretion as are specifically delegated to the Agent by the terms of this Agreement and the other Transaction Documents, together with such other powers as are reasonably incidental thereto. The Agent (which term as used in this sentence and in Section 9.5 and the first sentence of Section 9.6 hereof shall include its affiliates and its own and its affiliates' officers, directors, employees, and agents): (a) shall not have any duties or responsibilities except those expressly set forth in this Agreement and shall not be a trustee or fiduciary for any Conduit or any Bank Investor; (b) shall not be responsible to any Conduit or any Bank Investor for any recital, statement, representation, or warranty (whether written or oral) made in or in connection with any Transaction Document or any certificate or other document referred to or provided for in, or received by any of them under, any Transaction Document, or for the value, validity, effectiveness, genuineness, enforceability, or sufficiency of any Transaction Document, or any other document referred to or provided for therein or for any failure by any of the Transferor, Saks or the Servicer or any other Person to perform any of its obligations thereunder; (c) shall not be responsible for or have any duty to ascertain, inquire into, or verify the performance or observance of any covenants or agreements by any of the Transferor, Saks or the Servicer or the satisfaction of any condition or to inspect the property (including the books and records) of any of the Transferor, Saks or the Servicer or any of their Subsidiaries or affiliates; (d) shall not be required to initiate or conduct any litigation or collection proceedings under any Transaction Document; and (e) shall not be responsible for any action taken or omitted to be taken by it under or in connection with any Transaction Document, except for its own gross negligence or willful misconduct. The Agent may employ agents and attorneys- in-fact and shall not be responsible for the negligence or misconduct of any such agents or attorneys-in-fact selected by it with reasonable care. SECTION 9.2. Agent's Reliance, Etc. The Agent shall be entitled to rely upon any certification, notice, instrument, writing, or other communication (including, without limitation, any thereof by telephone or telecopy) believed by it to be genuine and correct and to have been signed, sent or made by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel (including counsel for any of the Transferor, Saks or the Servicer), independent accountants, and other experts selected by the Agent. As to any matters not expressly provided for by this Agreement the Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from aci6ng (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Majority Investors, and such instructions shall be binding on each Conduit and each Bank Investor; provided, however, that the Agent shall not be required to take any action that exposes the Agent to personal liability or that is contrary to any Transaction Document or applicable law or unless it shall first be indemnified to its satisfaction by the Bank Investors against any and all liability and expense which may be incurred by it by reason of taking any such action. SECTION 9.3. Termination Event or Potential Termination Event. The Agent shall not be deemed to have knowledge or notice of the occurrence of a Potential Termination Event or a Termination Event unless the Agent has received written notice from a Conduit, a Bank Investor or the Transferor specifying such Potential Termination Event or Termination Event and stating that such notice is a "Notice of Termination Event or Potential Termination Event". In the event that the Agent receives such a notice of the occurrence of a Potential Termination Event or Termination Event, the Agent shall give prompt notice thereof to each Class Agent each Conduit and each Bank Investor. The Agent shall (subject to Section 9.2 hereof) take such action with respect to such Potential Termination Event or Termination Event as shall reasonably be directed by the Majority Investors, provided that, unless and until the Agent shall have received such directions, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Potential Termination Event or Termination Event as it shall deem advisable in the best interest of the Conduits and each Bank Investor. SECTION 9.4. Rights as Bank Investor. With respect to its Commitment, NationsBank (and any successor acting as Agent) in its capacity as a Bank Investor hereunder shall have the rights and powers specified hereunder as the rights and powers of a Bank Investor and may exercise the same as though it were not acting as the Agent, and the term "Bank Investor" shall, unless the context otherwise indicates, include NationsBank in its individual capacity. NationsBank (and any successor acting as Agent) and its affiliates may (without having to account therefor to any Conduit or any Bank Investor) accept deposits from, lend money to, make investments in, provide services to, and generally engage in any kind of lending, trust or other business with any of the Transferor, Saks and the Servicer or any of their Subsidiaries or affiliates as if it were not acting as Agent and NationsBank (and any successor acting as Agent) and its affiliates may accept fees and other consideration from any of the Transferor, Saks and the Servicer or any of their Subsidiaries or Affiliates for services in connection with this Agreement or otherwise without having to account for the same to any Conduit or any Bank Investor. SECTION 9.5. Indemnification of the Agent. Each Bank Investor agrees to indemnify the Agent (to the extent not reimbursed by the Transferor), ratably in accordance with its respective Pro Rata Share, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including attorneys' fees), or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Agent (including by a Conduit or a Bank Investor) in any way relating to or arising out of this Agreement or any other Transaction Document or the transactions contemplated thereby or any action taken or omitted by the Agent under this Agreement or any other Transaction Document provided that no Bank Investor shall be liable for any of the foregoing to the extent they arise from the gross negligence or willful misconduct of the Person indemnified. Without limitation of the foregoing, each Bank Investor agrees to reimburse the Agent, ratably in accordance with its respective Pro Rata Share, promptly upon demand for any out-of-pocket expenses (including attorneys' fees) incurred by the Agent in connection with the administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement and the other Transaction Documents, to the extent that such expenses are incurred in the interests of or otherwise in respect of the Bank Investors hereunder and/or thereunder and to the extent that the Agent is not reimbursed for such expenses by the Transferor. The agreements contained in this Section shall survive payment in full of the aggregate of the Net Investment for all Classes and all other amounts payable under this Agreement. SECTION 9.6. Non-Reliance. Each Class Agent, each Conduit and each Bank Investor agrees that it has, independently and without reliance on the Agent, a Class Agent, a Conduit or a Bank Investor, and based on such documents and information as it has deemed appropriate, made its own credit analysis of the Receivables, the Transferor, Saks, and the Servicer and their respective Subsidiaries and decision to enter into this Agreement and that it will, independently and without reliance upon the Agent, a Class Agent a Conduit or a Bank Investor, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under the Transaction Documents. Except for notices, reports, and other documents and information expressly required to be furnished to a Class Agent, a Conduit or a Bank Investor by the Agent hereunder, the Agent shall not have any duty or responsibility to provide a Class Agent, a Conduit or a Bank Investor with any credit or other information concerning the affairs, financial condition, or business of any of the Transferor, Saks or the Servicer or any of their Subsidiaries or affiliates that may come into the possession of the Agent or any of its affiliates. SECTION 9.7. Resignation of Agent. The Agent may resign at any time by giving notice thereof to each Class Agent each Conduit, each Bank Investor and the Transferor. Upon any such resignation, the Majority Investors shall have the right to appoint a successor Agent. If no successor Agent shall have been so appointed by the Majority Investors and shall have accepted such appointment within thirty (30) days after the retiring Agent's giving of notice of resignation, then the retiring Agent may, on behalf of the Conduits and the Bank Investors, appoint a successor Agent which shall be a commercial bank organized under the laws of the United States having combined capital and surplus of at least $100,000,000. Upon the acceptance of any appointment as Agent hereunder by a successor, such successor shall thereupon succeed to and become vested with all the rights, powers, discretion, privileges, and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. After any retiring Agent's resignation hereunder as Agent the provisions of this Article IX shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Agent. SECTION 9.8. Payments by the Agent. Unless specifically allocated to a Bank Investor pursuant to the terms of this Agreement all amounts received by the Agent on behalf of the Bank Investors shall be immediately paid by the Agent to the applicable Class Agent for the benefit of the related Bank Investors and the Class Agent shall pay such amounts to the applicable related Bank Investors (at their respective accounts specified herein or in their respective Assignment and Assignment and Assumption Agreements, as applicable) in accordance with their respective related pro rata interests in the Net Investment on the Business Day received by the Class Agent, unless such amounts are received after 12:00 noon on such Business Day, in which case such Class Agent shall use its reasonable efforts to pay such amounts to such Bank Investors on such Business Day, but, in any event, shall pay such amounts to the Bank Investors not later than the following Business Day. SECTION 9.9. Bank Commitment; Assignment to Bank Investors. (a) Bank Commitment. At any time on or prior to the Commitment Termination Date for a Class (i) upon the occurrence of a Termination Event that results in the Termination Date or (ii) at the option of the Conduit of such Class, and upon such Conduit's giving notice to the Transferor, the Transferor hereby requests and directs that such Conduit assign its interest in the Transferred Interest for such Class and the Net Investment for such Class in whole to the Bank Investors of such Class pursuant to this Section 9.9(a) and the Transferor hereby agrees to pay the amounts described in Section 9.9(d) below. No further documentation or action on the part of any Conduit shall be required to exercise the rights set forth in the immediately preceding sentence, other than, in the case of clause (i) of such sentence, receipt of notice by the Bank Investors of such Class from the applicable Class Agent that a Termination Date has occurred or, in the case of clause (ii) of such sentence, the giving of the notice set forth in such clause and the delivery by the applicable Class Agent of a copy of such notice to the Bank Investors of such Class (the date of the receipt of a notice referred to in such clauses being the "Effective Date"). Each Bank Investor hereby agrees, unconditionally and irrevocably and under all circumstances, without setoff, counterclaim or defense of any kind, to pay the full amount of its Assignment Amount on such Effective Date to the related Conduit in immediately available funds to an account designated by the applicable Class Agent. Upon payment of its Assignment Amount, each Bank Investor shall acquire its Pro Rata Share of the Transferred Interest for such Class and the Net Investment for such Class and shall assume its respective portion of such Conduit's obligations hereunder, and such Conduit shall be released from such portion of such obligations. If, by 2:00 P.M. (New York time) on the Effective Date, one or more Bank Investors of a Class (each, a "Defaulting Bank Investor", and each Bank Investor of such Class other than any Defaulting Bank Investor being referred to as a "Non-Defaulting Bank Investor") fails to pay its Assignment Amount as specified in this Section 9.9 (the aggregate amount not so made available to the applicable Conduit being herein called the "Assignment Amount Deficit"), then the applicable Class Agent shall, by no later than 2:30 P.M. (New York time) on the Effective Date, instruct each Non-Defaulting Bank Investor to pay, by no later than 3:00 P.M. (New York time) on the Effective Date, in immediately available funds, to the account designated by the applicable Class Agent, an amount equal to the lesser of (x) such Non-Defaulting Bank Investor's proportionate share (based upon the relative Commitments of the Non-Defaulting Bank Investors of such Class) of the applicable Assignment Amount Deficit and (y) its unused Commitment. A Defaulting Bank Investor shall forthwith, upon demand, pay to the applicable Class Agent for the ratable benefit of the Non-Defaulting Bank Investors all amounts paid by each Non-Defaulting Bank Investor on behalf of such Defaulting Bank Investor, together with interest thereon for each day from the date a payment was made by a Non-Defaulting Bank Investor until the date such Non-Defaulting Bank Investor has been paid such amounts in full at a rate per annum equal to the rate determined in accordance with clause (i) of the definition of "Base Rate" plus two percent (2%). In addition, if, after giving effect to the provisions of the immediately preceding sentence, any such Assignment Amount Deficit continues to exist, each such Defaulting Bank Investor shall pay interest to the applicable Class Agent on such Defaulting Bank Investor's portion of such remaining Assignment Amount Deficit at a rate per annum equal to the rate determined in accordance with clause (i) of the definition of "Base Rate" plus two percent (2%), for each day from the Effective Date until the date such Defaulting Bank Investor shall pay its portion of such remaining Assignment Amount Deficit in full to the applicable Conduit. Upon any assignment by a Conduit to the related Bank Investors contemplated hereunder, such Conduit shall cease to make any additional Incremental Transfers hereunder. (b) Assignment by a Bank Investor. (i) No Bank Investor may assign all or any portion of its Commitment or interest in any Transferred Interest or Net Investment for its Class and its rights and obligations hereunder to any Person unless approved in writing by the Transferor (which approval shall not be unreasonably withheld), the related Administrative Agent, on behalf of the related Conduit and the related Class Agent. In connection with any such assignment by a Bank Investor to another Person, the assignor shall deliver to the assignee an Assignment and Assumption Agreement duly executed, assigning to such assignee all or any portion of (A) such assignor's Commitment and other obligations hereunder and (B) such assignor's pro rata interest in the Transferred Interest of its Class and the Net Investment of its Class and other rights hereunder, and such assignor shall promptly execute and deliver all further instruments and documents, and take all further action, that the assignee may reasonably request in order to protect, or more fully evidence the assignee's right, title and interest in and to such interest and to enable the Agent and the applicable Class Agent, on behalf of such assignee, to exercise or enforce any rights hereunder and under the other Transaction Documents to which such assignor is or, immediately prior to such assignment, was a party. Upon any such assignment (i) the assignee shall have all of the rights and obligations of the assignor hereunder and under the other Transaction Documents to which such assignor is or, immediately prior to such assignment was a party with respect to such assignor's Commitment and interest in the Transferred Interest of its Class and the Net Investment of its Class for all purposes of this Agreement, the Saks Guaranty and under the other Transaction Documents to which such assignor is or, immediately prior to such assignment, was a party and (ii) the assignor shall have no further obligations with respect to the portion of its Commitment hereunder which has been assigned and shall relinquish its rights with respect to the portion of its interest in the Transferred Interest of its Class and the Net Investment of its Class which has been assigned for all purposes of this Agreement and under the other Transaction Documents to which such assignor is or, immediately prior to such assignment was a party. No such assignment shall be effective unless a fully executed copy of the related Assignment and Assumption Agreement shall be delivered to the Agent and the related Class Agent, the Transferor and Saks. All costs and expenses of the Agent and any Class Agent incurred in connection with any assignment hereunder shall be borne by the Transferor. No Bank Investor [with respect to the Class of which EFC is a member] shall enter into any Assignment and Assumption Agreement hereunder without also simultaneously assigning an equal portion of its interest in the related Liquidity Provider Agreement. (ii) By executing and delivering an Assignment and Assumption Agreement, the assignor and assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than as provided in such Assignment and Assumption Agreement, the assignor makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement the Saks Guaranty, the other Transaction Documents or any other instrument or document furnished pursuant hereto or thereto or the execution, legality, validity, enforceability, genuineness, sufficiency or value or this Agreement, the Saks Guaranty, the other Transaction Documents or any such other instrument or document; (ii) the assignor makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Transferor, N`BGL or the Servicer or the performance or observance by the Transferor, NBGL or the Servicer of any of their respective obligations under this Agreement, the Receivable Purchase Agreement, the other Transaction Documents or any other instrument or document furnished pursuant hereto; (iii) such assignee confirms that it has received a copy of this Agreement the Saks Guaranty and such other instruments, documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Assumption Agreement and to purchase such interest; (iv) such assignee will, independently and without reliance upon the Agent or any Class Agent, or any of their respective Affiliates, or the assignor and based on such agreements, documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement and the other Transaction Documents; (v) such assignee appoints and authorizes the Agent and the applicable Class Agent to take such action as agent on its behalf and to exercise such powers under this Agreement, the Saks Guaranty, and the other Transaction Documents and any other instrument or document furnished pursuant hereto or thereto as are delegated to the Agent and such Class Agent, as applicable, by the terms hereof or thereof, together with such powers as are reasonably incidental thereto and to enforce its respective rights and interests in and under this Agreement, the Saks Guaranty, the other Transaction Documents, the Receivables, the Collections and the Related Security; (vi) such assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Agreement the Saks Guaranty and the other Transaction Documents are required to be performed by it as the assignee of the assignor; and (vii) such assignee agrees that it will not institute against any Conduit party hereto any proceeding of the type referred to in Section 10.9 prior to the date which is one year and one day after the payment in full of all Commercial Paper issued by such Conduit. (c) Transferor's Obligation to Pay Certain Amounts, Additional Assignment Amount. The Transferor shall pay to the applicable Class Agent for the account of the applicable Conduit in connection with any assignment by such Conduit to the related Bank Investors pursuant to Section 9.9(a), an aggregate amount equal to all Carrying Costs of such Conduit to accrue through the end of each outstanding funding period plus all other Aggregate Unpaids of the related Class (other than the Net Investment of such Class). If the Transferor fails to make payment of such amounts at or prior to the time of assignment by such Conduit to the related Bank Investors, such amount shall be paid by such related Bank Investors (in accordance with their respective Pro Rata Shares) to such Conduit as additional consideration for the interests assigned to such related Bank Investors and the amount of the "Net Investment" of such Class hereunder held by such related Bank Investors shall be increased by an amount equal to the additional amount so paid by such related Bank Investors. Any amounts received by a Class Agent hereunder for the benefit of a Conduit shall be paid by such Class Agent to the related Conduit. (d) Administration of Agreement After Assignment by a Conduit to related Bank Investors. After any assignment by a Conduit to the related Bank Investors pursuant to Section 9.9(a) (and the payment of all amounts owing to such Conduit in connection therewith), all rights of the related Administrative Agent and the related Collateral Agent set forth herein shall be deemed to be afforded to the related Class Agent on behalf of such Bank Investors instead of either such party. (e) Payments after Assignment by a Conduit to related Bank Investors. After any assignment by a Conduit to the related Bank Investors pursuant to Section 9.9(a), all payments to be made hereunder by the Transferor or the Servicer to such Conduit shall be made to the applicable Class Agent' s account as such account shall have been notified to the Transferor and the Servicer. In the event that the aggregate of the Assignment Amounts paid by such Bank Investors pursuant to Section 9.9(a) is less than the Net Investment of such Class of the related Conduit on the date of such assignment then to the extent payments made hereunder in respect of the Net Investment of such Class exceed the aggregate of the Assignment Amounts for such Class, such excess shall be remitted by the applicable Class Agent to the related Conduit. Any amounts received by a Class Agent pursuant to this paragraph (e) shall be paid by such Class Agent to the related Conduit and the related Bank Investors, as applicable, at such account as such Person shall designate to such Class Agent from time to time. (f) Downgrade of Bank Investor. If at any time prior to any assignment by a Conduit to the related Bank Investors as contemplated pursuant to Section 9.9(a), the short term debt rating of any such Bank Investor shall be "A-2" or "P-2" from Standard & Poor's or Moody's, respectively, with negative credit implications, such Bank Investor, upon request of the related Class Agent, shall, within 30 days of such request, assign its rights and obligations hereunder to another financial institution (which institution's short term debt shall be rated at least "A-2" and "P-2" from Standard & Poors and Moody's, respectively, and which shall not be so rated with negative credit implications and which is acceptable to such Conduit and such Class Agent). If the short term debt rating of a Bank Investor shall be "A-3" or "P-3", or lower, from Standard & Poor's or Moody's, respectively (or such rating shall have been withdrawn by Standard & Poor's or Moody's), such Bank Investor, upon request of the related Class Agent, shall, within five (5) Business Days of such request, assign its rights and obligations hereunder to another financial institution (which institution's short term debt shall be rated at least "A-2" and "P-2" from Standard & Poor's and Moody's, respectively, and which shall not be so rated with negative credit implications and which is acceptable to such Conduit and such Class Agent). In either such case, if any such Bank Investor shall not have assigned its rights and obligations under this Agreement within the applicable time period described above, the related Conduit shall have the right to require such Bank Investor to pay to the related Class Agent an amount equal to such Bank Investor's Commitment for deposit by the related Class Agent into an account, in the name of the related Class Agent, which shall be in satisfaction of such Bank Investor's obligations to pay its Assignment Amount upon an assignment from such Conduit in accordance with Section 9.9(a) hereof. The amount on deposit in such account shall be invested by the related Class Agent in Eligible Investments and such Eligible Investments shall be selected by the related Class Agent in its sole discretion. Such Class Agent shall remit to such Bank Investor, monthly, the income thereon. Nothing in the three preceding sentences shall affect or diminish in any way any such downgraded Bank Investor's Commitment to the Transferor or such Conduit or such downgraded Bank Investor's other obligations and liabilities hereunder and under the other Transaction Documents. SECTION 9.10. Authorization and Action of Class Agents. (a) Each Conduit and each Bank Investor of each Class hereby irrevocably appoints and authorizes the Class Agent of such Class to act as its agent under this Agreement and the other Transaction Documents with such powers and discretion as are specifically delegated to such Class Agent by the terms of this Agreement and the other Transaction Documents, together with such other powers as are reasonably incidental thereto. Each Class Agent (which term as used in this sentence and in Section 9.14 and the first sentence of Section 9.6 hereof shall include its affiliates and its own and its affiliates' officers, directors, employees, and agents): (a) shall not have any duties or responsibilities except those expressly set forth in this Agreement and shall not be a trustee or fiduciary for any Conduit or any Bank Investor; (b) shall not be responsible to any Conduit or any Bank Investor for any recital, statement representation, or warranty (whether written or oral) made in or in connection with any Transaction Document or any certificate or other document referred to or provided for in, or received by any of them under, any Transaction Document, or for the value, validity, effectiveness, genuineness, enforceability, or sufficiency of any Transaction Document, or any other document referred to or provided for therein or for any failure by any of the Transferor, Saks or the Servicer or any other Person to perform any of its obligations thereunder; (c) shall not be responsible for or have any duty to ascertain, inquire into, or verify the performance or observance of any covenants or agreements by any of the Transferor, Saks or the Servicer or the satisfaction of any condition or to inspect the property (including the books and records) of any of the Transferor, Saks or the Servicer or any of their Subsidiaries or affiliates; (d) shall not be required to initiate or conduct any litigation or collection proceedings under any Transaction Document; and (e) shall not be responsible for any action taken or omitted to be taken by it under or in connection with any Transaction Document except for its own gross negligence or willful misconduct. Each Class Agent may employ agents and attorneys-in-fact and shall not be responsible for the negligence or misconduct of any such agents or attorneys-in-fact selected by it with reasonable care. SECTION 9.11. Class Agents' Reliance, Etc. Each Class Agent shall be entitled to rely upon any certification, notice, instrument, writing, or other communication (including, without limitation, any thereof by telephone or telecopy) believed by it to be genuine and correct and to have been signed, sent or made by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel (including counsel for any of the Transferor, Saks or the Servicer), independent accountants, and other experts selected by such Class Agent. As to any matters not expressly provided for by this Agreement, each Class Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Bank Investors of its Class which hold Commitments aggregating in excess of [51%] [66 and 2/3%] of the aggregate of the Facility Limit for such Class as of such date, and such instructions shall be binding on each Conduit and each Bank Investor of such Class; provided, however, that each Class Agent shall not be required to take any action that exposes such Class Agent to personal liability or that is contrary to any Transaction Document or applicable law or unless it shall first be indemnified to its satisfaction by the Bank Investors against any and all liability and expense which may be incurred by it by reason of taking any such action. SECTION 9.12. Termination Event or Potential Termination Event. No Class Agent shall be deemed to have knowledge or notice of the occurrence of a Potential Termination Event or a Termination Event unless such Class Agent has received written notice from a Conduit a Bank Investor, the Agent or the Transferor specifying such Potential Termination Event or Termination Event and stating that such notice is a "Notice of Termination Event or Potential Termination Event". In the event that a Class Agent receives such a notice of the occurrence of a Potential Termination Event or Termination Event, the Agent shall give prompt notice thereof to the Agent each related Conduit and each related Bank Investor. Each Class Agent shall (subject to Section 9.11 hereof) take such action with respect to such Potential Termination Event or Termination Event as shall reasonably be directed by the Bank Investors of its Class which hold Commitments aggregating in excess of 5 1 % of the aggregate of the Facility Limit for such Class as of such date, provided that unless and until such Class Agent shall have received such directions, such Class Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Potential Termination Event or Termination Event as it shall deem advisable in the best interest of the Conduits and each Bank Investor of its Class. SECTION 9.13. Rights as Bank Investor. With respect to its Commitment, NationsBank (and any successor acting as Class Agent for the Class of which EFC is a member) in its capacity as a Bank Investor hereunder shall have the rights and powers specified hereunder as the rights and powers of a Bank Investor and may exercise the same as though it were not acting as the Class Agent for the Class of which EFC is a member, and the term "Bank Investor" shall, unless the context otherwise indicates, include NationsBank in its individual capacity. NationsBank (and any successor acting as Class Agent for the Class of which EFC is a member) and its affiliates may (without having to account therefor to any Conduit or any Bank Investor) accept deposits from, lend money to, make investments in, provide services to, and generally engage in any kind of lending, trust or other business with any of the Transferor, Saks and the Servicer or any of their Subsidiaries or affiliates as if it were not acting as Class Agent for the Class of which EFC is a member, and NationsBank (and any successor acting as Class Agent for the Class of which EFC is a member) and its affiliates may accept fees and other consideration from any of the Transferor, Saks and the Servicer or any of their Subsidiaries or Affiliates for services in connection with this Agreement or otherwise without having to account for the same to any Conduit or any Bank Investor. SECTION 9.14. Indemnification of the Class Agents. Each Bank Investor agrees to indemnify the related Class Agent (to the extent not reimbursed by the Transferor), ratably in accordance with its respective Pro Rata Share, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including attorneys' fees), or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against such Class Agent (including by a Conduit or a Bank Investor) in any way relating to or arising out of this Agreement or any other Transaction Document or the transactions contemplated thereby or any action taken or omitted by such Class Agent under this Agreement or any other Transaction Document, provided that no Bank Investor shall be liable for any of the foregoing to the extent they arise from the gross negligence or willful misconduct of the Person indemnified. Without limitation of the foregoing, each Bank Investor agrees to reimburse the related Class Agent ratably in accordance with its respective Pro Rata Share, promptly upon demand for any out-of-pocket expenses (including attorneys' fees) incurred by such Class Agent in connection with the administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement and the other Transaction Documents, to the extent that such expenses are incurred in the interests of or otherwise in respect of the Bank Investors hereunder and/or thereunder and to the extent that such Agent is not reimbursed for such expenses by the Transferor. The agreements contained in this Section shall survive payment in full of the aggregate of the Net Investment for all Classes and all other amounts payable under this Agreement. SECTION 9.15. Resignation of a Class Agent. A Class Agent may resign at any time by giving notice thereof to the Agent, each related Conduit, each related Bank Investor and the Transferor. Upon any such resignation, the Bank Investors of its Class which hold Commitments aggregating in excess of [51%] [66 and 2/3%] of the aggregate of the Facility Limit for such Class as of such date shall have the right to appoint a successor Class Agent. If no successor Class Agent shall have been so appointed by the such Persons and shall have accepted such appointment within thirty (30) days after the retiring Agent's giving of notice of resignation, then the retiring Class Agent may, on behalf of the Conduits and the Bank Investors of its Class, appoint a successor Class Agent which shall be a commercial bank organized under the laws of the United States having combined capital and surplus of at least $100,000,000. Upon the acceptance of any appointment as a Class Agent hereunder by a successor, such successor shall thereupon succeed to and become vested with all the rights, powers, discretion, privileges, and duties of the retiring Agent, and the retiring Class Agent shall be discharged from its duties and obligations hereunder. After any retiring Class Agent's resignation hereunder as a Class Agent, the provisions of this Article IX shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Class Agent. SECTION 9.16. Payments by the Class Agents. Unless specifically allocated to a Bank Investor pursuant to the terms of this Agreement, all amounts received by any Class Agent on behalf of the Bank Investors of its Class shall be immediately paid by such Class Agent to the applicable related Bank Investors (at their respective accounts specified herein or in their respective Assignment and Assignment and Assumption Agreements, as applicable) in accordance with their respective related pro rata interests in the Net Investment of the related Class on the Business Day received by the Class Agent, unless such amounts are received after 12:00 noon on such Business Day, in which case such Class Agent shall use its reasonable efforts to pay such amounts to such Bank Investors on such Business Day, but in any event, shall pay such amounts to the Bank Investors not later than the following Business Day. ARTICLE X MISCELLANEOUS SECTION 10.1. Term of Agreement. This Agreement shall terminate on the date following the Termination Date upon which the Net Investment of each Class has been reduced to zero, all accrued Carrying Costs for such Class and Servicing Fees allocable to such Class have been paid in full and all other Aggregate Unpaids for each Class have been paid in full, in each case, in cash; provided, however, that (i) the rights and remedies of the Agent, any Class Agent, any Conduit any Bank Investor and any Administrative Agent with respect to any representation and warranty made or deemed to be made by the Transferor pursuant to this Agreement, (ii) the indemnification and payment provisions of Article VIII, and (iii) the agreement set forth in Section 10.9 hereof, shall be continuing and shall survive any termination of this Agreement. SECTION 10.2. Waivers, Amendments. (a) No failure or delay on the part of the Agent any Class Agent, any Conduit, any Administrative Agent or any Bank Investor in exercising any power, right or remedy under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or remedy preclude any other further exercise thereof or the exercise of any other power, right or remedy. The rights and remedies herein provided shall be cumulative and nonexclusive of any rights or remedies provided by law. (b) Any provision of this Agreement or any other Transaction Document may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Transferor, the Servicer, each Conduit and the Majority Investors (and, if Article IX or the rights or duties of the Agent are affected thereby, by the Agent); provided that no such amendment or waiver shall, unless signed by each Bank Investor directly affected thereby, (i) increase the Commitment of a Bank Investor, (ii) reduce the Net Investment for the related Class or rate of interest to accrue thereon or any fees or other amounts payable hereunder, (iii) postpone any date fixed for the payment of any scheduled distribution in respect of the Net Investment for the related Class or interest with respect thereto or any fees or other amounts payable hereunder or for termination of any Commitment, (iv) change the percentage of the Commitments of Bank Investors which shall be required for the Bank Investors or any of them to take any action under this Section or any other provision of this Agreement, (v) release all or substantially all of the property with respect to which a security or ownership interest therein has been granted hereunder to the Agent or the Bank Investors or (vi) extend or permit the extension of the Commitment Termination Date for any Class. In the event the Agent requests a Conduit's or a Bank Investor's consent pursuant to the foregoing provisions and the Agent does not receive a consent (either positive or negative) from such Conduit or such Bank Investor within 10 Business Days of such Conduit's or such Bank Investor's receipt of such request then such conduit or such Bank Investor (and its percentage interest hereunder) shall be disregarded in determining whether the Agent shall have obtained sufficient consent hereunder. SECTION 10.3. Notices. Except as provided below, all communications and notices provided for hereunder shall be in writing (including telecopy or electronic facsimile transmission or similar writing) and shall be given to the other party at its address or telecopy number set forth below or at such other address or telecopy number as such party may hereafter specify for the purposes of notice to such party. Each such notice or other communication shall be effective (i) if given by telecopy, when such telecopy is transmitted to the telecopy number specified in this Section 10.3 and confirmation is received, (ii) if given by mail, three (3) Business Days following such posting, if postage prepaid, or if sent via-U. S. certified or registered mail, (iii) if given by overnight courier, one (1) Business Day after deposit thereof with a national overnight courier service, or (iv) if given by any other means, when received at the address specified in this Section 10.3. However, anything in this Section 10.3 to the contrary notwithstanding, the Transferor hereby authorizes each Conduit to effect funding period and interest rate selections based on telephonic notices made by any Person which such Conduit in good faith believes to be acting on behalf of the Transferor. The Transferor agrees to deliver promptly to the applicable Conduit a written confirmation of each telephonic notice signed by an authorized officer of Transferor. However, the absence of such confirmation shall not affect the validity of such notice. If the written confirmation differs in any material respect from the action taken by the applicable Conduit the records of such Conduit shall govern absent manifest error. If to a Conduit at its address set forth on the signature pages hereto: If to the Transferor: Saks Credit Corporation Telephone: Telecopy: Payment Information: NATIONSBANK, N.A. ABA Account Reference If to the Servicer: Saks Incorporated Telephone: Telecopy: If to the Agent or the Administrative Agent with respect to EFC: NationsBank, N.A. Bank of America Corporate Center, 10th Floor Charlotte, North Carolina 28255 Attention: Michelle M. Heath Asset Backed Securitization Group Telephone: (704) 386-7922 Telecopy: (704) 388-9169 Payment Information: NationsBank, N.A. ABA 053-000-196 for the account of NationsBank Charlotte Account No. 109360165000 Attn.: Camille Zerbinos If to a Bank Investor, at its address set forth on the signature pages hereto or of the Assignment and Assumption Agreement pursuant to which is became a party hereto. Each person whose telecopy number and address is set forth above may change such telecopy number or address by giving notice to each other party hereto. SECTION 10.4. Governing Law, Submission to Jurisdiction, Integration. (a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICTS OF LAW PRINCIPLES THEREOF OTHER THAN SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW. EACH OF THE TRANSFEROR, SAKS AND THE SERVICER HEREBY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE COURT SITTING IN THE CITY OF NEW YORK FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. Each of the Transferor, Saks and Servicer hereby irrevocably waives, to the fullest extent it may effectively do so, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. Nothing in this Section 10.4 shall affect the right of the Agent, any Class Agent, any Conduit or any Bank Investor to bring any action or proceeding against any of the Transferor, Saks or the Servicer or its respective property in the courts of other jurisdictions. (b) EACH OF THE PARTIES HERETO HEREBY WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE AMONG ANY OF THEM ARISING OUT OF, CONNECTED WITH, RELATING TO OR INCIDENTAL TO THE RELATIONSHIP BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT OR THE OTHER TRANSACTION DOCUMENTS. (c) This Agreement contains the final and complete integration of all prior expressions by the parties hereto with respect to the subject matter hereof and shall constitute the entire Agreement among the parties hereto with respect to the subject matter hereof superseding all prior oral or written understandings. (d) The Transferor, Saks and the Servicer each hereby appoint [CT Corporation, Saks located at 1633 Broadway, New York, New York 10019], as the authorized agent upon whom process may be served in any action arising out of or based upon this Agreement the Saks Guaranty, the other Transaction Documents to which such Person is a party or the transactions contemplated hereby or thereby that may be instituted in the United States District Court for the Southern District of New York and of any New York State court sitting in The City of New York by any Conduit the Agent, any Class Agent, any Bank Investor, any Administrative Agent or any assignee of any of them. SECTION 10.5. Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same Agreement. SECTION 10.6. Successors and Assigns. (a) This Agreement shall be binding on the parties hereto and their respective successors and assigns; provided, however, that neither the Transferor, the Servicer nor Saks may assign any of its rights or delegate any of its duties hereunder or under the Receivable Purchase Agreement or under any of the other Transaction Documents to which it is a party without the prior written consent of the Agent. No provision of this Agreement shall in any manner restrict the ability of any Conduit or any Bank Investor to assign, participate, grant security interests in, or otherwise transfer any portion of any Transferred Interest held by it. (b) Without limiting the foregoing, each Conduit may, from time to time, with prior or concurrent notice to Transferor and Servicer, in one transaction or a series of transactions, assign all or a portion of the Transferred Interest for the related Class held by it and the Net Investment for the related Class held by it and its rights and obligations under this Agreement and any other Transaction Documents to which it is a party to a related Conduit Assignee. Upon and to the extent of such assignment by such Conduit to such Conduit Assignee, (i) such Conduit Assignee shall be the owner of the assigned portion of such Transferred Interest and such Net Investment, (ii) the related administrative agent for such Conduit Assignee will act as the Administrative Agent for such Conduit Assignee, with all corresponding rights and powers, express or implied, granted to such Administrative Agent hereunder or under the other Transaction Documents, (iii) such Conduit Assignee and its liquidity support provider(s) and credit support provider(s) and other related parties shall have the benefit of all the rights and protections provided to the related Conduit and its Liquidity Support Provider(s) and Credit Support Provider(s), respectively, herein and in the other Transaction Documents (including, without limitation, any limitation on recourse against such Conduit Assignee or related parties, any agreement not to file or join in the filing of a petition to commence an insolvency proceeding against such Conduit Assignee, and the right to assign to another Conduit Assignee as provided in this paragraph), (iv) such Conduit Assignee shall assume all (or the assigned or assumed portion) of the related Conduit' s obligations, if any, hereunder or any other Transaction Document, and such Conduit shall be released from such obligations, in each case to the extent of such assignment, and the obligations of such Conduit and such Conduit Assignee shall be several and not joint, (v) all distributions in respect of the Net Investment of the related Class shall be made to the applicable agent or administrative agent, as applicable, on behalf of such Conduit and such Conduit Assignee on a pro rata basis according to their respective interests, (vi) the definition of the term "CP Rate" with respect to the portion of the Net Investment of the related Class funded with commercial paper issued by such Conduit from time to time shall be determined in the manner set forth in the definition of "CP Rate" applicable to such Conduit on the basis of the interest rate or discount applicable to commercial paper issued by such Conduit Assignee (rather than such Conduit), (vii) the defined terms and other terms and provisions of this Agreement and the other Transaction Documents shall be interpreted in accordance with the foregoing, and (viii) if requested by the Agent or administrative agent with respect to the Conduit Assignee, the parties will execute and deliver such further agreements and documents and take such other actions as the Agent or such administrative agent may reasonably request to evidence and give effect to the foregoing. No assignment by a Conduit to a related Conduit Assignee of all or any portion of the Net Investment shall in any way diminish the related Bank Investors' obligation under Section 9.9 to fund any Incremental Transfer not funded by such Conduit or such Conduit Assignee or to acquire from such Conduit or such Conduit Assignee all or any portion of the related Net Investment. (c) In the event that a Conduit makes an assignment to a related Conduit Assignee in accordance with Section 10.6 (b) hereof, the related Bank Investors: (i) if requested by the related Liquidity Provider shall terminate their participation in the related Liquidity Provider Agreement to the extent of such assignment (ii) if requested by the related Liquidity Provider, shall execute a participation agreement with respect to the liquidity provider agreement related to such Conduit Assignee, to the extent of such assignment the terms of which shall be substantially similar to those of the participation agreement entered into by such Bank Investor with respect to the related Liquidity Provider Agreement (or which shall be otherwise reasonably satisfactory to the related Liquidity Provider and such Bank Investors), (iii) if requested by the related Conduit, shall enter into such agreements as requested by such Conduit pursuant to which they shall be obligated to provide funding to the related Conduit Assignee on substantially the same terms and conditions as is provided for in this Agreement in respect of such Conduit (or which agreements shall be otherwise reasonably satisfactory to such Conduit and such Bank Investors), and (iv) shall take such actions as the Agent shall reasonably request in connection therewith. (d) Each of the Transferor, Saks and the Servicer hereby agrees and consents to the assignment by a Conduit from time to time of all or any part of its rights under, interest in and title to this Agreement and the Transferred Interest of its Class to any related Liquidity Provider. In addition, each of the Transferor, Saks and the Servicer hereby consents to and acknowledges the assignment by a Conduit of all of its rights under, interest in and title to this Agreement and the Transferred Interest of its Class to the Collateral Agent. SECTION 10.7. Waiver of Confidentiality. Each of the Transferor, Saks and the Servicer hereby consents to the disclosure of any non-public information with respect to it received by any Conduit the Agent any Class Agent any Bank Investor or any Administrative Agent to any Conduit, the Agent any Class Agent any nationally recognized rating agency rating a Conduit's Commercial Paper, any Administrative Agent, any Collateral Agent, any Bank Investor or potential Bank Investor, any Liquidity Provider or any Credit Support Provider in relation to this Agreement. SECTION 10.8. Confidentiality Agreement. Each of the Transferor, Saks and the Servicer hereby agrees that it will not disclose the contents of this Agreement or any other proprietary or confidential information of any Conduit, the Agent, any Administrative Agent, any Collateral Agent any Liquidity Provider or any Bank Investor to any other Person except (i) its auditors and attorneys, employees or financial advisors (other than any commercial bank) and any nationally recognized rating agency, provided such auditors, attorneys, employees, financial advisors or rating agencies are informed of the highly confidential nature of such information or (ii) as otherwise required by applicable law or order of a court of competent jurisdiction. SECTION 10.9. No Bankruptcy Petition Against the Conduits. Each of the Transferor, the Servicer and Saks hereby covenants and agrees that, prior to the date which is one year and one day after the payment in full of all outstanding Commercial Paper or other indebtedness of any Conduit it will not institute against, join any other Person in instituting against or encourage or assist any other Person in instituting against, or encourage or assist any other Person in instituting against, such Conduit any bankruptcy, reorganization, arrangement insolvency or liquidation proceedings or other similar proceeding under the laws of the United States or any state of the United States. SECTION 10.10. Limited Recourse. Notwithstanding anything to the contrary contained in this Agreement, the obligations of any Conduit under this Agreement and all other Transaction Documents are solely the corporate obligations of such conduit and shall be payable solely to the extent of funds received from the Transferor in accordance herewith or from any party to any Transaction Document in accordance with the terms thereof in excess of funds necessary to pay matured and maturing Commercial Paper. Any amounts not paid by a Conduit in accordance with the foregoing shall not constitute a claim within the meaning of the Bankruptcy Code. SECTION 10.11. Characterization of the Transactions Contemplated by the Agreement. It is the intention of the parties that the transactions contemplated hereby constitute the sale of all Transferred Interests, conveying good title thereto free and clear of any Adverse Claims to the Agent on behalf of the Conduits and the Bank Investors, as applicable, and that any Transferred Interest not be part of the Transferor's estate in the event of an insolvency. If, notwithstanding the foregoing, the transactions contemplated hereby should be deemed a financing, the parties intend that the Transferor shall be deemed to have granted to the Agent, on behalf of the Conduits and the Bank Investors, and the Transferor hereby grants to the Agent on behalf of the Conduits and the Bank Investors, a first priority perfected and continuing security interest in all of the Transferor's right title and interest in, to and under the Receivables, together with Related Security, Collections and Proceeds with respect thereto, and together with all of the Transferor's rights under the Receivable Purchase Agreement with respect to the Receivables and with respect to any obligations thereunder of NBGL with respect to the Receivables, and that this Agreement shall constitute a security agreement under applicable law. The Transferor hereby assigns to the Agent on behalf of the Conduits and the Bank Investors, all of its rights and remedies under the Receivable Purchase Agreement with respect to the Receivables and with respect to any obligations thereunder of NBGL with respect to the Receivables. IN WITNESS WHEREOF, the parties hereto have executed and delivered this Transfer and Administration Agreement as of the date first written above. ENTERPRISE FUNDING CORPORATION, as a Conduit By: __________________________________ Name: Title: Notice Address: Enterprise Funding Corporation c/o Global Securitization Services, LLC 25 West 43dStreet Suite 704 New York, New York 10036 Attention: Kevin Bums, Vice President Telephone: (212) 302-8331 Telecopy: (212) 302-8767 SAKS CREDIT CORPORATION, as Transferor By: __________________________________ Name: Title: SAKS INCORPORATED, as Servicer By: ___________________________________ Name: Title: Commitment NATIONSBANK, N.A., as Agent as Class $_________ Agent and as a Bank Investor By: __________________________________ Name: Title: [OTHER BANK INVESTORS] EX-10 4 EXHIBIT 10.18 RECEIVABLES PURCHASE AGT EXHIBIT 10.18 RECEIVABLES PURCHASE AGREEMENT among NATIONAL BANK OF THE GREAT LAKES, as Seller and SAKS CREDIT CORPORATION, as Purchaser and SAKS INCORPORATED (formerly named "Proffitt's, Inc.") as Servicer Dated as of July 1, 1999 CONTENTS ARTICLE I - DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . .2 SECTION 1.1. Definitions . . . . . . . . . . . . . . . . . . . . . . .2 SECTION 1.2. Other Terms . . . . . . . . . . . . . . . . . . . . . . .6 SECTION 1.3. Computation of Time Periods . . . . . . . . . . . . . . .6 ARTICLE II - PURCHASE, CONVEYANCE AND SERVICING OF RECEIVABLES . . . . .6 SECTION 2.1. Sale......... . . . . . . . . . . . . . . . . . . . . . .6 SECTION 2.2. Servicing of Receivables. . . . . . . . . . . . . . . . .8 ARTICLE III - CONSIDERATION AND PAYMENT; RECEIVABLES . . . . . . . . . .9 SECTION 3.1. Purchase Price. . . . . . . . . . . . . . . . . . . . . .9 SECTION 3.2. Payment of Purchase Price . . . . . . . . . . . . . . . .9 SECTION 3.3. Monthly Report. . . . . . . . . . . . . . . . . . . . . 10 ARTICLE IV - REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . 10 SECTION 4.1. Seller's Representations and Warranties . . . . . . . . 10 SECTION 4.2. Reaffirmation of Representations and Warranties by the Seller; Notice of Breach. . . . . . . . . . . . . . 13 SECTION 4.3. Repurchase of Ineligible Receivables. . . . . . . . . . 14 SECTION 4.4. Repurchase After Cure Period. . . . . . . . . . . . . . 14 SECTION 4.5. Repurchase of All Receivables . . . . . . . . . . . . . 15 ARTICLE V - COVENANTS OF THE SELLER. . . . . . . . . . . . . . . . . . 15 SECTION 5.1. Covenants of the Seller . . . . . . . . . . . . . . . . 15 SECTION 5.2. Negative Covenants of the Seller. . . . . . . . . . . . 17 SECTION 5.3. Indemnification . . . . . . . . . . . . . . . . . . . . 18 ARTICLE VI - REPURCHASE OBLIGATION . . . . . . . . . . . . . . . . . . 19 SECTION 6.1. Mandatory Repurchase. . . . . . . . . . . . . . . . . . 19 SECTION 6.2. Dilutions, etc. . . . . . . . . . . . . . . . . . . . . 19 ARTICLE VII - CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . 20 SECTION 7.1. Conditions to the Purchaser's Obligations Regarding Receivables. . . . . . . . . . . . . . . . . . . . . . . . . 20 ARTICLE VIII - TERM AND TERMINATION. . . . . . . . . . . . . . . . . . 21 SECTION 8.1. Term......... . . . . . . . . . . . . . . . . . . . . . 21 SECTION 8.2. Effect of Termination . . . . . . . . . . . . . . . . . 21 ARTICLE IX - MISCELLANEOUS PROVISIONS. . . . . . . . . . . . . . . . . 22 SECTION 9.1. Amendment . . . . . . . . . . . . . . . . . . . . . . . 22 SECTION 9.2. Governing Law . . . . . . . . . . . . . . . . . . . . . 22 SECTION 9.3. Notices . . . . . . . . . . . . . . . . . . . . . . . . 22 SECTION 9.4. Severability of Provisions. . . . . . . . . . . . . . . 23 SECTION 9.5. Assignment. . . . . . . . . . . . . . . . . . . . . . . 23 SECTION 9.6. Further Assurances. . . . . . . . . . . . . . . . . . . 24 SECTION 9.7. No Waiver; Cumulative Remedies. . . . . . . . . . . . . 24 SECTION 9.8. No Bankruptcy Petition Against the Purchaser or Trust . . . . . . . . . . . . . . . . . . . . . . . . . 24 SECTION 9.9. Counterparts. . . . . . . . . . . . . . . . . . . . . . 24 SECTION 9.10. Binding Effect; Third-Party Beneficiaries . . . . . . . 25 SECTION 9.11. Merger and Integration. . . . . . . . . . . . . . . . . 25 SECTION 9.12. Headings. . . . . . . . . . . . . . . . . . . . . . . . 25 SECTION 9.13. Exhibits. . . . . . . . . . . . . . . . . . . . . . . . 25 EXHIBITS Exhibit A: Form of Subordinated Note Exhibit B: Location of Records, Principal Place of Business, etc. Exhibit C: Subsidiaries, Divisions, Trade Names, Bankruptcy Proceedings RECEIVABLES PURCHASE AGREEMENT THIS RECEIVABLES PURCHASE AGREEMENT, dated as of July 1, 1999 (as amended, supplemented or otherwise modified and in effect from time to time, this "Agreement"), between NATIONAL BANK OF THE GREAT LAKES, a national banking association, as seller (the "Seller"), SAKS CREDIT CORPORATION, a Delaware corporation, as purchaser (the "Purchaser"), and SAKS INCORPORATED (formerly named "Proffitt's, Inc."), a Tennessee corporation, as servicer (the "Servicer"). W I T N E S S E T H : WHEREAS, the Purchaser desires to purchase from time to time accounts receivable existing on the Closing Date and acquired or generated thereafter in the normal course of the Seller's business pursuant to certain revolving consumer credit card accounts; WHEREAS, the Seller desires to sell and assign from time to time these receivables to the Purchaser upon the terms and conditions hereinafter set forth; WHEREAS, the Servicer has agreed to service these accounts receivable; WHEREAS, Proffitt's Credit Corporation, a Nevada corporation, as transferor, the Servicer, and Norwest Bank Minnesota, National Association, as trustee (together with its successors, the "Trustee") entered into a Master Pooling and Servicing Agreement dated as of August 21, 1997 (as amended, supplemented or otherwise modified and in effect from time to time, the "Pooling and Servicing Agreement"), and thereby created a trust on behalf of the holders of certificates in such trust; WHEREAS, Proffitt's Credit Corporation has merged with and into PCC Merger Corp. ("PCC Merger"), and PCC Merger and SFA Finance Company have consolidated (the "Consolidation") to form the Purchaser; and WHEREAS, the Purchaser has become the Transferor under the Pooling and Servicing Agreement and has succeeded to all rights, benefits, obligations and duties as Transferor under the Pooling and Servicing Agreement; NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Purchaser and the Seller, intending to be legally bound, agree as follows: ARTICLE I DEFINITIONS SECTION 1.1. Definitions. All capitalized terms used herein shall have the meanings specified herein or, if not so specified, the meaning specified in, or incorporated by reference into, the Pooling and Servicing Agreement: "Account" shall mean each consumer revolving credit card account, originated or acquired by the Seller, which account has been established or exists pursuant to an Account Agreement between an Obligor and any Person, including all Accounts of the Department Stores contributed to the Bank; provided, however, that this shall not include an Account which as of the Cut-Off Date has been identified on the Servicer's records as (a) "Jackson Facility Vision 21 system, Organization 006, logo 200," (b) "Elmhurst Facility Vision 21 system Organization 100, logos 191-196," or (c) an Account with respect to which the related Receivables have been charged-off, an intercompany account, or a corporate open-end account. "Additional Accounts" shall have the meaning specified in the Pooling and Servicing Agreement. "Advance" shall have the meaning specified in Section 3.2(a) hereof. "Automatic Additional Accounts" shall have the meaning specified in the Pooling and Servicing Agreement. "Benefit Plan" shall mean any employee benefit plan as defined in Section 3(3) of ERISA which the Seller maintains. "Certificateholders" shall have the meaning specified in the Pooling and Servicing Agreement. "Closing Date" shall mean the beginning of business on July 1, 1999. "Creation Date" shall have the meaning specified in the Pooling and Servicing Agreement. "Cut-Off Date" shall mean the close of business on June 28, 1999. "Department Stores" shall mean the Saks Fifth Avenue, Off Fifth, Bullock & Jones, Proffitt's, Younkers, Parisian, McRae's, Herberger's, Carson Pirie Scott, Boston Store, and Bergner's department stores, and catalog businesses currently operated by Saks Incorporated or its subsidiaries, and each department store or related catalog business hereafter owned or operated by Saks Incorporated or a subsidiary of Saks Incorporated or a division of Saks Incorporated or any of its subsidiaries, where the Bank holds, originates or acquires Accounts and Receivables for customers of such stores. "Eligible Account" shall have the meaning specified in the Pooling and Servicing Agreement. "Eligible Receivable" shall have the meaning specified in the Pooling and Servicing Agreement. "ERISA Affiliate" shall mean, with respect to any Person, (i) any corporation which is a member of the same controlled group of corporations (within the meaning of Section 414(b) of the Internal Revenue Code) as such Person; (ii) a trade or business (whether or not incorporated) under common control (within the meaning of Section 414(c) of the Internal Revenue Code) with such Person; or (iii) for purposes of Code Section 412, a member of the same affiliated service group (within the meaning of Section 414(m) of the Internal Revenue Code) as such Person, any corporation described in clause (i) above or any trade or business described in clause (ii) above. "Event of Bankruptcy" shall have the meaning specified in the Pooling and Servicing Agreement. "Finance Charges" shall have the meaning specified in the Pooling and Servicing Agreement. "Insurance Charges" shall have the meaning specified in the Pooling and Servicing Agreement. "Multiemployer Plan" shall mean a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA which is or was at any time during the current year or the immediately preceding five years contributed to by the Seller or Eligible Originator or any ERISA Affiliate of the Seller or Eligible Originator on behalf of its employees. "Purchase Date" shall have the meaning assigned in Section 3.2(b) hereof. "Purchase Rate" shall mean the percentage equivalent of the decimal representation of the following expression: (1.00 + APY) minus (BDA + SF + PCF + OE + RF) where: APY = average portfolio yield of the Seller (expressed as the decimal equivalent of a percentage) as reasonably determined over the preceding twelve (12) months (or such other period mutually agreed upon by the Purchaser and the Seller); BDA = an allowance for bad debts (expressed as the decimal equivalent of a percentage), based on, among other relevant factors, historical rates for the previous twelve (12) months (or such other period mutually agreed upon by the Purchaser and the Seller); SF = a Servicer fee equal to 2.00% (expressed as the decimal equivalent of a percentage) per annum; PCF = the Purchaser's cost of funds, as calculated from time to time, equal to the sum (expressed as the decimal equivalent of a percentage) of (i) the product of a fraction equal to the adjusted investor amount of all classes of Certificates issued by the Trust (other than those held by the Purchaser) divided by the Aggregate Principal Receivables multiplied by the prime rate (as published in the Money Rates Section of The Wall Street Journal) plus (ii) the product of (x) 20% (to be adjusted from time to time based on changes to the Purchaser's reasonably estimated marginal cost of capital) multiplied by (y) a fraction equal to the sum of the Transferor Amount plus the investor amount of any class of Certificates held by the Purchaser divided by the Aggregate Principal Receivables; OE = the fraction (expressed as the decimal equivalent of a percentage), the numerator of which is the Purchaser's annualized estimate of projected operating expenses for the next twelve (12) months and the denominator of which is the estimated outstanding principal balance of Receivables expected to be sold by the Seller to the Purchaser in the next twelve (12) months; and RF = a contingency risk factor (expressed as the decimal equivalent of a percentage) based on industry and economic considerations, as determined by the Purchaser in its reasonable discretion and as agreed upon between the Purchaser and the Seller. "Purchase Period" shall mean, with respect to Receivables sold by the Seller to the Purchaser after the Closing Date, the Monthly Period reported upon in the most recent Monthly Servicer Report delivered after the Closing Date. "Purchase Price" shall have the meaning set forth in Section 3.1. "Purchaser" shall mean Saks Credit Corporation, a Delaware corporation, and its successors and assigns. "Receivable" shall mean any amount owing by an Obligor under an Account with the Seller, including any Additional Account and/or Automatic Additional Account, from time to time, including, without limitation, amounts owing for the payment of merchandise and services, Insurance Charges, service contract charges, Finance Charges and all other fees and charges. In calculating the aggregate amount of Receivables on any day, the amount of Receivables shall be reduced by the aggregate amount of adjustments stated in Section 3.8 of the Pooling and Servicing Agreement in the Accounts on such day. Any Receivables which the Seller is unable to transfer under circumstances similar to those described in Section 2.5(d) of the Pooling and Servicing Agreement shall not be included for the period in which such Receivables cannot be transferred under conditions similar to those described in such Section 2.5(d) in calculating the aggregate amount of Receivables. "Records" shall mean all Account Agreements and other documents, books, records and other information (including, without limitation, computer programs, tapes, discs, punch cards, data processing software and related property and rights) maintained with respect to Receivables and the related Obligors. "Related Security" means, with respect to any Receivable, all of the Seller's rights, title and interest in, to and under the following, as and to the extent applicable: (i) all of the Seller's interest, if any, in the merchandise (including returned or repossessed merchandise), if any, the sale of which gave rise to such Receivable; (ii) all other security interests or liens and property subject thereto from time to time, if any, purporting to secure payment of such Receivable, whether pursuant to the Account related to such Receivable or otherwise, together with all financing statements signed by an Obligor describing any collateral securing such Receivable; (iii) all guarantees, indemnities, warranties, insurance (and proceeds and premium refunds thereof) or other agreements or arrangements of any kind from time to time supporting or securing payment of such Receivable whether pursuant to the Account related to such Receivable or otherwise; (iv) all records related to such Receivable; and (v) all Proceeds of any of the foregoing. "Relevant UCC" shall mean the Uniform Commercial Code as in effect in the State of Illinois. "Secured Obligations" shall have the meaning set forth in Section 2.1(d) hereof. "Subservicers" shall mean initially McRae's, Inc. and any Person thereafter appointed by the Servicer as a Subservicer of the Receivables. "Subordinated Note" shall mean the subordinated note in the amount of $500,000,000 dated of even date herewith between Saks Incorporated and Saks Credit Corporation which supersedes and replaces a promissory note in the same amount and on the same terms dated as of February 2, 1998 between Proffitt's, Inc. and Proffitt's Credit Corporation. "Termination Date" shall have the meaning specified in Section 8.1 hereof. SECTION 1.2. Other Terms. All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles. All terms used in Article 9 of the Relevant UCC, and not specifically defined herein, are used herein as defined in such Article 9. To the extent that the definitions of accounting terms herein are inconsistent with the meanings of such terms under generally accepted accounting principles, the definitions contained herein shall control. The definitions of all terms defined herein shall include the singular as well as the plural form of such terms and the masculine of such terms as well as the feminine and neuter genders of such terms. The terms "include", "including" or "includes" shall mean including without limitation by way of enumeration or otherwise. SECTION 1.3. Computation of Time Periods. Unless otherwise stated in this Agreement, in the computation of a period of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each means "to but excluding." ARTICLE II PURCHASE, CONVEYANCE AND SERVICING OF RECEIVABLES SECTION 2.1. Sale. (a) Upon the terms and subject to the conditions set forth herein, the Seller hereby sells, assigns, transfers, sets-over and conveys to the Purchaser, without recourse, and the Purchaser hereby purchases from the Seller, on the terms and subject to the conditions specifically set forth herein, all of the Seller's right, title and interest, whether now owned or hereafter acquired, in, to and under the Receivables now existing or hereafter created, and owned by the Seller, through any Termination Date (but not thereafter), together with all Related Security, if any, and all Collections and other monies due or to become due with respect thereto (including all Finance Charges, Recoveries and Interchange, if any) and all proceeds of the foregoing, including Insurance Proceeds. The foregoing sale, assignment, transfer and conveyance does not constitute an assumption by the Purchaser of any obligations of the Seller or any other Person to Obligors or to any other Person in connection with the Receivables or under any Related Security, Account Agreement or other agreement and instrument relating to the Receivables. With respect to Receivables sold by the Seller on the Closing Date, such Receivables shall be deemed to be all the Receivables of the Seller that exist as of the close of business on the Cut-Off Date together with any Receivables created thereafter prior to the Closing Date. With respect to Receivables to be sold pursuant to this Agreement by the Seller after the Closing Date, such Receivables shall be deemed to be all the Receivables created after the close of business on the Cut-Off Date. (b) In connection with the foregoing sale, the Seller agrees to record and file on or prior to the Closing Date, at its own expense, a financing statement or statements with respect to the Receivables and the other property described in Section 2.1(a) sold by the Seller hereunder meeting the requirements of applicable state law in such manner and in such jurisdictions as are necessary to perfect and protect the interests of the Purchaser created hereby under the Relevant UCC (subject, in the case of Related Security constituting returned inventory and proceeds, to the applicable provisions of Section 9-306 of the Relevant UCC) against all creditors of and purchasers from the Seller, and to deliver either the originals of such financing statements or a file-stamped copy of such financing statements or other evidence of such filings to the Purchaser on the Closing Date. (c) The Seller agrees that from time to time, at its expense, it will promptly execute and deliver all instruments and documents and take all actions as may be necessary or as the Purchaser may reasonably request in order to perfect or protect the interest of the Purchaser in the Receivables purchased hereunder or to enable the Purchaser to exercise or enforce any of its rights hereunder. Without limiting the foregoing, the Seller will, in order to accurately reflect this purchase and sale transaction, execute and file such financing or continuation statements or amendments thereto or assignments thereof (as permitted pursuant hereto) as may be requested by the Purchaser, and shall indicate clearly and unambiguously in the Seller's computer files and other Records that the Receivables transferred hereby have been sold to the Purchaser pursuant to this Agreement and subsequently transferred to the Trustee pursuant to the Pooling and Servicing Agreement. The Seller shall, upon request of the Purchaser, obtain such additional search reports as the Purchaser shall request. To the fullest extent permitted by applicable law, the Purchaser shall be permitted to sign and file continuation statements and amendments thereto and assignments thereof without the Seller's signature. Carbon, photographic or other reproduction of this Agreement or any financing statement shall be sufficient as a financing statement. (d) It is the express intent of the Seller and the Purchaser that the conveyance of the Receivables, all Related Security, if any, and all Collections and proceeds thereof by the Seller to the Purchaser pursuant to this Agreement be construed as a sale of such Receivables and other property by the Seller to the Purchaser, which sale is absolute and irrevocable (except as expressly provided otherwise herein) and provides the Purchaser with the full benefits of ownership of such Receivables and other property. Further, it is not the intention of the Seller and the Purchaser that such conveyance be deemed a grant of a security interest in the Receivables and such other property by the Seller to the Purchaser to secure a debt or other obligation of the Seller. However, in the event that, notwithstanding the express intent of the parties, the Receivables and such other property are construed to constitute property of the Seller, then (i) this Agreement also shall be deemed to be, and hereby is, a security agreement within the meaning of the Relevant UCC; and (ii) the conveyance by the Seller provided for in this Agreement shall be deemed to be, and the Seller hereby grants to the Purchaser, a security interest in, to and under all of the Seller's right, title and interest in, to and under the Receivables and such other property outstanding on the Closing Date and thereafter owned by the Seller, together with all Related Security, if any, and all Collections and other monies due or to become due with respect thereto (including all Finance Charges, Recoveries and Interchange, if any) and all proceeds of the foregoing, including Insurance Proceeds, to secure the rights of the Purchaser set forth in this Agreement or as may be determined in connection therewith by applicable law (collectively, the "Secured Obligations"). The Seller and the Purchaser shall, to the extent consistent with this Agreement, take such actions as may be necessary to ensure that, if this Agreement were deemed to create a security interest in the Receivables and such other property, such security interest would be deemed to be a perfected first priority security interest in favor of the Purchaser under applicable law and will be maintained as such throughout the term of this Agreement. SECTION 2.2. Servicing of Receivables. (a) The servicing, administering and collection of the Receivables shall be conducted by the Servicer, which hereby agrees to perform, take or cause to be taken all such action as may be necessary or advisable to collect each Receivable from time to time, all in accordance with applicable laws, rules and regulations and with the care and diligence which the Servicer employs in servicing similar receivables for its own account, in accordance with the Credit Card Guidelines. With the consent of the Trustee and the Purchaser, the Servicer may delegate certain functions to the Subservicers; provided, however, no such delegation shall relieve the Servicer of its obligations hereunder. The Purchaser hereby appoints the Servicer as its agent to enforce the Purchaser's rights and interests in, to and under the Receivables, the Related Security, if any, and the Collections with respect thereto, and the Seller agrees to cooperate with and assist the Purchaser and the Servicer in connection with any such efforts, including acting as agent for and on behalf of the Purchaser and the Servicer in connection therewith. The Servicer shall hold in trust for the Purchaser, in accordance with its interests, all records which evidence or relate to the Receivables or Related Security, if any, Collections and proceeds with respect thereto. Notwithstanding anything to the contrary contained herein, from and after a Servicer Default (as defined in the Pooling and Servicing Agreement), a Successor Servicer shall be appointed as provided in Article X of the Pooling and Servicing Agreement. The Purchaser agrees to pay the Servicer a Servicing Fee for the Servicer's performance of the duties and obligations described in this Section 2.2 and in Article III of the Pooling and Servicing Agreement. (b) The Seller hereby grants to each of the Purchaser and the Servicer an irrevocable, non-exclusive license to use, without royalty or payment of any kind, all software used by the Seller to account for the Receivables, to the extent necessary to administer the Receivables, whether such software is owned by the Seller or is owned by others and used by the Seller under license agreements with respect thereto, provided, however, should the consent of any licensor of the Seller to such grant of the license described herein be required, the Seller hereby agrees that upon the request of the Purchaser (or the Trustee as the Purchaser's assignee), the Seller will use its reasonable efforts to obtain the consent of such third-party licensor. The license granted hereby shall be irrevocable, and shall terminate on the date this Agreement terminates in accordance with its terms. ARTICLE III CONSIDERATION AND PAYMENT; RECEIVABLES SECTION 3.1. Purchase Price. (a) The purchase price ("Purchase Price") for the Receivables and related property conveyed on the Closing Date to the Purchaser by the Seller under this Agreement shall be a dollar amount equal to the product of (i) the Aggregate Principal Receivables as of the Cut-Off Date, and (ii) the Purchase Rate then in effect. The Purchase Price for the Receivables and related property conveyed on any date after the Closing Date shall be the dollar amount equal to the product of (i) the aggregate outstanding principal balance of the Receivables sold during the applicable Purchase Period as reflected in the applicable Monthly Servicer's Certificate or any other certificate delivered pursuant thereto or pursuant to this Agreement as in effect prior to the date hereof and (ii) the Purchase Rate on such date. SECTION 3.2. Payment of Purchase Price. (a) The Purchase Price for the Receivables sold on the Closing Date shall be paid or has been paid by payment of cash in immediately available funds. The Purchaser may obtain the cash to pay the Purchase Price from the sale of Eligible Receivables to the Trust, and pursuant to advances pursuant to the Subordinated Note (such advance and any advance thereunder as contemplated by Section 3.2(b), each an "Advance") and contributions to the capital of the Purchaser by Proffitt's, Inc. (b) The Purchase Price for the Receivables sold by the Seller on any date after the initial date of the Receivables Purchase Agreement (each, a "Purchase Date") shall be paid in cash to the Seller from proceeds from (i) the sale by the Purchaser of the Receivables to the Trust or (ii) as the Purchaser may elect, in its sole discretion, from proceeds of (A) an Advance under the Subordinated Note, or (iii) a capital contribution by Saks Incorporated to the Purchaser or (iv) any combination of the foregoing. In the event the Purchaser does not have sufficient cash to pay the Purchase Price due on any Purchase Date, or Saks Incorporated determines, in its sole discretion not to make a capital contribution to the Purchaser, Saks Incorporated, subject to the terms hereof, irrevocably agrees to make an Advance on such Purchase Date in an original principal amount equal to such cash insufficiency; provided, however, that no Advance shall be made if immediately thereafter the Net Worth of the Purchaser would be less than 10% of the highest Aggregate Principal Receivables outstanding during the immediately preceding twelve (12) calendar month period. All Advances made by the Seller to the Purchaser shall be evidenced by the Subordinated Note. (c) The terms and conditions of the Subordinated Note and all Advances thereunder shall be as follows: (i) Repayment of Advances. All amounts paid by the Purchaser with respect to the Advances shall be allocated first to the repayment of accrued interest until all such interest is paid, and then to the outstanding principal amount of the Advances. Subject to the provisions of this Agreement, the Purchaser may borrow, repay and reborrow Advances on and after the date hereof and prior to the termination of this Agreement, subject to the terms, provisions and limitations set forth herein. (ii) Interest. The Subordinated Note shall bear interest from its date on the outstanding principal balance thereof at a rate per annum equal to one month LIBOR as published in the Money Rates Section of The Wall Street Journal. Interest on each Advance shall be computed based on the actual number of days elapsed based upon a year of 360 days. (iii) Sole and Exclusive Remedy; Subordination. The Subordinated Note shall be fully subordinated to any rights of the Trustee, the Certificateholders and their permitted assigns pursuant to the Pooling and Servicing Agreement, all on the terms and conditions set forth in the Subordinated Note, and shall not evidence any rights in the Receivables. SECTION 3.3. Monthly Report. On each Determination Date, the Seller shall deliver or cause to be delivered to the Purchaser a report covering the preceding Monthly Period, substantially in the form of the Monthly Servicer's Certificate attached as Exhibit E to the Pooling and Servicing Agreement, showing (i) the aggregate Purchase Price of Receivables acquired or generated by the Seller in the preceding Monthly Period and (ii) the aggregate outstanding principal balance of such Receivables that are Eligible Receivables as of the last day of such preceding Monthly Period. ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.1. Seller's Representations and Warranties'. The Seller represents and warrants to the Purchaser as of the Closing Date and shall be deemed to represent and warrant as of the date of any sale of any interest in Receivables, including Receivables in Additional Accounts and Automatic Additional Accounts to the Purchaser pursuant to this Agreement that: (a) Corporate Existence and Power. The Seller is a national banking association, duly incorporated, validly existing and in good standing under the laws of the United States of America, and has full power, authority and legal right to own its properties and conduct its business as such properties are presently owned and such business is presently conducted, and to execute, deliver and perform its obligations under this Agreement. The Seller is duly qualified to do business and is in good standing (or is exempt from such requirements) and has obtained all necessary licenses and approvals with respect to the Seller, in each jurisdiction in which failure to so qualify or to obtain such licenses and approvals would render any Account Agreement relating to an Account or any Receivable unenforceable by it, the Purchaser or the Trust and would have a material adverse effect on the Certificateholders or on the Purchaser's or the Servicer's ability to perform their respective obligations under this Agreement, the Pooling and Servicing Agreement or any Supplement thereto. (b) Corporate and Governmental Authorization; Contravention. The execution, delivery and performance by the Seller of this Agreement are within the Seller's corporate powers, have been duly authorized by all necessary corporate action, and require no action by or in respect of, or filing with, any Governmental Authority or official thereof (except for the filing of UCC financing and continuation statements, and amendments thereto, as required by this Agreement). The execution and delivery of this Agreement by the Seller, the performance by the Seller of the transactions contemplated by this Agreement and the fulfillment by the Seller of the terms hereof and thereof will not conflict with, violate or result in any breach of any of the material terms and provisions of, or constitute (with or without notice or lapse of time or both) a default under, any Requirement of Law applicable to the Seller or any indenture, contract, agreement, mortgage, deed of trust or other instrument to which the Seller is a party or by which it or any of its properties are bound and which conflict, violation, breach or default would have a material adverse effect on the Purchaser or the Certificateholders or on the Purchaser's or the Servicer's ability to perform their respective obligations under the Pooling and Servicing Agreement. (c) Binding Effect. This Agreement will constitute the legal, valid and binding obligation of the Seller, enforceable against the Seller in accordance with its terms, subject to applicable bankruptcy, insolvency, receivership, conservatorship, reorganization, moratorium or other similar laws now or hereafter in effect affecting the enforcement of creditors' rights in general and except as such enforceability may be limited by general principles of equity (whether considered in a proceeding at law or in equity). (d) Perfection. Immediately preceding the sale, transfer and assignment of the Receivables and the related property pursuant to this Agreement, the Seller had good and marketable title to all of the Receivables and such related property, free and clear of all Liens (except those Liens permitted by the Pooling and Servicing Agreement). On or prior to the date of each sale of Receivables and such related property pursuant to this Agreement, all financing statements and other documents required to be recorded or filed in order to perfect and protect the ownership interest of the Purchaser in and to the Receivables and such related property against all creditors of and purchasers from the Seller will have been duly filed in each filing office necessary for such purpose and all filing fees and taxes, if any, payable in connection with such filings shall have been paid in full. (e) Tax Status. The Seller has filed all material tax returns (federal, state and local) required to be filed and has paid or made adequate provision for the payment of all taxes, assessments and other governmental charges. (f) Action, Suits. There are no proceedings or investigations pending or, to the knowledge of the Seller, threatened against the Seller before any Governmental Authority (i) asserting the invalidity of this Agreement, (ii) seeking to prevent the consummation of any of the transactions contemplated by this Agreement, (iii) seeking any determination or ruling that, in the reasonable judgment of the Seller, would materially and adversely affect the performance by the Seller of its obligations under this Agreement, (iv) seeking any determination or ruling that would materially and adversely affect the validity or enforceability of this Agreement (v) seeking to affect adversely the federal income tax attributes of the Trust. (g) Place of Business. The principal place of business and chief executive office of the Seller is located at 140 Industrial Drive, Elmhurst, Illinois 60126, and the offices where the Seller keeps all its records with respect to its Accounts and Receivables, are located at the address(es) described on Exhibit B hereto or such other locations notified to the Purchaser in accordance with this Agreement in jurisdictions where all action required by the terms of this Agreement has been taken and completed. (h) True Sale. This Agreement constitutes a valid sale, transfer and assignment to the Purchaser of all right, title and interest of the Seller in and to the Receivables and related property to be transferred hereby, whether existing on the date of this Agreement or hereafter created in the Accounts and the proceeds thereof which is effective as to each Receivable upon the creation thereof, and upon such transfer to the Purchaser hereunder, the Purchaser shall obtain good and marketable title to such Receivables and related property, free and clear of all Liens (except those Liens permitted by the Pooling and Servicing Agreement). (i) Trade Names, Etc. As of the date hereof: (i) the Seller's chief executive office is located at the address for notices set forth in Section 9.3; (ii) the Seller has only the subsidiaries and divisions listed on Exhibit C hereto; and (iii) the Seller has, within the last five (5) years, operated only under the trade names identified in Exhibit C hereto, and, within the last five (5) years, has not changed its name, merged with or into or consolidated with any other corporation or been the subject of any proceeding under Title 11, United States Code (Bankruptcy), except as disclosed in Exhibit C hereto. (j) Nature of Receivables. As of the Cut-Off Date or Creation Date, as applicable, and in the case of Receivables in Additional Accounts, as of the related Additional Account Cut-Off Date, (i) each Receivable then existing is an Eligible Receivable, and (ii) as of the applicable Additional Account Cut-Off Date with respect to Additional Accounts, and as of the applicable Distribution Date on which a computer file, microfiche or written list is delivered pursuant to Section 2.1(b) of the Pooling and Servicing Agreement with respect to Automatic Additional Accounts included automatically pursuant to Section 2.6(d) of the Pooling and Servicing Agreement, Schedule 1 to the Pooling and Servicing Agreement is in all material respects an accurate and complete listing of all the Accounts of the Seller the Receivables of which have been sold, transferred and assigned to the Purchaser as of the Cut-Off Date or the applicable Additional Account Cut-Off Date, the applicable Creation Date and the date of such Schedule 1, as the case may be, and the information contained therein with respect to the identity of such Accounts and the Receivables existing thereunder is true and correct in all material respects as of the dates thereof, including the applicable Cut-Off Date, Additional Account Cut-Off Date or Creation Date. On each day on which any new Receivable is created, the Seller shall be deemed to represent and warrant to the Purchaser that each Receivable created on such day is an Eligible Receivable. (k) Eligibility of Accounts. As of the applicable Cut- Off Date, Additional Account Cut-Off Date or Creation Date, each Account was an Eligible Account and no selection procedures adverse to the Purchaser or the Certificateholders have been employed in selecting the Accounts. (l) Amount of Receivables. As of the Cut-Off Date, the aggregate outstanding principal balance of the Receivables of the Seller in existence was approximately $1,067,000,000. (m) Not an Investment Company. The Seller is not, and is not controlled by, an "investment company" within the meaning of the Investment Company Act of 1940, as amended, or is exempt from all provisions of such Act. (n) ERISA. The Seller and each of its ERISA Affiliates is in compliance in all material respects with ERISA and no lien exists in favor of the Pension Benefit Guaranty Corporation on any of the Receivables. (o) Bulk Sales. No transaction contemplated by this Agreement requires compliance with any bulk sales act or similar law. (p) No Insolvency. The Seller is not insolvent immediately prior to any transfer of Receivables hereunder, and will not be rendered insolvent immediately following such transfer. (q) Reasonably Equivalent Value. The Purchaser has given reasonably equivalent value to the Seller in consideration for the transfer and sale to the Purchaser of the applicable Receivables and other property from such Seller, and each such transfer shall not have been made for or on account of an antecedent debt owed by such Seller to the Purchaser. The Seller acknowledges that it will receive reasonably equivalent value in consideration for the transfer to the Purchaser of all Receivables and other property now or hereafter to be transferred and sold hereunder. The Purchaser and the Servicer may rely upon any of these representations and warranties, and any of the covenants and agreements of the Seller contained herein in connection with any transactions pursuant to the Pooling and Servicing Agreement. SECTION 4.2. Reaffirmation of Representations and Warranties by the Seller; Notice of Breach. On each sale date, the Seller, by accepting the proceeds of such sale, shall be deemed to have certified that all representations and warranties described in Section 4.1 are true and correct on and as of such day as though made on and as of such day and that all the covenants to be performed by the Seller have been performed. The representations and warranties set forth in Section 4.1 shall survive the conveyance of the Receivables to the Purchaser, and termination of the rights and obligations of the Purchaser and the Seller under this Agreement. Upon discovery by the Purchaser or the Seller of a breach of any of the foregoing representations and warranties, the party discovering such breach shall give prompt written notice to the other within three (3) Business Days of such discovery. SECTION 4.3. Automatic Repurchase of Ineligible Receivables. In the event that a Receivable is not an Eligible Receivable as a result of the failure to satisfy the conditions set forth in clause (iii) of the definition of Eligible Receivable, and either of the following two conditions is met: (i) the Lien on the subject Receivable (1) ranks prior to the Lien created pursuant to this Agreement, (2) arises in favor of the United States of America or any state or any agency or instrumentality thereof or involves taxes or liens arising under Title IV of ERISA, or (3) has been consented to by the Seller; or (ii) the Lien on the subject Receivable is not of the types described in clause (i) above, but, as a result of such breach or event, such Receivable becomes a Receivable in a Defaulted Account or the Purchaser's rights in, to or under such Receivable or its proceeds are materially impaired or the proceeds of such Receivable are not available for any reason to the Purchaser free and clear of any Lien except Liens permitted hereby; then, upon the earlier to occur of the discovery of such breach or event by the Seller or receipt by the Seller of written notice of such breach or event given by the Purchaser, the Servicer or the Trustee, each such Receivable or, at the option of the Seller, all such Receivables with respect to the related Account, automatically shall be repurchased by the Seller on the terms and conditions set forth in Article VI hereof. SECTION 4.4. Repurchase After Cure Period. In the event of a breach of any of the representations and warranties set forth in Section 4.1(j) or (k) with respect to a Receivable (other than in the event that a Receivable is not an Eligible Receivable as a result of the failure to satisfy the conditions set forth in clause (iii) of the definition of Eligible Receivable), and as a result of such breach or event such Receivable becomes a Receivable in a Defaulted Account or the Purchaser's rights in, to or under such Receivable or its proceeds are materially impaired or the proceeds of such Receivable are not available for any reason to the Purchaser free and clear of any Lien except Liens permitted hereby, then, upon the expiration of 90 days or any longer period specified by the Servicer (not to exceed an additional 90 days) from the earlier to occur of (x) the discovery of any such event by the Transferor or the Servicer or (y) receipt by the Purchaser or the Servicer of written notice of any such event given by the Trustee, each such Receivable or, at the option of the Purchaser, all such Receivables with respect to the related Account, shall be repurchased by the Seller on the terms and conditions set forth in Article VI hereof; provided, however, that no such repurchase shall be required to be made if, on any day within such applicable period, (A) such representation and warranty with respect to such Receivable shall then be true and correct in all material respects as if such Receivable had been transferred to the Trust on such day, and (B) the related Account is no longer a Defaulted Account as the result of the breach of such representation and warranty, and the Trust's rights in, to or under such Receivable or its proceeds are no longer materially impaired as a result of a breach of such representation and warranty, and the proceeds of such Receivable are available to the Trust free and clear of all Liens resulting in the breach of such representation and warranty, as applicable. SECTION 4.5 Repurchase of All Receivables. In the event that any of the representations or warranties set forth in Sections 4.1(a), 4.1(b), 4.1(c), 4.1(d) or 4.1(j) are breached and such breach results in a requirement that the Purchaser repurchase such Receivable under the Pooling and Servicing Agreement or a material amount of Receivables are deemed not to be Eligible Receivables, and such event has a materially adverse effect on the Purchaser or the Certificateholders, and the Transferor is required to accept reassignment of all Receivables at the order of the Trustee or the Certificateholders, then the Seller shall repurchase all Receivables on the terms and conditions set forth in Article VI hereof. ARTICLE V COVENANTS OF THE SELLER SECTION 5.1. Covenants of the Seller. The Seller hereby covenants and agrees with the Purchaser that, for so long as this Agreement and the Pooling and Servicing Agreement are in effect, and until all Receivables, an interest in which has been sold to the Purchaser pursuant hereto, shall have been paid in full or charged off, and all amounts owed by the Seller pursuant to this Agreement have been paid in full, unless the Purchaser otherwise consents in writing, the Seller covenants and agrees as follows: (a) Conduct of Business. The Seller will carry on and conduct its credit card business in substantially the same manner as is presently conducted and do all things necessary to remain duly organized, validly existing and in good standing as a national banking association. The Seller will maintain all authority required to conduct its business in each jurisdiction in which its business is conducted, the failure of which would render any Account Agreement relating to an Account or any Receivable unenforceable by it, the Purchaser or the Trustee and would have a material adverse effect on the Certificateholders or on the Purchaser's or the Servicer's ability to perform their respective obligations under this Agreement, the Pooling and Servicing Agreement or any Supplement thereto. (b) Compliance with Laws. The Seller will comply in all material respects with all laws, rules, regulations, orders, writs, judgments, injunctions, decrees or awards to which it or its properties may be subject. (c) Furnishing of Information and Inspection of Records. The Seller will furnish or cause to be furnished to the Purchaser from time to time such information with respect to the Receivables as the Purchaser may reasonably request, including, without limitation, a computer file, microfiche or written list showing each Account, identified by account number, and Receivable balance and any information which the Purchaser may be required to deliver pursuant to the Pooling and Servicing Agreement, any Supplement thereto and any related Certificate Purchase Agreement. The Seller will at any time and from time to time during regular business hours and upon reasonable prior notice permit the Purchaser, or its agents or representatives (which may include any purchasers of certificates not sold to the public), (i) to examine and make copies of and abstracts from all records and (ii) to visit the offices and properties of the Seller for the purpose of examining such records, and to discuss matters relating to Receivables or the Seller's performance hereunder with any of the officers, directors, employees or independent public accountants of the Seller having knowledge of such matters. (d) Keeping of Records and Books of Account. The Seller will maintain a system of accounting established and administered in accordance with generally accepted accounting principles except to the extent required otherwise by applicable regulatory authorities and then consistent with regulatory accounting principles, consistently applied, and will maintain and implement administrative and operating procedures (including, without limitation, an ability to produce or recreate records evidencing Receivables in the event of the destruction of the originals thereof), and keep and maintain, all documents, books, records and other information reasonably necessary or advisable for the collection of all Receivables (including, without limitation, records adequate to permit the daily identification of each new Receivable and all Collections of and adjustments to each existing Receivable). The Seller will give the Purchaser and the Trustee notice of any material change in the administrative and operating procedures of the Seller referred to in the previous sentence. (e) Account Agreements and Credit Card Guidelines. The Seller shall comply with and perform its obligations under the applicable Account Agreements relating to the Accounts and the Credit Card Guidelines, except insofar as any failure so to comply or perform would not materially and adversely affect the rights of the Purchaser, the Trust or the Certificateholders, the ability of the Servicer to collect the Receivables, the validity or enforceability of this Agreement, the Pooling and Servicing Agreement, or any documents or agreements related thereto, or the performance by any party of its obligations hereunder or thereunder. (f) Reduction of Charges. Except as required by law or as the Seller shall deem advisable for its credit card program based on a good faith assessment by the Seller, in its sole discretion, of the various factors affecting the use of its credit card accounts, the Seller will not reduce the finance charges or other fees on the Accounts if, as a result of such reduction, its reasonable expectation of Portfolio Yield as of the time of such reduction would be less than the weighted average base rates of all outstanding Series. In addition, the Seller covenants that, unless required by law, it will not reduce the annual percentage rate if its reasonable expectation of Portfolio Yield would be less than the highest Certificate Rate for any outstanding Series. (g) Collections Received. The Seller shall direct or cause all Collections of Receivables to be remitted as directed by the Purchaser. In the event that the Seller receives any such Collection, the Seller shall hold in trust for and on behalf of the Purchaser and the Trust, as their interests may appear, and remit, immediately, but in any event not later than the close of business on the second Business Day following its receipt thereof, to the Servicer, all Collections received from time to time by the Seller. (h) Sale Treatment. The Seller agrees to treat this conveyance for all purposes (including, without limitation, tax and financial accounting purposes) as a sale and, to the extent any such reporting is required, shall report the transactions contemplated by this Agreement on all relevant books, records, tax returns, financial statements and other applicable documents as a sale of the Receivables to the Purchaser. (i) ERISA. The Seller shall promptly give the Purchaser written notice upon becoming aware that (i) the Seller or any of its ERISA Affiliates is not in compliance in all material respects with ERISA and to the extent required of the Purchaser and its ERISA Affiliates in the Certificate Purchase Agreement or that (ii) any ERISA Lien on any of the Receivables exists. SECTION 5.2. Negative Covenants of the Seller. During the term of this Agreement, unless the Trustee and the Purchaser shall otherwise consent in writing: (a) No Sales, Liens, Etc. Except for the conveyances hereunder, the Seller will not sell, pledge, assign or transfer to any other Person, or grant, create, incur, assume or suffer to exist any Lien on (or the filing of any financing statement with respect to) any Receivable, whether now existing or hereafter created, or any interest therein; the Seller will notify the Purchaser and the Trustee of the existence of any Lien on any Receivable transferred and sold by the Seller to Purchaser hereby; and immediately upon discovery thereof, the Seller will defend the right, title and interest of the Purchaser and the Trust in, to and under the Receivables, whether now existing or hereafter created, against all claims of third parties claiming through or under the Seller; provided, however, that nothing in this Section 5.2(a) shall prevent or be deemed to prohibit the Seller from suffering to exist upon any of the Receivables any Liens for, municipal or other local taxes and other governmental charges if such taxes or governmental charges shall not at the time be due and payable or if the Transferor shall currently be contesting the validity thereof in good faith by appropriate proceedings and shall have set aside on its books adequate reserves under generally accepted accounting principles with respect thereto. (b) Account Agreements and Credit Card Guidelines. Subject to compliance with all Requirements of Law, the failure to comply with which would have a material adverse effect on the Purchaser or the Certificateholders, the Seller or the Servicer may change the terms and provisions of the Account Agreements or the Credit Card Guidelines in any respect (including, without limitation, the calculation of the amount, or the timing, of charge offs of Receivables) as follows: (i) if the Seller owns a comparable segment of accounts, then such change shall be made applicable to such comparable segment of the accounts owned and serviced by the Seller that have characteristics the same as, or substantially similar to, the Accounts that are the subject of such change, and (ii) if the Seller does not own such a comparable segment, then the Seller will not make or cause to be made any such change with the intent to materially benefit the Seller over the Purchaser or the Certificateholders. (c) Change of Name, Etc. The Seller shall not change its name, identity or structure or location of its chief executive office, unless at least ten (10) Business Days prior to the effective date of any such change the Seller delivers to the Purchaser such documents, instruments or agreements, including, without limitation, appropriate financing statements under the Relevant UCC, executed by the Seller necessary to reflect such change and to continue the perfection of the Purchaser's and any assignee's first priority interest in the Receivables. (d) No Change in Business or Credit Card Guidelines. The Seller will not make any change in the Credit Card Guidelines or any change in the character of its business, which change would, in either case, impair the collectibility of any substantial portion of the Receivables or otherwise materially and adversely affect the rights of the Purchaser, the Trust or the Certificateholders, the ability of the Servicer to collect the Receivables, the validity or enforceability of this Agreement, the Pooling and Servicing Agreement, or any documents or agreements related thereto, or the performance by any party of its obligations hereunder or thereunder. (e) ERISA Matters. The Seller will not (i) engage in any prohibited transaction (as defined in Section 4975 of the Code and Section 406 of ERISA) for which an exemption is not available or has not previously been obtained from the U.S. Department of Labor; (ii) permit to exist any accumulated funding deficiency (as defined in Section 302(a) of ERISA and Section 412(a) of the Code) or funding deficiency with respect to any Defined Benefit Plan other than a Multiemployer Plan that could reasonably result in the PBGC or IRS filing a lien; (iii) fail to make any payments to any Multiemployer Plan that the Seller or any ERISA Affiliate of the Seller is required to make under the agreement relating to such Multiemployer Plan or any law pertaining thereto; (iv) terminate any Defined Benefit Plan so as to result in any liability; or (v) permit to exist any occurrence of any Reportable Event which represents a material risk of a liability to the Seller or any ERISA Affiliate of the Seller under ERISA or the Code. (f) Transfers of Accounts. The Seller will not convey, transfer or assign any Accounts to any Person, except for Removed Accounts, unless the Rating Agency Condition is satisfied. SECTION 5.3. Indemnification. The Seller agrees to indemnify, defend and hold the Purchaser harmless from and against any and all loss, liability, damage, judgment, claim, deficiency, or expense (including interest, penalties, reasonable attorneys' fees and amounts paid in settlement) (collectively, "Indemnified Amounts") to which the Purchaser or any assignee thereof may become subject insofar as such loss, liability, damage, judgment, claim, deficiency, or expense arises out of or is based upon a breach by the Seller of its representations, warranties and covenants contained herein, or any information certified in any written schedule or certificate delivered by the Seller hereunder being untrue in any material respect at the time so certified; provided, however, neither the Purchaser nor any of its assignees shall be entitled to indemnification hereunder for any Indemnified Amount to the extent the same resulted from the gross negligence or willful misconduct of the Purchaser or any of its assignees. The obligations of the Seller under this Section 5.3 shall be considered to have been relied upon by the Purchaser and shall survive the execution, delivery, performance and termination of this Agreement and any sale or transfer of the Receivables or any interest therein by the Purchaser, regardless of any investigation made by the Purchaser or on its behalf. ARTICLE VI REPURCHASE OBLIGATION SECTION 6.1. Mandatory Repurchase. (a) Breach of Warranty. If on any day the repurchase of any Receivable which has been sold by the Seller hereunder shall be required pursuant to Sections 4.3 or 4.4 hereof, the Seller shall be deemed to have received on such day a Collection of such Receivable in full and shall on such day pay to the Purchaser an amount equal to the aggregate outstanding principal balance of such Receivable, plus outstanding Finance Charges accrued thereon through the date of such repurchase; provided that, prior to the Termination Date, such amount may be paid, at the election of the Purchaser, by a reduction in or an offset to the Purchase Price paid to the Seller on the next occurring Purchase Date, unless the Purchaser is required to make a payment in respect of such breach pursuant to the Pooling and Servicing Agreement; provided, however, in all events at least the amount of any cash deposit required to be made by the Purchaser under the Pooling and Servicing Agreement in respect of the retransfer of such Ineligible Receivable shall be paid in immediately available funds by the Seller. (b) Repurchase of All Receivables. If on any day the repurchase of all Receivables which have been sold by the Seller hereunder shall be required pursuant to Section 4.5 hereof, the Seller shall be deemed to have received on such day a Collection of such Receivables in full and shall on such day pay to the Purchaser an amount equal to the aggregate outstanding principal balance of such Receivable, plus Finance Charges accrued thereon through the date of such repurchase; provided, however, in all events at least the amount of any cash deposit required to be made by the Purchaser under the Pooling and Servicing Agreement in respect of the retransfer of such Ineligible Receivable shall be paid in immediately available funds by the Seller. SECTION 6.2. Dilutions, etc. If the Servicer or the Seller adjusts downward the amount of any Receivable without receiving Collections therefor or without charging off such amount as uncollectible, because of a rebate, refund, unauthorized charge or billing error to an Obligor, or because such Receivable was created in respect of merchandise or services which were refused, returned or not received by an Obligor, then the Seller shall be deemed to have received on such day a Collection of such Receivable in the amount of such reduction, cancellation or payment made by the Obligor and shall on such day pay to the Purchaser an amount equal to such reduction or cancellation; provided that, prior to the Termination Date, such amount may be paid by a reduction in the Purchase Price paid to the Seller on the next occurring Purchase Date, unless the Purchaser is required to make a payment in respect of such breach sooner pursuant to the Pooling and Servicing Agreement. Similarly, if the Servicer or the Seller adjusts downward the amount of any Receivable because such Receivable was discovered as having been created through a fraudulent or counterfeit charge or with respect to which the covenant contained in Section 5.2(a) hereof was breached, then the Seller shall be deemed to have received on such day a Collection of such Receivable in the amount of such reduction, cancellation or payment made by the Obligor and shall on such day pay to the Purchaser an amount equal to such reduction or cancellation; provided that, prior to the Termination Date, such amount may be paid by a reduction in the Purchase Price paid to the Seller on the next occurring Purchase Date; provided, however, in all events at least the amount of any cash deposit required to be made by the Purchaser under the Pooling and Servicing Agreement in respect of any such adjustment shall be paid in immediately available funds by the Seller. Any adjustment ("Adjustment Payment Obligation"), required pursuant to either of the two preceding sentences shall be made within two (2) Business Days of the making of the Adjustment Payment Obligation, and in no event later than the end of the Monthly Period in which such adjustment obligation arises. ARTICLE VII CONDITIONS PRECEDENT SECTION 7.1. Conditions to the Purchaser's Obligations Regarding Receivables. The obligations of the Purchaser to purchase the Receivables on the Closing Date and any Purchase Date shall be subject to the satisfaction of the following conditions: (a) All representations and warranties of the Seller contained in this Agreement shall be true and correct on the Closing Date and on each Purchase Date thereafter with the same effect as though such representations and warranties had been made on such date (except to the extent any such representation or warranty specifically related to an earlier date, in which case such representation or warranty shall have been true as of such earlier date); (b) All information concerning the Receivables provided to the Purchaser shall be true and correct in all material respects as of the Closing Date, in the case of any Receivables existing on the Closing Date, or the Purchase Date, in the case of any Receivables created after the Closing Date, and in each Schedule of Accounts delivered to the Purchaser hereunder for inclusion in Schedule 1 to the Pooling and Servicing Agreement; (c) The Seller shall have substantially performed all other obligations required to be performed by the provisions of this Agreement; (d) The Seller shall have filed or caused to be filed the financing and continuation statement(s) and all amendments thereto required to be filed pursuant to Section 2.1(b); and (e) All corporate and legal proceedings and all instruments in connection with the transactions contemplated by this Agreement shall be satisfactory in form and substance to the Purchaser, and the Purchaser shall have received from the Seller copies of all documents (including, without limitation, records of corporate proceedings) relevant to the transactions herein contemplated as the Purchaser may reasonably have requested. ARTICLE VIII TERM AND TERMINATION SECTION 8.1. Term. This Agreement shall commence as of the date of execution and delivery hereof and shall continue in full force and effect until the date following the earlier of (i) the date on which the Trustee declares a Pay Out Event with respect to all outstanding Series of the Trust pursuant to the Pooling and Servicing Agreement and any Supplements, (ii) the date on which the Trust terminates, (iii) the date on which an event described in the first sentence of Section 9.2(a) of the Pooling and Servicing Agreement occurs with respect to the Seller and the Trust, (iv) the close of business on the third Business Day following a conveyance of Receivables to the Purchaser for which the Purchaser does not pay the Purchase Price in accordance with the provisions hereof, or (vi) the date on which either the Purchaser or the Seller becomes unable for any reason to purchase or repurchase any Receivable in accordance with the provisions of this Agreement or defaults on its obligations hereunder, which default continues unremedied for more than thirty (30) days after written notice (any such date being a "Termination Date"); provided, however, that the termination of this Agreement pursuant to this Section 8.1 hereof shall not discharge any Person from any obligations incurred prior to such termination, including, without limitation, any obligations to make any payments with respect to the interest of the Purchaser in any Receivable sold prior to such termination. SECTION 8.2. Effect of Termination. Following the termination of this Agreement pursuant to Section 8.1, the Seller shall not sell, and the Purchaser shall not purchase, any Receivables. No termination or rejection or failure to assume the executory obligations of this Agreement in any proceeding regarding an event described in the first sentence of Section 9.2(a) of the Pooling and Servicing Agreement with respect to the Seller or the Purchaser shall be deemed to impair or affect the obligations pertaining to any executed sale or executed obligations, including, without limitation, pre-termination breaches of representations and warranties by the Seller or the Purchaser. Without limiting the foregoing, prior to termination, the failure of the Seller to deliver or cause to be delivered computer records of Receivables or any reports regarding the Receivables shall not render such transfer or obligation executory, nor shall the continued duties of the parties pursuant to Article V or Section 9.1 of this Agreement render an executed sale executory. ARTICLE IX MISCELLANEOUS PROVISIONS SECTION 9.1. Amendment. This Agreement and the rights and obligations of the parties hereunder may not be changed orally, but only by an instrument in writing signed by the Purchaser and the Seller. Any reconveyance executed in accordance with the provisions hereof shall not be considered an amendment to this Agreement. SECTION 9.2. Governing Law. THIS AGREEMENT GOVERNS TRANSACTIONS EXCLUSIVELY IN INTERSTATE COMMERCE, AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. SECTION 9.3. Notices. Except as provided below, all communications and notices provided for hereunder shall be in writing (including telecopy or electronic facsimile transmission or similar writing) and shall be given to the other party at its address or telecopy number set forth below or at such other address or telecopy number as such party may hereafter specify for the purposes of notice to such party. Each such notice or other communication shall be effective (i) if given by telecopy, when such telecopy is transmitted to the telecopy number specified in this Section 9.3 and confirmation is received, (ii) if given by mail three (3) Business Days following such posting, postage prepaid, U.S. first class or overnight mail, (iii) if given by overnight courier, such as FedEx, one Business Day after deposit thereof with a national overnight courier service, or (iv) if given by any other means, when received at the address specified in this Section 9.3. (a) in the case of the Purchaser: Saks Credit Corporation 140 Industrial Drive Elmhurst, Illinois 60126 Attn: Douglas E. Coltharp, President Telephone: (630) 516-8080 Telecopy: (630) 516-8031 with a copy to: Saks Incorporated 750 Lakeshore Parkway Birmingham, Alabama 35211 Telephone: (205) 940-4600 Telecopy: (205) 940-4098 Attn: Charles J. Hansen Senior Vice President and Associate General Counsel (b) in the case of the Seller: National Bank of the Great Lakes 140 Industrial Drive Elmhurst, Illinois 60126 Telephone: (630) 516-8080 Telecopy: (630) 516-8031 Attn: Richard Ehrle Vice President (c) in the case of the Servicer: Saks Incorporated 750 Lakeshore Parkway Birmingham, Alabama 35211 Telephone: (205) 940-4735 Telecopy: (205) 940-4600 Attn: Charles J. Hansen Senior Vice President and Associate General Counsel or, as to each party, at such other address as shall be designated by such party in a written notice to each other party. SECTION 9.4. Severability of Provisions. If any one or more of the covenants, agreements, provisions or terms of this Agreement shall for any reason whatsoever be held invalid, then such covenants, agreements, provisions, or terms shall be deemed severable from the remaining covenants, agreements, provisions, or terms of this Agreement and shall in no way affect the validity or enforceability of the other provisions of this Agreement. SECTION 9.5. Assignment and Designation of Selling Subsidiaries. (a) This Agreement may not be assigned by the parties hereto, except that the Purchaser may assign its rights hereunder pursuant to the Pooling and Servicing Agreement to the Trustee, for the benefit of the Certificateholders. The Purchaser hereby notifies the Seller, (and the Seller hereby acknowledges that, the Purchaser, pursuant to the Pooling and Servicing Agreement, has assigned all its rights hereunder to the Trustee. All rights of the Purchaser hereunder may be exercised by the Trustee or its assignees, to the extent of their respective rights pursuant to such assignments. (b) Saks Incorporated may from time to time designate its subsidiaries, divisions or department stores as "Selling Subsidiaries." To become a Selling Subsidiary, (i) the Purchaser, the Seller and the proposed Selling Subsidiary must execute an assumption agreement pursuant to which the Selling Subsidiary assumes certain of the Seller's obligations under this Agreement and is granted the right to sell Receivables to the Purchaser upon the terms and conditions set forth herein, (ii) such proposed Selling Subsidiary must deliver certain other documents (including UCC-1 financing statements) to the Transferor, the Trustee and the Rating Agencies, (iii) certain representations and warranties made by such Selling Subsidiary must be true as of the date it first sells Receivables to the Purchaser, and (iv) each Rating Agency must confirm that the Rating Agency Condition has been met. In the event any Selling Subsidiary is designated and approved hereunder, each reference to the Seller herein shall be deemed to include each Selling Subsidiary. SECTION 9.6. Further Assurances. The Purchaser and the Seller agree to do and perform, from time to time, any and all acts and to execute any and all further instruments required or reasonably requested by the other party more fully to effect the purposes of this Agreement, including, without limitation, the execution of any financing statements or continuation statements or equivalent documents relating to the Receivables for filing under the provisions of the Relevant UCC or other laws of any applicable jurisdiction. SECTION 9.7. No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of the Purchaser, the Seller or the Trustee (as assignee of the Purchaser), any right, remedy, power or privilege hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exhaustive of any rights, remedies, powers and privilege provided by law. SECTION 9.8. No Bankruptcy Petition Against the Purchaser or Trust. Each of the Seller and the Servicer hereby covenants and agrees that, prior to the date which is one year and one day after the payment in full of all Certificates, it will not institute against, or join any other Person in instituting against, the Purchaser or the Trust any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings or other similar proceeding under the laws of the United States or any state of the United States. SECTION 9.9. Counterparts. This Agreement may be executed in two or more counterparts including telecopy transmission thereof (and by different parties on separate counterparts), each of which shall be an original, but all of which together shall constitute one and the same instrument. SECTION 9.10. Binding Effect; Third-Party Beneficiaries. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and permitted assigns. The Trustee on behalf of the Certificateholders is intended by the parties hereto to be a third-party beneficiary of this Agreement, but otherwise no Person not a party is intended to or shall have any rights hereunder, whether as a third party beneficiary or otherwise. SECTION 9.11. Merger and Integration. Except as specifically stated otherwise herein or incorporated hereby, this Agreement sets forth the entire understanding and agreement of the parties relating to the subject matter hereof, and all prior understandings, written or oral, are superseded and replaced by this Agreement. This Agreement may not be modified, amended, waived or supplemented except in writing executed by the parties as provided herein. SECTION 9.12. Headings. The cover page, table of contents, and article and section headings hereof are for purposes of convenience of reference only and shall not otherwise affect the meaning or interpretation of any provision hereof. SECTION 9.13. Exhibits. The schedules and exhibits referred to herein shall constitute a part of this Agreement and are incorporated into this Agreement for all purposes. IN WITNESS WHEREOF, the Seller, the Purchaser and the Servicer each have caused this Receivables Purchase Agreement to be duly executed by their respective officers as of the day and year first above written, and it shall become effective upon delivery to the Bank and the Trustee on such date. NATIONAL BANK OF THE GREAT LAKES, as Seller By: ____________________________ Name: Charles J. Hansen Title: Vice President SAKS CREDIT CORPORATION, as Purchaser By: ____________________________ Name: James S. Scully Title: Vice President and Treasurer SAKS INCORPORATED, as Servicer By: _____________________________ Name: James S. Scully Title: Senior Vice President and Treasurer EXHIBIT A to the RECEIVABLES PURCHASE AGREEMENT FORM OF SUBORDINATED NOTE $500,000,000 July 1, 1999 FOR VALUE RECEIVED, the undersigned, SAKS CREDIT CORPORATION, a Delaware corporation (the "Maker"), hereby unconditionally promises to pay to the order of SAKS INCORPORATED (the "Payee"), on December 31, 2005 or earlier as provided for in the Receivables Purchase Agreement dated as of the date hereof between the Maker and the Payee (as such agreement may from time to time be amended, supplemented or otherwise modified and in effect, the "Receivables Purchase Agreement"), the lesser of the principal sum of up to Five Hundred Million Dollars and No/100 ($500,000,000) or the aggregate unpaid principal amount of all Advances to the Maker from the Payee pursuant to Section 3.2, and the other terms, of the Receivables Purchase Agreement, in lawful money of the United States of America in immediately available funds, and to pay interest from the date thereof on the principal amount hereof from time to time outstanding, in like funds, at said office, at the rate per annum set forth in Section 3.2(c)(iii) of the Receivables Purchase Agreement and shall be payable in arrears on the first day of each calendar month (or if any such day is not a Business Day, on the succeeding Business Day). The Maker hereby waives diligence, presentment, demand, protest and notice of any kind whatsoever. The non-exercise by the holder hereof of any of its rights hereunder in any particular instance shall not constitute a waiver thereof in that or any subsequent instance. All borrowings evidenced by this Subordinated Note and all payments and prepayments of the principal hereof and interest hereon and the respective dates thereof shall be endorsed by the holder hereof on the schedule attached hereto and made a part hereof, or on a continuation thereof which shall be attached hereto and made a part hereof, or otherwise recorded by such holder in its internal records; provided, however, that (a) the failure of the holder hereof to make such a notation or record or (b) any error in such a notation, shall not in any manner affect the obligation of the Maker to make payments of principal and interest in accordance with the terms of this Subordinated Note and the Receivables Purchase Agreement. Any such notation or record shall be conclusive and binding as to the date and amount of such Advance, or payment of principal or interest thereon, absent manifest error. The Maker shall have the right to borrow, repay and, subject to the limitations set forth in the Receivables Purchase Agreement, reborrow Advances made to it without penalty, premium or charge. The Maker shall be obligated to repay Advances to the Payee only to the extent of funds available to the Maker from Collections on the Receivables and, to the extent that such payments are insufficient to pay all amounts owing to the Payee under the Subordinated Note, the Payee shall not have any claim against the Maker for such amounts and no further or additional recourse shall be available against Maker. This Subordinated Note is the Subordinated Note referred to in the Receivables Purchase Agreement. The indebtedness evidenced by this Subordinated Note is subordinated to the prior payment in full of all of the Maker's recourse obligations under the Pooling and Servicing Agreement. The subordination provisions contained herein are for the direct benefit of, and may be enforced by, the Trustee, the Certificateholders and/or any of their respective permitted assignees pursuant to the Pooling and Servicing Agreement (collectively, the "Senior Claimants") under the Pooling and Servicing Agreement. Until the date on which all obligations of the Maker and/or the Servicer under the Pooling and Servicing Agreement (all such obligations, collectively, the "Senior Claims") have been indefeasibly paid and satisfied in full, the Payee shall not demand, accelerate, sue for, take, receive or accept from the Maker, directly or indirectly, in cash or other property or by set-off or any other manner (including, without limitation, from or by way of collateral) any payment or security of all or any of the indebtedness under this Subordinated Note or exercise any remedies or take any action or proceeding to enforce the same; provided, however, that nothing in this paragraph shall restrict the Maker from paying, or the Payee from requesting, any payments under this Subordinated Note so long as the Maker is not required under the Pooling and Servicing Agreement to set aside for the benefit of, or otherwise pay over to, the funds used for such payments to any of the Senior Claimants and further provided that the making of such payment would not otherwise violate the terms and provisions of the Pooling and Servicing Agreement. Should any payment, distribution or security or proceeds thereof be received by the Payee in violation of the immediately preceding sentence, the Payee agrees that such payment shall be segregated, received and held in trust for the benefit of, and deemed to be the property of, and shall be immediately paid over and delivered to the Trustee for the benefit of the Senior Claimants. Upon the occurrence of any event described in the first sentence of Section 9.2(a) of the Pooling and Servicing Agreement with respect to the Maker, then and in any such event the Senior Claimants shall receive payment in full of all amounts due or to become due on or in respect of the Senior Claims before the Payee is entitled to receive payment on account of this Subordinated Note, and to that end, any payment or distribution of assets of the Maker of any kind or character, whether in cash, securities or other property, in any applicable insolvency proceeding, which would otherwise be payable to or deliverable upon or with respect to any or all indebtedness under this Subordinated Note, is hereby assigned to and shall be paid or delivered by the Person making such payment or delivery (whether a trustee in bankruptcy, a receiver, custodian or liquidating trustee or otherwise) directly to the Trustee for application to, or as collateral for the payment of, the Senior Claims until such Senior Claims shall have been paid in full and satisfied. Capitalized terms not otherwise defined herein are used herein with the respective meanings given them in the Receivables Purchase Agreement. This Note shall be governed by, and construed in accordance with, the laws of the State of New York. SAKS CREDIT CORPORATION By: ____________________________ Name: James S. Scully Title: Vice President and Treasurer Advances and Payments Date and Payments Unpaid Principal Name of Person Amount of Advance Principal/Interest Balance of Note Making Notation - ----------------- ------------------ ---------------- --------------- EXHIBIT B to the RECEIVABLES PURCHASE AGREEMENT LOCATION OF RECORDS 1. Purchaser 140 Industrial Drive Elmhurst, Illinois 60126 2. Seller 140 Industrial Drive Elmhurst, Illinois 60126 331 West Wisconsin Avenue Milwaukee, Wisconsin 53203 3455 Highway 80 West P.O. Box 20080 Jackson, Mississippi 39289-0080 EXHIBIT C to the RECEIVABLES PURCHASE AGREEMENT SUBSIDIARIES, DIVISIONS, TRADE NAMES, BANKRUPTCY PROCEEDINGS None EX-10 5 EXHIBIT 10.49 R. BRAD MARTIN EMPLOYMENT AGT SIXTH AMENDED AND RESTATED SIXTH AMENDED AND RESTATED

EMPLOYMENT AGREEMENT

This Sixth Amended and Restated Employment Agreement ("Agreement") is entered into as of the 1^st day of March 2000, by and between Saks Incorporated ("Company"), and R. Brad Martin ("Executive").

Company and Executive agree as follows:

1. Employment. Company hereby employs Executive as Chief Executive Officer of Company. It is anticipated that Executive will be elected Chairman of the Board.

2. Duties. During his employment, Executive shall devote substantially all of his working time, energies, and skills to the benefit of Company's business. Executive agrees to serve Company diligently and to the best of his ability and to use his best efforts to follow the policies and directions of Company's Board of Directors.

3. Compensation. Executive's compensation and benefits under this Agreement shall be as follows:

(a) Base Salary. Company shall pay Executive a base salary ("Base Salary") at a rate of no less than $950,000 per year. In addition, the Board of Directors of Company shall, in good faith, consider granting increases in such Base Salary based upon such factors as Executive's performance and the growth and/or profitability of Company. Executive's Base Salary shall be paid in installments in accordance with Company's normal payment schedule for its senior management. All payments

(b) Bonus. In addition to the Base Salary, Executive shall be eligible pursuant to the 1998 Senior Executive Bonus Plan for a yearly cash bonus with a maximum potential of 150% ("Maximum Bonus Potential") of Base Salary based upon his performance, in accordance with specific annual objectives, set in advance, all as approved by the Board of Directors.

(c) End of Five-Years Service Stock Grants. In accordance with Executive's prior employment agreements, Company shall issue to Executive fifty thousand (50,000) shares of common stock as soon as possible after October 11, 2001, provided Executive has served the Company continuously for five years following October 11, 1996, the date of Executive's Second Amended and Restated Employment Agreement. In the event of Executive's death prior to October 11, 2001, Executive's estate s

(d) Annual Stock Grant Bonus. Pursuant to the 1998 Senior Executive Bonus Plan, an amount up to twenty thousand (20,000) shares of Company common stock may be issued to Executive as soon as possible after the end of each fiscal year of Company, based upon annual targeted growth in intrinsic value of the Company or other factors, as determined by the Human Resources Committee of the Board of Directors. The Human Resources Committee, subject to approval from the Board of Directo

(e) Second Annual Stock Grant Bonus. Pursuant to the 1998 Senior Executive Bonus Plan, Company shall award Executive a bonus of up to 20,000 (twenty thousand) shares of Company common stock on the basis of growth in earnings per share with the Human Resources Committee of the Board of Directors setting the objectives in advance. The Human Resources Committee shall have sole and exclusive discretion to determine whether that objective has been met, and the Committee may consider

(f)New Option Grant. Executive is granted a non-qualified option ("Option") to purchase 500,000 shares of Company common stock at an option price equal to the closing price of the stock at the close of business on February 18, 2000 (the "Grant Date"), as reported in the Wall Street Journal. The Option is granted pursuant to the Company's 1994 Amended and Restated Long-Term Incentive Plan ("1994 LTIP"), and shall be subject to the terms and conditions thereof. The Option s

(g) New Restricted Stock Grant. Executive is granted 100,000 share of Company common stock to vest 100% on February 18, 2003.

(h)Effect of Change In Control on Options and Restricted Stock. In the event of a Change in Control (as defined in the Company's 1994 LTIP), any Options and restricted stock granted to Executive prior to such Change In Control shall immediately vest.

(i) Forgiveness of Loan. Company shall continue to forgive the original $500,000 interest-free loan due January 31, 1999, in $100,000 increments, at the end of each fiscal year; provided, however, that Executive must continue to be employed by Company for any portion of the loan to be forgiven, and provided further that Executive must repay any outstanding balance if he terminates employment.

(j) Company Aircraft. Company requires Executive to use Company aircraft for personal or family use, whenever possible. Such use is important for the safety of Executive and so that Executive may remain in communications with other Company officials as necessary. Executive may use Company aircraft or charter aircraft for such uses without further reimbursement to Company.

Upon Executives termination of employment for any reason, Executive shall be entitled to use at his discretion and without cost to Executive, an aircraft, comparable in size and quality to the aircraft he is using as of this date, for 250 hours a year for three years.

Upon Executives termination of employment for any reason after a Change in Control (as defined in the 1994 LTIP), Executive shall have the option to buy any one Company aircraft at its then book value on the Companys books. If he exercises this option, Company shall reimburse him for the operating costs of the aircraft for up to 250 hours per year for three years.

(k) Future Restricted Stock Agreement. Beginning in fiscal year 2001, Company shall enter into a new restricted stock agreement patterned after Executive's prior restricted stock agreement entered into in 1998, following the significant terms of the 1998 agreement as it relates to number of shares and vesting.

(l) Birmingham Expenses. Because Company requires Executive to spend time in Birmingham, Alabama, Company shall reimburse Executive for the expenses of one Birmingham country club and one car in Birmingham.

4. Insurance and Other Expenses and Benefits. Company shall allow Executive to participate in each employee benefit plan and to receive each executive benefit that Company provides for senior executives at the level of Executive's position.

(a) Company shall pay the reasonable costs for Executive's tax and financial planning, and shall buy split-dollar life insurance for Executive in accordance with the directions of the Human Resources Committee of the Board. In addition, Company shall reimburse Executive, as additional compensation, his share of annual premiums paid for split dollar life insurance.

(b) Company shall provide security for Executive's residences or shall reimburse Executive for such expenses.

(c) Because Company requires Executive to spend time in New York City, Company shall provide Executive with a driver for the New York area, and, at Executives request, shall provide a New York apartment or reimburse Executive for all the costs of such apartment, including but not limited to utilities, insurance, housekeeping, and capital costs. Executive shall cooperate with Company to determine the proper method of providing these services or reimbursing the Executive for such expense

(d) Executive shall be entitled to lifetime participation in Companys health plan in the event that he retires from Company.

5. Term; termination without Cause or for Good Reason. The term of this Agreement shall be for five (5) years, provided, however, that Company may terminate this Agreement at any time without Cause, as defined below, upon thirty (30) days' prior written notice and Executive may terminate this Agreement for Good Reason. Good Reason shall mean a mandatory relocation from the Memphis, Tennessee area, or at any time Executive chooses to terminate employment within one year after a Change

(a) a sum equal to the Base Salary then in effect plus 25% of Executive's Maximum Bonus Potential times the longer of 3 years or the balance of the time remaining in the Term, and

(b) immediate vesting of all stock options and restricted stock awards (including service grants) with the ability to exercise the stock options for the shorter of two years or the original expiration period of the option, and

(c) participation in Company's health plans, with family coverage, for his life, and continuation of split-dollar insurance agreements for five years, and

(d) vesting at the retirement rate in Companys Supplemental Savings Plan with no reduction in the current rate of return, and

(e) if any payment, right or benefit provided for in this Agreement or otherwise paid to Executive by Company is treated as an "excess parachute payment" under Section 280(G)(b) of the Internal Revenue Code of 1986, as amended, (the "Code"), Company shall indemnify and hold harmless and make whole, on an after-tax basis, Executive for any adverse tax consequences, including but not limited to providing to Executive on an after-tax basis the amount necessary to pay any tax imposed by Code

In addition, this Agreement shall terminate upon the death of Executive, except as to: (a) Executive's estate's right to exercise any unexercised stock options pursuant to Company's stock option plan then in effect, with it being understood that Company would follow its traditional policy of vesting all of Executives stock options upon death, (b) other entitlements under this contract that expressly survive death, (c) vesting at the retirement rate of benefits under Company's Supplemental Saving

6. Termination by Company for Cause. (a) Company shall have the right to terminate Executive's employment under this Agreement for Cause, in which event no salary or bonus shall be paid after termination for Cause except for (i) earned but unpaid wages and benefits, and (ii) Company shall vest a pro rata fractional portion of Executive's stock options based on the number of days Executive was employed since the last vesting of such options. Termination for Cause shall be effective i

(b) In the event that Executive's employment is terminated, Executive agrees to resign as an officer and/or director of Company (or any of its subsidiaries or affiliates), effective as of the date of such termination, and Executive agrees to return to Company upon such termination any of the following which contain confidential information: all documents, instruments, papers, facsimiles, and computerized information which are the property of Company or such subsidiary or affiliate.

7. Disability. If Executive becomes disabled at any time during the term of this Agreement, he shall after he becomes disabled continue to receive all payments and benefits provided under the terms of this Agreement for a period of twelve consecutive months, or for the remaining term of this Agreement, whichever period is shorter. In the event that Executive is disabled for more than twelve consecutive months during the term of this Agreement, Executive shall, at the expiration of t

8. Non-competition; Unauthorized Disclosure.

(a) Non-competition. During the period Executive is employed under this Agreement, and for a period of two years thereafter, Executive:

(i) shall not engage in any activities, whether as employer, proprietor, partner, stockholder (other than the holder of less than 5% of the stock of a corporation the securities of which are traded on a national securities exchange or in the over-the-counter market), director, officer, employee or otherwise, in competition with (i) the businesses conducted at the date hereof by Company or any subsidiary or affiliate, or (ii) any business in which Company or any subsidiary or affiliat

(ii) shall not solicit, in competition with Company, any person who is a customer of the businesses conducted by Company at the date hereof or of any business in which Company is substantially engaged at any time during the term of this Agreement; and

(iii) shall not induce or attempt to persuade any employee of Company or any of its divisions, subsidiaries or then present affiliates to terminate his or her employment relationship in order to enter into competitive employment.

(b) Unauthorized Disclosure. During the period Executive is employed under this Agreement, and for a further period of two years thereafter, Executive shall not, except as required by any court or administrative agency, without the written consent of the Board of Directors, or a person authorized thereby, disclose to any person, other than an employee of Company or a person to whom disclosure is reasonably necessary or appropriate in connection with the performance by Executive of

(c) Scope of Covenants; Remedies. The following provisions shall apply to the covenants of Executive contained in this Section 8:

(i) the covenants contained in paragraph (i) and (ii) of Section 8(a) shall apply within all the territories in which Company is actively engaged in the conduct of business while Executive is employed under this Agreement, including, without limitation, the territories in which customers are then being solicited;

(ii) without limiting the right of Company to pursue all other legal and equitable remedies available for violation by Executive of the covenants contained in this Section 8, it is expressly agreed by Executive and Company that such other remedies cannot fully compensate Company for any such violation and that Company shall be entitled to injunctive relief to prevent any such violation or any continuing violation thereof;

(iii) each party intends and agrees that if, in any action before any court or agency legally empowered to enforce the covenants contained in this Section 8, any term, restriction, covenant or promise contained therein is found to be unreasonable and accordingly unenforceable, then such term, restriction, covenant or promise shall be deemed modified to the extent necessary to make it enforceable by such court or agency; and

(iv) the covenants contained in this Section 8 shall survive the conclusion of Executive's employment by Company.

9. General Provisions.

(a) Notices. Any notice to be given hereunder by either party to the other may be effected by personal delivery, facsimile, electronic mail or U.S. mail, registered or certified, postage prepaid with return receipt requested. Mailed notices shall be addressed to the parties at the addresses set forth below, but each party may change his or its address by written notice in accordance with this Section 9(a). Notices shall be deemed communicated as of the actual receipt or refusal

If to Executive:

R. Brad Martin

1025 Cherry Road

Memphis, TN 38117

If to Company:

Saks Incorporated

750 Lakeshore Parkway

Birmingham, AL 35211

(b) Partial Invalidity. If any provision in this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions shall, nevertheless, continue in full force and without being impaired or invalidated in any way.

(c) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Tennessee.

(d) Entire Agreement. Except for any prior grants of options, restricted stock, or other forms of incentive compensation evidenced by a written instrument -- some of which are attached hereto as Exhibit A -- or by an action of the Board or Directors, this Agreement supersedes any and all other agreements, either oral or in writing, between the parties hereto with respect to employment of Executive by Company and contains all of the covenants and agreements between the parties with respec

(e) No Conflicting Agreement. By signing this Agreement, Executive warrants that he is not a party to any restrictive covenant, agreement or contract which limits the performance of his duties and responsibilities under this Agreement or under which such performance would constitute a breach.

(f) Headings. The Section, paragraph, and subparagraph headings are for convenience or reference only and shall not define or limit the provisions hereof.

(g) Attorneys Fees. If any case is brought to enforce any right or provision set out in this Agreement, Company shall reimburse Executive for reasonable costs incurred (including attorneys' fees) by Executive: (i) in the case of termination of employment that occurs prior to a Change in Control only if the Executive substantially prevails, and (ii) in the case of termination of employment after a Change in Control regardless of the outcome of the action with reimbursement being made as e

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

SAKS INCORPORATED

BY: _____________________

James A. Coggin

President and CAO

____________________

Brian J. Martin

General Counsel

__________________

R. Brad Martin

Executive

EX-10 6 EXHIBIT 10.52 ROBERT M. MOSCO EMPLOYMENT AGT EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT

This Employment Agreement ("Agreement") is entered into as of the 1st day of March, 2000, by and between Saks Incorporated (the "Company"), and Robert M. Mosco ("Executive").

Company and Executive agree as follows:

1. Employment. Company hereby employs Executive as President of Merchandising and Chief Operating Officer, as well as Chief Executive Officer of Proffitt's Merchandising Group, or in such other capacity with Company and its subsidiaries as Company's Board of Directors shall designate.

3. Compensation. Executive's compensation and benefits under this Agreement shall be as follows:

(a) Base Salary. Company shall pay Executive a base salary ("Base Salary") at a rate of no less than $750,000 per year. Executive's Base Salary shall be paid in installments in accordance with Company's normal payment schedule for its senior management. All payments shall be subject to the deduction of payroll taxes and similar assessments as required by law.

(b) Bonus. In addition to the Base Salary, Executive shall be eligible, as long as he holds the position stated in paragraph 1, for a yearly cash bonus with a maximum target of 70% of Base Salary based upon his performance in accordance with specific annual objectives, set in advance, all as approved by the Board of Directors.

(c) Effect of Change of Control on Options. In the event of a Change of Control (as defined in the Company's 1994 Plan), any Options granted to Executive prior to such Change of Control shall immediately vest.

4. Insurance and Benefits. Company shall allow Executive to participate in each employee benefit plan and to receive each executive benefit that Company provides for senior executives at the level of Executive's position.

5. Term. The term of this Agreement shall be for three years, provided, however, that Company may terminate this Agreement at any time upon thirty (30) days' prior written notice (at which time this Agreement shall terminate except for Section 9, which shall continue in effect as set forth in Section 9). In the event of such termination by Company without Cause, as defined below, Executive shall be entitled to receive his Base Salary (at the rate in effect at the time of termination) thr of the term of this Agreement. Such Base Salary shall be paid in one lump sum.

In addition, this Agreement shall terminate upon the death of Executive, except as to: (a) Executive's estate's right to exercise any unexercised stock options pursuant to Company's stock option plan then in effect, (b) other entitlements under this contract that expressly survive death, and (c) any rights which Executive's estate or dependents may have under COBRA or any other federal or state law or which are derived independent of this Agreement by reason of his participation in any employee b ement or plan maintained by Company.

6. Termination by Company for Cause. (a) Company shall have the right to terminate Executive's employment under this Agreement for Cause, in which event no salary or bonus shall be paid after termination for cause. Termination for Cause shall be effective immediately upon notice sent or given to Executive. For purposes of this Agreement, the term "Cause" shall mean and be strictly limited to: (i) conviction of Executive, after all applicable rights of appeal have been exhausted or wa crime that materially discredits Company or is materially detrimental to the reputation or goodwill of Company; (ii) commission of any material act of fraud or dishonesty by Executive against Company or commission of an immoral or unethical act that materially reflects negatively on Company, provided that Executive shall first be provided with written notice of the claim and with an opportunity to contest said claim before the Board of Directors; or (iii) Executive's willful and continual material breach o ions under paragraph 2 of the Agreement, as so determined by the Board of Directors.

7. Change in Control. If Executive's employment is terminated by Executive for "Good Reason" after a Change in Control, or by Company in any way connected with a Change in Control of Company or a Potential Change in Control of Company, as defined below, Executive shall receive a sum equal to three times his Base Salary then in effect, continuation in the Company's health plans for three years at no cost, and vesting in Company's Supplemental Savings Plan at the retirement rate. "Good Reason" shall mean: (1) a mandatory relocation from the Birmingham, Alabama area, (2) a reduction in duties or status within the combined company as a result of or after the Change in Control, or (3) any time during the 13^th month after a Change in Control the Executive terminates employment and deems it to be for Good Reason. If any payment, right or benefit provided for in this Agreement or otherwise paid to Executive by Company is treated as an "excess parachute payment" unde (G)(b) of the Internal Revenue Code of 1986, as amended, (the "Code"), Company shall indemnify and hold harmless and make whole, on an after-tax basis, Executive for any adverse tax consequences, including but not limited to providing to Executive on an after-tax basis the amount necessary to pay any tax imposed by Code Section 4999.

As used herein, the term "Change in Control" means the happening of any of the following:

(a) Any person or entity, including a "group" as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, other than Company, a subsidiary of Company, or any employee benefit plan of Company or its subsidiaries, becomes the beneficial owner of Company's securities having 25 percent or more of the combined voting power of the then outstanding securities of Company that may be cast for the election for directors of Company (other than as a result of an issuance of se iated by Company in the ordinary course of business); or

(b) As the result of, or in connection with, any cash tender or exchange offer, merger or other business combination, sale of assets or contested election, or any combination of the foregoing transactions, less than a majority of the combined voting power of the then outstanding securities of Company or any successor corporation or entity entitled to vote generally in the election of directors of Company or such other corporation or entity after such transaction, are held in the aggregate f Company's securities entitled to vote generally in the election of directors of Company immediately prior to such transactions; or

(c) During any period of two consecutive years, individuals who at the beginning of any such period constitute the Board of Directors of Company cease for any reason to constitute at least a majority thereof, unless the election, or the nomination for election by Company's stockholders, of each director of Company first elected during such period was approved by a vote of at least two-thirds of the directors of Company then still in office who were directors of Company at the beginning o riod.

As used herein, the term "Potential Change in Control" means the happening of any of the following:

(a) The approval by stockholders of an agreement by Company, the consummation of which would result in a Change of Control of Company; or

(b) The acquisition of beneficial ownership, directly or indirectly, by any entity, person or group (other than Company, a wholly-owned subsidiary thereof or any employee benefit plan of Company or its subsidiaries (including any trustee of such plan acting as trustee)) of securities of Company representing 5 percent or more of the combined voting power of Company's outstanding securities and the adoption by the Board of Directors of Company of a resolution to the effect that a Potential ntrol of Company has occurred for purposes of this Agreement.

8. Disability. If Executive becomes disabled at any time during the term of this Agreement, he shall after he becomes disabled continue to receive all payments and benefits provided under the terms of this Agreement for a period of twelve consecutive months, or for the remaining term of this Agreement, whichever period is shorter. For purposes of this Agreement, the term "disabled" shall mean the inability of Executive (as the result of a physical or mental condition) to perform the dut sition under this Agreement with reasonable accommodation and which inability is reasonably expected to last at least one (1) full year.

9. Non-competition; Unauthorized Disclosure.

(a) Non-competition. During the period Executive is employed under this Agreement, and for a period of one year thereafter, Executive:

(ii) shall not do business with any vendor that is one of the top 100 vendors of the businesses conducted by Company or its affiliates at the date hereof or at any time during the term of this Agreement; and

(iii) shall not induce or attempt to persuade any employee of Company or any of its divisions, subsidiaries or then present affiliates to terminate his or his employment relationship.

(b) Unauthorized Disclosure. During the period Executive is employed under this Agreement, and for a further period of one year thereafter, Executive shall not, except as required by any court or administrative agency, without the written consent of the Board of Directors, or a person authorized thereby, disclose to any person, other than an employee of Company or a person to whom disclosure is reasonably necessary or appropriate in connection with the performance by Executive of his executive for Company, any confidential information obtained by him while in the employ of Company; provided, however, that confidential information shall not include any information now known or which becomes known generally to the public (other than as a result of unauthorized disclosure by Executive).

(c) Scope of Covenants; Remedies. The following provisions shall apply to the covenants of Executive contained in this Section 9:

(i) the covenants contained in paragraph (i) and (ii) of Section 9(a) shall apply within all the territories in which Company or its affiliates or subsidiaries are actively engaged in the conduct of business while Executive is employed under this Agreement;

(ii) without limiting the right of Company to pursue all other legal and equitable remedies available for violation by Executive of the covenants contained in this Section 9, it is expressly agreed by Executive and Company that such other remedies cannot fully compensate Company for any such violation and that Company shall be entitled to injunctive relief to prevent any such violation or any continuing violation thereof; provided, however, Company shall be entitled to injunctive o protect itself from unfair competition of the type protected under Tennessee law.

(iii) each party intends and agrees that if, in any action before any court or agency legally empowered to enforce the covenants contained in this Section 9, any term, restriction, covenant or promise contained therein is found to be unreasonable and accordingly unenforceable, then such term, restriction, covenant or promise shall be deemed modified to the extent necessary to make it enforceable by such court or agency; and

(iv) the covenants contained in this Section 9 shall survive the conclusion of Executive's employment by Company.

10. General Provisions.

(a) Notices. Any notice to be given hereunder by either party to the other may be effected in writing by personal delivery, electronic mail, overnight courier, or facsimile. Notices shall be addressed to the parties at the addresses set forth below, but each party may change his or its address by written notice in accordance with this Section 10 (a). Notices shall be deemed communicated as of the actual receipt or refusal of receipt.

If to Executive:

Robert M. Mosco

750 Lakeshore Parkway

Birmingham, AL 35211

If to Company:

General Counsel

Saks Incorporated

750 Lakeshore Parkway

Birmingham, AL 35211

(c) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Tennessee.

(d) Entire Agreement. Except for any prior grants of options, restricted stock, or other forms of incentive compensation evidenced by a written instrument or by an action of the Board or Directors, this Agreement supersedes any and all other agreements, either oral or in writing, between the parties hereto with respect to employment of Executive by Company and contains all of the covenants and agreements between the parties with respect to such employment. Each party to this Agr ledges that no representations, inducements or agreements, oral or otherwise, that have not been embodied herein, and no other agreement, statement or promise not contained in this Agreement, shall be valid or binding. Any modification of this Agreement will be effective only if it is in writing signed by the party to be charged.

(f) Headings. The Section, paragraph, and subparagraph headings are for convenience or reference only and shall not define or limit the provisions hereof.

(g) Attorneys Fees. If Executive brings any action to enforce his purported rights under this Agreement after a Change in Control, Company shall reimburse Executive for his reasonable costs, including attorneys fees, incurred. Company shall reimburse Executive as the costs are incurred and without regard to the outcome of the action.

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

SAKS INCORPORATED

BY: _____________________

Brian J. Martin

Executive Vice President

_____________________

Robert M. Mosco

Executive

EX-10 7 EXHIBIT 10.55 JAMES A. COGGIN EMPLOYMENT AGT EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT

This Employment Agreement ("Agreement") is entered into as of the 1st day of March 2000, by and between Saks Incorporated (the "Company"), and James A. Coggin ("Executive").

Company and Executive agree as follows:

1. Employment. Company hereby employs Executive as President and Chief Administrative Officer of Company or in such other capacity with Company and its subsidiaries as Company's Board of Directors shall designate.

3. Compensation. Executive's compensation and benefits under this Agreement shall be as follows:

In addition, this Agreement shall terminate upon the death of Executive, except as to: (a) Executive's estate's right to exercise any unexercised stock options pursuant to Company's stock option plan then in effect, (b) other entitlements under this contract that expressly survive death, and (c) any rights which Executive's estate or dependents may have under COBRA or any other federal or state law or which are derived independent of this Agreement by reason of his participation in any employee b

As used herein, the term "Change in Control" means the happening of any of the following:

As used herein, the term "Potential Change in Control" means the happening of any of the following:

(a) The approval by stockholders of an agreement by Company, the consummation of which would result in a Change of Control of Company; or

8. Disability. If Executive becomes disabled at any time during the term of this Agreement, he shall after he becomes disabled continue to receive all payments and benefits provided under the terms of this Agreement for a period of twelve consecutive months, or for the remaining term of this Agreement, whichever period is shorter. For purposes of this Agreement, the term "disabled" shall mean the inability of Executive (as the result of a physical or mental condition) to perform the dut der this Agreement with reasonable accommodation and which inability is reasonably expected to last at least one (1) full year.

9. Non-competition; Unauthorized Disclosure.

(a) Non-competition. During the period Executive is employed under this Agreement, and for a period of one year thereafter, Executive:

(iii) shall not induce or attempt to persuade any employee of Company or any of its divisions, subsidiaries or then present affiliates to terminate his or his employment relationship.

(c) Scope of Covenants; Remedies. The following provisions shall apply to the covenants of Executive contained in this Section 9:

(iv) the covenants contained in this Section 9 shall survive the conclusion of Executive's employment by Company.

10. General Provisions.

(a) Notices. Any notice to be given hereunder by either party to the other may be effected in writing by personal delivery, mail, electronic mail, overnight courier, or facsimile. Notices shall be addressed to the parties at the addresses set forth below, but each party may change his or its address by written notice in accordance with this Section 10 (a). Notices shall be deemed communicated as of the actual receipt or refusal of receipt.

If to Executive:

James A. Coggin

3455 Highway 80 West

Jackson, MS 39209

If to Company:

General Counsel

Saks Incorporated

750 Lakeshore Parkway

Birmingham, AL 35211

(c) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Tennessee.

(f) Headings. The Section, paragraph, and subparagraph headings are for convenience or reference only and shall not define or limit the provisions hereof.

(g) Attorneys Fees. If Executive brings any action to enforce his purported rights under this Agreement after a Change in Control, Company shall reimburse Executive for his reasonable costs, including attorney fees, incurred. Company shall reimburse Executive as the costs are incurred and without regard to the outcome of the action.

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

SAKS INCORPORATED

BY: _____________________

Brian J. Martin

Executive Vice President

_____________________

James A. Coggin

Executive

EX-10 8 EXHIBIT 10.58 DOUGLAS E. COLTHARP EMPLOYMENT AGT. EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT

This Employment Agreement ("Agreement") is entered into as of the 1st day of March 2000, by and between Saks Incorporated (the "Company"), and Douglas E. Coltharp ("Executive").

Company and Executive agree as follows:

1. Employment. Company hereby employs Executive as Executive Vice President and Chief Financial Officer of Company or in such other capacity with Company and its subsidiaries as Company's Board of Directors shall designate.

3. Compensation. Executive's compensation and benefits under this Agreement shall be as follows:

(a) Base Salary. Company shall pay Executive a base salary ("Base Salary") at a rate of no less than $410,000 per year. Executive's Base Salary shall be paid in installments in accordance with Company's normal payment schedule for its senior management. All payments shall be subject to the deduction of payroll taxes and similar assessments as required by law.

(b) Bonus. In addition to the Base Salary, Executive shall be eligible, as long as he holds the position stated in paragraph 1, for a yearly cash bonus of with a maximum target of 60% of Base Salary based upon his performance in accordance with specific annual objectives, set in advance, all as approved by the Board of Directors.

In addition, this Agreement shall terminate upon the death of Executive, except as to: (a) Executive's estate's right to exercise any unexercised stock options pursuant to Company's stock option plan then in effect, (b) other entitlements under this contract that expressly survive death, and (c) any rights which Executive's estate or dependents may have under COBRA or any other federal or state law or which are derived independent of this Agreement by reason of his participation in any employee b

As used herein, the term "Change in Control" means the happening of any of the following:

As used herein, the term "Potential Change in Control" means the happening of any of the following:

(a) The approval by stockholders of an agreement by Company, the consummation of which would result in a Change of Control of Company; or

8. Disability. If Executive becomes disabled at any time during the term of this Agreement, he shall after he becomes disabled continue to receive all payments and benefits provided under the terms of this Agreement for a period of twelve consecutive months. For purposes of this Agreement, the term "disabled" shall mean the inability of Executive (as the result of a physical or mental condition) to perform the duties of his position under this Agreement with reasonable accommodation and

9. Non-competition; Unauthorized Disclosure.

(a) Non-competition. During the period Executive is employed under this Agreement, and for a period of one year thereafter, Executive:

(iii) shall not induce or attempt to persuade any employee of Company or any of its divisions, subsidiaries or then present affiliates to terminate their employment relationship.

(c) Scope of Covenants; Remedies. The following provisions shall apply to the covenants of Executive contained in this Section 9:

(iv) the covenants contained in this Section 9 shall survive the conclusion of Executive's employment by Company.

10. General Provisions.

If to Executive:

Douglas E. Coltharp

750 Lakeshore Parkway

Birmingham, AL 35211

If to Company:

General Counsel

Saks Incorporated

750 Lakeshore Parkway

Birmingham, AL 35211

(c) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Tennessee.

(d) Entire Agreement. Except for any prior grants of options, restricted stock, or other forms of incentive compensation evidenced by a written instrument or by an action of the Board or Directors, this Agreement supersedes any and all other agreements, either oral or in writing, between the parties hereto with respect to employment of Executive by Company and contains all of the covenants and agreements between the parties with respect to such employment. Each party to this Agr representations, inducements or agreements, oral or otherwise, that have not been embodied herein, and no other agreement, statement or promise not contained in this Agreement, shall be valid or binding. Any modification of this Agreement will be effective only if it is in writing signed by the party to be charged.

(f) Headings. The Section, paragraph, and subparagraph headings are for convenience or reference only and shall not define or limit the provisions hereof.

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

SAKS INCORPORATED

BY: _____________________

Brian J. Martin

Executive Vice President

_____________________

Douglas E. Coltharp

Executive

EX-10 9 EXHIBIT 10.61 BRIAN J. MARTIN EMPLOYMENT AGT EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT

This Employment Agreement ("Agreement") is entered into as of the 1st day of March 2000, by and between Saks Incorporated (the "Company"), and Brian J. Martin ("Executive").

Company and Executive agree as follows:

1. Employment. Company hereby employs Executive as Executive Vice President and General Counsel of Company or in such other capacity with Company and its subsidiaries as Company's Board of Directors shall designate.

3. Compensation. Executive's compensation and benefits under this Agreement shall be as follows:

(a) Base Salary. Company shall pay Executive a base salary ("Base Salary") at a rate of no less than $400,000 per year. Executive's Base Salary shall be paid in installments in accordance with Company's normal payment schedule for its senior management. All payments shall be subject to the deduction of payroll taxes and similar assessments as required by law.

(b) Bonus. In addition to the Base Salary, Executive shall be eligible, as long as he holds the position stated in paragraph 1, for a yearly cash bonus with a target maximum of 60% of Base Salary based upon his performance in accordance with specific annual objectives, set in advance, all as approved by the Board of Directors.

In addition, this Agreement shall terminate upon the death of Executive, except as to: (a) Executive's estate's right to exercise any unexercised stock options pursuant to Company's stock option plan then in effect, (b) other entitlements under this contract that expressly survive death, and (c) any rights which Executive's estate or dependents may have under COBRA or any other federal or state law or which are derived independent of this Agreement by reason of his participation in any employee b

As used herein, the term "Change in Control" means the happening of any of the following:

As used herein, the term "Potential Change in Control" means the happening of any of the following:

(a) The approval by stockholders of an agreement by Company, the consummation of which would result in a Change of Control of Company; or

9. Non-competition; Unauthorized Disclosure.

(a) Non-competition. During the period Executive is employed under this Agreement, and for a period of one year thereafter, Executive:

(iii) shall not induce or attempt to persuade any employee of Company or any of its divisions, subsidiaries or then present affiliates to terminate his or his employment relationship.

(c) Scope of Covenants; Remedies. The following provisions shall apply to the covenants of Executive contained in this Section 9:

(iv) the covenants contained in this Section 9 shall survive the conclusion of Executive's employment by Company.

10. General Provisions.

If to Executive:

Brian J. Martin

750 Lakeshore Parkway

Birmingham, AL 35211

James A. Coggin

3455 Highway 80 West

Jackson, MS 39209

(c) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Tennessee.

(f) Headings. The Section, paragraph, and subparagraph headings are for convenience or reference only and shall not define or limit the provisions hereof.

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

SAKS INCORPORATED

BY: _____________________

James A. Coggin

President

_____________________

Brian J. Martin

Executive

EX-10 10 EXHIBIT 10.64 DONALD E. WRIGHT EMPLOYMENT AGT EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT

This Employment Agreement ("Agreement") is entered into as of the 1st day of March 2000, by and between Saks Incorporated (the "Company"), and Donald E. Wright ("Executive").

Company and Executive agree as follows:

1. Employment. Company hereby employs Executive as Senior Vice President of Finance and Accounting of Company or in such other capacity with Company and its subsidiaries as Company's Board of Directors shall designate.

3. Compensation. Executive's compensation and benefits under this Agreement shall be as follows:

(a) Base Salary. Company shall pay Executive a base salary ("Base Salary") at a rate of no less than $325,000 per year. Executive's Base Salary shall be paid in installments in accordance with Company's normal payment schedule for its senior management. All payments shall be subject to the deduction of payroll taxes and similar assessments as required by law.

(b) Bonus. In addition to the Base Salary, Executive shall be eligible, as long as he holds the position stated in paragraph 1, for a yearly cash bonus with a target maximum of 50% of Base Salary based upon his performance in accordance with specific annual objectives, set in advance, all as approved by the Board of Directors.

(c) Service Award. As compensation for his services, Company shall issue 5,000 shares of Company stock to Executive as soon as practicable after each of the first three anniversary dates of Executive's first date of employment with Company (for a total of 15,000 shares), provided that Executive remains employed by Company on such dates.

(d) Change of Control. In accordance with the policy set by the Human Resources Committee of the Board, all options and restricted stock shall vest upon a change of Control, as defined below.

5. Term. The term of this Agreement shall be for three years, provided, however, that Company may terminate this Agreement at any time upon thirty (30) days' prior written notice (at which time this Agreement shall terminate except for Section 9, which shall continue in effect as set forth in Section 9). In the event of such termination by Company, Executive shall be entitled to receive his Base Salary (at the rate in effect at the time of termination) through the end of the term of this

In addition, this Agreement shall terminate upon the death of Executive, except as to: (a) Executive's estate's right to exercise any unexercised stock options pursuant to Company's stock option plan then in effect, (b) other entitlements under this contract that expressly survive death, and (c) any rights which Executive's estate or dependents may have under COBRA or any other federal or state law or which are derived independent of this Agreement by reason of his participation in any employee b aintained by Company.

6. Termination by Company for Cause. (a) Company shall have the right to terminate Executive's employment under this Agreement for cause, in which event no salary or bonus shall be paid after termination for cause. Termination for cause shall be effective immediately upon notice sent or given to Executive. For purposes of this Agreement, the term "cause" shall mean and be strictly limited to: (i) conviction of Executive, after all applicable rights of appeal have been exhausted or wa erially discredits Company or is materially detrimental to the reputation or goodwill of Company; (ii) commission of any material act of fraud or dishonesty by Executive against Company or commission of an immoral or unethical act that materially reflects negatively on Company, provided that Executive shall first be provided with written notice of the claim and with an opportunity to contest said claim before the Board of Directors; or (iii) Executive's willful and continual material breach of his obligatio

As used herein, the term "Change in Control" means the happening of any of the following:

As used herein, the term "Potential Change in Control" means the happening of any of the following:

(a) The approval by stockholders of an agreement by Company, the consummation of which would result in a Change of Control of Company; or

8. Disability. If Executive becomes disabled at any time during the term of this Agreement, he shall after he becomes disabled continue to receive all payments and benefits provided under the terms of this Agreement for a period of twelve consecutive months, or for the remaining term of this Agreement (but not less than six months), whichever period is shorter. For purposes of this Agreement, the term "disabled" shall mean the inability of Executive (as the result of a physical or menta m the duties of his position under this Agreement with reasonable accommodation and which inability is reasonably expected to last at least one (1) full year.

9. Non-competition; Unauthorized Disclosure.

(a) Non-competition. During the period Executive is employed under this Agreement, and for a period of one year thereafter, Executive:

(iii) shall not induce or attempt to persuade any employee of Company or any of its divisions, subsidiaries or then present affiliates to terminate his or his employment relationship.

(c) Scope of Covenants; Remedies. The following provisions shall apply to the covenants of Executive contained in this Section 9:

(iv) the covenants contained in this Section 9 shall survive the conclusion of Executive's employment by Company.

10. General Provisions.

If to Executive:

Donald E. Wright

750 Lakeshore Parkway

Birmingham, AL 35211

If to Company:

Brian J. Martin

750 Lakeshore Parkway

Birmingham, AL 35211

(c) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Tennessee.

(f) Headings. The Section, paragraph, and subparagraph headings are for convenience or reference only and shall not define or limit the provisions hereof.

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

Saks Incorporated

BY: _____________________

Brian J. Martin

Executive Vice President

_____________________

Donald E. Wright

Executive

EX-10 11 EXHIBIT 10.68 SAKS INC 1998 EXEC. BONUS PLAN Saks Incorporated Saks Incorporated
1998 Senior Executive Bonus Plan

1. Purpose.

The purpose of the 1998 Senior Executive Bonus Plan (the "Plan") is to provide a select group of executive officers with an annual incentive opportunity, based on the achievement of pre-established, objective performance goals described in Section 4 ("Performance Goals"), to earn additional compensation so as to attract and retain such executive officers and to motivate them to enhance the value of the business of Saks Incorporated (the "Company"). The Plan

2. Eligibility to Participate.

(a)The participants in the Plan ("Participants") for any annual performance period (an "Annual Performance Period") shall be those executive officers of the Company who are selected by the Committee (as defined in Section 8) to participate in the Plan for such Annual Performance Period. Such selection shall be made by the Committee within 90 days following the commencement of each Annual Performance Period (or within such earlier period as shall be required under Sect

(b) An executive officer shall automatically cease to be a Participant, without notice to or consent of such executive officer, upon the earliest to occur of the following events: (i) the Participant's death; (ii) the Participant's permanent and total disability; and (iii) the Participant's termination of employment with the Company.

3. Annual Performance Period.

Each Annual Performance Period shall be a fiscal year of the Company, commencing with the fiscal year beginning February 1, 1998.

4. Bonus Amounts and Performance Goals.

Prior to the 90th day following the start of each Annual Performance Period (or within such earlier period as shall be required under Section 162(m)) and while the outcome of the Performance Goals is substantially uncertain, the Committee will establish, in writing, for each Participant (i) bonus potential amounts, expressed as a percentage of annual rate of base salary or a number of shares of Company common stock, payable in accordance with the Plan and (ii) one or more Performance

5. Bonus Awards.

(a) Each Participant shall be eligible to receive the bonus amount (a "Bonus Award") determined by the Committee in accordance with Section 4, payable in cash or stock pursuant to Section 6, if and to the extent, with respect to such bonus amount, the Performance Goal or the Performance Goals established for the Participant for the Annual Performance Period are achieved in accordance with the objective criteria set forth in the specific Performance Goal. If the Performance G

(i) below the established minimum level of performance, no Bonus Award will be paid;

(ii) equal to or greater than the maximum level of performance, the maximum Bonus Award will be paid;

(iii) between the minimum and maximum levels of performance, the Bonus Award will be prorated.

(b) The Committee, in its sole discretion, may reduce the amount of, or eliminate, a Bonus Award of any Participant. In determining whether a Bonus Award will be reduced or eliminated, the Committee may consider any extraordinary changes that may also have occurred during the Annual Performance Period, including without limitation changes in accounting practices or the law, and may consider such business performance criteria that it deems appropriate, including without limitation the

(b) The maximum Bonus Award payable to a Participant in cash is the amount equal to 100% of the Participant's annual base salary or shares of common stock in the following amounts (subject to adjustment in the case of stock splits): 50,000 shares of common stock if the Participant is the Companys Chief Executive Officer, and (ii) 25,000 shares of common stock if the Participant is any other executive officer.

6. Payment of Bonus Awards.

Subject to any shareholder approval required by law, payment of any Bonus Award for an Annual Performance Period in accordance with the Plan shall be made in cash or stock to a Participant who is employed by the Company after the Committee shall have certified that the Performance Goal or Performance Goals for the Annual Performance Period were achieved and any other material terms of the Bonus Award were satisfied. The Company may defer, for such period of time as the Participant may re uch deferral, in accordance with the plans and policies of the Company, the payment of all or any portion of any Bonus Award which may become payable to the Participant, with respect to the Annual Performance Period. If a Participant has the right to defer payment of all or any portion of the Participant's compensation from the Company in accordance with an employment or similar agreement, then the right to defer any Bonus Award and the terms of such deferral will be governed by that agreement.

7. Deferral of Bonus Awards.

(a) The Committee may, subject to such limits as the Committee may specify, permit a Participant to defer all or part of the Bonus Award payable to him or her with respect to any Annual Performance Period by executing and delivering to the Company a deferral election form provided by the Committee no later than the date specified in the notification to the Participant of his or her participation for the Annual Performance Period.

(b) The deferred Bonus Award will be credited to a special book account maintained for each Participant and will be accounted for as a number of shares or cash that will accrue earnings based on a reasonable rate of interest or on the rate of return of one or more predetermined actual investments (whether or not assets associated with the amount originally owed are actually invested therein) such that the amount payable by the Company at the end of the deferral period will be based on eturn of the specific investment (including any decrease as well as any increase in the value of the investment). Distribution of the deferred Bonus Award plus accrued earnings will be made at such time or times and in such manner as the Participant shall specify at the time he or she files the deferral election forms, subject, however, to such restrictions and limitations as the Committee may from time to time impose.

(c) The obligation to pay a deferred Bonus Award plus earnings shall at all times be an unfunded and unsecured obligation of the Company. The Participant and his or her beneficiary(ies) shall look exclusively to the general assets of the Company, as general creditors of the Company. The Plan is intended to be unfunded for purposes of the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code of 1986. The Participant shall have no right to assign, pledge or enc

8. Administration

(a) The Human Resources/Stock Option Committee of the Board of Directors of the Company (the "Committee"), or a subcommittee thereof, consisting solely of two or more members of the Board, each of whom shall be an "outside director" within the meaning of Section 162(m) of the Code shall administer the Plan and be authorized to take all actions necessary or desirable to effect the purposes of the Plan, in its sole discretion, including but not limited to:

(i) providing rules for the management, operation, and administration of the Plan and all pre-existing bonus arrangements incorporated into the Plan;

(ii) interpreting the Plan in its sole discretion to the fullest extent permitted by law; and

(iii) correcting any defect or omission or reconciling any inconsistency in the Plan in such manner and to such extent as it shall deem appropriate in its sole discretion.

(b) The decisions of the Committee shall be final and conclusive for all purposes of the Plan and upon all persons and will not be subject to any appeal or review.

9. Amendment and Termination.

(a) The Company hereby reserves the right, exercisable by the Committee, to amend the Plan at any time and in any respect or to discontinue and terminate the Plan in whole or in part at any time, subject to Section 9(b). Amendment or termination may be effective with respect to any amount which has not yet been paid out, except that amounts which have been credited to a deferred bonus account shall be paid out in accordance with the applicable deferral election or, if the Committe

(b) In no event shall any Bonus Award be made under the Plan for any Annual Performance Period after the Annual Performance Period beginning in 2002. The Plan, awards under the Plan, and any amendment to the Plan which would change the class of executives who are eligible to receive awards under the Plan or the permissible amount of such awards shall be subject to approval of the Company's shareholders in such manner and with such frequency as shall be required under Section 162(m).

10. Miscellaneous.

(a) Neither the establishment of the Plan nor participation herein shall be construed as conferring any legal rights upon any Participant or other person for continuation of employment, and the Company reserves its right to discharge any executive officer without regard to the effect such discharge might have upon such executive officer as a Participant in the Plan. However, nothing contained herein shall affect any contractual right of a Participant pursuant to a written employme

(b) The Company shall withhold from any amounts payable under the Plan all federal, state, local and other taxes as may be required to be withheld by applicable law.

(c) Subject to any applicable law, no benefit under the Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, and any attempt to do so shall be void, nor shall any such benefit in any manner liable for or subject to the debts, contracts, liabilities, engagements or torts of the Participant. In the event that the Committee shall find that any Participant has attempted to violate such provision or has become bankrupt,

(d) The Plan shall be interpreted and construed in accordance with the laws of the State of Tennessee, without regard to principles of conflicts of laws.

(e) If a provision of the Plan shall be held illegal or invalid, the illegality or invalidity shall not affect the remaining provisions of the Plan and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included in the Plan.

(f) The Plan is designed and intended to comply with Section 162(m) of the Code and all provisions hereof shall be construed in a manner so to comply.

11. Effective Date

The Plan shall be submitted to the shareholders of the Company for approval and, if approved by the shareholders, shall be effective as of February 1, 1998.

EX-10 12 EXHIBIT 10.69 SAKS FIFTH AVE. PENSION PLAN Exhibit 10.69 SAKS FIFTH AVENUE PENSION PLAN 1998 RESTATEMENT TO INCORPORATE AMENDMENTS NO. 1-6 CONTENTS ARTICLE I Definitions. . . . . . . . . . . . . . . . . . . . . . . 1 1.1 Accrued Benefit . . . . . . . . . . . . . . . . . . . . . . 1 1.2 Active Participant. . . . . . . . . . . . . . . . . . . . . 2 1.3 Actuarial Equivalent or Actuarially Equivalent. . . . . . . 2 1.4 Actuary . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.5 Adjustment Factor . . . . . . . . . . . . . . . . . . . . . 2 1.6 Affiliated Company. . . . . . . . . . . . . . . . . . . . . 2 1.7 Annual Addition . . . . . . . . . . . . . . . . . . . . . . 3 1.8 Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . 3 1.9 Benefit Commencement Date . . . . . . . . . . . . . . . . . 3 1.10 Board of Directors . . . . . . . . . . . . . . . . . . . . 4 1.11 Cash or Deferred Contributions . . . . . . . . . . . . . . 4 1.12 Code . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.13 Company. . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.14 Compensation . . . . . . . . . . . . . . . . . . . . . . . 4 1.15 Continued Employee . . . . . . . . . . . . . . . . . . . . 4 1.16 Credited Service . . . . . . . . . . . . . . . . . . . . . 4 1.17 Defined Benefit Plan Fraction. . . . . . . . . . . . . . . 5 1.18 Defined Contribution Plan Fraction . . . . . . . . . . . . 5 1.19 Determination Date . . . . . . . . . . . . . . . . . . . . 5 1.20 Earliest Retirement Age. . . . . . . . . . . . . . . . . . 5 1.21 Early Retirement Date. . . . . . . . . . . . . . . . . . . 6 1.22 Early Retirement Pension . . . . . . . . . . . . . . . . . 6 1.23 Effective Date . . . . . . . . . . . . . . . . . . . . . . 6 1.24 Eligibility Service. . . . . . . . . . . . . . . . . . . . 6 1.25 Eligible Employee. . . . . . . . . . . . . . . . . . . . . 6 1.26 Employee . . . . . . . . . . . . . . . . . . . . . . . . . 7 1.27 ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . 7 1.28 [Deleted]. . . . . . . . . . . . . . . . . . . . . . . . . 7 1.29 Forfeiture . . . . . . . . . . . . . . . . . . . . . . . . 7 1.30 Forfeiture Event . . . . . . . . . . . . . . . . . . . . . 7 1.31 '415' Compensation . . . . . . . . . . . . . . . . . . . . 8 1.32 '414(s)' Compensation. . . . . . . . . . . . . . . . . . . 8 1.33 Highly Compensated Employee. . . . . . . . . . . . . . . . 8 1.34 Hour of Service. . . . . . . . . . . . . . . . . . . . . . 9 1.35 Inactive Participant . . . . . . . . . . . . . . . . . . . 9 1.36 Investment Manager . . . . . . . . . . . . . . . . . . . . 9 1.37 Key Employee . . . . . . . . . . . . . . . . . . . . . . . 9 1.38 Limitation Year. . . . . . . . . . . . . . . . . . . . . . 9 1.39 Maternity or Paternity Leave . . . . . . . . . . . . . . . 9 1.40 Named Fiduciary. . . . . . . . . . . . . . . . . . . . . .10 1.41 Normal Retirement Age. . . . . . . . . . . . . . . . . . .10 1.42 Normal Retirement Date . . . . . . . . . . . . . . . . . .10 1.43 Normal Retirement Pension. . . . . . . . . . . . . . . . .10 1.44 One-Year Break in Service. . . . . . . . . . . . . . . . .10 1.45 Participant. . . . . . . . . . . . . . . . . . . . . . . .10 1.46 Pension. . . . . . . . . . . . . . . . . . . . . . . . . .11 1.47 Pension Fund Committee . . . . . . . . . . . . . . . . . .11 1.48 Plan . . . . . . . . . . . . . . . . . . . . . . . . . . .11 1.49 Plan Administrator . . . . . . . . . . . . . . . . . . . .11 1.50 Plan Year. . . . . . . . . . . . . . . . . . . . . . . . .11 1.51 Prior Plan . . . . . . . . . . . . . . . . . . . . . . . .11 1.52 Prior Plan Benefit . . . . . . . . . . . . . . . . . . . .11 1.53 Qualified Domestic Relations Order . . . . . . . . . . . .11 1.54 Retirement . . . . . . . . . . . . . . . . . . . . . . . .11 1.55 Service. . . . . . . . . . . . . . . . . . . . . . . . . .11 1.56 Social Security Retirement Age . . . . . . . . . . . . . .12 1.57 Spouse . . . . . . . . . . . . . . . . . . . . . . . . . .12 1.58 Top Heavy Year . . . . . . . . . . . . . . . . . . . . . .12 1.59 Trust Agreement. . . . . . . . . . . . . . . . . . . . . .13 1.60 Trust Fund . . . . . . . . . . . . . . . . . . . . . . . .13 1.61 Trustee. . . . . . . . . . . . . . . . . . . . . . . . . .13 1.62 Valuation Date . . . . . . . . . . . . . . . . . . . . . .13 1.63 Vesting Service. . . . . . . . . . . . . . . . . . . . . .13 1.64 Year of Service. . . . . . . . . . . . . . . . . . . . . .13 ARTICLE II Service . . . . . . . . . . . . . . . . . . . . . . . .13 2.1 Hour of Service . . . . . . . . . . . . . . . . . . . . . .14 2.2 Year of Service . . . . . . . . . . . . . . . . . . . . . .14 2.3 One-Year Break in Service . . . . . . . . . . . . . . . . .14 2.4 Service . . . . . . . . . . . . . . . . . . . . . . . . . .15 2.5 Eligibility Service . . . . . . . . . . . . . . . . . . . .16 2.6 Vesting Service . . . . . . . . . . . . . . . . . . . . . .16 2.7 Credited Service. . . . . . . . . . . . . . . . . . . . . .16 ARTICLE III Participation. . . . . . . . . . . . . . . . . . . . .16 3.1 Commencement of Active Participation. . . . . . . . . . . .16 3.2 Consent . . . . . . . . . . . . . . . . . . . . . . . . . .17 3.3 Commencement of Inactive Participation. . . . . . . . . . .17 3.4 Termination of Participation. . . . . . . . . . . . . . . .17 3.5 Military Absence under USERRA . . . . . . . . . . . . . . .17 ARTICLE IV Company Contributions . . . . . . . . . . . . . . . . .17 4.1 Company Contributions . . . . . . . . . . . . . . . . . . .17 4.2 Time and Method of Payment of Company Contributions. . . . . . . . . . . . . . . . . . . . . . .17 4.3 Forfeitures . . . . . . . . . . . . . . . . . . . . . . . .18 4.4 Return of Company Contributions . . . . . . . . . . . . . .18 ARTICLE V Participant Contributions. . . . . . . . . . . . . . . .19 5.1 Participant Contributions . . . . . . . . . . . . . . . . .19 ARTICLE VI Requirements For Retirement Benefits . . . . . . .19 6.1 Normal Retirement . . . . . . . . . . . . . . . . . . . . .19 6.2 Early Retirement. . . . . . . . . . . . . . . . . . . . . .19 6.3 Late Retirement . . . . . . . . . . . . . . . . . . . . . .19 6.4 Termination of Employment Prior to Normal Retirement Age. . . . . . . . . . . . . . . . . . . . . .20 ARTICLE VII Amount Of Retirement Benefit . . . . . . . . . . . . .20 7.1 Normal Retirement Pension . . . . . . . . . . . . . . . . .20 7.2 Early Retirement Pension. . . . . . . . . . . . . . . . . .23 7.3 Deferred Vested Pension . . . . . . . . . . . . . . . . . .24 7.4 Maximum Annual Benefit. . . . . . . . . . . . . . . . . . .24 7.5 Reemployment After Pension Commencement . . . . . . . . . .28 7.6 Nonreduction in Benefits on Account of Social Security Benefit Increases. . . . . . . . . . . . . . . .28 7.7 Top Heavy Minimum Benefit . . . . . . . . . . . . . . . . .29 7.8 Benefits From Other Plans . . . . . . . . . . . . . . . . .30 ARTICLE VIII Method Of Payment Of Pension. . . . . . . . . . . . .30 8.1 Normal Form of Pension. . . . . . . . . . . . . . . . . . .30 8.2 Optional Pension Forms. . . . . . . . . . . . . . . . . . .31 8.3 Married Participant's Election of Optional Pension Form . . . . . . . . . . . . . . . . . . . . . .34 8.4 Pre-Retirement Surviving Spouse Annuity . . . . . . . . . .36 8.5 Lump-Sum Cashout Distribution . . . . . . . . . . . . . . .38 8.6 Special Provisions Applicable to Former Participants in the Gimbel Brothers, Inc. Profit Sharing Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . .39 8.7 [Deleted] . . . . . . . . . . . . . . . . . . . . . . . . .41 8.8 Special Rule for Annuities Distributed to Participants. . . . . . . . . . . . . . . . . . . . . . .41 8.9 Commencement of Participant's Benefits. . . . . . . . . . .41 8.10 Distributions. . . . . . . . . . . . . . . . . . . . . . .42 8.11 No Other Death Benefits. . . . . . . . . . . . . . . . . .43 8.12 Special Retirement Program . . . . . . . . . . . . . . . .43 8.13 Optional Direct Rollovers. . . . . . . . . . . . . . . . .44 ARTICLE IX Administration of Plan. . . . . . . . . . . . . . . . .45 9.1 Appointment of Plan Administrator . . . . . . . . . . . . .45 9.2 Resignation and Removal of Plan Administrator . . . . . . .45 9.3 Appointment of Successor. . . . . . . . . . . . . . . . . .45 9.4 Power and Duties of the Plan Administrator. . . . . . . . .45 9.5 Delegation of Duties. . . . . . . . . . . . . . . . . . . .46 9.6 Plan Administrator's Account. . . . . . . . . . . . . . . .46 9.7 Compensation of Plan Administrator. . . . . . . . . . . . .46 9.8 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . .47 9.9 Information Required From Participants. . . . . . . . . . .47 9.10 Records. . . . . . . . . . . . . . . . . . . . . . . . . .47 9.11 Reports to Participants. . . . . . . . . . . . . . . . . .47 9.12 Multiple Fiduciary Capacity. . . . . . . . . . . . . . . .47 ARTICLE X Pension Fund Committee . . . . . . . . . . . . . . . . .47 10.1 Appointment of Pension Fund Committee. . . . . . . . . . .47 10.2 Resignation and Removal of Members . . . . . . . . . . . .48 10.3 Appointment of Successors. . . . . . . . . . . . . . . . .48 10.4 Committee Powers . . . . . . . . . . . . . . . . . . . . .48 10.5 Allocation and Delegation of Duties. . . . . . . . . . . .49 10.6 Investment Manager . . . . . . . . . . . . . . . . . . . .49 10.7 Committee Procedure. . . . . . . . . . . . . . . . . . . .49 10.8 Compensation and Expenses of Committee . . . . . . . . . .50 10.9 Records. . . . . . . . . . . . . . . . . . . . . . . . . .50 10.10 Funding Policy. . . . . . . . . . . . . . . . . . . . . .50 ARTICLE XI Claims. . . . . . . . . . . . . . . . . . . . . . . . .50 11.1 Claims for Benefits. . . . . . . . . . . . . . . . . . . .50 11.2 Appeals Procedure. . . . . . . . . . . . . . . . . . . . .51 ARTICLE XII Amendment and Termination. . . . . . . . . . . . . . .51 12.1 Amendment. . . . . . . . . . . . . . . . . . . . . . . . .51 12.2 Termination, Partial Termination, or Discontinuance of Accruals . . . . . . . . . . . . . . .51 12.3 Procedure on Termination . . . . . . . . . . . . . . . . .52 12.4 Partial Termination. . . . . . . . . . . . . . . . . . . .52 12.5 Liquidation of Trust Fund. . . . . . . . . . . . . . . . .52 12.6 Reversion of Residual Amounts. . . . . . . . . . . . . . .54 12.7 Successor Employer . . . . . . . . . . . . . . . . . . . .55 12.8 Manner of Distribution . . . . . . . . . . . . . . . . . .55 12.9 Merger or Consolidation of Plan Assets; Mergers into the Plan; Transfers of Plan Assets . . . . . . . . . . . . . . . . . . . . . . . . .55 ARTICLE XIII Restrictions Applicable To Highly Compensated Employees. . . . . . . . . . . . . . . . . . . . . . . . . .56 13.1 Restriction on Benefits of Highly Compensated Employees. . . . . . . . . . . . . . . . . . . . . . . .56 13.2 Restrictions on Distributions to Top 25 Highly Compensated Employees. . . . . . . . . . . . . . . . . .56 13.3 Termination of Restrictions. . . . . . . . . . . . . . . .57 ARTICLE XIV Miscellaneous Provisions . . . . . . . . . . . . . . .57 14.1 No Contract of Employment. . . . . . . . . . . . . . . . .57 14.2 No Liability for Benefits. . . . . . . . . . . . . . . . .57 14.3 Exclusive Benefit of Trust Fund. . . . . . . . . . . . . .57 14.4 Nonalienation. . . . . . . . . . . . . . . . . . . . . . .58 14.5 Trust Assets . . . . . . . . . . . . . . . . . . . . . . .60 14.6 Responsibility of Fiduciaries. . . . . . . . . . . . . . .60 14.7 Indemnity by Companies . . . . . . . . . . . . . . . . . .60 14.8 Address for Notification; Inability to Locate Participants or Beneficiaries. . . . . . . . . . . . . .60 14.9 Payment in Case of Incapacity. . . . . . . . . . . . . . .61 14.10 Headings. . . . . . . . . . . . . . . . . . . . . . . . .61 14.11 Applicable Law. . . . . . . . . . . . . . . . . . . . . .61 14.12 Agent for Service . . . . . . . . . . . . . . . . . . . .61 Appendix A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Appendix B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Appendix C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 SAKS FIFTH AVENUE PENSION PLAN PREAMBLE This instrument sets forth the terms and conditions of the Saks Fifth Avenue Pension Plan (the "Plan") adopted by Saks & Company effective as of July 2, 1990, as thereafter amended and in effect as of the date of the execution of this instrument (the "1998 Restatement"). This 1998 Restatement of the Plan incorporates Amendments No. 1 through No. 6 to the Plan. Such amendments are effective as of the dates set forth in the amendments and instruments setting forth the terms of such amendments. Saks & Company is a New York corporation with offices headquartered in New York, New York. The Plan and the trust established under the Trust Agreement to implement the Plan are intended to comply with the provisions of Sections 401(a) and 501(a) of the Code and the requirements of ERISA, and the corresponding provisions of any subsequent laws, and the provisions of the Plan and Trust Agreement shall be construed to effectuate such intention. ARTICLE I Definitions For all terms used in this Plan, whether or not defined in this Article I, the masculine gender shall include the feminine and the feminine gender shall include the masculine and the singular shall include the plural and the plural shall include the singular unless the context clearly indicates otherwise. The following terms used in this Plan shall have the meanings set forth in this Article I. 1.1 Accrued Benefit "Accrued Benefit" of a Participant means the greater of (a) the amount of Pension payable to a Participant in the normal form described in Section 8.1(a) hereof, as computed under Section 7.1 for periods prior to April 1, 1998, as limited by Sections 7.4, 7.5 and 7.8, to which a Participant would be entitled commencing upon his Normal Retirement Date, based upon his years of Credited Service and Compensation prior to April 1, 1998 that are taken into account as of the date as of which his Accrued Benefit is determined, or (b) the amount of Pension payable to a Participant in the normal form described in Section 8.1(a) hereof that is the Actuarial Equivalent (determined using the interest and mortality factors set forth in Section 1.03 of Appendix A) of the Participant's Cash Balance Account, as computed under Section 7.1(b), as limited by Sections 7.4, 7.5 and 7.8, to which a Participant would be entitled commencing upon his Normal Retirement Date, based upon such Participant's opening account balance, if applicable, and Benefit Credits and Interest Credits allocated to his Cash Balance Account for each Plan Year commencing on and after January 1, 1998, which are taken into account as of the date as of which his Accrued Benefit is determined. Notwithstanding the above, a Participant's Accrued Benefit derived from Company contributions shall not be less than the minimum Accrued Benefit, if any, provided pursuant to the top- heavy rules contained in Section 7.7. The value of a Participants Accrued Benefit as of the first day of any Plan Year shall not be less than the value of his Accrued Benefit as of the first day of any prior Plan Year. 1.2 Active Participant "Active Participant" means a person who has commenced, and remains in, active participation in the Plan pursuant to Article III. 1.3 Actuarial Equivalent or Actuarially Equivalent "Actuarial Equivalent" or "Actuarially Equivalent" means equality in value of the aggregate sums expected to be received under different forms of payment, based on the actuarial principles set forth in Appendix A, except as expressly provided in the Plan. 1.4 Actuary "Actuary" means an enrolled actuary, within the meaning of Section 7701(a)(35) of the Code, or a firm of actuaries with which an enrolled actuary is associated selected by the Pension Fund Committee to provide actuarial services in connection with the administration of the Plan. 1.5 Adjustment Factor "Adjustment Factor" means the cost of living adjustment factor prescribed by the Secretary of the Treasury under Section 415(d) of the Code. 1.6 Affiliated Company "Affiliated Company" means: (a) each Company; (b) any corporation which is a member of a controlled group of corporations with a Company within the meaning of Section 414(b) of the Code as of or after the Effective Date; (c) any trade or business (including a sole proprietorship, partnership, trust, estate or corporation) which is under common control with a Company within the meaning of Section 414(c) of the Code as of or after the Effective Date; (d) any organization (whether or not incorporated) which is a member of an affiliated service group (as defined in Section 414(m) of the Code) which includes a Company as of or after the Effective Date; (e) any other entity required to be aggregated with the Companies pursuant to regulations under Section 414(o) of the Code as of or after the Effective Date; and (f) any other entity deemed to be an Affiliated Company by the Board of Directors; provided that an entity identified in subsection (b), (c), (d) or (e) shall constitute an "Affiliated Company" only for the period of time during which its relationship to the Company satisfies the requirements of subsection (b), (c), (d) or (e). 1.7 Annual Addition "Annual Addition" means, with respect to any defined contribution plan (within the meaning of Code Section 415(k)(1)) sponsored, maintained, or contributed to by an Affiliated Company, the sum, in any Limitation Year, of: (a) employer contributions (including elective deferrals) made on behalf of a Participant; (b) the Participant's after-tax contributions; (c) forfeitures, if any, allocated as such to the Participant's accounts, but reduced by any amount permitted by regulations promulgated by the Secretary of the Treasury; and (d) all other amounts defined in Section 415(c)(2) of the Code that are allocated to a Participant's accounts, including any amount allocated to an individual medical account of the Participant as described in Section 415(1) of the Code, and (if the Participant is a Key Employee) any amount allocated to his post-retirement medical benefit account as described in Section 419A(d) of the Code. 1.8 Beneficiary "Beneficiary" means the one or more persons who are entitled to receive distribution under the Plan after the Participant's death, as determined under the following rules. If such Participant has a surviving Spouse, the Beneficiary shall be such Spouse, unless the Participant has elected otherwise pursuant to Section 8.3. When such an election has been made and in all cases in which the Participant does not have a surviving Spouse, the Beneficiary shall be the one or more persons most recently designated as such by the Participant. If no Beneficiary is validly designated or if no such validly designated Beneficiary survives the Participant, the Participant's Beneficiary shall be his Spouse, or, if there is no Spouse, the Participant's children per stirpes, or, if there is no Spouse or surviving child or lineal descendant of a child, the Participant's estate. 1.9 Benefit Commencement Date "Benefit Commencement Date" means the first day of the first period for which an amount is payable as an annuity hereunder, or, in the case of a benefit not payable in the form of an annuity, the first day on which all events have occurred which entitle the Participant to such benefit, regardless of whether payment is actually made. The Benefit Commencement Date shall be the "as of" date on which an amount becomes payable or on which all events have occurred which entitle the Participant to payment, as specified above, as opposed to the actual date of payment. For purposes of this Section, an annuity shall not be considered payable pursuant to Section 6.2 or 6.4 prior to Normal Retirement Date unless the Participant has elected earlier commencement in accordance with Section 6.2 or 6.4. 1.10 Board of Directors "Board of Directors" means the board of directors of Saks & Company or any officer or officers of Saks & Company authorized by the Board of Directors to take action on its behalf. 1.11 Cash or Deferred Contributions "Cash or Deferred Contributions" means any amounts that would qualify as compensation but for the Participant's agreement to forego receipt thereof pursuant to a cash or deferred arrangement under Section 401(k)(2) of the Code, a cafeteria plan under Section 125 of the Code, a simplified employee pension under Section 402(h) of the Code, or an annuity contract under Section 403(b) of the Code. 1.12 Code "Code" means the Internal Revenue Code of 1986, as amended from time to time. 1.13 Company "Company" means Saks & Company or any other company, or division or department of a company, having employees to whom the Board of Directors has extended the benefits of the Plan, or any successor entities (collectively, the "Companies"). Any action by a Company provided for under the Plan may be taken by the board of directors of that Company or by an officer or officers of that Company authorized by such board of directors to take such action. Any reference to the board of directors or officers of a Company shall, with respect to a Company which is a division or department of a company, be deemed to refer to the board of directors or officers of the company of which such Company is a division or department. 1.14 Compensation "Compensation" means '414(s)' Compensation with respect to employment as an Eligible Employee. 1.15 Continued Employee "Continued Employee" means an Eligible Employee employed by the Companies as of July 2, 1990. 1.16 Credited Service "Credited Service" means Service used to determine a Participant's Accrued Benefit, as the term is defined in Section 2.7. 1.17 Defined Benefit Plan Fraction "Defined Benefit Plan Fraction" means for any Limitation Year a fraction, the numerator of which is the Participant's projected annual benefit under all defined benefit plans (within the meaning of Section 414(j) of the Code) of the Affiliated Companies, which are qualified under Sections 401 and 501 of the Code, determined as of the close of the Limitation Year, and the denominator of which is the lesser of: (a) 1.25 (1.0 for any Limitation Year beginning in a Top Heavy Year) multiplied by the dollar limitation in effect under Section 415(b)(1)(A) of the Code for that Limitation Year, or (b) 1.4 multiplied by the amount that may be taken into account under Section 415(b)(1)(B) of the Code with respect to the Participant for that Limitation Year, provided that if such defined benefit plan(s) (or prior plan(s) from which assets and liabilities have been transferred to such defined benefit plan(s)) satisfied the applicable requirements of Section 415 of the Code as in effect for all limitation years beginning before January 1, 1987, the denominator of the Defined Benefit Fraction shall be determined in accordance with rules prescribed by the Secretary of the Treasury. 1.18 Defined Contribution Plan Fraction "Defined Contribution Plan Fraction" means for any Limitation Year a fraction, the numerator of which is the sum of the Participant's Annual Additions for all Limitation Years as of the close of such Limitation Year and the denominator of which is the sum of the lesser of the following amounts for such Limitation Year and for each prior Limitation Year of service with the Affiliated Companies: (a) 1.25 (1.0 for any Limitation Year beginning in a Top Heavy Year) multiplied by the dollar limitation in effect under Section 415(c)(1)(A) of the Code for that Limitation Year (determined without regard to Section 415(c)(6) of the Code), or (b) 1.4 multiplied by the amount that may be taken into account under Section 415(c)(1)(B) of the Code with respect to the Participant for that Limitation Year. 1.19 Determination Date "Determination Date" means, with respect to any Plan Year, the last day of the immediately preceding Plan Year or, with respect to the first Plan Year of the Plan, the last day of such Plan Year. 1.20 Earliest Retirement Age "Earliest Retirement Age" means the earliest date on which the Participant could elect to receive retirement benefits under the Plan. 1.21 Early Retirement Date "Early Retirement Date" means the date on which the Participant retires in accordance with Section 6.2 or the date on which he attains age fifty-five (55), if later. 1.22 Early Retirement Pension "Early Retirement Pension" means a Pension payable to a Participant who satisfies the requirements of Section 6.2 hereof. 1.23 Effective Date "Effective Date" means July 2, 1990, the original effective date of the Plan. 1.24 Eligibility Service "Eligibility Service" means Service used to determine an Eligible Employee's eligibility to become a Participant under the Plan, as the term is defined in Section 2.5. 1.25 Eligible Employee "Eligible Employee" means any Employee (including any officer) employed (whether or not such person is an exempt employee under Section 13(a)(l) of the Fair Labor Standards Act) in a Company. Eligible Employee shall not include, however, the following individuals: (a) any Employee who is a nonresident alien with no U.S. source income, (b) any Employee covered by a collective bargaining agreement which does not provide for participation in the Plan, (c) any leased employee within the meaning of Section 414(n)(2) of the Code included within the definition of "Employee" in this Article I, unless such leased employee's participation in the Plan is necessary for the Plan to be or remain qualified under Section 401(a) of the Code, or (d) any person who is recorded on the books and records of an Affiliated Company as an independent contractor, a worker provided by a temporary staffing agency, and an individual with respect to whom a written agreement governing the relationship between such person and an Affiliated Company provides in substance that such person shall not be an Eligible Employee hereunder. (e) The preceding provisions of this Section 1.25 shall be given effect notwithstanding any classification or reclassification of a person as an employee or common law employee of an Affiliated Company or as a member of any other category of person not excluded under the preceding provisions of this Section 1.25 by reason of action taken by any tax, or other governmental authority. In the event that a person rendering services to an Affiliated Company in an excluded category is classified or reclassified by reason of action taken by any tax, or other governmental authority, or by the Affiliated Company, such individual shall continued to be excluded under this Plan unless specifically included hereunder by the terms of an amendment to this Plan or by the terms of a written instrument executed by such person and the Company. (f) The categories of excluded persons described above in this Section 1.25 are not mutually exclusive, it being contemplated that certain categories described above may include persons in one or more other categories, with the result that an individual may be excluded under more than one category set forth herein. 1.26 Employee "Employee" means any person employed by an Affiliated Company (but only while the Affiliated Company is, or was, an Affiliated Company), including an Eligible Employee. Employee shall, to the extent permitted by Section 406 of the Code, be deemed to include any United States citizen employed by a foreign subsidiary or affiliate of an Affiliated Company. Employee shall not include, however, any director of a Company not otherwise employed as an Employee. For purposes of determining the number or identity of Highly Compensated Employees or for purposes of the pension requirements of Section 414(n)(3) of the Code, Employee shall also include, effective for services performed after December 31, 1986, leased employees within the meaning of Section 414(n)(2) of the Code, provided that if such leased employees constitute less than 20% of the combined nonhighly compensated work force of the Affiliated Companies within the meaning of Section 414(n)(5)(C)(ii) of the Code, Employee shall not include those leased employees covered by a plan described in Section 414(n)(5) of the Code. 1.27 ERISA "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. 1.28 [Deleted] 1.29 Forfeiture "Forfeiture" means the value of the nonvested portion of a Participant's Accrued Benefit upon the occurrence of a Forfeiture Event. 1.30 Forfeiture Event "Forfeiture Event" means, with respect to a Participant who is not 100% vested in his Accrued Benefit, the occurrence of the earlier of: (a) the distribution of the entire nonforfeitable portion of the Participant's Accrued Benefit not later than the close of the second Plan Year following the Plan Year in which the Participant ceased to be an Employee and, prior to such distribution, continued not to be an Employee; or (b) five (5) consecutive One-Year Breaks in Service. 1.31 '415' Compensation "'415' Compensation" means a Participant's wages as defined in Section 3401(a) of the Code for purposes of income tax withholding at the source plus Cash or Deferred Contributions, but determined without regard to any rules that limit the remuneration included in wages based on the nature or location of the employment or the services performed, for a Plan Year, Limitation Year or other period, as applicable, from the Affiliated Companies. '415' Compensation shall include only those amounts required to be included in compensation for purposes of Section 415 of the Code. 1.32 '414(s)' Compensation "'414(s)' Compensation" means '415' Compensation minus the following: (a) any allowances, reimbursements and other similar benefits; (b) severance benefits; and (c) bonuses and executive incentive payments; provided that '414(s)' Compensation shall not include unpaid accrued compensation; and provided further that, for Plan Years beginning on and after January 1, 1989, and prior to January 1, 1994, '414(s)' Compensation shall not exceed $200,000, and for Plan Years beginning on and after January 1, 1994, '414(s)' Compensation shall not exceed $150,000, in each case multiplied by the ratio of the Adjustment Factor in effect for the Plan Year to the Adjustment Factor in effect for the Plan Year that constitutes the appropriate base period. 1.33 Highly Compensated Employee "Highly Compensated Employee" means any Employee who performed services for an Affiliated Company at any time during the Plan Year and who: (a) was at any time during the Plan Year or the immediately preceding Plan Year a "5-percent owner" within the meaning of Section 414(q)(3) of the Code; or (b) received during the immediately preceding Plan Year '415' Compensation equal to $80,000 multiplied by the Adjustment Factor, without regard to whether the Employee also was in the top-paid group of Employees of the Affiliated Companies, within the meaning of Section 414(q)(3) of the Code, during such Plan Year. A former Employee shall be treated as a Highly Compensated Employee if he was a Highly Compensated Employee either: for the last Plan Year during which he performed services for an Affiliated Company; or for any Plan Year ended after he attained age 55. The provisions of this Section shall be interpreted in a manner consistent with, and so as not to treat any person as a Highly Compensated Employee except to the extent required by, Section 414(q) of the Code. 1.34 Hour of Service "Hour of Service" means each hour so defined in Section 2.1. 1.35 Inactive Participant "Inactive Participant" means a person who has commenced, and remains in, inactive participation in the Plan pursuant to Section 3.3. 1.36 Investment Manager "Investment Manager" means the one or more investment managers within the meaning of ERISA Section 3(38) appointed pursuant to Section 10.6. 1.37 Key Employee "Key Employee" means any Employee who was at any time during the Plan Year ending on the Determination Date or during any one of the four Plan Years immediately preceding such Plan Year, any one or more of the following, interpreted in accordance with Section 416(i)(l) of the Code: (a) an officer of any Affiliated Company whose '415' Compensation for the Plan Year exceeded 50% of the amount in effect under Section 415(b)(1)(A) of the Code on December 31 in the Plan Year; (b) one of the 10 Employees whose '415' Compensation for the Plan Year exceeded the amount in effect under Section 415(c)(1)(A) of the Code on December 31 in the Plan Year and who owned (or are considered to have owned) the largest interests, exceeding one-half of one percent (1/2%), in the Affiliated Companies; (c) a "5-percent owner" of any Company of which he is an Employee; or (d) a "1-percent owner" of any Company of which he is an Employee and whose '415' Compensation for the Plan Year exceeded $150,000. 1.38 Limitation Year "Limitation Year" means the Plan Year; provided that for the Plan Year ending December 31, 1990, Limitation Year shall mean the twelve (12) consecutive month period ending December 31, 1990. 1.39 Maternity or Paternity Leave "Maternity or Paternity Leave" means any period of absence from employment beginning in any Plan Year commencing after December 31, 1984 by reason of the pregnancy of a Participant or the birth of a child of a Participant, or by reason of the placement of a child with a Participant in connection with its adoption by the Participant, or for the purpose of caring for such child during the period immediately following such birth or placement. Notwithstanding the foregoing, a period of absence from employment shall not be regarded as a Maternity or Paternity Leave if the Participant shall fail to comply with a request by the Company to furnish the Plan Administrator such timely information as may be reasonably required to establish that the absence from employment was for a reason set forth above and the number of days for which there was such an absence. 1.40 Named Fiduciary "Named Fiduciary" means the Plan Administrator, the Pension Fund Committee, the Trustee and the Investment Manager(s). Each such Named Fiduciary shall constitute a named fiduciary within the meaning of ERISA Section 402(a)(2). 1.41 Normal Retirement Age "Normal Retirement Age" means (a) age 65 for Continued Employees with at least three (3) years of vesting service under the Prior Plan as of January 1, 1989, and (b) in all other cases, the later of age 65 and the earlier of (1) the completion of five (5) years of Vesting Service or (2) the fifth anniversary of the date the Employee first becomes a Participant herein; provided that the term shall refer to an earlier normal retirement age with respect to a Continued Employee if such age was applicable to such Continued Employee under the Prior Plan. 1.42 Normal Retirement Date "Normal Retirement Date" means the last day of the month in which the Participant reaches his Normal Retirement Age. 1.43 Normal Retirement Pension "Normal Retirement Pension" means the Pension payable to a Participant who satisfies the requirements of Section 6.1 hereof. 1.44 One-Year Break in Service "One-Year Break in Service" means each one-year computation period so defined in Section 2.3. 1.45 Participant "Participant" means an Active Participant or an Inactive Participant. A Participant shall be deemed to be a Participant in respect of the Company in which he is, or was most recently, an Eligible Employee. 1.46 Pension "Pension" means a series of monthly amounts which are payable to a person who is entitled to receive benefits under the Plan. 1.47 Pension Fund Committee "Pension Fund Committee" means the committee appointed pursuant to Section 10.1. 1.48 Plan "Plan" means the Saks Fifth Avenue Pension Plan, effective as of July 2, 1990, as amended from time to time. 1.49 Plan Administrator "Plan Administrator" means the officer appointed pursuant to Section 9.1, who shall constitute the administrator of the Plan within the meaning of ERISA Section 3(16). 1.50 Plan Year "Plan Year" means the period from the Effective Date through December 31, 1990, and thereafter each successive one-year period ending on any December 31. 1.51 Prior Plan "Prior Plan" means the BATUS Retail Group Pension Plan. 1.52 Prior Plan Benefit "Prior Plan Benefit" means a Continued Employee's accrued benefit under the Prior Plan as of July 2, 1990 (after reduction by any applicable offsets under the Prior Plan) with respect to which and to the extent that the Plan has received a transfer of assets and liabilities from the Prior Plan. 1.53 Qualified Domestic Relations Order "Qualified Domestic Relations Order" means a "qualified domestic relations order" within the meaning of Section 206(d) of ERISA and Section 414(p) of the Code. 1.54 Retirement "Retirement" means the termination of employment for reasons other than death after a Participant has fulfilled all the requirements for a Normal Retirement or Early Retirement Pension. Retirement shall be considered as commencing on the day immediately following a Participant's last day of employment (or authorized leave of absence, if later). 1.55 Service "Service" means a sum of computation periods so defined in Section 2.4. 1.56 Social Security Retirement Age "Social Security Retirement Age" means the retirement age under Section 216(1) of the Federal Social Security Act, applied without regard to the age increase factor and as if the early retirement age under Section 216(1)(2) of such Act were age sixty-two (62). Accordingly, the Social Security Retirement Age is sixty-five (65) for a Participant attaining age sixty-two (62) before January 1, 2000 (i.e., born before January 1, 1938), sixty-six (66) for a Participant attaining age sixty-two (62) after December 31, 1999 but before January 1, 2017 (i.e., born after December 31, 1937 but before January l, 1955), and sixty- seven (67) for a Participant attaining age sixty-two (62) after December 31, 2016 (i.e., born after December 31, 1954). 1.57 Spouse "Spouse" means the person to whom a Participant is lawfully married as of the earlier of his Benefit Commencement Date or death, provided that Spouse shall instead mean another spouse of a Participant to the extent required by a Qualified Domestic Relations Order. 1.58 Top Heavy Year "Top Heavy Year" means a Plan Year for which the Plan is Top Heavy, as defined below and interpreted in accordance with Section 416 of the Code and applicable regulations thereunder: (a) The Plan shall be Top Heavy for any Plan Year if it is included in, or it alone constitutes, an Aggregation Group (defined below) under which, as of the Determination Date, the sum of the present value of the cumulative accrued benefits for all Key Employees (and their beneficiaries) under all defined benefit plans included in such group plus the aggregate of the accounts of all Key Employees (and their beneficiaries) under all defined contribution plans included in such group exceeds 60% of the analogous sum for all participants (and their beneficiaries) under such plans. For purposes of this subsection (a): (1) the foregoing sums shall not include any amounts in respect of participants who have performed no service for any Affiliated Company during the five (5) year period ending with the Determination Date, but they otherwise shall include distributions made during the five (5) year period ending with the Determination Date, and (2) the accrued benefits of an Employee other than a Key Employee shall be determined (A) under the method that uniformly applies for accrual purposes under all defined benefit plans maintained by the Affiliated Companies, or (B) if there is no such method, as if such benefit accrued not more rapidly than the slowest accrual rate permitted under the fractional accrual rate of Section 411(b)(1)(C) of the Code. (b) "Aggregation Group" means all existing and terminated plans (even if only one plan) maintained by all Affiliated Companies in which, during the Plan Year containing the Determination Date or any of the preceding four (4) Plan Years, a Key Employee was a participant or which, during the Plan Year containing the Determination Date or any of the preceding four (4) Plan Years, was combined with any of such plans in order to meet the coverage or nondiscrimination requirements of Sections 410 or 401(a)(4) of the Code. The Aggregation Group shall also include those additional plans, if any, which are selected from time to time by the Board of Directors to be included in the Aggregation Group if their inclusion would not prevent the Aggregation Group from meeting the requirements of Sections 410 and 401(a)(4) as of the particular Determination Date. 1.59 Trust Agreement "Trust Agreement" means the trust agreement established to implement the Plan, as amended from time to time. 1.60 Trust Fund "Trust Fund" means the fund, including the earnings thereon, held by the Trustee into which all contributions of the Company are deposited pursuant to the Plan. 1.61 Trustee "Trustee" means the trustee or trustees, from time to time, of the trust established under the Trust Agreement. 1.62 Valuation Date "Valuation Date" means the last business day of each month or such other or additional days as the Pension Fund Committee may determine. 1.63 Vesting Service "Vesting Service" means Service used to determine the extent to which a Participant's Accrued Benefit is nonforfeitable, as the term is defined in Section 2.6. 1.64 Year of Service "Year of Service" means each one-year computation period so defined in Section 2.2. ARTICLE II Service The following terms used in this Plan shall have the meanings set forth in this Article II. 2.1 Hour of Service "Hour of Service" means: (a) each hour for which an Employee is directly or indirectly paid or entitled to payment as an Employee for the performance of duties; (b) each hour for which an Employee is directly or indirectly paid or entitled to payment as an Employee for reasons other than the performance of duties, regardless of whether the employment relationship has terminated; and (c) each hour for which back pay to an Employee, irrespective of mitigation of damage, has been either awarded or agreed to by the Company or any Affiliated Company; provided that an Employee who is not paid on an hourly basis and who is not a part-time exempt employee shall be credited with 190 Hours of Service for each calendar month in which the Employee would be required to be credited with at least 1 Hour of Service hereunder. Hours shall be credited under subsections (b) and (c) above in accordance with Section 2530.200b-2(b) and (c) of Title 29 of the Code of Federal Regulations, as amended from time to time. However, not more than 501 Hours of Service shall be credited to any Employee or Participant during any computation period for any single, continuous period during which the Employee or Participant performs no duties. 2.2 Year of Service "Year of Service" means each one-year computation period, described herein, during which an Employee is credited with at least 1000 Hours of Service; provided that in determining Years of Service for purposes of Credited Service, a Year of Service shall only include computation periods in which an individual has attained age twenty-one (21) and is credited with at least 1000 Hours of Service as an Eligible Employee. In determining Years of Service for purposes of Eligibility Service, the computation periods shall be the one-year period commencing on the date the individual became an Employee and each one-year period ending on the last day of each Plan Year ending after the end of that first computation period. In determining Years of Service for purposes of Vesting Service and Credited Service, the computation periods shall be each one-year period ending on the last day of each Plan Year ending after the date the individual became an Employee. 2.3 One-Year Break in Service "One-Year Break in Service" means each one-year computation period used for determining Years of Service during which an Employee is credited with no more than 500 Hours of Service; provided that solely for the purpose of determining whether an Employee has incurred a One-Year Break in Service, the Employee shall be credited with: (a) Hours of Service which otherwise would normally have been credited to an Employee but for a Maternity or Paternity Leave, or (b) if the Plan Administrator is unable to determine the Hours of Service described in subsection (a) above, 8 Hours of Service for each such day of Maternity or Paternity Leave, except that the total number of Hours of Service so credited shall not exceed 501. Any Hours of Service credited for a Maternity or Paternity Leave under this Section shall be credited only in the computation period in which the Maternity or Paternity Leave began, if the Employee otherwise would incur a One-Year Break in Service in that computation period, and otherwise shall be credited in the immediately following computation period. 2.4 Service "Service" means the sum (expressed as an integer, except as provided below with respect to Credited Service) of all Years of Service, provided that Years of Service, or portions thereof, shall be disregarded to the extent required by one or more of the following rules: (a) If a person incurs a One-Year Break in Service, all Years of Service prior to the One-Year Break in Service shall be disregarded in determining Vesting Service with respect to benefit accruals following the One-Year Break in Service and in determining Eligibility Service and Credited Service unless and until the person completes a Year of Service after the One-Year Break in Service. (b) If an Employee who has no nonforfeitable interest in his Accrued Benefit, if any, incurs five (5) consecutive One-Year Breaks in Service, all Years of Service prior to those One-Year Breaks in Service shall be disregarded. (c) Upon the occurrence of a Forfeiture Event in respect of a Participant, all Years of Service in determining Credited Service shall be disregarded; provided that if a Participant who has incurred one or more Forfeiture Events, but has not incurred a Forfeiture Event due to five (5) consecutive One-Year Breaks in Service, timely repays to the Plan in one lump sum the entire amount of the distribution which occasioned the Forfeiture Event with interest on the amount of the distribution compounded annually at the rate of (a) five percent (5%) per annum for the period from the date of distribution through the earlier of the date of repayment or December 31, 1987, and (b) the rates in use by the Pension Benefit Guaranty Corporation for valuing annuities at plan termination for the period beginning on the later of January 1, 1988, or the date of distribution, to the date of repayment, then the Credited Service disregarded upon the occurrence of the Forfeiture Event shall be restored. A Participant's repayment to the Plan under this subsection is timely only if the repayment is received by the Plan Administrator while the Participant is an Eligible Employee and before the earlier of (1) the termination of the Plan and (2) five (5) years after the first date on which the Participant thereafter becomes an Eligible Employee. (d) In determining Credited Service, a Participant shall be credited with a Year of Service for the computation period during which he was an Active Participant herein and completed at least one Hour of Service but failed to complete 1000 Hours of Service due to Retirement, death or disability in such period. (e) No Years of Service dependent upon Hours of Service credited prior to January l, 1990 shall be included in determining Vesting Service. (f) No Years of Service dependent upon Hours of Service credited prior to the Effective Date shall be included in determining Eligibility Service. Notwithstanding the above, in determining Eligibility and Vesting Service with respect to a Continued Employee following the transfer of assets and liabilities attributable to Continued Employees from the Prior Plan, all years of service recognized for eligibility and vesting purposes, respectively, under the terms of the Prior Plan with respect to such Continued Employee as of July 2, 1990, to the extent not otherwise credited under this Article II shall be credited to such Continued Employee under this Plan as of the Effective Date; provided that no Continued Employee shall be credited with more than one (1) Year of Eligibility or Vesting Service with respect to calendar year 1990. 2.5 Eligibility Service "Eligibility Service" means Service used to determine an Eligible Employee's eligibility to become a Participant. 2.6 Vesting Service "Vesting Service" means Service used to determine the extent to which the Participant's Accrued Benefit is nonforfeitable. 2.7 Credited Service "Credited Service" means Service used to determine a Participant's Accrued Benefit. ARTICLE III Participation 3.1 Commencement of Active Participation A person shall commence or recommence active participation in the Plan in accordance with the following rules: (a) A Continued Employee who was a participant in the Prior Plan as of July 1, 1990, shall become an Active Participant as of the Effective Date. (b) A person who does not become a Participant under Section 3.1(a) shall become an Active Participant as of the first day following the end of the applicable eligibility computation period if he is then an Eligible Employee who has attained age twenty-one (21) and been credited with a year of Eligibility Service. If an Eligible Employee has been credited with a year of Eligibility Service but has not attained age twenty-one (21), he shall become an Active Participant on his twenty-first (21st) birthday. (c) An Inactive Participant or a former Participant who is or becomes credited with a year of Eligibility Service shall become an Active Participant as of the later of: (1) the date on which he again became an Eligible Employee, and (2) the first day of the Plan Year in which was credited the last Hour of Service necessary to qualify for such year of Eligibility Service. 3.2 Consent Each Eligible Employee shall become an Active Participant in the Plan pursuant to Section 3.1 without a requirement of notice by the Company, the Trustee, or any other person and without the consent of the Employee. 3.3 Commencement of Inactive Participation An Active Participant shall become an Inactive Participant as of the date he ceases to be an Eligible Employee. 3.4 Termination of Participation An Active Participant or an Inactive Participant shall cease to be a Participant as of the date he no longer has, under the provisions of the Plan, an Accrued Benefit hereunder. 3.5 Military Absence under USERRA Notwithstanding any provision of this Plan to the contrary, contributions, benefits and service credit with respect to qualified military service will be provided in accordance with Section 414(u) of the Code. ARTICLE IV Company Contributions 4.1 Company Contributions Subject to the requirements of Section 412 of the Code the Company may make such contributions as are specified in the Actuary's valuation reports for the applicable period of time. All contributions will be paid into the Trust fund. The actuarial assumptions used for purposes of computing Company contributions to the Plan shall be the same as those set forth in the actuarial valuations filed with the Internal Revenue Service in connection with the Plan. Notwithstanding the foregoing, the Company reserves the right to reduce, suspend or discontinue making contributions to the Plan at any time. 4.2 Time and Method of Payment of Company Contributions The Company may make its annual and/or quarterly contribution(s) in one (1) or more installments. The Company's annual contribution shall be due on the last day of its fiscal year, and, unless paid before, shall be payable not later than the time prescribed by law for filing the Company's federal income tax return (including extensions thereof) for such fiscal year. If the contribution is on account of the Company's preceding fiscal year, the contribution shall be accompanied by the Company's signed statement to the Trustee that payment is on account of such fiscal year. Contributions may be paid in cash, or other property, as the Company may determine. Property shall be valued at its fair market value at the time of contribution. Each annual contribution shall be deemed to be paid as of the last day of the Company's fiscal year to which it relates. 4.3 Forfeitures Forfeitures arising under this Plan, because of a severance of employment before a Participant becomes eligible to receive a Pension, or for any other reason, shall not be used to increase the benefits otherwise payable to Participants, but shall be applied to reduce the cost of the Plan to the Company. 4.4 Return of Company Contributions Notwithstanding any provision contained herein to the contrary: (a) Mistake of Fact. In the case of a contribution which is made by a Company by a mistake of fact, such contribution shall be returned to the contributing Company as promptly as practicable after the discovery of such mistake, but in no event later than one year after the date such contribution was made. Earnings attributable to a mistaken contribution shall not be returned to the Company, but losses attributable thereto shall reduce the amount of such contributions to be returned. (b) Failure of Qualification of Plan and Trust. All contributions of the Companies to the Plan are conditioned upon the qualification of the Plan under Section 401 of the Code. If the Plan receives an adverse determination as to its qualification in respect of a Company, the Trustee shall, after paying any applicable expenses, return to such Company any remaining contributions made by such Company. Such remaining contributions shall be returned as promptly as practicable, but in no event later than one year after the date of the final denial of qualification of the Plan as to such Company, including the final resolution of any appeals before the Internal Revenue Service or the courts. This subsection (b) shall apply only to applications for determination as to initial qualification which are made within the time prescribed by law for filing the Company's return for the tax year in which the Plan was adopted, or such later date as the Secretary of the Treasury may prescribe. (b) Disallowance of Deduction. All contributions by the Companies to the Plan are conditioned upon the deductibility thereof under Section 404 of the Code. If and to the extent the deduction for any contribution of a Company is disallowed by the Internal Revenue Service, the Trustee shall, after deducting attributable losses but not including any attributable earnings, return the disallowed portion of the contribution as soon as practicable, but in no event later than one year after the date of the final disallowance of the contribution, including the final resolution of any appeals before the Internal Revenue Service or the courts. ARTICLE V Participant Contributions 5.1 Participant Contributions Participant contributions shall be neither required nor permitted. ARTICLE VI Requirements For Retirement Benefits 6.1 Normal Retirement (a) A Participant's Accrued Benefit shall be vested and nonforfeitable upon attainment of his Normal Retirement Age or any later age while an Employee. (b) A vested Participant shall be eligible for a Normal Retirement Pension if he ceases to be an Employee on his Normal Retirement Date. The Participant shall be entitled to receive his Normal Retirement Pension commencing as of his Normal Retirement Date, with payment to commence within a ninety (90) day period commencing on his Normal Retirement Date. 6.2 Early Retirement A Participant shall be eligible for an Early Retirement Pension if he ceases to be an Employee under the conditions described in either subsection (a) or subsection (b): (a) A Participant who has completed at least ten (10) years of Vesting Service and attained age fifty-five (55) shall be eligible to retire early on the first day of any month prior to his Normal Retirement Date. (b) A Participant who is not described in subsection (a) above shall be eligible to retire on the first day of any month coincident with or next following the date on which he satisfies the requirements for a Deferred Vested Pension under Section 6.4 and the sum of his age in full years plus his years of Vesting Service equals at least sixty-five (65), or as of the first day of any subsequent month prior to his Normal Retirement Date. Payment of an Early Retirement Pension shall commence as of the first day of the month next following a Participant's Normal Retirement Date. However, a Participant may elect to receive his Early Retirement Pension commencing as of the first day of any month following the Participant's Early Retirement Date, with payment to commence within a ninety (90) day period commencing on the date so elected by the Participant. If a Participant's Early Retirement Pension commences prior to his Normal Retirement Date, the amount thereof shall be reduced as provided in Section 7.2 hereof. 6.3 Late Retirement If a Participant continues to be an Employee after his Normal Retirement Date, such Participant shall become entitled to a Normal Retirement Pension determined in accordance with Section 7.1(d) hereof, if his Accrued Benefit is vested and nonforfeitable under Section 6.1(a) as of the date he ceases to be an Employee. The payment of a Normal Retirement Pension payable under this Section 6.3 shall commence within a ninety (90) day period commencing on the first day of the month next following the Participant's date of Retirement. 6.4 Termination of Employment Prior to Normal Retirement Age If a Participant ceases to be an Employee prior to his attainment of Normal Retirement Age for any reason other than satisfaction of the conditions under Section 6.2(a) or 6.2(b) or death after he has completed at least five (5) years of Vesting Service (or, for Top Heavy Years, has a nonforfeitable benefit under the following schedule: Years of Vesting Service Vested Percentage Less than 3 years 0% 3 years or more 100%) then he shall be eligible to receive a Deferred Vested Pension (herein so called). Payment of a Participant's Deferred Vested Pension shall commence as of the first day of the month next following his Normal Retirement Date. However, a Participant may elect to receive his Deferred Vested Pension commencing as of the first day of any month after the Participant's termination of employment, subject to the provisions of Section 8.9. If a Participant's Deferred Vested Pension commences prior to his Normal Retirement Date, the amount thereof shall be reduced as provided in Section 7.3 hereof. Any Participant who terminates employment prior to qualifying for any Pension hereunder shall be deemed to receive a distribution of his $0 vested Accrued Benefit (which shall be immediately distributable regardless of the Participant's age) pursuant to Section 8.5(a), and shall forfeit his nonvested Accrued Benefit immediately, subject to restoration under the provisions of Section 8.5(b). Forfeitures shall be used to reduce Company contributions in accordance with Article IV hereof. ARTICLE VII Amount Of Retirement Benefit 7.1 Normal Retirement Pension (a) Prior Normal Retirement Pension. Subject to the limitations of Sections 7.4, 7.5, 7.7, and 7.8 hereof, the annual amount of the Normal Retirement Pension, computed in the normal form specified in Section 8.1(a) hereof to a Participant commencing on the date specified in Section 6.1, shall be equal to, for each computation period in which the Participant has a year of Credited Service, one percent (1%) of his Compensation for that Plan Year. A Participant's Pension under this subsection (a) shall not take into account computation periods prior to January 1, 1990 or Compensation before July 2, 1990, except as provided with respect to Continued Employees under subsection (c), and shall not take into account computation periods ending after March 31, 1998 or Compensation after March 31, 1998. The requirement in the first sentence of this subsection (a) that a Participant have a year of Credited Service shall not apply for Plan Year 1998 in the case of a Participant whose termination of employment occurs in 1998 (whether before or after April 1, 1998), provided that such Participant otherwise would be eligible to accrue a benefit hereunder for such year. (b) Cash Balance Normal Retirement Pension Formula. Subject to the limitations of Sections 7.4, 7.5, 7.7 and 7.8 hereof, the annual amount of the Normal Retirement Pension to any Participant who is an Active Participant on or after January 1,1998, computed in the normal form specified in Section 8.1(a) hereof commencing on the date specified in Section 6.1, shall be equal to the greater of the Actuarial Equivalent of the Participant's Normal Retirement Pension determined as of March 31, 1998 under subsection (a) above or the Actuarial Equivalent of the Participant's Cash Balance Account determined in accordance with the following provisions of this subsection (b). (1) A Participant's Cash Balance Account for purposes of this subsection (b) shall mean the hypothetical account maintained for the Participant to which are allocated the following: (A) Hypothetical Benefit Credits and Interest Credits computed in accordance with paragraphs (2) and (3) below for Plan Years commencing on and after January 1, 1998, plus (B) Hypothetical Benefit Credits as of January 1, 1998 (or if later, the date of a Participant's rehire and recommencement of participation) equal to the single sum equivalent of the Participant's Normal Retirement Pension determined under subsections(a) above and (c) below as of December 31, 1997 calculated using an interest rate of 9% per annum, the 1983 Group Annuity Mortality Table (50% Male/50% Female) and an assumed Benefit Commencement Date equal to the later of age 65 or attained age at January 1, 1998. In the case of a Participant who is hired during 1997, Hypothetical Benefit Credits allocated under this subparagraph (B) as of December 31, 1997 shall take into account the computation period that begins in the 1997 Plan Year. All allocations to a Participant's Cash Balance Account shall be hypothetical and in no event shall an actual account be maintained for any Participant nor shall any Participant have any claim to any particular assets of the Plan. (2) For each Plan Year beginning on or after January 1, 1998 in which a Participant is an Active Participant at any time during the Plan Year and has a year of Vesting Service in such Plan Year, Benefit Credits equal to a percentage of the Participant's Compensation for the Plan Year shall be allocated to the Participant's Cash Balance Account. Such percentage shall be determined in accordance with the schedule below and shall be allocated to the Participant's Cash Balance Account as of the last day of each Plan Year, except that in the case of a Participant whose employment terminates prior to the last day of the Plan Year, any Benefit Credits for the Plan Year shall be allocated as of the last day of the month in which the Participant's employment terminates. In the case of an Active Participant whose employment terminates during a Plan Year due to death or disability, within the meaning of Section 72 of the Code, or whose employment terminates after the sum of the Participant's age and Years of Vesting Service equal at least 65, Benefit Credits for such Plan Year shall be allocated to the Participant's Cash Balance Account without regard to the requirement for a year of Vesting Service for that year. For purposes of applying the schedule below, an Active Participant's Years of Vesting Service shall take into account both periods before and periods after January 1, 1998, and shall take into account years prior to the date on which the Active Participant became an Active Participant, provided, however, that no years of Vesting Service shall be taken into account for an individual until the individual becomes an Active Participant. Years of Vesting Service Annual Benefit Credits 1 to 2 2.0% of Compensation 3 to 6 2.5% of Compensation 7 to 10 3.0% of Compensation 11 to 15 4.0% of Compensation 16 to 20 5.0% of Compensation 21 or more 6.0% of Compensation (3) A Participant's Interest Credits for a Plan Year shall be credited automatically to the Participant's Cash Balance Account as of the last day of each Plan Year that ends prior to his Benefit Commencement Date (and, in the year in which such Benefit Commencement Date occurs, a pro rata Interest Credit), based on the Participant's Cash Balance Account as of the first day of each such Plan Year and the interest rate on 3-year Treasury notes determined as of December 31 of the preceding Plan year, as published in the Federal Reserve Statistical Release (or other equivalent publication designated by the Committee), but in no event shall the annual rate for any Plan Year be less than an annual rate of 4.75%. (c) Special Rules for Continued Employees. (1) Subject to the limitations of Sections 7.4, 7.5, 7.7 and 7.8 hereof, following the transfer to the Plan of assets and liabilities attributable to Continued Employees from the Prior Plan, the annual amount of the Normal Retirement Pension, computed in the normal form specified in Section 8.1(a) hereof to a Continued Employee who had an accrued benefit under the Prior Plan as of July 2, 1990, commencing on the date specified in Section 6.1, shall be equal to the sum of the amount determined under subsections (a) and (c) of this Section 7.1 and the Continued Employees Prior Plan Benefit, if any, (reduced in accordance with Section 1.04 of Appendix A with respect to GBI Participants, as defined in Section 8.6(a), who elect a form of payment under paragraph (1) or (2) of Section 8.6(d)), provided that Compensation for the entire calendar year 1990 shall be taken into account for such Continued Employee for purposes of subsection (a) and provided further that no such Continued Employee shall accrue under the Plan, with respect to calendar year 1990, more than one percent (1%) of his Compensation for calendar year 1990. (2) Subject to the limitations of Sections 7.4, 7.5, 7.7 and 7.8 hereof, the annual amount of the Normal Retirement Pension, computed in the normal form specified in Section 8.1(a) hereof to a Participant who meets the definition of Continued Employee but who did not have an accrued benefit under the Prior Plan as of July 2, 1990, commencing on the date specified in Section 6.1, shall be equal to the sum of the amount determined under subsection (a) of this Section 7.1 and the amount, if any, determined under Appendix C, provided that no such Continued Employee shall accrue, under the Plan, with respect to calendar year 1990, more than one percent (1%) of his Compensation for calendar year 1990. (d) Late Retirement. A Participant who retires pursuant to Section 6.3 after his Normal Retirement Date shall receive a Pension in an amount equal to the amount determined under the Normal Retirement Pension formula of subsections (a), (b) and (c), if applicable, as of the date the Participant ceases to be an Employee, provided, however, that in the case of a Participant who continues in employment after age 70-1/2, the annual increases in his Accrued Benefit, if any, shall be reduced to reflect the cumulative amount of any distributions made to the Participant pursuant to Section 8.9. (e) Special Rules for Prior ILGWU Employees. Subject to the limitations of Section 7.4, 7.5, 7.7 and 7.8 hereof, any Employee employed by the Employer in its women's' alterations department at its 611 Fifth Avenue store, New York, New York, who becomes an Eligible Employee as of December 9, 1994, due to the decertification of the ILGWU, Local 22, AFL-CIO, shall receive a special Normal Retirement Pension for employment prior to January 1, 1995. The annual amount of this special Normal Retirement Pension, computed in the normal form specified in Section 8.1(a) hereof and commencing on the date specified in Section 6.1, shall be equal to A minus B, where A is seventy-five percent (75%) of the benefit that would have been earned as of December 31, 1994, under the terms of this Plan if the Employee had been eligible for this Plan prior to January 1, 1995, and B is any benefit amount, computed in the normal form specified in Section 8.1(a) hereof and commencing on the date specified in Section 6.1, to which the Employee is entitled as of December 31, 1994, due to participation in a pension plan for ILGWU members. On and after January 1, 1995, any Employee referenced in the first sentence of this subsection shall earn an additional amount of Normal Retirement Pension based on the formula in Section 7.1(a) and Section 7.1(b) as applicable. 7.2 Early Retirement Pension Subject to the provisions of Sections 7.4, 7.5, 7.7 and 7.8 hereof, the annual amount of the Early Retirement Pension, computed in the normal form specified in Section 8.1(a) hereof, payable to a Participant, commencing as of the first day of the month next following a date elected by the Participant which is on or after his Early Retirement Date, shall be equal to the Actuarial Equivalent of his vested Accrued Benefit. However, if payment commences as of an Early Retirement Date and such Participant's Accrued Benefit is determined under Section 1.1(a) and not under Section 1.1(b), the amount of his Pension shall be reduced by 1/2 of 1% per month for each of the first sixty (60) months and by 1/4 of 1% per month for each of the next sixty (60) months that the Benefit Commencement Date precedes the Participant's Normal Retirement Date; provided that, with respect to a Continued Employee's Prior Plan Benefit, if any, the reduction shall be as specified in the Prior Plan, if less. 7.3 Deferred Vested Pension Subject to the provisions of Sections 7.4, 7.5, 7.7 and 7.8 hereof, the annual amount of the Deferred Vested Pension, computed in the normal form specified in Section 8.1(a) hereof, payable to a Participant commencing as of his Benefit Commencement Date shall be equal to the Actuarial Equivalent of his vested Accrued Benefit. However, if payment of a Deferred Vested Pension commences as of a date prior to the Participant's Normal Retirement Date and such Participant's Accrued Benefit is determined under Section 1.1(a) and not under Section 1.1(b), the amount of his Pension shall be reduced as follows: Age in Years and Percentage of Pension Completed Months When Commencing at Normal Pension Commences Retirement Date ---------------------- -------------------- 65 and no months 100% 64 and no months 89% 63 and no months 79% 62 and no months 71% 61 and no months 64% 60 and no months 58% 59 and no months 52% 58 and no months 47% 57 and no months 42% 56 and no months 38% 55 and no months 34% If a Pension begins at a date between the above-stated ages, the reduction shall be calculated by straight-line interpolation of the applicable above-stated percentages. If a Pension begins prior to attainment of age fifty-five (55) the reduction prior to age fifty-five (55) shall be determined as provided in Appendix A. 7.4 Maximum Annual Benefit (a) General Limitation. Notwithstanding any provision contained herein to the contrary and subject to the requirements of subsection (e) below, the amount of annual Pension, determined in accordance with Sections 7.1, 7.2, and 7.3, attributable to a Participant's Accrued Benefit that is payable to a Participant under this Plan and any other defined benefit plan (as defined in Section 414(j) of the Code) maintained by the Company or any Affiliated Company (whether or not terminated) shall not exceed the lesser of: (1) $90,000, multiplied by the Adjustment Factor, or (2) One hundred percent (100%) of the Participant's average '415' Compensation for the three (3) consecutive calendar years while a Participant in the Plan in which his earnings were the highest. (b) Adjustments and Special Provisions. (1) Commencement Before Social Security Retirement Age. If any Participant begins to receive a Pension under this Plan before such Participant's Social Security Retirement Age but after he attains age sixty-two (62), the maximum annual Pension that such Participant may receive hereunder shall be actuarially adjusted as follows: (A) If a Participant's Social Security Retirement Age is sixty-five (65), the applicable dollar limitation under Section 7.4(a)(1) for benefits commencing on or after age sixty-two (62) shall be reduced by 5/9 of 1% for each month by which benefits commence before the month in which the Participant attains age sixty-five (65). (B) If a Participant's Social Security Retirement Age is greater than sixty-five (65), the dollar limitation under Section 7.4(a)(1) for benefits commencing on or after age sixty-two (62) shall be determined by reducing the applicable dollar limitation under Section 7.4(a)(1) by 5/9 of 1% for each of the first thirty-six (36) months and 5/12 of 1% for each of the additional months (up to twenty-four (24) months) by which benefits commence before the month of the Participant's Social Security Retirement Age. (C) The dollar limitation for benefits commencing prior to age sixty-two (62) shall be the Actuarial Equivalent of the limitation for benefits commencing at age sixty-two (62), with the dollar limitation for benefits commencing at age sixty-two (62) reduced for each month by which benefits commence before the month in which a Participant attains age sixty-two (62). (2) Commencement After Social Security Retirement Age. If a Participant begins to receive a Pension hereunder after he attains his Social Security Retirement Age, the maximum annual Pension permitted hereunder shall be the Actuarial Equivalent of the applicable dollar limitation under Section 7.4(a)(1) per year beginning at his Social Security Retirement Age. (3) Adjustments to Dollar Limitation. For purposes of determining actuarial equivalence pursuant to Section 7.4(b)(1)(C), if the benefit is not a lump sum payment, the factors used to determine the equivalent maximum benefit for benefits that commence prior to age sixty-two (62) shall be the reductions specified in Section 7.4(b)(1) for the period after age sixty-two (62), and (i) the reductions specified in Section 7.2 to the extent such factors are applicable for the period prior to age sixty-two (62), or (ii) an interest rate of five percent (5%) and the mortality table based on the 1983 Group Annuity Mortality Table specified in Appendix A for Single Sum Payments on and after January 1, 1996, whichever produces the lower Pension. If the benefit is a lump sum payment, the reduction for commencement prior to age sixty-two (62) shall be based on the interest rate and mortality table set forth in Appendix A for Single Sum Payments on and after January 1, 1996. For purposes of determining actuarial equivalence under Section 7.4(b)(2), the interest rate and mortality assumptions shall be (i) the interest rate and mortality assumption specified in Appendix A for Single Sum Payments on and after January 1, 1996, or (ii) the mortality table specified in Appendix A for Single Sum Payments on and after January 1, 1996, and an interest rate of five percent (5%) per annum, whichever produces the lower Pension. In making an actuarial adjustment to any benefit pursuant to the terms of paragraphs (1) and (2), no Adjustment Factor to Section 7.4(a)(1) shall be taken into account before the year in which such Adjustment Factor is made. (4) Exemption for Pensions Under $10,000. Except as provided in paragraph (5), which imposes additional limitations on the amounts payable to Participants with less than ten (10) years of Vesting Service, the foregoing limitations shall not be applicable with respect to any Participant whose annual Pension under this Plan and any other defined benefit maintained by the Company or an Affiliated Company does not exceed $10,000 if such Participant has not at any time participated in any defined contribution plan (as defined in section 415(k) of the Code) maintained by the Company or any Affiliated Company. (5) Special Provision for Participants with Less Than Ten (1O) Years of Service. In the event that a Participant has been credited with less than ten (10) years of Vesting Service, the compensation limit in Section 7.4(a)(2) and the special $10,000 limit detailed in paragraph (4) shall be reduced by multiplying the maximum annual pension determined thereunder by a fraction, the numerator of which is the number of such Participant's years of Vesting Service (or part thereof) and the denominator of which is ten (10). In addition, in the event that a Participant has fewer than ten (10) years of Plan participation, the dollar limitation under Section 7.4(a)(1) shall be reduced by multiplying the maximum annual pension determined thereunder by a fraction, the numerator of which is the Participant's years of Plan participation and the denominator of which is ten (10). In no event, however, shall the adjustments for less than ten (10) years of Vesting Service or participation described above reduce the limitations of Section 7.4(a)(1), on the one hand, or Section 7.4(a)(2) and the special $10,000 limitation, on the other hand, to amounts less than one-tenth (1/10) of such limitations determined without such adjustments. The adjustments for less than ten (10) years of participation or Vesting Service, as applicable, shall apply separately to each change in benefit structure of the Plan, to the extent provided by Treasury regulations. (6) Other Adjustments. The determination of whether a Participant's Pension payable under the Plan exceeds the limitations of this Section 7.4 shall be made by adjusting such Pension so that it is the Actuarial Equivalent of a straight life annuity with no ancillary benefits (such adjustment being made in accordance with regulations promulgated by the Secretary of the Treasury or his delegate pursuant to Code Section 415); provided, however, that any portion of an annuity that constitutes a Qualified Joint and Survivor Spouse Annuity (as described in Section 8.1(b)) shall not be taken into account. For purposes of the preceding paragraph, if the benefit is not a lump sum payment, it shall be equal to the greater of the benefit determined using the factors specified in Appendix A for Single Sum Payments after January 1, 1996, or the benefit determined using an interest rate of five percent (5%) and the mortality table referenced in Appendix A for Single Sum Payments on and after January 1, 1996, as applicable. If the benefit is a lump sum payment, it shall be determined using the factors set forth in Appendix A for Single Sum Payments on and after January 1, 1996. (7) Special Provision Concerning Accrued Benefit Under Prior Plan. In no event shall the limitations of Section 7.4(a) be reduced to an amount less than the accrued benefit under the Prior Plan as of January 1, 1987 with respect to a Continued Employee. (c) All Defined Contribution and Defined Benefit Plans. For Limitation Years commencing prior to January 1, 2000, subject to the requirements of subsection (e) below, in any case in which a Participant is a participant in both a defined benefit plan maintained by any Affiliated Company (as described in subsection (e)) and a defined contribution plan maintained by that or any other Affiliated Company (as described in subsection (e)), the sum of the Defined Benefit Plan Fraction and the Defined Contribution Plan Fraction for any Limitation Year may not exceed one (1.0); provided that if such defined contribution plan(s) (or prior plan(s) from which assets and liabilities have been transferred to such defined contribution plan(s)) satisfied the applicable requirements of Section 415 of the Code as in effect for all limitation years beginning before January l, 1987, the numerator of the Defined Contribution Plan Fraction shall be reduced (but not below zero) by an amount, prescribed by the Secretary of the Treasury, in determining whether this requirement is satisfied. (d) Benefit Reductions, If Necessary. If the limitation imposed by this Section 7.4 otherwise would be exceeded in respect of a Participant in a Limitation Year, then the amount of the maximum annual Pension that can be paid to such Participant under Section 7.4(a) shall be reduced to the extent required to permit such compliance. (e) Special Definition of "Affiliated Companies". For purposes of this Section 7.4, all defined benefit plans (whether or not terminated) of the Affiliated Companies shall be treated as one defined benefit plan, and all defined contribution plans (whether or not terminated) of the Affiliated Companies shall be treated as one defined contribution plan; provided that in applying the definition of "Affiliated Company" in Article I of the Plan to determine those companies that are an "Affiliated Company" for the purposes of this Section 7.4, the phrase "more than 50 percent" shall be substituted for the phrase "at least 80 percent" each time it appears in Section 1563(a) of the Code. (f) Construction Consistent With Code. This Section is intended to satisfy the requirements imposed by Section 415 of the Code and shall be construed in a manner that will effectuate this intent, without imposing limitations that are more stringent than those required by Section 415 of the Code. 7.5 Reemployment After Pension Commencement (a) A Participant whose employment has terminated and who is receiving a Pension who is subsequently reemployed by the Company or an Affiliated Company prior to his Normal Retirement Date shall reenter the Plan in accordance with the provisions of Section 3.1. Payment of his Pension shall be continued until the Participant is credited with one year of Eligibility Service following his reemployment, at which time payment of his Pension shall cease. Upon his subsequent termination of employment, his Pension shall recommence as of the first day of the month next following his termination. This recommencement shall be treated as a new Benefit Commencement Date and the Participant shall have the same election rights as Participants who have not previously had a Benefit Commencement Date. The recommenced Pension shall consist of the sum of the Pension such Participant was receiving prior to such reemployment and any additional Pension earned during the period of reemployment pursuant to Section 7.1 or 7.2 as if no prior payments had been made, and the resulting amount shall then be reduced by the Actuarial Equivalent of any Pension payments he received prior to his reemployment, but in no event shall such actuarial adjustment reduce such Participant's Pension to an amount that is less than the Pension such Participant was receiving prior to reemployment. (b) A Participant whose employment has terminated and who is receiving a Pension who is subsequently reemployed by the Company or an Affiliated Company after his Normal Retirement Date shall continue to receive his Pension until the Plan Year in which he has completed 1000 Hours of Service. Upon completion of such 1000 Hours of service, his Pension shall cease. Upon his subsequent termination of employment, his Pension shall recommence as of the first day of the month next following his termination. This recommencement shall not be treated as a Benefit Commencement Date and the Pension shall be paid in the same form in which his Pension was being paid when it ceased in accordance with this Section 7.5(a). The recommenced Pension shall consist of the sum of the Pension such Participant was receiving prior to reemployment and any additional Pension earned during the period of reemployment pursuant to Section 7.1 or 7.2 as if no prior payments had been made, and the resulting amount shall then be reduced by the Actuarial Equivalent of any Pension payments he received prior to the cessation of Pension payments to him, but in no event shall such actuarial adjustment reduce such Participant's Pension to an amount that is less than the Pension such Participant was receiving prior to reemployment. 7.6 Nonreduction in Benefits on Account of Social Security Benefit Increases Notwithstanding any other provisions of the Plan: (a) A benefit from the Plan being received by a Participant or Beneficiary shall not be decreased by reason of an increase in a benefit level or wage base under title II of the Federal Social Security Act (whether such increase is a result of an amendment of such title II or is the result of the application of the provisions of such title II) (any such increase being referred to hereinafter as a "Social Security Benefit Increase") effective after the later of (1) September 2, 1974; or (2) the date of first receipt of any Plan benefit by the Participant or Beneficiary (whichever receipt occurs first). (b) The Pension of an Inactive Participant shall not be decreased by reason of a Social Security Benefit Increase effective after the later of (1) September 2, 1974; or (2) the date of the Inactive Participant's ceasing to be an Employee. (c) If a Participant ceases to be an Employee and subsequently becomes an Employee and resumes participation in the Plan, the Plan benefits to which he would have been entitled had he not again become an Employee after his separation shall not be decreased by reason of a Social Security Benefit Increase effective after September 2, 1974, and during the period in which he was not an Employee. 7.7 Top Heavy Minimum Benefit (a) General. Except as is provided in subsection (b), during any Top Heavy Year, the Accrued Benefit derived from Company contributions of each Participant who is a non-Key Employee and has completed 1000 Hours of Service in that Plan Year, when expressed as an annual retirement benefit, shall not be less than the lesser of two percent (2%) multiplied by the number of the Participant's years of Credited Service or twenty percent (20%) of the Participant's average "415" Compensation during the period of five (5) consecutive years during which the Participant had the greatest aggregate "415" Compensation from the Company. Years of Credited Service for purposes of the immediately preceding sentence shall not include any year of Service ending in a Plan Year beginning before January l, 1984, and shall not include any year of Service that begins after the close of the last year which was a Top Heavy Year. For the purposes of this Section, an annual retirement benefit is a benefit payable annually in the form of a single life annuity (with no ancillary benefits) beginning at Normal Retirement Age. An Employee who is not a Key Employee may not fail to accrue a minimum benefit under this Section because either (l) such Employee is otherwise excluded from participation (or accrues no benefit) merely because the Employee's "415" Compensation is less than a stated amount or (2) the Employee is otherwise excluded from participation (or accrued no benefit) merely because of a failure to make mandatory Employee contributions. If the Plan becomes Top Heavy and subsequently ceases to be Top Heavy, a Participant's Accrued Benefit shall not be reduced as a result of the Plan's ceasing to be Top Heavy and shall at no time after the Plan ceases to be Top Heavy be less than the Participant's Accrued Benefit at the end of the last year which was a Top Heavy Year. (b) Coordination with Other Plans. Notwithstanding the preceding provisions of this Section, the following rules shall apply for purposes of determining whether the minimum benefit requirements of this Section have been satisfied in the event that during a Plan Year the Company maintains two or more qualified plans (within the meaning of Section 1.401-1(b) of the Treasury Regulations) that are Top Heavy: (1) If the Company maintains during a Plan Year two or more defined benefit plans (within the meaning of Section 414(j) of the Code), the minimum benefits required by this Section on behalf of a Participant who is not a Key Employee and who participates in both this Plan and such other plans shall, unless provided otherwise in such other plans, be provided under this Plan to the extent this Plan provides for a benefit accrual sufficient to satisfy such minimum, and only to the extent that such minimum is not provided under this Plan shall any portion of such minimum benefits be provided under such other plans. (2) If during a Plan Year, the Company maintains this Plan and a defined contribution plan (within the meaning of section 414(i) of the Code) and a Participant who is not a Key Employee participates in both of such plans, then if such Participant is entitled to accrue a benefit under this Plan with respect to such Plan Year, and such Participant has accrued a benefit equal to or in excess of two percent (2%) multiplied by his number of years of Credited Service (excluding years of Service accrued during Plan Years, if any, commencing prior to January 1, 1984, and non-Top Heavy Years) multiplied by the Participant's average '415' Compensation during the five (5) consecutive year period during which the Participant had the greatest aggregate '415' Compensation from the Company, the Company shall not be required to provide for such Participant under such other plan the minimum contribution otherwise required under section 416 of the Code. For purposes of determining whether the minimum benefit provisions of this Section have been satisfied, the minimum benefit accrual under this Plan shall be offset by the benefits provided under such other plan for such Plan Year as provided in section 1.416-I, M-l2, of the Treasury Regulations. (c) Construction Consistent With Code. This Section is intended to satisfy the requirements imposed by Section 416 of the Code and shall be construed in a manner that will effectuate this intent, without imposing minimum benefit requirements that are greater than those required by Section 416 of the Code. 7.8 Benefits From Other Plans In the event the Participant shall receive a benefit from or under another tax-qualified pension or retirement plan of the Company or an Affiliated Company or any predecessor thereof (whether a defined benefit plan or defined contribution plan, but excluding any savings or thrift plan), for any of his years of Credited Service (or years of accrual service with respect to his Prior Plan Benefit), his Pension under the Plan shall be reduced by the Actuarial Equivalent of such benefit from such other plan attributable to such years, unless and except to the extent inconsistent with the provisions of any collective bargaining agreement to which the Company is a party. ARTICLE VIII Method Of Payment Of Pension 8.1 Normal Form of Pension (a) Unmarried Participant. The normal form of Pension for a Participant who is not married on his Benefit Commencement Date shall be a single life annuity commencing on the date specified in Section 6.1. (b) Married Participant with Spouse. If a Participant is married on his Benefit Commencement Date, then, unless the Participant and his Spouse elect in accordance with Section 8.3(a) not to receive his Pension in the form specified in this Section 8.1(b) (or the Participant elects the Joint and 75% Surviving Spouse Annuity in accordance with Section 8.2(c)), such Participant's Pension shall, except to the extent modified by a Qualified Domestic Relations Order, be paid in the form of a Qualified Joint and Surviving Spouse Annuity (herein so called). Under the Qualified Joint and Surviving Spouse Annuity, a reduced amount shall be payable to the Participant for his lifetime, and the Spouse, if surviving on the date of the Participant's death, shall be entitled to receive thereafter a lifetime survivorship Pension in a monthly amount equal to 50% of the reduced monthly amount that had been paid to the Participant. The reduced amount payable to the Participant shall be determined by applying the following reduction formula: the monthly Pension that would have been payable to the Participant had he received a single life annuity, after the reduction (if any) for surviving spouse death benefit coverage in accordance with Section 8.4, shall be reduced by fifteen percent (15%), provided that, effective March 1, 1991, the fifteen percent (15%) reduction factor shall be increased by 0.4% for each year in excess of ten (10) by which the Participant's age exceeds the Spouse's age and shall be decreased by 0.4% for each year in excess of ten (10) by which the Spouse's age exceeds the Participant's age; provided that in no event shall the monthly Pension to the Participant be less than that determined by applying the fifteen percent (15%) reduction factor without regard to any age difference with respect to his Accrued Benefit as of February 28, 1991. 8.2 Optional Pension Forms (a) Single Life Annuity. A Participant who is married on his Benefit Commencement Date may elect to receive a Pension payable in the form of a single life annuity in lieu of a Qualified Joint and Surviving Spouse Annuity by making an election in accordance with Section 8.3(a). (b) Period Certain Option. A Participant may elect to receive a reduced Pension for the life of the Participant or for 120 months, whichever is longer, determined by applying the following reduction formula: the monthly Pension that would have been payable to the Participant had he received a single life annuity, after the reduction (if any) for surviving spouse death benefit coverage in accordance with Section 8.4, shall be reduced by ten percent (10%). A Participant who is married on his Benefit Commencement Date may elect this option only in accordance with Section 8.3. In the case of a Participant who is not married on his Benefit Commencement Date, the Participant may elect the Period Certain Option during a period commencing no earlier than ninety (90) days prior to his Benefit Commencement Date and after having received written notice describing (l) the normal form of benefit available under Section 8.1(a), (2) the Period Certain Option, (3) the right of the Participant to revoke, prior to the later of his Benefit Commencement Date and the receipt of the notice, an election of the Period Certain Option, and (4) such other information as may be required under applicable regulations. The election of the Period Certain Option described in Section 8.2(b) must be in writing on a form prescribed by the Plan Administrator and shall become effective on the later of the Participant's Benefit Commencement Date and thirty (30) days following his receipt of the notice described above or in Section 8.3(b), whichever is applicable, and may be revoked at any time prior to the Benefit Commencement Date; provided, however, that if a Participant other than (1) a Participant who has provided the Plan Administrator with a certificate of good health as of such Participant's Benefit Commencement Date, by a doctor satisfactory to the Plan Administrator, or (2) a Participant who dies of accidental causes, dies within two (2) years after his Benefit Commencement Date, such election shall be null and void as to any Beneficiary or the Participant's estate and the Participant's Spouse (if any) shall receive the benefit that would have been payable to the survivor under the Qualified Joint and Surviving Spouse Annuity form had no election been made hereunder. A Participant who has received the notice described above or in Section 8.3(b), whichever is applicable, may waive the 30-day notice requirement by making an affirmative election of the Period Certain Option, provided payment does not commence prior to the expiration of the seven (7) day period that begins on the day after the notice is given. If the Participant works beyond his Normal Retirement Date, the election (even if made earlier than ninety (90) days prior to his Benefit Commencement Date) may become effective as a death benefit for the period from his Normal Retirement Date (or the date of election, if later) up to his Benefit Commencement Date, provided that it is accompanied by a waiver of the Pre-Retirement Surviving Spouse Annuity under Section 8.4(c), if applicable. If the election of a Period Certain Option is made on or after the Participant's Normal Retirement Date but more than ninety (90) days prior to his Benefit Commencement Date, the election shall not be effective as a post-retirement benefit form unless the Participant reelects the benefit option within the period described above or in Section 8.3(a), whichever is applicable. If the Participant dies prior to the effective date of the Period Certain Option, the election shall be null and void except, if applicable, as a death benefit as described above. If the Beneficiary dies during the Participant's lifetime whether before or after the effective date of the option, the option election shall remain in effect and the Participant may make a new election pursuant to the above or Section 8.3(a), whichever is applicable, to designate a new Beneficiary. If a Participant who has elected a Period Certain Option continues in employment after his Normal Retirement Date and dies before retiring, the amount payable to his Beneficiary shall be determined as if the Participant had retired on the day before his death, except that the requirement that the Participant survive for two (2) years set forth above shall be disregarded. If the Beneficiary shall survive the Participant and die before receipt of all payments due under the Period Certain Option, the remaining payments shall be made to the first alternative Beneficiary designated by the Participant who shall be then surviving, or if none, the Actuarial Equivalent of such remaining payments shall be paid to the estate of such Beneficiary in a single sum. (c) Joint and 75% Surviving Spouse Annuity. A Participant who is married on his Benefit Commencement Date may elect to receive a reduced Pension for his lifetime, and the Spouse, if surviving on the date of the Participant's death shall be entitled to receive thereafter a lifetime survivorship Pension in a monthly amount equal to 75% of the reduced monthly amount that had been paid to the Participant. The reduced amount payable to the Participant shall be determined by applying the following reduction formula: the monthly Pension that would have been payable to the Participant had he received a single life annuity, after the reduction (if any) for surviving spouse death benefit coverage in accordance with Section 8.4, shall be reduced by twenty-one percent (21%), provided that effective March 1, 1991, the twenty-one percent (21%) reduction factor shall be increased by 0.55% for each year in excess of ten (10) by which the Participant's age exceeds the Spouse's age and shall be decreased by 0.55% for each year in excess of ten (10) by which the Spouse's age exceeds the Participant's age; provided that in no event shall the monthly Pension to the Participant be less than that determined by applying the twenty-one percent (21%) reduction factor without regard to any age difference with respect to his Accrued Benefit as of February 28, 1991. Election of the Joint and 75% Surviving Spouse Annuity must be in writing on a form prescribed by the Plan Administrator and must be filed by the Participant with the Plan Administrator no earlier than ninety (90) days prior to the earlier of his Benefit Commencement Date and his Normal Retirement Date. Such an election shall be effective on the later of the Participant's Benefit Commencement Date and thirty (30) days following his receipt of the notice described in Section 8.3(b) and may be revoked at any time prior to the later of his Benefit Commencement Date and thirty (30) days after his receipt of the notice described in Section 8.3(b); provided, however, that if a Participant other than (1) a Participant who has provided the Plan Administrator with a certificate of good health as of such Participant's Benefit Commencement Date, by a doctor satisfactory to the Plan Administrator, or (2) a Participant who dies of accidental causes, dies within two (2) years after his Benefit Commencement Date, the benefit payable to the surviving Spouse shall be limited to that which would have been payable under the Qualified Joint and Surviving Spouse Annuity form had no election been made hereunder. A Participant who has received the notice described in Section 8.3(b) may waive the 30-day notice requirement by making an affirmative election of the Joint and 75% Surviving Spouse Annuity, provided payment does not commence prior to the expiration of the seven (7) day period that begins on the day after the notice is given. If the Participant dies prior to his Benefit Commencement Date with respect to the Joint and 75% Surviving Spouse Annuity, the election shall be null and void, except as a Pre-Retirement Surviving Spouse Annuity. If a Participant who has elected the Joint and 75% Surviving Spouse Annuity continues in employment after his Normal Retirement Date and dies before retiring, the amount payable to his Spouse shall be determined as if the Participant had retired on the day before his death, except that the requirement that the Participant survive for two (2) years set forth above shall be disregarded. (d) Single Sum Payment Option. A Participant whose vested Accrued Benefit has an Actuarial Equivalent value as of his Benefit Commencement Date (determined using the interest and mortality factors set forth in Section 1.03 of Appendix A) of more than $5,000 may elect to receive a Single Sum Payment of the Actuarial Equivalent value of his vested Accrued Benefit. 8.3 Married Participant's Election of Optional Pension Form (a) General. A Participant who would otherwise receive a Qualified Joint and Surviving Spouse Annuity pursuant to Section 8.1(b) and is eligible to elect to receive his Pension on one or more of the forms described in subsections (a) and (b) of Section 8.2, Section 8.6 or Section 8.7(c) may make such an election, or revoke such an election, provided that the Participant notifies the Plan Administrator in writing of such election or revocation of election on an appropriate form supplied by the Plan Administrator for this purpose. Notwithstanding any of the foregoing, no election made under this Section 8.3(a) during any Plan Year shall be effective unless made not more than 90 days before the Participant's Benefit Commencement Date and unless: (1) the Participant's Spouse (if any) consents, or has consented, in writing, within the applicable period, to such election (which consent shall be irrevocable with respect to the election to which it was given), and (A) such consent is witnessed by a notary public who is not in the employ of an Affiliated Company; (B) the form of benefits (including the Beneficiary, if any) designated by the election may not be changed (other than revoked) without the Spouse's similarly notarized written consent (except to the extent, if any, that the Spouse's consent expressly permits further form of benefits elections (or Beneficiary designations) by the Participant without the Spouse's further consent); and (C) the Spouse's consent acknowledges the effect of such election; or (2) it is established to the satisfaction of the Plan Administrator that such consent cannot be obtained (A) because the Participant has no Spouse; (B) because the Spouse cannot be located; or (C) because of such other circumstances as the Secretary of the Treasury may by regulations prescribe. Any such consent given by the Participant's Spouse shall be irrevocable. If a Participant's then Spouse consents as required above to the Participant's election to receive a Pension in a form other than a Qualified Joint and Survivor Annuity and the Participant subsequently remarries, the subsequent Spouse shall not be bound by the former Spouse's consent. Only a consent by the subsequent Spouse pursuant to the second sentence of this Section 8.3(a) shall bind such subsequent Spouse. (b) Notification to Participant. The Plan Administrator shall furnish to each Participant who is eligible to make an election under Section 8.3(a) a written explanation in nontechnical language intended to be understood by the Participant and his Spouse, if any, of (1) the terms and conditions of the Qualified Joint and Surviving Spouse Annuity as specifically applicable to the Participant and his Spouse, if any, (2) the Participant's right to make, and the effect of, an election to waive the Qualified Joint and Surviving Spouse Annuity form of benefit, (3) the rights of the Participant's Spouse under Section 8.3(a) with respect to such waiver election, (4) the right to make, and the effect of, a revocation of an election to waive the Qualified Joint and Surviving Spouse Annuity form of benefit, and (5) such other information as may be required under applicable regulations. If such notification is made by mail or personal delivery, it shall be made by such time as to reasonably assure that it will be received by the Participant not more than ninety (90) and not less than thirty (30) days prior to the Participant's Benefit Commencement Date. Notice of the election may be given by alternative means, which must be reasonably calculated to reach the attention of the Participant on or about the time period specified in the preceding sentence and continue to reach the attention of the Participant during the period in which he may make the election (as, for example, by posting or repeated publication.) (c) Request for Further Information. A Participant may request additional information regarding the Qualified Joint and Surviving Spouse Annuity during the sixty (60) day period following the date the above explanation is mailed or personally delivered or otherwise communicated to such Participant. If the Participant requests additional information, the Participant may make an election not to take a Qualified Joint and Surviving Spouse Annuity at any time during the sixty (60) day period following the date the originally requested information is mailed or personally delivered to such Participant. Notwithstanding the preceding provisions, in no event shall the period during which a Participant may elect not to take a Qualified Joint and Surviving Spouse Annuity in favor of a Pension payable in a form specified in Section 8.2(a) or (b) hereof or to revoke such election expire earlier than the Participant's Benefit Commencement Date. (d) Revocation of Election. A Participant may revoke an election made pursuant to Section 8.3(a) during the ninety (90) day period ending on the Participant's Benefit Commencement Date, and the Participant may make a new election thereafter if it otherwise complies with Section 8.3(a). A Participant's election not to take a Qualified Joint and Surviving Spouse Annuity, if timely made, is effective on the Participant's Benefit Commencement Date. A Participant's revocation of an election not to take a Qualified Joint and Surviving Spouse Annuity is effective on the date the Participant notifies the Plan Administrator thereof in accordance with this Section 8.3(d). Any such new election or revocation of any election previously made shall be made in accordance with the provisions of Section 8.3(a) or this Section 8.3(d), whichever is applicable. 8.4 Pre-Retirement Surviving Spouse Annuity (a) General. If a Participant who has a vested Accrued Benefit dies before his Benefit Commencement Date, a death benefit equal to the Actuarial Equivalent value of the Accrued Benefit shall be payable. If the Participant does not have a surviving Spouse, then, except to the extent modified by a Qualified Domestic Relations Order, such death benefit will be paid to the Participant's Beneficiary in a single lump sum amount as soon as practicable after establishment of the Participant's death and the completion of such standard application as the Plan Administrator may prescribe. If the Participant has a surviving Spouse, unless coverage is waived pursuant to subsection (c) or the value of the Participant's vested Accrued Benefit does not exceed $5,000, there shall automatically be provided for such Spouse a Pre-Retirement Surviving Spouse Annuity (herein so called), except to the extent modified by a Qualified Domestic Relations Order. A Pre-Retirement Surviving Spouse Annuity is a monthly annuity beginning on the Starting Date (as defined below) and ending with the payment made on the first day of the month in which the Spouse's death occurs, which annuity is the Actuarial Equivalent of the value of the Participant's Accrued Benefit. If the value of the Participant's vested Accrued Benefit does not exceed $5,000, the death benefit shall be paid in a single sum payment as soon as practicable after establishment of the Participant's death and the completion of such standard application as the Plan Administrator may prescribe. If the Participant's Spouse dies before the Participant, the Pre-Retirement Surviving Spouse Annuity coverage shall be revoked at the date of the Spouse's death. The term "Starting Date" for purposes of payment of the Pre-Retirement Surviving Spouse Annuity means (1) in the case of a Participant who dies before his Normal Retirement Date and before his Benefit Commencement Date, the day that would have been the Participant's Normal Retirement Date, or if the surviving Spouse so elects, the first day of any earlier month that is as soon as practicable after the establishment of the Participant's death and the completion of such standard application as the Plan Administrator may prescribe, and (2) in the case of a Participant who dies after his Normal Retirement Date and before his Benefit Commencement Date, the first day of the month that is as soon as practicable after the establishment of the Participant's death and the completion of such standard application as the Plan Administrator may prescribe. (b) Reduction for Coverage. (1) The coverage described in this Section 8.4 shall be provided automatically and without charge for periods of coverage from and after January 1, 1998. (2) In the event that a Participant elected similar coverage under the Prior Plan on a basis that the benefits otherwise payable to him under the Prior Plan would be reduced on account of such coverage (or was subject to a reduction because of a failure to reject such coverage after his separation from service), such reduction shall be applied to the benefits in respect of the Participant under this Plan, as if it had been made under this Plan. (c) Waiver of Coverage. (1) A Participant's waiver of coverage and designation of a Beneficiary other than the surviving Spouse shall be subject to the consent of the Participant's Spouse and may be elected by the Participant at any time prior to the date of the Participant's death. If the Participant waives coverage prior to the first day of the Plan Year in which the Participant attains age thirty-five (35) and the Participant completes an Hour of Service on or after the first day of such Plan Year, the waiver shall automatically become invalid as of the first day of that Plan Year and the provisions of Section 8.4(a) shall apply as of such date, unless on or after the first day of the Plan Year in which the Participant attains age thirty-five (35), the Participant again waives coverage in accordance with this subsection (c) with the consent of his Spouse. The consent of the Participant's Spouse shall be under such conditions and in such manner as would be comparable to the rules set forth in paragraph (1) or (2) of Section 8.3(a). If a Participant has a surviving Spouse, and has waived the Pre-Retirement Surviving Spouse Annuity and designated a Beneficiary other than such Spouse in accordance with this Section 8.4, a death benefit equal to the Actuarial Equivalent value of the Accrued Benefit shall be payable to the non-Spouse Beneficiary in a single lump sum amount as soon as practicable after establishment of the Participant's death and the completion of such standard application as the Plan Administrator may prescribe. (2) A surviving Spouse entitled to the Pre-Retirement Surviving Spouse Annuity may, after the Participant's death and in such form and manner as the Plan Administrator may prescribe, waive the Pre-Retirement Surviving Spouse Annuity and elect, in lieu of such annuity, a single sum payment which is equal to the Actuarial Equivalent value of the Participant's Accrued Benefit and payable as soon as practicable after establishment of the Participant's death and the completion of such standard application as the Plan Administrator may prescribe. (d) Notification to Participant. Each Participant shall be provided, within a reasonable time after he commences or recommences active participation, and within the Notice Period (as defined below), a written explanation of the Pre Retirement Surviving Spouse Annuity and his right to waive the Pre-Retirement Surviving Spouse Annuity and designate a Beneficiary other than his surviving Spouse. Such explanation shall be in such terms and in such manner as would be comparable to the explanation provided for meeting the requirements of Section 8.3(b). For purposes of this subsection (d), Notice Period means the period beginning on the first day of the Plan Year in which the Active Participant reaches age thirty-two (32) and ending with the date the Participant reaches age thirty-five (35). (e) Commencement. Notwithstanding the above, the Starting Date shall be adjusted to the extent required by the following rules: (1) in satisfaction of Section 417(e) of the Code, if the Spouse's entire benefits payable exceed $5,000 at the time they are payable and prior to the commencement of the distribution, no portion thereof shall be paid prior to the date the Participant, if he had not died, would have reached his Normal Retirement Age without the Spouse's written consent given at least thirty (30) and no more than ninety (90) days prior to payment; (2) in satisfaction of Section 401(a)(9) of the Code and subject to any additional requirements or exceptions set forth in regulations promulgated under that Section by the Secretary of the Treasury (and not by way of providing any benefit or form or delay in commencement of benefit not otherwise provided under this Plan), payment of the Spouse's benefits shall, upon the election of the Spouse on a form provided by the Plan Administrator: (A) be completed not later than the last day of the calendar year containing the fifth anniversary of the Participant's death; or (B) if the benefits will be distributed over the Spouse's life or over a period not exceeding the Spouse's life expectancy, commence not later than (i) the last day of the calendar year next following the calendar year in which the Participant died, or (ii) if later, and the Spouse does not die before the commencement of payment of her benefits, not later than the last day of the calendar year in which the Participant, if he had not died, would have reached age 70-1/2. 8.5 Lump-Sum Cashout Distribution (a) Immediate Distribution. If a Participant ceases to be an Employee for any reason and as of a proposed distribution date thereafter the present value of the Participant's vested Accrued Benefit does not exceed $5,000, or never exceeded $5,000 as of the date of any prior distribution, the Plan Administrator shall distribute the value of such vested Accrued Benefit (including a deemed distribution of $0 pursuant to Section 6.4); provided such distribution occurs by the end of the second Plan Year following the date of such termination. The present value of a vested Accrued Benefit shall be determined using the factors set forth in Section 1.03 of Appendix A. (b) Repayment. If a distribution is made to a Participant in accordance with (a) above or a Participant elects a single sum distribution under Section 8.2(d), the Participant shall thereafter not be entitled to receive any credit for years of Credited Service and Years of Vesting Service for Annual Benefit Credits under Section 7.1(b)(2) upon which the Accrued Benefit distributed was determined in the event the Participant should be reemployed by the Company and reparticipate in the Plan, unless the Participant returns to employment as an Eligible Employee prior to the earlier of the Plan's termination or incurring five (5) consecutive One-Year Breaks in Service and makes payment to the Trust of the full amount specified in accordance with the provisions of Section 2.4(c). If the reemployed Participant fails to repay the Trust within the time limit specified, the years of Credited Service and Years of Vesting Service for Annual Benefit Credits under Section 7.1(b)(2) completed by the Participant prior to the date of distribution shall be disregarded. An automatic repayment as of his reemployment commencement date shall be credited to a Participant who suffered a deemed cash-out as specified above, as long as such Participant returns to employment as an Eligible Employee prior to the earlier of (1) the Plan's termination, or (2) incurring five (5) consecutive One-Year Breaks in Service. 8.6 Special Provisions Applicable to Former Participants in the Gimbel Brothers, Inc. Profit Sharing Plan (a) Application. This Section applies to those Continued Employees who had been participants in the Gimbel Brothers, Inc. Profit Sharing Plan ("GBI Participants"). (b) Profit Sharing Account. For the purposes of this Section, the term "Profit Sharing Account" means the amount standing to the credit of a GBI Participant under the Gimbel Brothers, Inc. Profit Sharing Plan as of December 31, 1975. (c) Payment of Profit Sharing Account. Upon retirement, death, or other termination of employment of a GBI Participant, the unpaid amount of his Profit Sharing Account as of December 31, 1975, plus 5.5% interest compounded annually to December 31, 1984 and 8.25% interest compounded annually thereafter up to the date payments first commence (the "Profit Sharing Amount"), shall be paid in the form, at the time, and to the person hereinafter described. (d) Form of Payment. A GBI Participant's Profit Sharing Amount shall be paid in one of the following forms, as the Participant may elect, subject to Sections 8.1(b) and 8.4: (1) as a single lump sum payment; or (2) in Actuarially Equivalent level installments (calculated using the interest rate of 8.25% compounded annually) over a period of 120 months; or (3) payment of the Pension to which he would be entitled under the Plan if no reduction were made therein under Section 7.1(b) on account of his Profit Sharing Account, provided, that the portion of such Pension thus attributable to his Profit Sharing Account shall be payable as a full cash refund annuity. (e) Time of Payment. Payment of a GBI Participant's Profit Sharing Amount shall be made or shall commence either: (1) not later than the 60th day after the close of the Plan Year in which the Participant's employment is terminated, including termination by reason of retirement or death, or (2) at the same time payment of the Participant's Pension commences, as the Participant may elect. (f) Payment to Beneficiary. (1) If a GBI Participant dies before any part of his Profit Sharing Amount has been distributed to him, then his Profit Sharing Amount shall be paid to his Beneficiary. (2) If prior to a GBI Participant's death, it has been determined that payment of the Participant's Profit Sharing Amount will be made in accordance with Section 8.6(d)(2) and not all such installments have been paid, then the unpaid part of said installments shall be paid to the GBI Participant's Beneficiary; provided, that if payments to the GBI Participant had not begun before his death, the installments shall be paid to his Beneficiary over a 60-month period beginning at the date of the GBI Participant's death. (3) If such Beneficiary shall survive the GBI Participant and die before receipt of all installments due him under the preceding sentence, the remaining payments shall be made to the first alternative Beneficiary designated by the GBI Participant who shall be then surviving, or if none, the remaining balance of his Profit Sharing Account shall be paid to the estate of such GBI Participant's Beneficiary in a single sum. (4) The Beneficiary's benefits shall commence as of and as soon as practicable after the Participant's death; provided that in satisfaction of Section 401(a)(9) of the Code and subject to any additional requirements set forth in regulations promulgated under that Section by the Secretary of the Treasury (and not by way of providing any form or delay in commencement of benefit not otherwise provided under this Plan), payment of the Beneficiary's benefits shall be completed not later than the last day of the calendar year containing the fifth anniversary of the Participant's death, except that if the Participant's Beneficiary is his Spouse: (A) payment of the Spouse's benefits shall commence not later than the later of (a) the last day of the calendar year next following the calendar year in which the Participant died and (b) the last day of the calendar year in which the Participant, if he had not died, would have reached age 70-1/2, and (B) if the Spouse dies before the commencement of payment of her benefits, payment of the Beneficiary's benefits shall be completed not later than the last day of the calendar year containing the fifth anniversary of the Spouse's death. (g) Payment as Cash Refund Annuity. If payment of a GBI Participant's Profit Sharing Amount is made in the form of a cash refund annuity and the aggregate amount of payments made to the GBI Participant and his Spouse or other Beneficiaries on account of his Profit Sharing Amount shall, upon the expiration of such payments, be less than the amount of his Profit Sharing Amount as of the last day of the month immediately preceding the date as of which such payments commenced, the amount of the deficiency shall be paid to the Participant's Beneficiary forthwith in a single lump sum. (h) ERISA Allocation. For purposes of the allocation of Plan assets under Section 13.5, the Profit Sharing Amounts of Participants shall be deemed allocable under section 4044(a)(l) of ERISA. 8.7 [Deleted] 8.8 Special Rule for Annuities Distributed to Participants An annuity contract purchased to provide a benefit under this Plan and distributed to or owned by a Participant must comply with the Qualified Joint and Surviving Spouse Annuity and Pre-Retirement Surviving Spouse Annuity requirements of this Plan, including the applicable consent and present value requirements, to the same extent such requirements would apply if benefits were paid directly from the Trust Fund. 8.9 Commencement of Participant's Benefits To the extent required by the following rules, a Participant's benefits shall commence as of and as soon as practicable after the applicable Valuation Date: (a) in satisfaction of Section 411(a)(11) of the Code, if the value of a Participant's entire benefits payable exceed $5,000 at the time they are payable and prior to the commencement of distribution, or at the time of any earlier distribution, no portion thereof shall be paid during the Participant's life before he reaches his Normal Retirement Age without his written consent given no more than 90 days prior to such payment; (b) in satisfaction of Section 401(a)(14) of the Code, unless the Participant otherwise elects, payment of the Participant's benefits shall begin not later than the 60th day after the close of the Plan Year in which the last of the following occurs: (1) the Participant attains his Normal Retirement Age; (2) the tenth anniversary of the Participant's commencement of participation in the Plan; or (3) the Participant ceases to be an Employee; and (c) in satisfaction of Section 401(a)(9) of the Code and subject to any additional requirements set forth in regulations promulgated under that Section by the Secretary of the Treasury, including Proposed Treas. Reg. Section 1.40l(a)(9)-2 (and not by way of providing any form or delay in commencement of benefit not otherwise provided under this Plan), (1) payment of the Participant's benefits shall commence not later than April l of the calendar year following the later of (A) the calendar year in which the Participant attains age 70-1/2, or (B) in the case of a Participant who attained age 70-1/2 after December 31, 1998, and who was not a 5% owner as that term is defined in Section 416(i)(l)(B)(l) of the Code and the regulations thereunder with respect to the calendar year in which he attained age 70-1/2, the calendar year in which the Participant's Retirement occurs; (2) the Participant's entire interest shall be distributed either (A) over his life or over his and his Beneficiary's joint lives, or (B) over a period not extending beyond his life expectancy or his and his Beneficiary's joint life expectancies; and (3) if the Participant dies after benefit payments begin and before his entire interest has been distributed, the form of distribution in effect before his death shall not be changed unless his remaining interest shall be distributed at least as rapidly as under the form of distribution in effect before he died. (4) To the extent required under Section 401(a)(9)(C) of the Code, if a Participant's Retirement occurs in a calendar year after the calendar year in which he attains age 70-1/2, the Participant's Cash Balance Account shall be each increased each year by the greater of (A) any additional Benefit Credits and Interest Credits allocated under Section 7.1(b), or (B) the actuarial adjustment to take into account the period after age 70-1/2 in which the Participant was not receiving benefit payments under the Plan. Such actuarial adjustment shall be calculated using the interest rate specified in Section 7.1(b)(3). (5) In the case of an Active Participant who was required by the provisions of Section 401(a)(9)(C) of the Code as in effect prior to January 1, 1997 to commence payments before Retirement due to attainment of age 70-1/2, such Participant shall be entitled to make an irrevocable election to suspend benefit payments until after his Retirement, but in no event to later than the April 1 of the calendar year following the calendar year in which his Retirement occurs. If such a Participant elects to suspend payments, the provisions of paragraph (4) above requiring an actuarial adjustment shall apply in each year prior to Retirement that payments are suspended. Upon Retirement, the Participant shall have the same election rights as Participants who had not previously started benefit payments and his Pension shall be recalculated as provided in Section 7.5(a) to take into account benefits previously paid and any additional benefits earned after payments started. (d) Any benefit under the Plan shall satisfy the "incidental benefit" requirements of Code Section 401(a)(9), including the requirements of Prop. Treas. Reg. Section 1.401(a)(9)-2. 8.10 Distributions All distributions hereunder shall be made by the Trustee as of the date(s) specified in this Article VIII. The Trustee shall be entitled to receive written instructions and proper notice from the Plan Administrator with respect to any distribution and shall not be required to make such distributions until such instructions have been received in a form which in the opinion of the Trustee is sufficiently clear with respect to the distributions required. 8.11 No Other Death Benefits There are no death benefits payable under this Plan following a Participant's death except as expressly provided in this Article VIII. 8.12 Special Retirement Program (a) This Section shall be applicable to Participants on the payroll of an Affiliated Company as of January 2, 1994, who (1) will have been credited with five (5) or more years of Vesting Service and have attained the age of sixty- two (62) on or before December 31, 1993, or (2) will have been credited with one (1) or more years of Eligibility Service and have attained the age of sixty-five (65) on or before December 31, 1993. A Participant who meets such conditions may elect to retire under the Special Retirement Program on any date between January 12, 1994, and March 11, 1994, provided that such Participant must terminate employment on or before April 15, 1994, and must execute a Special Retirement Program Agreement and General Release Form. The Participant's Pension shall begin on the first day of the month on or following his date of retirement. This Section shall also apply to Participants who retired on or after October 1, 1993, and otherwise meet the above age and service requirements. (b) In addition to his Accrued Benefit computed under the preceding provisions of the Plan, a Participant who retires under the Special Retirement Program and was credited with a year of Credited Service during the 1993 Plan Year shall receive an increase in his Accrued Benefit equal to three percent (3%) of the Participant's Compensation as determined for the 1993 Plan Year. Each Participant who retires under the Special Retirement Program shall also receive a benefit with a present value equal to his Compensation for 1993 multiplied by the ratio of his years of Credited Service as of December 31, 1993, to fifty- two (52). The present value of such benefit shall be converted to an increase in his Accrued Benefit hereunder on the basis of the immediate interest assumption in use by the Pension Benefit Guaranty Corporation on January 1, 1994, and the UP-84 Mortality Table set back one (1) year. Each Participant who retires under the Special Retirement Program shall also have no reduction for early retirement under Section 7.2 applied to his Accrued Benefit. All Participants who retire under the Special Retirement Program will be deemed to be fully vested. (c) A participant who retires under this Section 8.12 may elect, with Spouse consent if applicable, to receive his Pension in any of the forms of payment permitted by Section 8.1 or Section 8.2. Alternatively, the Participant may elect, with Spouse consent if applicable, to receive the present value of the entire special retirement benefit in a single sum, calculated on the basis of the immediate interest assumption in use by the Pension Benefit Guaranty Corporation on January 1, 1994, and the UP-84 Mortality Table set back one (1) year. (d) If a Participant who is eligible to retire under the Special Retirement Program dies prior to retirement, a Death benefit may be payable hereunder as described below: (1) If the Participant dies on or after January 12, 1994, and on or before March 11, 1994, without having elected to retire under the Special Retirement Program his surviving Spouse, if any, may be entitled to a death benefit determined in accordance with Section 8.4. Any such death benefit shall be calculated without regard to the provisions of this Section 8.12." (2) If the Participant dies after having elected to retire under the Special Retirement Program but without having elected a method of payment of his benefit, his surviving Spouse, if any, shall be entitled to receive a death benefit equal to the benefit that would have been payable to such Spouse had the Participant retired on the day before his date of death and chosen to receive the benefit in the form of the Qualified Joint and Surviving Spouse Annuity. The Spouse may choose to receive the death benefit as a monthly Pension payable for life or in a single sum payment equal to the present value of the monthly Pension that would otherwise have been paid. If this Participant is not married, the death benefit shall be calculated as if he had a surviving Spouse of the same age as the Participant. The present value of the death benefit shall be paid to the Participant's Beneficiary in a single sum. The present value of this death benefit shall be determined on the basis of the immediate interest assumption in use by the Pension Benefit Guaranty Corporation on January 1, 1994, and the UP-84 Mortality Table set back one (1) year. (3) If the Participant dies after electing to retire under the Special Retirement Program and after electing, with Spouse consent, if applicable, the form of payment of his benefit, the death benefit shall be paid to the Participant's Spouse or Beneficiary in accordance with the form of payment chosen by the Participant. (e) If a Participant who is eligible to retire under this Section 8.12 does not elect to retire during the period from January 12, 1994, through March 11, 1994 this Section 8.12 shall be null and void and have no future effect on the determination of the Participant's benefit under the Plan. (f) This provision was added to the Plan January 12, 1994. 8.13 Optional Direct Rollovers Any Participant or Spouse entitled to receive an eligible rollover distribution which is two hundred dollars ($200) or more at date of distribution, in any Plan Year beginning on or after January 1, 1993, may elect to have such distribution paid directly to an eligible retirement plan, in which case such person shall specify to the Affiliated Company, in such form and manner as the Affiliated Company may require, the eligible retirement plan to which such eligible rollover distribution is to be transferred. If the Participant or Spouse makes such an election, the distribution shall be made by the Trustee in the form of a direct transfer the eligible retirement plan. For purpose of the preceding paragraph, an eligible rollover distribution is a distribution of all or any portion of the balance to the credit of the Participant in this Plan, excluding any distribution which (1) is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) or the joint lives (or joint life expectancies) of the recipient and the recipient's designated beneficiary; (2) is for a specified period of ten (10) years or more; or (3) is required to be made under Section 401(a)(9) of the Code. An eligible retirement plan is an individual retirement account described in Section 408(a) of the Code, an individual retirement annuity described in Section 408(b) of the Code (other than an endowment contract), a trust described in Section 401(a) of the Code that is exempt from tax under Section 501(a) of the Code, or an annuity plan described in Section 403(a) of the Code. ARTICLE IX Administration of Plan 9.1 Appointment of Plan Administrator There shall be a Plan Administrator who shall be an officer of the Company appointed by the Board of Directors and identified in Appendix B hereto. The Plan Administrator shall hold office until his death, resignation, disqualification or removal. 9.2 Resignation and Removal of Plan Administrator The Plan Administrator may resign at any time by giving written notice to the Board of Directors, effective as therein stated. The Plan Administrator may, at any time, be removed by the Board of Directors. 9.3 Appointment of Successor Upon the death, resignation, disqualification or removal of the Plan Administrator, the Board of Directors may appoint a successor. Notice of appointment of a successor shall be given by the Board of Directors in writing to the Plan Administrator and to the Trustee. 9.4 Power and Duties of the Plan Administrator The Plan Administrator shall have full power and authority to control and manage the operation and administration of the Plan and to construe and apply all of its provisions, provided that the Plan Administrator shall have no power, authority, or responsibility with respect to those matters which are the responsibility of the Trustee. Any action taken in good faith by the Plan Administrator in the exercise of authority conferred upon him by this Plan shall be conclusive and binding upon Participants, their Beneficiaries and all other persons. All discretionary powers conferred upon the Plan Administrator shall be absolute, provided that no discretionary power shall be exercised in such manner as to cause or create discrimination in favor of Highly Compensated Employees. The authority of the Plan Administrator shall include, but not by way of limitation, the following: (a) Authority to interpret the provisions of the Plan and to determine any questions arising under the Plan or in connection with the administration or operation thereof, except with respect to issues and questions described in Section 10.4(g); (b) Authority to determine all questions affecting the eligibility of any person to be, become or remain a Participant in the Plan; (c) Authority to determine the Service of any person and to compute the amount of benefit or other sum payable under the Plan to any person; (d) Authority to determine all questions regarding the status of any person as a Participant; (e) Authority to authorize and direct all disbursements of benefits and other sums under the Plan and to determine the manner in which benefits shall be payable to Participants; (f) Authority to adopt such rules as he may deem desirable for the purpose of regulating the conduct and discharge of his business and duties in the administration of the provisions of the Plan, provided that such rules shall not be inconsistent with the provisions of the Plan; (g) Authority to employ such counsel and agents, and to obtain such clerical, administrative, accounting, medical, legal, insurance and actuarial services as he may deem necessary or appropriate in carrying out the provisions of the Plan, including authority to employ one or more persons to render advice with regard to any responsibility which any person may have under the Plan; and (h) Authority to purchase such liability insurance and bonds as he may deem appropriate in connection with the operation and administration of the Plan. 9.5 Delegation of Duties The Plan Administrator may designate other persons (or committee(s) of persons) to carry out fiduciary or other responsibilities (other than responsibilities for the management or control of Plan assets) under the Plan. The Plan Administrator, and any person delegated under the provisions hereof to carry out any responsibilities under the Plan, shall be entitled to rely upon information, data, and documentation furnished by any Company; tables, valuations, certificates, and reports furnished by actuaries; and upon certificates, reports, and opinions made or given by any accountant, legal counsel or other expert or advisor (who may be employed or retained by one or more Affiliated Companies) selected or approved by the Plan Administrator; and the Plan Administrator and any delegate thereof shall not be liable, except to the extent provided by law, for any action taken, suffered or omitted by them in good faith or for any such action in reliance upon any such actuary, accountant, legal counsel or other expert or advisor, or upon any information, data, documentation, report, or opinion furnished by the same or by any Company. 9.6 Plan Administrator's Account A Plan Administrator who is also a Participant hereunder shall not rule on any question involving his own interest under the Plan, as distinguished from interests of others similarly situated. In such event, the determination shall be made by a person appointed by the majority of the Pension Fund Committee (excluding the Plan Administrator if he is a member of the Pension Fund Committee). 9.7 Compensation of Plan Administrator The Plan Administrator shall serve as such without compensation from the Plan, but may receive compensation from an Affiliated Company for so serving. 9.8 Expenses Ordinary and necessary expenses incurred in connection with the establishment or termination of the Plan may be paid from the Trust Fund to the extent allowed under Section 403(c)(1) of ERISA. Ordinary and necessary expenses incurred for any Plan Year in connection with administering the Plan (including the cost of any bond required under Section 412 of ERISA), other than establishment or termination expenses, may be paid from the Trust Fund. To the extent expenses incurred in establishing, administering or terminating the Plan are not paid from the Trust Fund they shall be paid by the Affiliated Companies. 9.9 Information Required From Participants Each Participant or Beneficiary will furnish to the Plan Administrator such information in writing as the Plan Administrator considers necessary or desirable for purposes of administering the Plan, and the provisions of the Plan respecting any payments thereunder are conditional upon the Participant's or Beneficiary's furnishing promptly such true, full and complete information as the Plan Administrator may request. Any notice or information which, according to the terms of the Plan or the rules of the Plan Administrator, must be filed with the Plan Administrator shall be deemed so filed at the time that it is actually received by the Plan Administrator. 9.10 Records The Plan Administrator shall keep, or cause to be kept, all such books, accounts, records or other data as may be necessary or advisable in his judgment for the administration of the Plan and properly to reflect the affairs thereof. 9.11 Reports to Participants The Plan Administrator shall furnish to each Participant who so requests in writing, a report of the Participant's Accrued Benefit as of the most recent Valuation Date. In no case shall a Participant be entitled to more than one such report during any one twelve-month period. In the case of a Participant who is no longer an Employee, a mailing of such report to his last known home address by first class mail shall be sufficient. 9.12 Multiple Fiduciary Capacity Nothing in this Plan shall be deemed to prohibit any person or group of persons from serving in more than one fiduciary capacity with respect to the Plan. ARTICLE X Pension Fund Committee 10.1 Appointment of Pension Fund Committee There shall be a Pension Fund Committee which shall consist of not fewer than three (3) members appointed by the Board of Directors. Members of the Pension Fund Committee may, but need not, include the Plan Administrator. Members of the Pension Fund Committee shall hold office until their death, resignation, disqualification or removal. The Pension Fund Committee shall constitute the Named Fiduciary with respect to the responsibilities allocated to it by the provisions of this Plan. 10.2 Resignation and Removal of Members Any member of the Pension Fund Committee may resign at any time by giving written notice to the other members and to the Board of Directors, effective as therein stated. Any member of the Pension Fund Committee may, at any time, be removed by the Board of Directors. 10.3 Appointment of Successors Upon the death, resignation, disqualification or removal of any member of the Pension Fund Committee, the Board of Directors may appoint a successor. Notice of appointment of a successor member shall be given by the Board of Directors in writing to the Trustee and to the Pension Fund Committee. 10.4 Committee Powers The Pension Fund Committee shall have full power and authority to discharge the responsibilities allocated to it pursuant to the Plan. The Pension Fund Committee shall have no power, authority or responsibility with respect to those matters which are the responsibility of the Plan Administrator. Any action taken in good faith by the Pension Fund Committee in the exercise of authority conferred upon it by this Plan shall be conclusive and binding upon Participants, their Beneficiaries and all other persons. All discretionary powers conferred upon the Pension Fund Committee shall be absolute, provided that no discretionary power shall be exercised in such manner as to cause or create discrimination in favor of Highly Compensated Employees. Except to the extent delegated to the Trustee under, or pursuant to, the Trust Agreement, the authority of the Pension Fund Committee shall include, but not by way of limitation, the following: (a) Authority to control, invest, reinvest, manage and dispose of all assets of the Trust Fund; (b) Authority to select and to direct the Trustee with respect to investment and reinvestment of the assets of the Plan and authority to make any decision respecting assets of the Plan; (c) Authority to direct the Trustee to undertake and assume the authority and responsibility to invest and reinvest the assets of the Plan and to make any decision respecting assets of the Plan, provided that any such direction shall be in writing; (d) Authority to make or provide for the making of any audit or examination of the investment affairs of the Plan; (e) Authority to engage such legal, actuarial, accounting and other professional services as it may deem proper, including authority to employ one or more persons to render advice with regard to any responsibility which the Pension Fund Committee, any member thereof or any other person designated under Section 10.5 may have under the Plan; (f) Authority to select the Actuary, to establish the Plan's funding policy and investment guidelines, and to establish and maintain a funding standard account and to make credits and charges to such account to the extent required by and in accordance with the provisions of Section 412 of the Code; (g) Authority to interpret and construe the Plan with respect to the investment, reinvestment, and disposition of Plan assets; and (h) Authority to perform or cause to be performed such further acts as it may deem to be necessary, appropriate or convenient in the exercise of its power and authority under the Plan. 10.5 Allocation and Delegation of Duties By action of the Pension Fund Committee, duly reflected in its minutes, the Pension Fund Committee may allocate its fiduciary responsibilities among its members and may designate other persons to carry out fiduciary or other responsibilities under the Plan. Pursuant to this Section 10.5, the Pension Fund Committee may appoint from among its members a chairman and may appoint a secretary who need not otherwise be a member of the Committee, each of whom shall have such powers as the Pension Fund Committee may provide from time to time. The foregoing provisions of this Section 10.5 shall not limit the authority of the Pension Fund Committee to appoint one or more Investment Managers in accordance with Section 10.6. The Pension Fund Committee, and any person delegated under the provisions hereof to carry out any responsibilities under the Plan, shall be entitled to rely upon information, data, and documentation furnished by any Company; tables, valuations, certificates, and reports furnished by actuaries; and upon certificates, reports, and opinions made or given by any accountant, legal counsel or other expert or advisor (who may be employed or retained by one or more Affiliated Companies) selected or approved by the Pension Fund Committee; and the members of the Pension Fund Committee and any delegate thereof shall not be liable, except to the extent provided by law, for any action taken, suffered or omitted by them in good faith or for any such action in reliance upon any such actuary, accountant, legal counsel or other expert or advisor, or upon any information, data, documentation, report, or opinion furnished by the same or by any Company. 10.6 Investment Manager The Pension Fund Committee may appoint one or more Investment Managers (as defined in Section 3(38) of ERISA) to manage all or any part of the assets of the Plan. Such appointment shall be reflected in the minutes of the Pension Fund Committee. The Investment Manager(s) shall discharge its duties in accordance with applicable law and in particular in accordance with Section 404(a)(l) of ERISA. The Investment Manager(s), when appointed, shall have such responsibility to manage the assets of the Plan as the Pension Fund Committee shall designate, and the Pension Fund Committee shall thereafter have no responsibility for the management of such assets to the extent that responsibilities are designated to be the responsibilities of the Investment Manager(s). 10.7 Committee Procedure A majority of the members of the Pension Fund Committee at any time shall constitute a quorum, and any action by a majority of the members present at any meeting, or authorized by a majority of the members in writing without a meeting, shall constitute the action of the Pension Fund Committee. A member of the Pension Fund Committee who is also a Participant hereunder shall not vote on any question involving his own interest under the Plan, as distinguished from interests of others similarly situated. The Pension Fund Committee may authorize each or any one or more of its members to execute any document or documents on behalf of the Pension Fund Committee, in which event it shall notify the Trustee in writing of such action and the name or names of its members so designated, and the Trustee may thereafter accept and rely upon any document executed by such member or members as representing action by the Pension Fund Committee until the Pension Fund Committee shall file with the Trustee a written revocation of such designation. 10.8 Compensation and Expenses of Committee Members of the Pension Fund Committee shall serve as such without compensation from the Plan, but may receive compensation from an Affiliated Company for so serving. The compensation, or fees, as the case may be, of all officers, agents, counsel, the Trustee, the Investment Manager(s), or other persons retained or employed by the Pension Fund Committee shall be fixed by the Pension Fund Committee. Expenses other than the compensation of members of the Pension Fund Committee shall be paid in accordance with Section 9.8. 10.9 Records The Pension Fund Committee shall keep a record of all its proceedings and shall keep, or cause to be kept, all such books, accounts, records or other data as may be necessary or advisable in its judgment to carry out its responsibilities hereunder and properly to reflect its affairs, provided that nothing in this Section 10.9 shall require the Pension Fund Committee or any member thereof to perform any act which, pursuant to law or the provisions of this Plan, is the responsibility of the Plan Administrator, nor shall this Section 10.9 relieve the Plan Administrator of such responsibility. 10.10 Funding Policy The Pension Fund Committee shall periodically review pertinent Employee information and Plan data in order to establish the Plan's funding policy and to determine the appropriate methods of carrying out the Plan's objectives. The Pension Fund Committee shall periodically communicate to the Trustee and Investment Manager, if any, the Plan's short-term and long-term financial needs so investment policy can be coordinated with Plan financial requirements. ARTICLE XI Claims 11.1 Claims for Benefits Any claim for benefits by a Participant or anyone claiming through a Participant under the Plan shall be delivered in writing by the claimant to the Plan Administrator. The claim shall identify the benefits being requested and shall include a statement of the reasons why the benefits should be granted. The Plan Administrator shall grant or deny the claim. If the claim is denied in whole or in part, the Plan Administrator shall give written notice to the claimant setting forth: (a) the reasons for the denial, (b) specific reference to pertinent Plan provisions on which the denial is based, (c) a description of any additional material or information necessary to request a review of the claim and an explanation of why such material or information is necessary, and (d) an explanation of the Plan's claim review procedure. The notice shall be furnished to the claimant within a period of time not exceeding 90 days after receipt of the claim, except that such period of time may be extended, if special circumstances should require, for an additional 90 days commencing at the end of the initial 90-day period. Written notice of any such extension shall be given to the claimant before the expiration of the initial 90-day period and shall indicate the special circumstances requiring the extension and the date by which the final decision is expected to be rendered. 11.2 Appeals Procedure A claimant who has been denied a claim for benefits, in whole or in part, may, within a period of 60 days following his receipt of the denial, request a review of such denial by filing a written notice of appeal with the Plan Administrator. In connection with an appeal, the claimant (or his authorized representative) may review pertinent documents and may submit evidence and arguments in writing to the Plan Administrator. The Plan Administrator shall decide the questions presented by the appeal, either with or without holding a hearing, and shall issue to the claimant a written notice setting forth: (a) the specific reasons for the decision and (b) specific reference to the pertinent Plan provisions on which the decision is based. The notice shall be issued within a period of time not exceeding 60 days after receipt of the request for review; except that such period of time may be extended, if special circumstances (including, but not limited to, the need to hold a hearing) should require, for an additional 60 days commencing at the end of the initial 60-day period. Written notice of any such extension shall be provided to the claimant prior to the expiration of the initial 60-day period. The decision of the Plan Administrator shall be final, binding, and conclusive. ARTICLE XII Amendment and Termination 12.1 Amendment The Board of Directors shall have the right at any time, and from time to time, to modify or amend in whole or in part, any or all of the provisions of the Plan, but, except as otherwise provided in this Article XII or Section 4.4, or as otherwise permitted by Section 411(d)(6) of the Code, no such amendment or modification shall have the effect of revesting in the Companies any part of the Trust Fund or reducing the accrued benefits of Participants or of diverting any part of the Trust Fund to any purpose other than for the exclusive benefit of Participants and their Beneficiaries and the payment of reasonable Plan administration expenses. 12.2 Termination, Partial Termination, or Discontinuance of Accruals The Board of Directors shall have the right, at any time, to suspend or discontinue (i.e., "freeze") all future benefit accruals and new participation hereunder, to suspend or discontinue the Company's contributions hereunder, or to terminate or partially terminate the Plan. The Plan shall terminate upon the first to occur of the following: (a) the date terminated by action of the Board of Directors; (b) the date terminated by action of the Pension Benefit Guaranty Corporation; (c) the date the Company shall be judicially declared bankrupt or insolvent; or (d) the dissolution, merger, consolidation, or reorganization of the Company, unless the successor makes provision to continue the Plan as provided in this Article XII, in which event the successor shall be substituted as the Company under the Plan. Upon the termination or partial termination of the Plan, the Accrued Benefit of affected Participants, to the extent funded as of such date, shall be nonforfeitable. This provision shall be interpreted in accord with the rules of Section 411(d)(3) of the Code and the Treasury regulations thereunder. Any Company may, by action of its board of directors, withdraw at any time from participation in the Plan, at which point the Participants who are its Eligible Employees shall become Inactive Participants. 12.3 Procedure on Termination In the event of termination of the Plan, the Company shall wind up and liquidate the Plan and Trust and distribute the assets thereof, after deduction of all expenses, to the Participants and Beneficiaries in accordance with their respective Accrued Benefits as determined as of the date of Plan termination (taking into account only Service credited through such date). 12.4 Partial Termination Upon termination of this Plan with respect to a group of Participants which constitutes a partial termination of the Plan, the Trustee shall allocate and segregate for the benefit of the Participants with respect to which the Plan is being terminated the proportionate interest of such Participants in the Trust Fund. Such proportionate interest shall be determined by the Actuary. The Actuary shall make this determination upon the basis of the contributions made by the Company, Accrued Benefits of the affected Participants as of the date of partial termination, the provisions of this Article XII, and such other considerations as the Actuary deems appropriate. The Plan fiduciaries shall have no responsibility with respect to the determination of any such proportionate interest. The funds so allocated and segregated shall be used by the Trustee to pay benefits to or on behalf of the affected Participants in accordance with Section 12.5 hereof. 12.5 Liquidation of Trust Fund Upon termination or partial termination of the Plan, the assets of the Trust Fund or the portion thereof segregated in accordance with Section 12.4, shall be liquidated (after provision is made for the expenses of liquidation) by the payment or provision for the payment of benefits in the following order of priority: (a) Certain Benefits Payable Three Years Prior to Termination. The available assets of the Trust Fund shall first be allocated to provide Pensions that were in pay status three (3) or more years before the effective date of Plan termination, or that could have been in pay status at the beginning of such three-year period had the Participant not deferred the commencement of his Pension by failing to elect earlier commencement, or that could have become payable had a Participant's Retirement occurred immediately prior to the beginning of such three-year period, provided that: (1) the portion of the Pension payable to a Participant or the Beneficiary of a Participant (or that could have been payable) shall be based on the provisions of the Plan in effect five (5) years prior to the effective date of Plan termination; and for this purpose, the first Plan Year in which an amendment became effective, or was adopted, if later, shall constitute the first year an amendment was in effect; and further provided that, (2) if the Pension payable under the Plan had been changed, either by amendment or due to the form in which the Pension is being paid, during the three-year period ending on the effective date of Plan termination, then the lowest benefit in pay status during such three-year period shall be considered the benefit in pay status for purposes of this category (a). (b) Other Benefits Eligible for Termination Insurance. To the extent that the amount of a Pension has not been provided in the foregoing category (a), the remaining assets shall be allocated to provide any Pension provided under the Plan for a Participant whose employment terminated prior to the effective date of Plan termination, or any immediate or deferred Pension that would have been payable, without regard to Section 12.2 hereof, to or on behalf of a Participant, had his employment terminated for a reason other than death, on the effective date of Plan termination, provided that the amount of a Pension to be provided under this category (b) shall be determined as follows: (1) the portion of the Pension payable to a Participant or the Beneficiary of a Participant (or that could have been payable) based on the provisions of the Plan in effect five (5) years prior to the effective date of Plan termination; and for this purpose, the first Plan Year in which an amendment became effective, or was adopted, if later, shall constitute the first year an amendment was in effect; plus (2) the portion of the Pension payable to a Participant or the Beneficiary of a Participant which would have been included in (1) above had the Plan or a Plan amendment been in effect five (5) years prior to the effective date of Plan termination, determined as follows: twenty percent (20%) for each Plan Year (less than five (5)) that the Plan or an amendment thereto was in effect, multiplied by the amount that would have been included under paragraph (1) for such Participant or Beneficiary had the Plan or the amendment been in effect for five (5) Plan Years as of the effective date of Plan termination; provided that, (3) no benefit payable under this category (b) to a Participant or Beneficiary shall exceed an amount with an actuarial value of a monthly benefit in the form of a life only annuity commencing at age sixty- five (65) equal to $750 multiplied by a fraction, the numerator of which is the contribution and benefit base determined under Section 230 of the Social Security Act in effect at the effective date of Plan termination and the denominator of which is such contribution and benefit base in effect in calendar year 1974. (c) Other Vested Benefits. To the extent that the amount of a Pension has not been provided in the foregoing categories (a) and (b), the remaining assets shall be allocated to provide the benefit payable under the Plan to or on behalf of a Participant whose employment terminated prior to the effective date of Plan termination, or that would have been payable to or on behalf of a Participant had his employment terminated for a reason other than death on the effective date of Plan termination, in the following order of preference: (1) to any Participant who retired prior to the effective date of Plan termination under Sections 6.1 or 6.2 or Beneficiary who was receiving benefits under the Plan on the effective date of Plan termination; (2) to any Participant who satisfied the requirements for a Normal Retirement Pension specified in Section 6.1, but who was not receiving benefits under the Plan on the effective date of Plan termination; (3) to any Participant who satisfied the requirements for an Early Retirement Pension specified in Section 6.2, but who was not receiving benefits under the Plan on the effective date of Plan termination; and (4) to any Participant whose employment had terminated prior to the effective date of Plan termination with entitlement to a Deferred Vested Pension under Section 6.4, or who would have been eligible, without regard to Section 12.2 hereof, for a Deferred Vested Pension under said section had his employment terminated on the effective date of Plan termination. (d) Other Benefits. To the extent that the amount of a Pension has not been provided in the foregoing categories (a), (b) and (c), the Plan assets shall be further allocated to provide the benefits accrued under the Plan, without regard to the satisfaction of the vesting requirements of this Plan, with respect to each Participant whose employment had not terminated as of the effective date of Plan termination, according to the respective actuarial value of each such Participant's Accrued Benefit as of the date of Plan termination. In no event may a Participant receive benefits hereunder for Service which may accrue after the date of Plan termination. If the assets of the Trust Fund applicable to any of the above categories are insufficient to provide full benefits for all persons in such group, the benefits otherwise payable to such persons shall be reduced proportionately. The Actuary shall calculate the allocation of the assets of the Trust Fund in accordance with the above priority categories, and certify his calculations to the Plan fiduciaries. No liquidation of assets and payment of benefits (or provision therefor) shall actually be made by the Trustee until after it is advised by the Company in writing that applicable requirements, if any, of ERISA governing termination of "Employee Pension Benefit Plans" have been, or are being, complied with or that appropriate authorizations, waivers, exemptions, or variances have been, or are being obtained. 12.6 Reversion of Residual Amounts All residual amounts shall revert to the Company. For purposes of this Section, the term "residual amounts" shall mean all Plan assets remaining after the payment of all Plan expenses and the satisfaction of all benefit liabilities accrued hereunder as of the date of Plan termination, without regard to any Service or benefits which may accrue after the date of Plan termination. 12.7 Successor Employer In the event of the dissolution, merger, consolidation, or reorganization of the Company, provision may be made by which the Plan and Trust will be continued by the successor, and, in that event, such successor shall be substituted for the Company under this Plan. The substitution of the successor shall constitute an assumption of Plan liabilities by the successor and the successor shall have all of the powers, duties and responsibilities of the Company under the Plan. 12.8 Manner of Distribution Subject to the provisions of this Article XII, any distribution after termination of the Plan may be made, in whole or in part, to the extent that no discrimination in value results, in cash, in securities, or other assets in kind, or in nontransferable annuity contracts, as the Plan Administrator, in its discretion, shall determine. 12.9 Merger or Consolidation of Plan Assets; Mergers into the Plan; Transfers of Plan Assets Subject to satisfying the requirements of this Section and Section 411(d)(6) of the Code: (a) Upon the approval of the Board of Directors and the new or successor employer of the affected Participants, the Plan may be merged into or consolidated with another defined benefit plan, and all or a portion of its assets or liabilities may be transferred to another plan; provided that such other plan and its related trust (1) are qualified within the meaning of Sections 401(a) and 501(a) of the Code ("tax-qualified"), and (2) assume the Plan liabilities of all affected Participants. (b) Upon the approval of the Board of Directors and the employer of the affected Participants, any other tax- qualified defined benefit plan sponsored by an Affiliated Company may be merged into this Plan, with this Plan as the surviving instrument. Thereupon: (1) The Affiliated Company shall become a co- sponsor of the Plan, included in the definition of Company hereunder. In any such case, the Plan shall remain a single plan with any and all of its assets (regardless of the entity to whose contributions such assets can be traced) available to pay the benefits of each Participant and Beneficiary hereunder and any other liabilities of the Plan. (2) The assets of the merged plan shall be transferred to the Trustee and be assets of the Plan, and the liabilities of the merged plan shall be liabilities of the Plan. (3) Each participant in the merged plan shall become a Participant in the Plan on the merger date, with accrued or vested benefits under the Plan equal to his accrued or vested benefits under the merged plan, and thereafter shall continue to participate in the Plan in accordance with its terms. (4) If so directed by the Board of Directors, there shall be a separate accounting of the benefits of a Participant transferred from the merged plan and any other benefits of the Participant under the Plan, such that contributions, gains, losses, withdrawals, forfeitures, and other credits or charges are allocated between the transferred benefits and any other benefits on a reasonable and consistent basis. (c) Upon the approval of the Pension Fund Committee, the assets and liabilities of the Prior Plan with respect to the Prior Plan Benefit of Continued Employees may be transferred to this Plan. Upon the approval of the Board of Directors and the employer of the affected Participants, the assets and liabilities of any other tax-qualified defined benefit plan may be transferred to this Plan. To the extent that Section 401(a)(12) or 414(1) of the Code is applicable and in accordance therewith, no merger, consolidation, or transfer pursuant to this Section 12.9 shall be consummated unless each Participant and Beneficiary under the Plan (or, in the case of subsection (a), each participant in the merged, transferee, or successor plan) would, if the resulting plan (or, in the case of subsections (b) or (c), the Plan) then terminated, receive a benefit immediately after the merger, consolidation, or transfer that is equal to or greater than the benefit he would have been entitled to receive immediately before the merger, consolidation, or transfer, if the Plan (or, in the case of subsections (b) and (c), the transferor or predecessor plan) had then terminated; provided that the foregoing provisions of this Section shall not apply if such alternative requirements that may be imposed by the regulations under Section 414(1) of the Code are satisfied. ARTICLE XIII Restrictions Applicable To Highly Compensated Employees 13.1 Restriction on Benefits of Highly Compensated Employees In the event of termination of the Plan, the benefit of any Highly Compensated Employee shall be limited to a benefit that is nondiscriminatory under Section 401(a)(4) of the Code. 13.2 Restrictions on Distributions to Top 25 Highly Compensated Employees (a) General Rule. Annual payments to a Highly Compensated Employee in the group consisting of the twenty- five (25) Highly Compensated Employees paid the greatest '414(s) Compensation' shall be restricted to an amount equal to the payments that would be made on behalf of the Highly Compensated Employee under a single life annuity that is the Actuarial Equivalent of the sum of such Employee's Accrued Benefit and such Employee's other benefits (including loans in excess of the amounts set forth in Section 72(p)(2)(A) of the Code, any periodic income, any withdrawal values payable to a living employee or former employee, and any death benefits not provided for by insurance on the employee's or former employee's life) under the Plan. (b) Exception to the General Rule. The restrictions of subsection (a) of this Section 13.2 shall not apply if: (1) After taking into account payment to or on behalf of the employee of all benefits payable to or on behalf of that employee under the Plan, the value of Plan assets equals or exceeds one hundred and ten percent (110%) of the value of current liabilities. as defined in Section 412(1)(7) of the Code; (2) The value of the benefits payable to or on behalf of such Employee are less than one percent (1%) of the value of the Plan's current liabilities before the distribution; or (3) The value of the benefits payable to or on behalf of the Employee does not exceed the amount described in Section 411(a)(11)(A) of the Code. 13.3 Termination of Restrictions In the event it is determined by the Internal Revenue Service that the provisions of this Article are no longer necessary for the Plan to qualify under section 401 of the Code, this Article shall thereupon be void without the necessity of further amendment of the Plan. ARTICLE XIV Miscellaneous Provisions 14.1 No Contract of Employment The adoption and maintenance of this Plan shall not be deemed to constitute a contract of employment or otherwise between any Affiliated Company and any Employee, former Employee or Participant, or to be a consideration for, or an inducement or condition of, any employment. Nothing contained herein shall be deemed to give to any Employee, former Employee or Participant the right to be retained in the service of any Affiliated Company or to interfere with the right of any Affiliated Company employing such person to discharge, with or without cause, any Employee, former Employee or Participant at any time. 14.2 No Liability for Benefits Any benefits payable under this Plan shall be paid or provided for solely from the Trust Fund and are limited to the then available assets of the Trust Fund, and the Affiliated Companies assume no liability or responsibility therefor. In addition, the Companies do not guarantee the Trust Fund from loss or depreciation, or the payout of any money which may be or becomes due to any person from the Trust Fund. The obligations of the Companies hereunder are limited solely to the making of contributions to the Trust Fund as provided for in this Plan. 14.3 Exclusive Benefit of Trust Fund Except as otherwise provided in Section 4.4 and Article XII, the assets of the Trust Fund shall be held for the exclusive purposes of providing benefits to Participants and their Beneficiaries and defraying reasonable expenses of administering the Plan and shall not inure to the benefit of any Company or Affiliated Company. 14.4 Nonalienation (a) General. None of the benefits, payments, proceeds, claims or rights of any Participant or Beneficiary hereunder shall be subject to any claims of any creditor of such person, nor shall any such Participant or Beneficiary have any right to alienate, anticipate, commute, pledge, encumber or assign any claim or right hereunder or any of the benefits or payments of proceeds which he may expect to receive, contingent or otherwise, under the provisions hereof. In the event any person attempts to take any action contrary to this Section 14.4, such action shall be null and void and of no effect, and the Companies, the Plan Administrator, the Pension Fund Committee, the Trustee, the Investment Manager(s) and all persons having any interest in the Trust Fund and their Beneficiaries shall disregard such action and are not in any manner bound thereby, and they, and each of them, shall suffer no liability for any such disregard thereof, and shall be reimbursed on demand out of the Trust Fund or by the responsible Participant or Beneficiary for the amount of any loss, cost or expense incurred as a result of disregarding or of acting in disregard of such action. The preceding provisions of this Section 14.4 shall not apply to situations where a Participant is indebted to the Trust Fund. In cases where a Participant is indebted to the Trust Fund, the Trustee is permitted to levy against the Accrued Benefit of the Participant to the extent necessary to collect indebtedness owing from the Participant to the Trust Fund and any unpaid interest, late charges, or other amounts. (b) Exception for Qualified Domestic Relations Orders. (1) The nonalienation rule of Section 14.4(a) shall apply to the creation, assignment, or recognition of a right to any benefit payable with respect to a Participant pursuant to a domestic relations order, except that Section 14.4(a) shall not apply if the Plan Administrator or his delegate determines that such order is a Qualified Domestic Relations Order. A Qualified Domestic Relations Order (A) may not require payment (i) in a form other than as a single life annuity or other form available to the Participant, excluding, however, any joint and survivor annuity form under which survivor payments would be made to the recipient's subsequent spouse; (ii) to a recipient under such order of benefits which are required to be paid to another recipient under another such order previously filed with the Plan; or (iii) of increased benefits (determined on the basis of actuarial equivalents), (B) but may require payment of benefits to the recipient under the order (i) at any time after the date of the order and on or after the Participant's Earliest Retirement Age (which may be determined in the case of a Participant who has attained age fifty (50) by assuming he has separated from service), (ii) as if the Participant's Benefit Commencement Date had occurred on the date on which such payment is to begin under such order (taking into account only the present benefits in which the Participant is then vested) and (iii) in any form permitted under subparagraph (A)(i) above; provided, however, that such benefit shall be determined based on the life expectancy of the recipient. (2) Upon receipt of a domestic relations order, the Plan Administrator or his delegate shall promptly notify the Participant and any other alternative payee of the receipt of such order and the Plan's procedures for determining the qualified status of domestic relations orders. (3) Within a reasonable period after the receipt of a domestic relations order, the Plan Administrator or his delegate shall determine the qualified status of such order, and thereafter notify the Participant and each alternate payee of such determination. During any period in which the issue of whether a domestic relations order is a Qualified Domestic Relations Order is being determined by the Plan Administrator or his delegate, or if the Plan Administrator or his delegate has notice that the parties are attempting to rectify any deficiencies in the order, the Plan Administrator or his delegate shall segregate in a separate account in the Plan or in an escrow account the amounts which would have been payable to the alternate payee during such period if the order had been determined to be a Qualified Domestic Relations Order. (4) If within 18 months after the date on which the first payment would be required to be made under an order, the order is determined to be a Qualified Domestic Relations Order, the Plan Administrator or his delegate shall pay the segregated amounts (plus interest thereon, if any) to the person or persons entitled thereto. If within such 18 month period (A) it is determined that the order is not a Qualified Domestic Relations Order or (B) the issue as to whether such order is a Qualified Domestic Relations Order is not resolved, the Plan Administrator or his delegate (unless under a restraining order prohibiting the disposition of benefits pending resolutions of a suit) shall pay the segregated amounts (plus interest thereon, if any) to the person or persons who would have been entitled to such amounts if there had been no order. Any determination that an order is a Qualified Domestic Relations Order which is made after the close of the 18 month period shall be applied prospectively only from the date of such determination. (5) For purposes of Section 414(p)(4)(A)(ii) of the Internal Revenue Code, the interest rate for determining the present value of any Accrued Benefit shall be the interest rate then in effect for determining the amount of contributions under the Plan. (6) The Participant's Pension shall be appropriately adjusted to reflect any distribution made pursuant to a Qualified Domestic Relations Order. In addition, if any Qualified Domestic Relations Order should require payment to any person prior to the retirement or other separation from service of a Participant, the portion of the benefits of such Participant payable to the alternate payee shall be actuarially reduced in accordance with Section 7.3 to reflect payment prior to Normal Retirement Date, regardless of whether such payment would have been paid as an Early Retirement Pension or other benefit providing an actuarial subsidy had the Participant actually retired. 14.5 Trust Assets No Employee shall have any right to, or interest in, any assets of the Trust Fund upon termination of his employment or otherwise, except as provided from time to time under this Plan, and then only to the extent of the benefits payable under the Plan to such Employee out of the assets of the Trust Fund. 14.6 Responsibility of Fiduciaries The Plan Administrator, and the members of the Pension Fund Committee, together with their assistants and representatives who are Employees, shall be free from all liability for their acts and conduct in the administration of the Plan and Trust under the Trust Agreement, except for acts of willful misconduct or gross negligence; provided that the foregoing shall not relieve any of them from any responsibility or liability for any responsibility, obligation or duty that they may have under ERISA. 14.7 Indemnity by Companies In the event and to the extent not insured against by any insurance company under the provisions of any applicable insurance policy, the Companies shall indemnify, hold harmless and, if requested, defend the members of the boards of directors and officers of the Companies and other persons who are Employees, from and against any and all claims, demands, suits or proceedings in connection with the Plan or Trust under the Trust Agreement that may be brought by Employees, Participants or Beneficiaries or their legal representatives, or by any other person, corporation, entity, government or agency thereof and from and against any and all costs or other expenses, including but not limited to attorneys' fees incurred by such individuals in connection with such claims, demands, suits or proceedings; provided that such indemnification shall not apply to any such person for such person's acts of willful misconduct or gross negligence as determined by a no longer appealable final judgment of a court of competent jurisdiction. 14.8 Address for Notification; Inability to Locate Participants or Beneficiaries (a) Each Participant shall keep the Plan Administrator advised of his current address and the current address of each of his potential Beneficiaries. Any payment, distribution or communication hereunder addressed to a Participant or Beneficiary, at the last address filed with the Plan Administrator, or if no such address has been filed, then the last address indicated on the records of the Company in respect of the Participant, shall be deemed to have been delivered to the Participant or Beneficiary three (3) days after such distribution or communication is deposited in the United States Mail, postage prepaid. (b) If the Plan Administrator cannot, by making a reasonably diligent attempt by mail, locate either the Participant, his Beneficiary or contingent Beneficiary, as the case may be, within three (3) years following the date as of which the person's benefits become payable under the Plan, the total amount shall be forfeited and shall be used to reduce Company contributions under the Plan; provided, that if such person to whom a benefit is payable makes a claim in writing for such benefit after the expiration of the three (3) year period, the benefit shall be reinstated. In the event of such reinstatement, payment shall commence to such person in the same form and amount as initially applicable, commencing as soon as practicable after the Valuation Date coincident with or next following the date on which the Plan Administrator receives his written claim. 14.9 Payment in Case of Incapacity In the event that the Plan Administrator shall find that any Participant or Beneficiary to whom a benefit is payable under this Plan is unable to manage his own affairs because of illness, accident, or other mental or physical incompetence, or is unable to give a valid receipt, the Plan Administrator may cause the payment becoming due to such Participant or Beneficiary to be paid to another person selected by the Plan Administrator in his sole discretion for the benefit of the Participant or Beneficiary without responsibility on the part of the Plan Administrator, the Pension Fund Committee, any Affiliated Company or the Trustee to follow the application of such payment; provided that if claim shall have been made therefor by an existing and duly appointed guardian, conservator, committee or other duly appointed legal representative, payment shall be made to such representative. Any such payment shall be a payment for the account of the Participant or Beneficiary and shall operate as a complete discharge of all liability therefor under this Plan. 14.10 Headings Article, Section and subsection headings are for convenient reference only and shall not be deemed to be a part of the substance of this instrument or in any way to enlarge or limit the contents of any Article. 14.11 Applicable Law Except as may otherwise specifically be required by the Trust Agreement, all legal questions pertaining to the Plan shall be determined in accordance with ERISA and, to the extent not preempted by federal law, the laws of the State of New York. All contributions made hereunder shall be deemed to have been made in New York. 14.12 Agent for Service The General Counsel of Saks & Company shall be the agent for service of any legal process upon this Plan. EXECUTED on ____________________, 1998, in New York, New York. SAKS & COMPANY By:__________________________ Title:_______________________ Appendix A Unless otherwise expressly provided in the Plan, the following actuarial assumptions shall be used to determine benefits under the Plan. 1.01 Reemployed Pensioners. For purposes of reducing the recomputed Pension of a Participant who is reemployed after receiving a Pension, as provided under Section 7.5(a) of the Plan, the following shall be used: (a) Interest: 8.25% (b) Mortality: The 1971 Group Annuity Mortality Table projected to 1978 according to Scale E (males, 3 year setback). 1.02 Pre-Retirement Surviving Spouse Annuity. For purposes of determining the reduction for coverage for a Pre-Retirement Surviving Spouse Annuity under Section 8.4 of the Plan prior to January 1, 1998, the following table shall apply: Months of Coverage Preceding Monthly Normal Retirement Date Percentage Rate ----------------------------- ----------------- First 120 months (ages 55-64) .041667% (1/2% per yr.) Next 120 months (ages 45-55) .016667% (1/5% per yr.) Next 120 months (ages 35-45) .008333% (1/10% per yr.) All preceding months No Reduction provided that effective March 1, 1991, the following table shall apply: Months of Coverage Preceding Montly Normal Retirement Date Percentage Rate -------------------------- --------------------- First 60 months (ages 60-64) .04l667% (0.50% per yr.) Next 60 months (ages 55-59) .033333% (0.40% per yr.) Next 60 months (ages 50-54) .025000% (0.30% per yr.) Next 60 months (ages 45-49) .016667% (0.20% per yr.) Next 60 months (ages 40-44) .008333% (0.10% per yr.) Next 60 months (ages 35-39) .004167% (0.05% per yr.) All preceding months No reduction 1.03 Single Sum Payments. For purposes of determining the present value of Accrued Benefits under Sections 8.2(d) and 8.5 of the Plan, the following factors shall be used - (a) Interest: With respect to benefits calculated prior to January 1, 1996, whichever of the following immediate or deferred interest rates (as the case may be) results in the smaller payment: (1) the interest rate that would be used by the Pension Benefit Guaranty corporation (the "PBGC") (as of the January 1 preceding or coincident with the Benefit Commencement Date) or (2) 120% of that interest rate, provided that the payment amount determined using the rate provided for in this item (2) may not be less than $25,000; and with respect to benefits calculated on and after January 1, 1996, the annual interest rate on 30-year Treasury Constant Maturities as published in Federal Reserve releases in effect for the second month before the first day of the Plan Year in which the annuity starting date occurs (which shall be the "stability period" for purposes of this Plan). (b) Mortality: With respect to benefits determined prior to January 1, 1996, the Mortality Table specified by the PBGC for males (set back two years), or such other table as the PBGC may publish from time to time for similar purposes on a unisex basis, to determine the present value of a lump sum distribution on plan termination, and with respect to benefits calculated on and after January 1, 1996, the Mortality Table set forth in Revenue Ruling 95-6, based on a blend of fifty percent (50%) of the male and female rates set forth in the 1983 Group Annuity Mortality Table as such Table may be updated or replaced in the future. (c) Expected Retirement Age: For distributions to Participants who terminate prior to satisfying the conditions under Section 6.2(a) or 6.2(b) - age 65; for Participants who terminate on or after their earliest retirement age - their age upon actual termination; for all others, age 55. 1.04 Actuarial Equivalent of Amounts Received from GBI Profit Sharing Plan Upon Termination or Retirement. The reduction under Section 7.1(c) of the Plan for amounts distributed under the GBI Profit Sharing Plan upon termination or retirement shall be determined by crediting the Participant's Profit Sharing account balance from January 1, 1976 through December 31, 1984 with 5.50% interest compounded annually through December 31, 1984 and by 8.25% compounded annually thereafter through the Participant's Normal Retirement Date (or actual retirement date, if later), and thereupon by converting such amount to a full cash refund annuity based on the following factors determined as of the Participant's Normal Retirement Date (or actual retirement date, if later): (1) an interest rate of 8.25%, and (2) the 1971 CAM projected to 1978 according to Scale E (males, 3 year setback). 1.05 All Other Equivalencies. For purposes of all calculations not expressly set forth in the Plan or this Appendix A, the following shall be used: (a) Interest: The interest rate then in effect under Section 1.03 of this Appendix A. (b) Mortality. The mortality table then in effect under Section 1.03 of this Appendix A. Appendix B The Plan Administrator shall be the highest-ranking corporate officer in the Human Resources Department. Appendix C C1.1 Definitions. For purposes of this Appendix C, (a) "Appendix C Participant" means a Participant who meets the definition of Continued Employee under Section 1.15 of the Plan but who did not have an accrued benefit under the Prior Plan as of July 2, 1990 solely because of a failure to meet as of July 2, 1990 the requirement in Section 2.01(b) of the Prior Plan that he complete one Eligibility Year of Service. (b) "Covered Compensation" means the amount determined in accordance with the following table: CALENDAR YEAR COVERED OF BIRTH COMPENSATION ---------------- --------------- 1907 $ 4,488 1908 $ 4,704 1909 $ 5,004 1910 $ 5,316 1911 $ 5,664 1912 $ 6,060 1913 $ 6,480 1914 $ 7,044 1915 $ 7,692 1916 $ 8,460 1917 $ 9,300 1918 $10,236 1919 $11,232 1920 $12,276 1921 $13,368 1922 $14,520 1923 $15,708 1924 $16,968 1925 $18,228 1926 $19,476 1927 $20,724 1928 $21,972 1929 $23,208 1930 $24,444 1931 $25,680 1932 $26,916 1933 $28,152 1934 $29,388 1935 $30,612 1936 $31,800 1937 $32,988 1938 $35,280 1939 $36,432 1940 $37,572 1941 $38,688 1942 $39,756 1943 $40,752 1944 $41,712 1945 $42,648 1946 $43,548 1947 $44,412 1948 $45,132 1949 $45,768 1950 $46,284 1951 $46,740 1952 $47,088 1953 $47,376 1954 $47,616 1955 $47,904 1956 OR LATER $48,000 C1.2 1989 Benefit. Subject to the limitations of Sections 7.4, 7.5, 7.7 and 7.8 of the Plan, if an Appendix C Participant completed 1000 Hours of Service as an Eligible Employee during calendar year 1989, such Appendix C Participant shall have included in the calculation of his Normal Retirement Pension, computed in the normal form specified in Section 8.1(a) of the Plan and payable commencing on the date specified in Section 6.1 of the Plan, an annual amount equal to the sum of (a) 1% of his Compensation during calendar year 1989, and (b) .5% of the excess of his Compensation during calendar year 1989 over his Covered Compensation. C1.3 Pre-July 2, 1990 Benefit. Subject to the limitations of Sections 7.4, 7.5, 7.7 and 7.8 of the Plan, if an Appendix C Participant completed 1000 Hours of Service as an Eligible Employee during calendar year 1990, such Appendix C Participant shall have included in the calculation of his Normal Retirement Pension, computed in the normal form specified in Section 8.1(a) of the Plan and payable commencing on the date specified in Section 6.1 of the Plan, an annual amount equal to 1% of his Compensation for the period from January 1, 1990 to July 1, 1990. EX-13 13 ANNUAL REPORT TO SHAREHOLDERS EXHIBIT 13.1 [Title Page] 1999 Annual Report SAKS INCORPORATED Fashioning the Future [Table of Contents] 2 Financial Highlights 3 Letter to Our Shareholders 17 Five-Year Financial Summary 18 Management's Discussion and Analysis 27 Consolidated Financial Statements 31 Notes to Consolidated Financial Statements 59 Report of Independent Accountants 59 Report of Management 60 Market Information 61 Directors and Certain Officers 63 Store Locations 64 Shareholder Information 65 Corporate Information 1 Fashioning the Future Saks Incorporated is one of the country's premier retail enterprises, operating 359 stores in 39 states, with over $6.4 billion in annual revenues and nearly 60,000 associates. The Company operates 61 Saks Fifth Avenue stores, 43 Parisian specialty department stores, 209 traditional department stores and 46 Off 5th outlet stores. The Company made substantial progress on its key strategic initiatives in 1999 and enters 2000 with a strategy intensely focused on improving its operations and shareholder value. 2 FINANCIAL HIGHLIGHTS SAKS INCORPORATED financial highlights

Note: Non-routine items include extraordinary items, gains or losses from long-lived assets, merger and integration charges, year 2000 expenses, ESOP expenses and the 1997 recognition of a $294,846 deferred tax asset. 3 LETTER TO OUR SHAREHOLDERS moving the program ahead 1999 was a transition year in which we failed to achieve our planned earnings growth but one during which we made substantial progress on a number of strategic initiatives including: * meeting our synergy and cost rationalization goals, * reorganizing and strengthening the management team at Saks Fifth Avenue, * strengthening inventory management and controls at Saks Fifth Avenue, * streamlining the corporate organizational structure in the traditional department store business, * executing numerous systems conversions and enhancements, * finalizing the planned consolidation of our southern distribution facilities, * continuing to intensify private brand merchandise in the department stores and at Saks Fifth Avenue, * strengthening vendor partnerships, * developing the team and infrastructure for the roll-out of saksfifthavenue.com, * redesigning the prototype Saks Fifth Avenue store, reducing future store fixed investment and * establishing stringent return criteria for each of our assets, resulting in the closings of certain unproductive stores. Even though we accomplished much, we did not achieve our plan for earnings growth primarily due to a shortfall in sales in our traditional department stores and merchandise margin performance at Saks Fifth Avenue. With this year of transition behind us, we believe that the Company has laid the foundation for quality growth in our operating performance. We have the strategies and the team in place to generate a compound annual growth rate in operating earnings over the next three years of 12% to 15%. The drivers of this performance will be: * average comparable store sales growth of 3% or greater per year, * average new square footage growth of approximately 1% to 3% per year, * improvement in gross margin rate, * leverage on selling, general and administrative expenses and * reduced interest expense through de-leveraging the balance sheet. During this time frame, we expect to generate a substantial amount of free cash, which can be used to repurchase shares and reduce debt. We enter 2000 with a very focused strategy. Four key priorities will improve operations and create value. Priorities for 2000 are to: * generate strong comparable store sales growth in the traditional department store business, * improve the return on inventory investment and increase the profitability of Saks Fifth Avenue, * reduce corporate and home office overhead and * effectively launch saksfifthavenue.com. 4 creating a brighter outlook During 1999, performance in the traditional department stores was disappointing. While we experienced consumer acceptance of a number of our merchandising initiatives, this was not sufficient to offset a general slowdown in the traditional department store sector during the year. We are committed to generating strong comparable store sales growth in our traditional department store business through merchandising, service and marketing initiatives. 5 Our merchandise assortments will reflect key item intensification. Our product strategy will be increasingly lifestyle-focused and will reflect merchandise from global, national, specialty and proprietary branded sources. We will assert our style authority and drive clarity in our offerings. Merchandise will be distributed more efficiently by store through enhanced planning processes. We will make changes in our service model within our stores to improve productivity and service quality. Our Company will make physical alterations in certain stores to elevate the service impression and speed transactions. We will reduce tasks and change selling support activities pursuant to the recommendations of our strategic planning process completed in 1999. We will also heighten our focus on relationship marketing to our most loyal customers. We continue to invest in the generation of new proprietary credit card holders and will strengthen our customer loyalty programs across our franchises. The growth of these programs will facilitate an enhanced lifetime contribution from these customers and add to the value of our customer base. The department store industry has relied so heavily in recent years on scale and technology benefits to drive its earnings growth that we have often failed to adequately innovate and experiment. While the department store format is a resilient one, as demonstrated through many retail and economic cycles, we must do a better job of creating compelling reasons for customers to shop with us. As an industry, we have too much sameness in our product and assortments. We are committed to recapturing the imagination of the consumer through innovative product, an enhanced service proposition and substantially differentiated marketing. The recent reorganization of our department store group was designed to facilitate the execution of these strategies, and our incentive compensation for department store management will be based principally upon top-line growth. 6 building on brand power Our solid sales performance in the Saks Fifth Avenue stores in 1999 was a reflection of strong customer response to well- executed merchandising and marketing initiatives. However, our gross margin performance was unsatisfactory due to markdowns in excess of planned levels. We began the year 2000 with comparable store inventory up very modestly over last year's levels at Saks Fifth Avenue and the processes, controls and management in place to execute to our standards for improved inventory turnover and gross margin contribution. We have made meaningful progress in refining the inventory assortments at Saks Fifth Avenue, which includes more closely aligning the level of inventory investment with sales plans within each segment of business, responding to increased demand for elegant casual apparel offerings, increasing the breadth of our proprietary brand offerings and distorting growth in higher margin rate businesses. In addition, we have strengthened alliances with core resources in order to develop and execute profitable future business relationships. We will continue to focus on each of these initiatives going forward. 7 Given the sales productivity and the brand power associated with Saks Fifth Avenue, we believe that this part of our business has the potential to generate substantially higher revenues and merchandise margins than are being produced today. 8 reshaping strengths 9 We continue to realize the targeted cost reductions and synergies related to each of our business combinations. Through the end of 1999, we achieved total synergies of approximately $115 million. In July of last year, we completed the integration of the Saks Fifth Avenue proprietary credit card administration, which was previously handled by a third party, into our corporate operation. This successful conversion represents one of our largest sources of synergies related to the Saks Holdings acquisition. In mid-1999, we announced the planned 2001 consolidation of our three southern distribution facilities currently serving the Proffitt's, McRae's and Parisian stores into a new, state-of-the- art facility to be located in Steele, Alabama. This streamlining of our distribution systems will produce annual savings of approximately $10 million beginning in 2001. In February of this year, the Company announced its plans to merge the merchandising, advertising/marketing and sales support functions of the McRae's division into the Proffitt's home offices and the Herberger's division into the Carson Pirie Scott home offices. We also will close the Herberger's distribution facility in St. Cloud, Minnesota and will transfer these functions to the Carson Pirie Scott distribution center in Rockford, Illinois. These consolidations will reduce total operating expenses in excess of $15 million annually, beginning in 2001. The divisional consolidations are targeted at leveraging key managers in the areas of merchandising, marketing and store administration, creating a more efficient cost structure and enhancing execution through streamlined decision making. We believe this is the appropriate organizational structure that will permit us to best operate our existing business and to further position the Company to achieve our growth plans. Over the past several years, our corporate staff has been highly focused on merger and acquisition consolidation activities that allowed us to recognize significant savings. As we enter 2000, our corporate team will be focused on delivering productivity gains and increased operating efficiencies from our core businesses. These productivity gains, coupled with the effective execution of the divisional consolidations, will permit us to meaningfully reduce our administrative overhead. 10 SAKS FIFTH AVENUE [copy of webpage] 11 bringing luxury on-line We have a very focused strategy for value creation with Saks Direct, principally through our launch of saksfifthavenue.com scheduled for the summer of 2000. We have assembled a separate management team with extensive experience in merchandising, marketing and information technology to execute this initiative. Research indicates that we own the dominant worldwide luxury brand in retailing and that our target customer has a high propensity to shop and spend on-line. We expect to capture a meaningful share of the growing, underserved and fragmented on- line luxury retail market. saksfifthavenue.com will leverage existing Saks Fifth Avenue assets, including our brand equity, valuable relationships with our vendors and customers, and marketing resources. In addition, our existing catalog fulfillment operations housed in Aberdeen, Maryland are being upgraded to support the expanded Direct business. We believe that there are substantial growth opportunities associated with saksfifthavenue.com and that this can be a business with sales and profitability greater than that contributed by our Saks Fifth Avenue New York store within five years. saksfifthavenue.com will offer a broad selection of Saks Fifth Avenue merchandise as well as complementary new product offerings, best-in-class service integrated with Saks Fifth Avenue stores, a highly personalized, user-customizable shopping experience and the opportunity for millions of on-line shoppers, not proximate to a store location, to experience shopping at Saks Fifth Avenue. At launch, we expect to offer more than 10,000 SKUs of premier luxury goods on our site and to expand that number to nearly 100,000 by mid-2001. The Saks Direct business will include our existing catalog business (Folio and Bullock & Jones) as well as our E-commerce initiatives. Because of the distinctions of our direct sales channel and in order to avoid distracting management from the operations of our core business, Saks Direct will operate essentially as an independent unit. Saks Direct will maintain its own staff in key areas such as merchandising, marketing, information technology and order fulfillment. Certain administrative services will be purchased from other Saks Incorporated units on a fee-for-service basis. Saks Direct will also remit a 5% royalty payment to Saks Incorporated based on net sales for the use of certain brand names. 12 locating new opportunities During 1999, the Company added a total of 15 new stores (including two replacement stores), expanded 7 stores and closed 5 underperforming units, representing net square footage growth of approximately 3%, or about 1.0 million additional feet, to the Company's store base. For 2000, we have very modest growth plans for six new stores and two Saks Fifth Avenue Men's Stores, representing a total of approximately 520,000 square feet. We opened a new Saks Fifth Avenue Men's Store in Portland, Oregon in March, a Saks Fifth Avenue store in Highland Park, Illinois in April and Off 5th stores in Olathe, Kansas and Nashville, Tennessee in March and April, respectively. A Saks Fifth Avenue store in Ft. Worth, Texas, a Parisian store in Charleston, South Carolina and a Carson Pirie Scott store in Schaumburg, Illinois -- as well as one more free-standing Saks Fifth Avenue Men's Store in Chevy Chase, Maryland -- will open later this year. We are focusing on opening more stores in non-traditional locations -- lifestyle centers -- apart from the regional mall. We currently operate seven of these, have three more under devel- opment and have plans to announce more. The design of these stores and of the departments within the stores is constantly evolving and is intended to modernize the impression and experience of our customers. Through the leadership of our corporate store planning team and our increased scale, we have redesigned the prototype Saks Fifth Avenue store and reduced the fixed investment associated with square footage growth in these units by an average of 20%. Our Dallas and Boca Raton stores opened in fall 1999 and our 2000 openings are examples of this new prototype design. These new units have been met with outstanding customer acceptance. Last fall, we announced a licensing agreement to open a 57,000 square foot Saks Fifth Avenue store in The Kingdom Centre, located in Riyadh, Saudi Arabia in 2001. We are delighted to prepare for the Company's first global expansion and will explore the possibility of additional international units over time. 13 The Company closed four underperforming units in February and March 2000 (two Younkers stores, one Boston Store and the San Francisco Bullock & Jones store), representing approximately 500,000 square feet. We will continue to review our store portfolio in the ordinary course of business to determine if additional unit closings or conversions are appropriate. The planned openings and closings will net no additional square footage to the Company's store base in 2000. 14 investing in tomorrow During 1999, the Board authorized a share repurchase of five million shares, or about 3.5% of our common stock outstanding. Through the end of March 2000 we purchased a total of 3.7 million shares under this plan. The cash flow generation of our enterprise and our recent stock price performance allowed us to make a very attractive investment in our own Company. The depressed valuation of our Company masks the very substantial progress that was made in 1999. However, we understand that our failure to increase earnings at our targeted level has severely penalized us in the market. In addition, the department store industry is trading at its lowest multiples of value in 15 years. We clearly are disappointed in the stock price, but we believe that executing the initiatives I have outlined should lead to a more appropriate valuation for this Company. 15 1999 was a year of transition for our Company. We have laid the foundation for quality operating earnings growth of 12% to 15% over the next three years. While effectively executing the integration of Saks Fifth Avenue into our corporation and delivering the expected savings related to this integration, we failed to deliver on the comparable store sales growth plan in our department store business and to generate the improved earnings contribution expected from Saks Fifth Avenue. Those are the two principal reasons we failed to generate our planned earnings growth in 1999. I am confident we now have the strategies and team in place to meet our objectives and regain our operating momentum in 2000. Sincerely /s/ R. Brad Martin R. Brad Martin Chairman of the Board and Chief Executive Officer Saks Incorporated This letter contains "forward-looking" information within the definition of the Federal securities laws. For a discussion of risk factors, refer to "Forward-Looking Information" contained in Management's Discussion and Analysis appearing on page 18 of this annual report. 16 [Blank page] 17 SAKS INCORPORATED & SUBSIDIARIES FIVE-YEAR FINANCIAL SUMMARY 52 Weeks 52 Weeks 52 Weeks 52 Weeks 53 Weeks Ended Ended Ended Ended Ended (In thousands, except January 29, January 30, January 31, February 1, February 3, per share amounts) 2000 1999 1998 1997 1996 - ----------------------------------------------------------------------------------------------------------- Consolidated Income Statement Data: Net sales $6,423,819 $5,955,242 $5,508,728 $4,719,787 $4,240,585 Cost of sales 4,022,522 3,788,794 3,477,770 3,001,914 2,718,504 - ----------------------------------------------------------------------------------------------------------- Gross margin 2,401,297 2,166,448 2,030,958 1,717,873 1,522,081 Selling, general and administrative expenses 1,355,295 1,329,250 1,201,023 1,057,144 961,407 Other operating expenses 535,670 498,733 444,276 367,247 330,634 (Gains) losses from long- lived assets 12,547 61,785 (134) 1,406 (36,058) Merger and integration charges 35,660 111,307 36,524 16,929 64,237 Year 2000 expenses 5,917 10,437 6,590 ESOP expenses 9,513 3,910 2,931 Expenses related to attempted Younkers takeover 10,017 - ----------------------------------------------------------------------------------------------------------- Operating income 456,208 154,936 333,166 271,237 188,913 Interest expense (138,968) (110,971) (113,685) (114,881) (141,725) Other income (expense), net 140 22,201 2,330 (11,780) 4,051 - ----------------------------------------------------------------------------------------------------------- Income before provision (benefit) for income taxes and extraordinary items 317,380 66,166 221,811 144,576 51,239 Provision (benefit) for income taxes 118,476 41,181 (194,426) 50,998 48,914 - ----------------------------------------------------------------------------------------------------------- Income before extraordinary items 198,904 24,985 416,237 93,578 2,325 Extraordinary loss on early extinguishment of debt, net of taxes (9,261) (25,881) (11,323) (12,746) (8,051) - ----------------------------------------------------------------------------------------------------------- Net income $189,643 $(896) $404,914 $80,832 $(5,726) =========================================================================================================== Basic earnings per common share: Before extraordinary items $1.38 $0.17 $3.03 $0.72 $0.00 After extraordinary items $1.32 $(0.01) $2.94 $0.62 $(0.07) Diluted earnings per common share: Before extraordinary items $1.36 $0.17 $2.86 $0.70 $0.00 After extraordinary items $1.30 $(0.01) $2.79 $0.60 $(0.07) Weighted average common shares: Basic 144,174 142,856 137,588 125,056 111,974 Diluted 146,056 146,383 149,085 132,583 113,309 Consolidated Balance Sheet Data: Working capital $1,110,796 $887,875 $1,096,359 $951,752 $710,468 Total assets $5,098,952 $5,188,981 $4,270,253 $3,630,276 $2,899,565 Long-term debt, less current portion $1,966,802 $2,110,395 $1,093,806 $863,475 $1,256,349 Subordinated debt $----- $4,252 $286,964 $501,767 $150,505 Shareholders' equity $2,208,343 $2,007,575 $1,944,529 $1,397,934 $691,059

18 MANAGEMENT'S DISCUSSION AND ANALYSIS Saks Incorporated (hereinafter the "Company") is a national retailer currently operating 359 premier and traditional department stores under the following names: Saks Fifth Avenue (61 stores), Proffitt's (31 stores), McRae's (30 stores), Younkers (51 stores), Parisian (43 stores), Herberger's (40 stores), Carson Pirie Scott ("Carson's") (32 stores), Bergner's (14 stores), Boston Store (11 stores), and Off 5th (46 stores). The Company also operates Saks Direct, which includes the Folio and Bullock & Jones catalogs. The Company has experienced significant growth since 1994, principally through a series of acquisitions. The Company's major acquisitions are outlined below: Number of Accounting Name Headquarters Stores Acquired Locations Date Acquired Treatment - ---------------------------------------------------------------------------------------------------- McRae's Jackson, MS 31 Southeast March 31, 1994 Purchase Younkers Des Moines, IA 50 Midwest February 3, 1996 Pooling Parisian Birmingham, AL 40 Southeast/Midwest October 11, 1996 Purchase Herberger's St. Cloud, MN 37 Midwest February 1, 1997 Pooling Carson Pirie Scott, Milwaukee, WI 55 Midwest January 31, 1998 Pooling Boston Store, and Bergner's Saks Fifth Avenue New York, NY 95 National September 17, 1998 Pooling and Off 5th ("SFA")
Additionally, the Company has grown through the construction of new units as well as through the acquisition of store locations such as the purchase of 15 former Mercantile stores from Dillard's in late 1998. Merchandising, sales promotion and certain store operating support functions are conducted in multiple locations. Certain back office administrative support functions for the Company, such as accounting, credit administration, store planning and information technology, are centralized. 19 Income statement information for each year presented has been restated to include the financial results of operations of all acquisitions which the Company accounted for under the pooling of interests method of accounting as if the acquired entity and the Company had operated as one since inception. The operations of acquisitions which were accounted for using the purchase method of accounting have been included in the income statements subsequent to their respective purchase dates. The following table sets forth, for the periods indicated, certain items from the Company's consolidated statements of income, expressed as percentages of net sales (numbers may not total due to rounding): 52 Weeks Ended 52 Weeks Ended 52 Weeks Ended January 29, January 30, January 31, 2000 ("1999") 1999 ("1998") 1998 ("1997") - ------------------------------------------------------------------------------------------------- Net sales 100.0% 100.0% 100.0% Cost of sales 62.6 63.6 63.1 - ------------------------------------------------------------------------------------------------- Gross margin 37.4 36.4 36.9 Selling, general and administrative expenses 21.1 22.3 21.8 Other operating expenses 8.3 8.4 8.1 (Gains) losses from long-lived assets 0.2 1.0 0.0 Merger and integration charges 0.6 1.9 0.7 Year 2000 expenses 0.1 0.2 0.1 ESOP expenses -- -- 0.2 - ------------------------------------------------------------------------------------------------- Operating income 7.1 2.6 6.0 Interest expense (2.2) (1.9) (2.1) Other income (expense), net 0.0 0.4 0.0 - ------------------------------------------------------------------------------------------------- Income before provision (benefit) for income taxes and extra- ordinary items 4.9 1.1 4.0 Provision (benefit) for income taxes 1.8 0.7 (3.5) - ------------------------------------------------------------------------------------------------- Income before extraordinary items 3.1 0.4 7.6 Extraordinary loss on early extinguishment of debt, net of taxes (0.1) (0.4) (0.2) - ------------------------------------------------------------------------------------------------- Net income 3.0% 0.0% 7.4% =================================================================================================
Net Sales Sales, as previously reported in prior years, have been restated to exclude sales from leased departments and other sales with no effect on previously reported gross margin, operating income, net income, shareholders' equity or cash flows. Restated sales amounts represent only owned department sales and leased department commissions. Net sales increased by 7.9%, 8.1% and 16.7% in 1999, 1998 and 1997, respectively. The 1999 increase was primarily due to a comparable store sales increase of 2.6% and incremental revenues generated from new store additions and the 15 former Mercantile stores. The 1998 increase was due to a comparable store sales increase of 3.4% and new store additions during 1998 including the third and fourth quarter sales from the 15 former Mercantile stores. The 1997 increase was primarily due to a comparable store sales increase of 5.0% and new store additions during 1997, combined with the full year inclusion of Parisian which was acquired in October 1996. 20 Gross Margins Gross margins were 37.4%, 36.4% and 36.9% of net sales in 1999, 1998 and 1997, respectively. The Company's cost of sales includes certain buying and distribution costs. The increase in gross margin percent from 1998 to 1999 was primarily due to fewer markdowns taken in 1999 compared to those taken in 1998 related to aged and excessive quantities of inventory at SFA, recognized contemporaneously with the SFA acquisition. The reduced markdown activity was partially offset by a disproportionate amount of sales in the last two weeks of December 1999 and during January 2000, when the promotional and clearance activity was at its highest. The negative effect of the SFA markdowns taken in 1998 was partially offset by realized cost reductions resulting from enhanced buying power with core vendors, resulting in a slight decrease in margin from 1997 to 1998. Management believes the merchandising operations of the business can be further enhanced through more effective controls and disciplines, through further intensification of its private brand program in both the SFA and department stores, and through distorting growth in higher margin rate businesses. While the Company anticipates that it will continue to emphasize premier national brands and exclusive designer labels in its stores, management's goal is to meaningfully increase the private brand business. Selling, General and Administrative Expenses Selling, general and administrative expenses ("SG&A") were 21.1%, 22.3% and 21.8% of net sales in 1999, 1998 and 1997, respectively. The decrease in 1999 to 21.1% from 22.3% in 1998 was primarily due to the absence in 1999 of charges related to SFA self insurance liabilities, real estate realignments and store closings, and conformity of delinquent accounts policies of SFA's proprietary credit card receivables to those of the Company, recognized in 1998 contemporaneously with the SFA acquisition. In addition, the Company realized synergies in 1999 which were partially offset by lower gains on the sale of proprietary credit card receivables. The increase in the SG&A percentage from 1997 to 1998 was primarily due to the aforementioned SFA charges recognized contemporaneously with the SFA acquisition. Management identified synergies in conjunction with the Younkers, Parisian, Herberger's, Carson's and SFA business combinations. The implementation of these synergies reduced operating expenses by a total of approximately $20.0 million in 1997, $51.0 million in 1998, and $115.0 million in 1999. Cost reductions were achieved through the elimination of duplicate corporate expenses, economies of scale, implementation of best practices, and consolidation of certain administrative support functions. Finance charge income and securitization gains derived from the Company's proprietary credit cards are included as a component of SG&A. Gross finance charge income (before allocation of finance charges to the third party purchasers of accounts receivable; see "Liquidity"), was $266.4 million, $261.5 million, and $213.5 million in 1999, 1998 and 1997, respectively. The increase since 1997 is due primarily to gains from the securitizations, the increase in sales, the increase in the number of proprietary accounts, and changes in certain credit card terms. The allocation of finance charges to the third party purchasers of accounts receivable totaled approximately $65.2 million in 1999, $66.9 million in 1998, and $47.3 million in 1997. Utilization of the Company's accounts receivable securitization programs increased each year presented (see "Liquidity") commensurate with the Company's growth in proprietary credit card sales and the securitization of Carson's accounts receivable beginning in February 1998. Other Operating Expenses Other operating expenses were 8.3%, 8.4% and 8.1% of net sales in 1999, 1998 and 1997, respectively. The increase in 1999 and 1998 over 1997 was primarily due to the additional amortization associated with the goodwill and intangibles recorded with the 1998 purchases of Brody Brothers Dry Goods Company, Inc. ("Brody's"), Bullock & Jones (a direct mail business and one retail store) and the 15 former Mercantile stores from Dillard's. In addition to the incremental goodwill and intangibles amortization, the 1998 rate was negatively affected by incremental depreciation expense and rental expense from 20 new stores opened and acquired in the third and fourth quarters of 1998. 21 (Gains) Losses from Long-Lived Assets Losses from long-lived assets in 1999 and 1998 of $12.5 and $61.8 million, respectively, were principally comprised of the write- off of the carrying amounts of relocated or closed stores, costs associated with terminating certain new store projects which did not meet the Company's investment return criteria and impairment charges related to abandoned or under-performing store locations. The 1998 charges were higher than the 1999 charges primarily as a result of the Company's review of the SFA real estate portfolio subsequent to the SFA merger. Merger and Integration Charges In connection with the Company's mergers with SFA, Carson's, Herberger's and Younkers and the acquisition of Parisian and the 15 former Mercantile stores, the Company incurred certain costs to effect the transactions and other costs to integrate and combine the operations of the companies. For 1999, these costs totaled $35.7 million, or 0.6% of net sales. The 1999 charges were primarily comprised of (1) integration costs of which $27.4 million related to systems conversions, (2) $11.5 million related to severance and other benefits, and (3) a reduction in the 1998 estimated charges of $4.3 million. For 1998, merger and integration costs totaled $111.3 million, or 1.9% of net sales. The 1998 costs were comprised of (1) $44.8 million of SFA merger transaction costs related principally to investment banking, legal and accounting fees, transfer taxes and other direct merger costs; (2) $42.4 million of integration charges associated with the SFA merger related principally to such items as severance, the consolidation of administrative operations and the write-off of redundant information technology systems and certain development projects; and (3) $24.1 million of continuing integration costs related to mergers and acquisitions from the prior two years, including the acquisition of the 15 former Mercantile stores in the third and fourth fiscal quarters of 1998. For 1997, merger and integration costs totaled $36.5 million, or 0.7% of net sales. The 1997 charges were comprised of (1) $13.8 million of Carson's merger transaction costs related principally to investment banking, legal and accounting fees and other direct merger costs; (2) $17.3 million of integration charges associated with the Carson's merger related principally to such items as severance, the consolidation of administrative operations, and the write-off of duplicate assets; and (3) $12.4 million of continuing integration costs related to mergers and acquisitions from the prior two years offset by a $7.0 million decrease in the estimated costs to exit a SFA distribution facility. Year 2000 Expenses The Company incurred costs of $5.9, $10.4 and $6.6 million in 1999, 1998 and 1997, respectively, related to the required system upgrades, replacements and modifications to prepare for the year 2000 to prevent systems failure or business interruption. The Company also incurred costs to ensure compliance among suppliers and other third parties with which the Company conducts business transactions. The Company emphasized compliance on its critical business systems and developed the proper contingency plans for the year 2000 in the event of systems failure. The Company experienced no system delays or interruptions on or after January 1, 2000 that related to non-compliance of systems within the Company or any of its suppliers or other third parties. Furthermore, the Company does not anticipate any non- compliance issues in the future that would result in a significant cost to the Company or delay to the business. ESOP Expenses Herberger's had an Employee Stock Ownership Plan ("ESOP") which was terminated on December 31, 1997. Charges related to the ESOP totaled $9.5 million, or 0.2% of net sales, in 1997. Of this total, $7.9 million related to the termination of the plan. 22 Interest Expense Total interest expense was $139.0 million, $111.0 million and $113.7 million in 1999, 1998 and 1997, respectively. Interest expense as a percentage of net sales was 2.2%, 1.9% and 2.1% for 1999, 1998 and 1997, respectively. The increase in interest expense in 1999 compared to 1998 was due to (1) higher average levels of borrowing throughout the year due to debt increases required to fund the acquisition of the 15 former Mercantile stores, capital expenditures and working capital and (2) higher average borrowing rates due to more long-term fixed rate debt versus short-term variable rate debt. The decrease in interest expense in 1998 compared to 1997 was primarily the result of (1) exchanging high interest rate debt of SFA (REMIC certificates, SFA revolver) with lower interest rate debt of the Company; (2) replacing the Carson's accounts receivable debt facility with the Company's accounts receivable securitization program; and (3) lower interest rates on the Company's revolving credit facilities. These decreases in interest expense were offset by increased borrowing costs associated with the third and fourth quarter acquisition of the 15 former Mercantile stores, increased capital and inventory investments throughout 1998 and the Company's election to issue long-term fixed rate securities in the public debt markets with the proceeds utilized to pay down outstanding borrowings under the revolving credit facility which was being assessed interest at short-term floating interest rates. Other Income (Expense), Net In 1998, the Company recorded other income of $22.2 million, or 0.4% of net sales, which was principally comprised of $42.5 million for the favorable settlement of pending litigation between Carson's and Bank One, Wisconsin related to Carson's 1991 Chapter 11 bankruptcy filing, offset by charges of $17.4 million related to the termination of certain interest rate hedging agreements. Income Taxes In 1999, 1998 and 1997, the effective income tax rates differ from the statutory tax rates principally due to non-deductible goodwill amortization, ESOP charges and merger related costs. In 1997, the Company recognized a $294.8 million deferred income tax benefit in the fourth quarter. The benefit reflects the elimination of the valuation allowance relating to the tax benefit of SFA's net operating loss carryforwards. The realization of this income tax benefit also enabled SFA to reduce goodwill by $34.5 million due to SFA recording certain assets and liabilities at their date of acquisition for financial reporting purposes which were not recognized for income tax purposes. Income Before Extraordinary Items Income before extraordinary loss on early extinguishment of debt was $198.9 million in 1999, or 3.1% of net sales, $25.0 million in 1998, or 0.4% of net sales, and $416.2 million in 1997, or 7.6% of net sales. Extraordinary Items In 1999, the Company prepaid the remaining $236.0 million in SFA REMIC certificates, which resulted in an extraordinary loss of approximately $9.3 million, net of taxes. In 1998, primarily as a result of the SFA merger, the Company completed various balance sheet restructuring transactions that were designed to enhance liquidity, strengthen the Company's balance sheet and position the Company for future growth. These transactions included (1) the repurchase of the Company's $125.0 million, 8.125% senior notes, due 2004; (2) the replacement of the $600.0 million revolving credit facility with a $750.0 million five-year revolving credit facility and a $750.0 million 364 day revolving credit facility that included a four-year term- out option; (3) the repurchase of approximately $272.0 million of the SFA 5.50% convertible subordinated notes; (4) the repayment and subsequent cancellation of the SFA revolving credit facility and some other property leases; and (5) the repurchase of the $65.0 million of SFA REMIC certificates. As a result of these five transactions, the Company incurred an extraordinary loss on early extinguishment of debt of $25.9 million, net of taxes. The Company replaced the majority of this cancelled debt with fixed term senior notes (see "Liquidity and Capital Resources" for discussion of debt issued in 1998). 23 During 1997, the Company made certain modifications to its capital structure, including retiring approximately $114.0 million of 9.875% Parisian Senior Subordinated Notes due 2003, prepaying approximately $15.0 million of 11.0% Junior Subordinated Notes, prepaying certain mortgages and replacing the Company's existing revolving credit and working capital facilities with a new revolving credit facility. As a result of this early extinguishment of debt, certain costs were written off resulting in a loss of $11.3 million, net of taxes. Inflation and Deflation Inflation and deflation affect the costs incurred by the Company in its purchase of merchandise and in certain components of its SG&A expenses. The Company attempts to offset the effects of inflation through price increases and control of expenses, although the Company's ability to increase prices is limited by competitive factors in its markets. The Company attempts to offset the effects of merchandise deflation through control of expenses. Seasonality The Company's business, like that of most retailers, is subject to seasonal influences, with a significant portion of net sales and net income realized during the fall season, which includes the Christmas selling season. In light of these patterns, SG&A expenses are typically higher as a percentage of net sales during the first three quarters of each year, and working capital needs are greater in the last two quarters of each year. The fall season increases in working capital needs have typically been financed with internally generated funds, the sale of interests in accounts receivable and borrowings under the Company's revolving credit facilities. Generally, more than 30% of the Company's net sales and over 50% of net income are generated during the fourth quarter. Liquidity and Capital Resources CASH FLOW The Company's primary needs for liquidity are to acquire, renovate or construct new stores and to provide working capital for new and existing stores. The Company anticipates that cash generated from operating activities, ongoing sales of receivables under the securitization programs, and additional borrowings will be sufficient to meet its financial commitments and to capitalize on opportunities for future new store growth. Cash provided by operating activities was $209.7 million in 1999, $522.9 million in 1998 and $209.3 million in 1997. Cash provided by operating activities principally represented income before depreciation and amortization charges, the non-cash portion of extra-ordinary losses and losses from long-lived assets and changes in working capital. The increase from 1997 to 1998 and decrease from 1998 to 1999 was primarily related to the sale of the Carson's receivables in February 1998 into the Company's accounts receivable securitization facility. Cash used in investing activities was $407.8 million in 1999, $943.7 million in 1998 and $319.0 million in 1997. Cash used in investing activities principally consists of business acquisitions, construction of new stores and the renovation and expansion of existing stores. The increase in 1998 was primarily due to the acquisition of former Mercantile stores from Dillard's in October and December 1998. Cash provided by financing activities for 1999, 1998 and 1997 totaled $184.9 million, $402.6 million and $83.6 million, respectively. The increase from 1997 to 1998 and decrease from 1998 to 1999 was principally comprised of the 1998 issuance of $1.1 billion in senior notes and an increase in the Company's revolving credit facilities balance to fund (1) the 1998 acquisition of the 15 former Mercantile stores; (2) the 1998 repayment of the Carson's $125.0 million receivables facility; (3) the 1998 repayment of the Company's $125.0 million, 8.125% senior notes; (4) the repayment of $114.0 million of SFA convertible debentures; and (5) the repayment of $236.0 million of REMIC certificates (see "Capital Structure" discussion below). The availability of net operating loss carryforwards and other tax benefits generated in prior years by SFA and Carson's will enable the Company to reduce its cash requirements for income tax payments in the next several years. 24 NATIONAL BANK OF THE GREAT LAKES On January 31, 1998, in connection with the Company's acquisition of Carson's, the Company acquired National Bank of the Great Lakes (the "Bank"), which is a wholly owned subsidiary of the Company. Immediately after this acquisition, the Company contributed all of its proprietary credit card accounts and account balances to the Bank. As a result, the Bank became the sole owner of the Company's proprietary credit card accounts maintained for customers of the Company and also sells 100% of the accounts receivable generated by these accounts to the Company's special purpose subsidiaries. Effective September 1998, all of the Company's proprietary credit cards are issued by the Bank. The Bank has the ability to assess uniform finance charges (including late fees) for all of the Bank's credit card customers. ACCOUNTS RECEIVABLE SECURITIZATION All accounts receivable generated by the Company's proprietary credit cards are sold to wholly owned special purpose subsidiaries of the Company. The special purpose subsidiaries transfer the receivables, with limited recourse, to either a credit card related trust or a bank conduit facility in exchange for cash and subordinated certificates representing undivided interests in the pool of receivables. These facilities subsequently issue certificates of beneficial interest, also representing undivided interests in the pool of receivables, to investors. At January 29, 2000, the funding capacity consisted of approximately $1.3 billion of which $897.2 million were fixed rate certificates and $400.0 million were variable rate certificates. CAPITAL STRUCTURE As of January 29, 2000, the Company's total debt outstanding consisted of $159.0 million outstanding on its revolving credit facilities, $155.1 million outstanding under various capital leases, $10.5 million of mortgage debt and $1.65 billion in senior notes with maturities ranging from 2004 to 2019. Total indebtedness of $1,974.6 million represented a debt to total capitalization percentage of 47.2% and a decrease of $151.3 million from total debt outstanding in 1998. After adjusting 1998 debt for the REMIC repurchase transaction, total long-term debt increased $199.9 million. This increase of $199.9 million was used primarily to fund capital expenditures related to new stores, renovations and expansions. During 1999, the Company issued $200 million in 7.375% senior notes that mature in 2019 and $350 million in 7.0% senior notes that mature in 2004. Proceeds of both were used to refinance borrowings under the Company's revolving credit facilities. As of January 30, 1999, the Company's debt consisted of $608.0 million outstanding on its revolving credit facilities, $160.7 million of capital leases, $235.8 million of REMIC certificates, $17.1 million of mortgage debt and $1.1 billion in senior notes. On February 10, 1999, the Company prepaid all outstanding REMIC certificates. The prepayment terms of the REMIC certificates required the Company to fund an escrow account with $363.8 million on January 29, 1999. The escrow funds exceeded the amount required to extinguish the debt, including prepayment premiums and accrued interest, by $115.0 million. This amount represented the $95.0 million face amount of certificates previously repurchased by the Company and related prepayment premiums and accrued interest, and was therefore returned to the Company and used to reduce amounts outstanding under the revolving credit facility. During 1998, primarily resulting from the SFA merger and the acquisition of the stores from Dillard's, the Company implemented a comprehensive capital restructure program designed to reduce the Company's level of secured indebtedness, create a more appropriate fixed to floating interest rate balance, lengthen the duration of debt capital and increase overall liquidity. The restructuring process included numerous capital transactions throughout 1998. In September 1998, the Company completed a tender offer for the $125.0 million, 8.125% senior notes, repurchased $65.0 million of the SFA REMIC certificates and replaced its $600.0 million revolving credit facility with two $750.0 million revolving credit facilities, with 364 days and five-year terms. In connection with the revolving credit facility restructuring, the Company terminated and repaid the SFA credit facility and the SFA real estate operating lease agreement. In November 1998, the Company issued $850.0 million in senior notes, which were comprised of $500.0 million, 8.25% notes, due 2008, and $350.0 million, 7.25% notes, due 2004, and repurchased $267.7 million of SFA's convertible subordinated notes, due 2006. In December 1998, the Company issued $250.0 million, 7.50% notes, due 2010. 25 CAPITAL NEEDS The Company estimates capital expenditures for 2000 will approximate $325 million, primarily for the construction of new store openings in 2000, initial construction work on stores expected to open in 2001, several store expansions and renovations, construction of the Company's new southern distribution facility, enhancements to management information systems and regular maintenance capital expenditures. The Company anticipates its capital expenditures and working capital requirements relating to planned new and existing stores will be funded through cash provided by operations, ongoing sales of receivables under the securitization programs and additional borrowings. The Company expects to generate adequate cash flows from operating activities to sustain current levels of operations. The Company maintains favorable banking relations and anticipates that the necessary credit agreements will be extended or new agreements will be entered into in order to provide future borrowing requirements as needed. The Company also believes it has access to a variety of capital markets. SHARE REPURCHASE PROGRAM In August 1999, the Company authorized a share repurchase plan of up to five million shares. Through January 29, 2000, the Company had repurchased 2,004 shares for an aggregate amount of $33.3 million. Through March 31, 2000, the Company had purchased an additional 1,711 shares for an aggregate amount of $20.5 million. The Company anticipates completing the program during fiscal 2000. DISTRIBUTION FACILITIES AND DIVISIONAL CONSOLIDATION In June 1999, the Company announced the consolidation of its three southern distribution facilities currently serving the Proffitt's, McRae's and Parisian stores into a new state-of-the- art facility to be located in Steele, Alabama. This facility is expected to cost approximately $30 million and should be completed by fall of 2000 and fully operational by mid-year 2001. Subsequent to year end, the Company announced plans to merge the merchandising, advertising, marketing and sales support functions of its McRae's division into the Proffitt's division and its Herberger's division into the Carson division. Charges relating to these consolidations will include severance, relocation, system conversions and property write-offs and are expected to total approximately $10 million after tax in 2000, the majority of which will be a cash charge. Segment Reporting In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." The objective of this statement is to provide users of financial statements information about the different types of business activities in which a company engages and the different economic environments in which it operates. The statement provides companies the opportunity to aggregate two or more operating segments into a single operating segment if the segments have similar characteristics. In applying SFAS No. 131, the Company identified three reportable segments, which are as follows: department stores, furniture and direct business. The department store segment includes all department stores which the Company operates as well as the Company's proprietary credit card operation. The Company's proprietary credit card operation is considered an integral component of the department store segment, as its primary purpose is to support and enhance this segment's retail operations. The Company's furniture segment includes the Company's five free-standing furniture stores as well as furniture departments within existing department stores. The direct business includes the Company's direct marketing catalogs of Folio and Bullock & Jones and all electronic commerce business in connection with the development of the Company's new retail website, saksfifthavenue.com. The combined operations of the furniture and direct business segments represent less than three percent of the Company's total revenues, assets and operating profit. As a consequence, the results of operations of these two segments are not segregated, and thus the three identified segments are combined within the consolidated financial statements of the Company. The Company anticipates that the direct business will become a more significant segment when the Company launches the saksfifthavenue.com website and will be disclosed separately from department stores in Fiscal 2000. 26 New Accounting Pronouncements In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities -- Deferral of the Effective Date of FASB Statement No. 133," which amended the effective date provisions of SFAS No. 133. The new statement defers application of SFAS No. 133 to all fiscal quarters of all fiscal years beginning after June 15, 2000. Thus, SFAS No. 133 will be effective for the Company in the first quarter of fiscal year 2001, and the Company is in the process of ascertaining the effect this new standard will have on its financial statements. Forward-Looking Information Certain information presented in this report addresses future results or expectations and is considered "forward-looking" information within the definition of the Federal securities laws. Forward-looking statements can be identified through the use of words such as "may," "will," "intend," "plan," "project," "expect," "anticipate," "should," "would," "believe," "estimate," "contemplate," "possible," and "point." The forward-looking information is premised on many factors. Actual consolidated results might differ materially from projected forward-looking information if there are any material changes in management's assumptions. The forward-looking information and statements are based on a series of projections and estimates and involve certain risks and uncertainties. Potential risks and uncertainties include such factors as: the level of consumer spending for apparel and other merchandise carried by the Company and its ability to respond quickly to consumer trends; adequate and stable sources of merchandise; the competitive pricing environment within the department and specialty store industries as well as other retail channels; favorable customer response to planned changes in customer service formats; the effectiveness of planned advertising, marketing and promotional campaigns; favorable customer response to increased relationship marketing efforts and the Company's proprietary credit card loyalty programs; appropriate inventory management; effective and timely execution of home office consolidations; reduction of corporate overhead; effective operations of the Company's national bank's credit card operations; changes in interest rates; and a successful launch of saksfifthavenue.com. For additional information regarding these and other risk factors, please refer to the Company's public filings with the Securities and Exchange Commission which may be accessed via EDGAR through the Internet at www.sec.gov. Management undertakes no obligation to correct or update any forward-looking statements, whether as a result of new information, future events or otherwise. Readers are advised, however, to consult any further disclosures management makes on related subjects in its reports filed with the SEC and in its press releases. 27 SAKS INCORPORATED & SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME Year Ended - ---------------------------------------------------------------------------------------------------- January 29, January 30, January 31, (In thousands, except per share amounts) 2000 1999 1998 - ---------------------------------------------------------------------------------------------------- Net Sales $6,423,819 $5,955,242 $5,508,728 Cost of sales 4,022,522 3,788,794 3,477,770 - ---------------------------------------------------------------------------------------------------- Gross margin 2,401,297 2,166,448 2,030,958 Selling, general and administrative expenses 1,355,295 1,329,250 1,201,023 Other operating expenses Property and equipment rentals 187,829 181,966 157,018 Depreciation and amortization 178,775 155,361 136,119 Taxes other than income taxes 155,724 150,839 134,121 Store pre-opening costs 13,342 10,567 17,018 (Gains) losses from long-lived assets 12,547 61,785 (134) Merger and integration charges 35,660 111,307 36,524 Year 2000 expenses 5,917 10,437 6,590 ESOP expenses --- --- 9,513 - ---------------------------------------------------------------------------------------------------- Operating Income 456,208 154,936 333,166 Interest expense (138,968) (110,971) (113,685) Other income (expense), net 140 22,201 2,330 - ---------------------------------------------------------------------------------------------------- Income before Provision (Benefit) for Income Taxes and Extraordinary Items 317,380 66,166 221,811 Provision (benefit) for income taxes 118,476 41,181 (194,426) - ---------------------------------------------------------------------------------------------------- Income before Extraordinary Items 198,904 24,985 416,237 Extraordinary loss on early extinguishment of debt, net of taxes (9,261) (25,881) (11,323) - ---------------------------------------------------------------------------------------------------- Net Income $189,643 $(896) $404,914 ==================================================================================================== Earnings per common share: Basic earnings per common share before extraordinary loss $1.38 $0.17 $3.03 Extraordinary loss (0.06) (0.18) (0.09) - ---------------------------------------------------------------------------------------------------- Basic earnings per common share $1.32 $(0.01) $2.94 ==================================================================================================== Diluted earnings per common share before extraordinary loss $1.36 $0.17 $2.86 Extraordinary loss (0.06) (0.18) (0.07) - ---------------------------------------------------------------------------------------------------- Diluted earnings per common share $1.30 $(0.01) $2.79 ==================================================================================================== Weighted average common shares Basic 144,174 142,856 137,588 Diluted 146,056 146,383 149,085
The accompanying notes are an integral part of these consolidated financial statements. 28 SAKS INCORPORATED & SUBSIDIARIES CONSOLIDATED BALANCE SHEETS January 29, January 30, (In thousands) 2000 1999 - ------------------------------------------------------------------------------------------ Assets Current Assets Cash and cash equivalents $19,560 $32,752 Retained interest in accounts receivable 202,134 159,596 Merchandise inventories 1,487,783 1,390,279 Other current assets 122,983 126,329 Deferred income taxes 62,198 83,958 - ------------------------------------------------------------------------------------------ Total Current Assets 1,894,658 1,792,914 Property and Equipment, net of depreciation 2,350,543 2,111,965 Goodwill and Intangibles, net of amortization 578,001 592,887 Deferred Income Taxes 213,204 249,816 Cash Placed in Escrow for Debt Redemption --- 363,753 Other Assets 62,546 77,646 - ------------------------------------------------------------------------------------------ Total Assets $5,098,952 $5,188,981 ========================================================================================== Liabilities and Shareholders' Equity Current Liabilities Trade accounts payable $235,967 $360,388 Accrued expenses 436,478 411,505 Accrued compensation and related items 57,259 78,009 Sales taxes payable 46,387 39,614 Current portion of long-term debt 7,771 15,523 - ------------------------------------------------------------------------------------------ Total Current Liabilities 783,862 905,039 Long-Term Debt 1,966,802 2,110,395 Other Long-Term Liabilities 139,945 165,972 Commitments and Contingencies Shareholders' Equity Common stock 14,281 14,401 Additional paid-in capital 2,103,001 2,099,243 Accumulated other comprehensive loss --- (7,487) Retained earnings (accumulated deficit) 91,061 (98,582) - ------------------------------------------------------------------------------------------ Total Shareholders' Equity 2,208,343 2,007,575 - ------------------------------------------------------------------------------------------ Total Liabilities and Shareholders' Equity $5,098,952 $5,188,981 ==========================================================================================
The accompanying notes are an integral part of these consolidated financial statements. 29 SAKS INCORPORATED & SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY Retained Additional Earnings Total Common Paid-in (Accumulated Shareholders' (In thousands) Stock Capital Deficit) Other Equity - -------------------------------------------------------------------------------------------------------- Balance at February 1, 1997 $10,776 $1,899,703 $(502,600) $(9,945) $1,397,934 Net income 404,914 404,914 Issuance of common stock 144 24,839 24,983 Income tax benefits related to exercised stock options 7,319 7,319 Decrease in tax valuation allowance 16,000 16,000 Stock compensation 9 1,451 167 1,627 Purchases and retirements of stock (53) (13,043) (13,096) Conversion of 4.75% subordinated debentures 202 86,082 86,284 2-for-1 split 3,070 (3,070) --- Termination of ESOP 8,786 9,778 18,564 - ---------------------------------------------------------------------------------------------------- Balance at January 31, 1998 14,148 2,028,067 (97,686) --- 1,944,529 Net loss (896) (896) Change in minimum pension liability (7,487) (7,487) - ---------------------------------------------------------------------------------------------------- Comprehensive Income (8,383) - ---------------------------------------------------------------------------------------------------- Issuance of common stock 228 37,481 37,709 Income tax benefits related to exercised stock options 16,444 16,444 Decrease in tax valuation allowance 16,000 16,000 Stock compensation 27 1,723 1,750 Purchases and retirements of stock (2) (472) (474) - ---------------------------------------------------------------------------------------------------- Balance at January 30, 1999 14,401 2,099,243 (98,582) (7,487) 2,007,575 Net income 189,643 189,643 Change in minimum pension liability 7,487 7,487 - ---------------------------------------------------------------------------------------------------- Comprehensive Income 197,130 - ---------------------------------------------------------------------------------------------------- Issuance of common stock 44 10,166 10,210 Income tax benefits related to exercised stock options 4,942 4,942 Decrease in tax valuation allowance 16,000 16,000 Stock compensation 36 5,766 5,802 Purchases and retirements of stock (200) (33,116) (33,316) - ---------------------------------------------------------------------------------------------------- Balance at January 29, 2000 $14,281 $2,103,001 $91,061 $--- $2,208,343 ====================================================================================================
The accompanying notes are an integral part of these consolidated financial statements. 30 SAKS INCORPORATED & SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended - --------------------------------------------------------------------------------------------------- January 29, January 30, January 31, (In thousands) 2000 1999 1998 - --------------------------------------------------------------------------------------------------- Operating Activities Net income (loss) $189,643 $(896) $404,914 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Extraordinary loss on extinguishment of debt 7,310 14,599 8,356 Depreciation and amortization 178,775 155,361 136,119 Recognition of NOL carryforwards --- --- (294,846) Deferred income taxes 69,595 14,926 32,851 (Gains) losses on long-lived assets and merger and integration items 12,547 79,617 (134) ESOP expenses --- --- 8,786 Restructuring items --- --- (800) Changes in operating assets and liabilities: Retained interest in accounts receivable (42,538) 293,948 (18,327) Merchandise inventories (101,848) (127,203) (175,912) Other current assets 3,346 (8,112) 27,704 Accounts payable and accrued liabilities (108,395) 97,302 99,352 Other operating assets and liabilities 1,313 3,397 (18,758) - -------------------------------------------------------------------------------------------------- Net Cash Provided by Operating Activities 209,748 522,939 209,305 - -------------------------------------------------------------------------------------------------- Investing Activities Purchases of property and equipment (430,348) (421,062) (346,876) Proceeds from sale of assets 22,514 2,500 27,851 Acquisitions of Mercantile stores, Brody's and Bullock & Jones --- (525,117) --- - -------------------------------------------------------------------------------------------------- Net Cash Used in Investing Activities (407,834) (943,679) (319,025) - -------------------------------------------------------------------------------------------------- Financing Activities Proceeds from long-term borrowings 550,000 1,100,000 175,546 Payment of REMIC certificates (235,841) --- --- Payments on long-term debt and capital lease obligations (16,504) (506,960) (258,802) Change in cash placed in escrow for debt redemption 363,753 (363,753) --- Net borrowings (repayments) under credit and receivables facilities (449,000) 136,250 148,142 Proceeds from issuance of stock 5,802 37,565 23,185 Purchases and retirements of common stock (33,316) (474) (13,096) ESOP loan repayment --- --- 9,778 Payments to shareholders --- --- (1,124) - --------------------------------------------------------------------------------------------------- Net Cash Provided by Financing Activities 184,894 402,628 83,629 - --------------------------------------------------------------------------------------------------- Decrease in Cash and Cash Equivalents (13,192) (18,112) (26,091) Cash and Cash Equivalents at Beginning of Year 32,752 50,864 76,955 - --------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Year $19,560 $32,752 $50,864 ===================================================================================================
Non-cash investing and financing activities are further described in the accompanying notes. The accompanying notes are an integral part of these consolidated financial statements. 31 SAKS INCORPORATED & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In Thousands, Except Per Share Amounts) Note.1. Organization Saks Incorporated (the "Company") is a national retailer operating department stores under the following names: Saks Fifth Avenue, Proffitt's, McRae's, Younkers, Parisian, Herberger's, Carson Pirie Scott ("Carson's"), Bergner's, Boston Store and Off 5th. The Company also operates Saks Direct, which includes the Folio and Bullock & Jones catalogs. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. In order to maintain consistency and comparability between periods presented, certain amounts have been reclassified from the previously reported financial statements to conform with the financial statement presentation of the current period. These reclassifications have no effect on previously reported net income, shareholders' equity or cash flows. The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated. These consolidated financial statements have been restated to include the financial position and results of operations of all acquisitions that the Company accounted for under the pooling of interests method of accounting as if the acquired entity and the Company had operated as one entity since inception. For acquisitions accounted for under the purchase method of accounting, the consolidated financial statements include the financial position and results of operations subsequent to their respective purchase dates. See Note 3, Mergers and Acquisitions, for further discussion of business combination transactions. Note.2. Summary of Significant Accounting Policies FISCAL YEAR The Company's fiscal year ends on the Saturday closest to January 31. Fiscal years 1999, 1998, and 1997 contain 52 weeks and ended on January 29, 2000, January 30, 1999 and January 31, 1998, respectively. NET SALES Net sales include sales of merchandise and services, net of returns and exclusive of sales tax. Sales, as previously reported in prior years, have been restated to exclude leased departments and other sales with no impact on previously reported gross margin, operating income, net income, shareholders' equity or cash flows. Restated sales amounts represent only owned department sales and leased department commissions. Sales of leased departments were $244,806 in 1999, $259,615 in 1998 and $255,425 in 1997. Revenues from leased departments were $36,665, $38,348 and $37,806 in 1999, 1998 and 1997, respectively, and are included in net sales. CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of deposits with banks and financial institutions that have maturities, when purchased, of three months or less. Cash equivalents are stated at cost, which approximates fair value. On February 10, 1999, the Company prepaid the remaining $236,000 of SFA real estate indebtedness ("REMIC certificates") for which the Company funded $363,753 into an escrow account on January 29, 1999. The escrow funds are classified as cash placed in escrow for debt redemption on the consolidated balance sheet. The amount funded to the escrow account differs from the amount prepaid due to the requirement to fund REMIC certificates owned by outside parties as well as approximately $95,000 of REMIC certificates owned by the Company, prepayment premiums and accrued interest. When the escrow account was relieved on February 10, 1999 with the prepayment of the REMIC certificates, approximately $95,000 was refunded to the Company and the remaining funds satisfied accrued interest and the prepayment premiums. 32 RETAINED INTEREST IN ACCOUNTS RECEIVABLE The Company's credit card bank, National Bank of the Great Lakes, provides credit to and performs ongoing credit evaluations of its customers. Concentration of credit risk is limited because of the large number of customers and their dispersion throughout the United States and other countries. The Company's credit card bank sells its credit card receivables to wholly owned special purpose subsidiaries of the Company. Gains or losses on the sale of the receivables depend in part on the previous carrying amount of retained interests allocated in proportion to their fair values. The Company estimates fair value based on the present value of future cash flows expected under management's best estimates of assumptions including finance charge income, credit losses, payment rates and discount rates commensurate with the risks involved. Due to the short-term nature of the proprietary credit card portfolio, the carrying value of the Company's retained interest approximates fair value. The Company retains the servicing rights to all receivables sold to the special purpose subsidiaries and trusts. MERCHANDISE INVENTORIES At January 29, 2000, merchandise inventories are stated at the lower of cost or market (retail last-in, first-out ["LIFO"] for all inventories except direct mail inventories which are presented under the FIFO cost method) and include freight and certain buying and distribution costs. At January 30, 1999, merchandise inventories were stated at the lower of cost or market (retail LIFO for non-SFA inventories and retail FIFO for SFA inventories). The change in method of accounting for SFA inventories had no effect on 1999 net income. At January 29, 2000 and January 30, 1999, the LIFO value of inventories exceeded market value, and as a result inventory was stated at the lower market amount. At January 29, 2000 and January 30, 1999, non-LIFO inventories were $27,893 and $554,678, respectively. Consignment merchandise on hand of $87,384 and $105,536 at January 29, 2000 and January 30, 1999, respectively, is not reflected in the consolidated balance sheets. ADVERTISING Direct response advertising relates primarily to the production and distribution of the Company's catalogs and is amortized over the estimated life of the catalog. Direct response advertising amounts included in other current assets in the consolidated balance sheets at January 29, 2000 and January 30, 1999 were $15,403 and $5,451, respectively. All other advertising and sales promotion costs are expensed in the period incurred. Advertising expenses were $212,045, $190,143 and $192,154 in 1999, 1998 and 1997, respectively. STORE PRE-OPENING COSTS Store pre-opening costs are expensed when incurred. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. For financial reporting purposes, depreciation is computed principally using the straight-line method over the estimated useful lives of the assets. Buildings and improvements primarily are depreciated over 20 to 40 years while fixtures and equipment primarily are depreciated over 5 to 15 years. Leasehold improvements are amortized over the shorter of their estimated useful lives or their related lease terms. Gains or losses on the sale of assets are recorded at disposal. Costs incurred for the development of internal computer software are capitalized and amortized using the straight-line method over 3 to 7 years. Costs incurred in the discovery and post-implementation stages of obtaining internal computer software are expensed as incurred except when capitalization is required. Costs incurred for the Year 2000 assessment and resulting software modifications were expensed as incurred. The carrying value of property and equipment is periodically reviewed and adjusted by the Company whenever events or changes in circumstances indicate that the estimated fair value is less than the carrying amount. 33 GOODWILL AND INTANGIBLES The Company has allocated the purchase price of purchase transactions first to identifiable tangible assets and liabilities based on estimates of their fair value, with the remainder allocated to intangible assets and goodwill. Amortization of goodwill and intangibles is provided on a straight-line basis over the respective lives of the various intangible assets ranging from 5 to 40 years. In 1998, the Company completed three purchase transactions with resulting goodwill and intangibles additions. The Company's purchases of Brody Brothers Dry Goods (six department stores in North Carolina), Bullock & Jones and 15 former Mercantile store locations from Dillard's resulted in 1998 goodwill and intangible additions of approximately $270,000. In 1997, the Company recorded a net reduction of goodwill of $34,525 due to the recognition of the tax benefit generated from differences for financial statement purposes and income tax regulations in the recording of various assets and liabilities at acquisition. The Company recognized amortization expense of $17,593, $11,601 and $10,064 in 1999, 1998 and 1997, respectively. As of January 29, 2000 and January 30, 1999, the accumulated amortization of goodwill and intangible assets was $56,663 and $39,070, respectively. At each balance sheet date or as changes in circumstances arise, the Company evaluates the recoverability of goodwill and intangible assets based upon utilization of the assets and expectations of related cash flows. Based upon its most recent analysis, the Company believes that no impairment of remaining goodwill and intangibles exists at January 29, 2000. In 1999, the Company recorded charges of $6,000, related to dispositions and impairments of goodwill and intangibles which are included in (gains) losses from long-lived assets in the statement of income. DERIVATIVES POLICY The Company uses financial derivatives only to manage risk in conjunction with specific business transactions. The Company participates in interest rate cap agreements to limit its exposure to adverse movements in interest rates related to planned debt issuances and floating rate debt costs associated with its various financing activities and accounts receivable securitization. In March 2000, the Company terminated these agreements. Additionally, the Company has entered into interest rate swap agreements to convert a portion of its fixed rate senior notes to variable rate debt. The financial institutions associated with these agreements are considered to be major, well-known institutions. In 1998, and as a result of the merger with SFA, the Company terminated two interest rate agreements. As a result of terminating these two agreements, the Company recorded charges of $17,400 in 1998, which are included in other income (expense) in the consolidated statements of income. STOCK-BASED COMPENSATION AND EMPLOYEE STOCK OWNERSHIP PLANS The Company records compensation expense for all stock-based compensation plans using the intrinsic value method. Compensation expense, if any, is measured as the excess of the market price of the stock over the exercise price of the option on the measurement date. Pro forma disclosures of net income and earnings per share are presented in Note 11, as if the fair value method had been applied. INCOME TAXES The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. EARNINGS PER SHARE Basic earnings per share ("EPS") have been computed based on the weighted average number of common shares outstanding. The Company's 4.75% and 5.50% convertible subordinated debentures were considered in diluted earnings per share, when dilutive. In the fourth quarter of 1998, the Company repurchased with cash approximately $272,000 of SFA's 5.50% convertible subordinated notes and during 1997, the Company converted $86,250 of the 4.75% convertible subordinated debentures into 4,040 shares of common stock. 34 The convertible subordinated debentures in 1997 have been included in the weighted average number of shares outstanding subsequent to the date of conversion for computing basic earnings per share. 1999 - --------------------------------------------------------------------------- Per Share Income Shares Amount - --------------------------------------------------------------------------- Basic EPS Income before extraordinary loss $198,904 144,174 $1.38 Effect of Dilutive Securities Stock options 1,882 - --------------------------------------------------------------------------- Diluted EPS Income before extraordinary loss $198,904 146,056 $1.36 =========================================================================== 1998 - --------------------------------------------------------------------------- Per Share Income Shares Amount - --------------------------------------------------------------------------- Basic EPS Income before extraordinary loss $24,985 142,856 $0.17 Effect of Dilutive Securities Stock options 3,527 - --------------------------------------------------------------------------- Diluted EPS Income before extraordinary loss $24,985 146,383 $0.17 =========================================================================== 1997 - --------------------------------------------------------------------------- Per Share Income Shares Amount - --------------------------------------------------------------------------- Basic EPS Income before extraordinary loss $416,237 137,588 $3.03 Effect of Dilutive Securities Stock options 3,438 Convertible subordinated notes/debentures 10,664 8,059 - --------------------------------------------------------------------------- Diluted EPS Income before extraordinary loss $426,901 149,085 $2.86 =========================================================================== SEGMENT REPORTING The Company has identified three reportable segments of business activity, which are as follows: department stores, furniture and the direct response business. The department store segment includes all department stores which the Company operates as well as the Company's proprietary credit card operation. The Company's proprietary credit card operation is considered an integral component of the department store segment, as its primary purpose is to support and enhance this segment's retail operations. The Company's furniture segment includes the Company's five free- standing furniture stores as well as furniture departments within existing department stores. The direct response business includes the Company's direct marketing catalogs of Folio and Bullock & Jones and all electronic commerce business in connection with the development of the Company's new retail website, saksfifthavenue.com. The combined operations of the furniture and direct response business segments represent less than three percent of the Company's total revenues, assets and operating profit. As a consequence, the results of operations of these two segments are not segregated, and thus three identified segments are combined within the consolidated financial statements of the Company. COMPREHENSIVE INCOME Components of the Company's comprehensive income for 1999 include net income of $189,643 and the adjustment to relieve the minimum pension liability adjustment of $7,487, net of taxes. Components of the Company's comprehensive income for 1998 include the net loss of $896 and a minimum pension liability adjustment of $7,487, net of taxes, as presented in the consolidated statements of shareholders' equity. The Company had no components of comprehensive income in 1997. NEW ACCOUNTING PRONOUNCEMENTS In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities -- Deferral of the Effective Date of FASB Statement No. 133," which deferred the effective date provisions of SFAS No. 133 for the Company to the first quarter of 2001. The Company is in the process of ascertaining the effect that this new standard will have on its financial statements. 35 Note.3. Mergers and Acquisitions The Company has experienced significant growth since 1994, primarily through a series of acquisitions. The Company's significant acquisitions are outlined below: Date Accounting Shares Purchase Acquired Company Acquired Treatment Issued Price - ----------------------------------------------------------------------------------------------- McRae's March 31, 1994 Purchase 872 $ 256,000 Younkers February 3, 1996 Pooling 17,632 Parisian October 11, 1996 Purchase 5,894 $ 517,000 Herberger's February 1, 1997 Pooling 8,000 Carson Pirie Scott January 31, 1998 Pooling 27,565 Saks Holdings September 17, 1998 Pooling 52,500
Additionally, the Company acquired 15 former Mercantile stores, including inventories and proprietary credit card accounts and receivables, from Dillard's in the third and fourth quarters of 1998 for the aggregate purchase price of $482,000. Note.4. Accounts Receivable Securitizations National Bank of the Great Lakes ("the Bank"), a wholly owned credit card bank, issues all proprietary credit cards to the Company's customers and makes all credit card loans. The Company and the Bank have entered into agreements to securitize a majority of the credit card receivables, which the Bank sells to the Company's special purpose subsidiaries. The securitization of receivables involves the continual transfer of receivables with limited recourse from the Company's wholly owned special purpose subsidiaries to either a credit card related trust or a bank conduit facility in exchange for cash and subordinated certificates representing undivided interests in the pool of receivables. These facilities subsequently issue certificates of beneficial interest, also representing undivided interests in the pool of receivables, to investors. The third party interest in the credit card related trusts was $1,167,975 and $1,159,136 at January 29, 2000 and January 30, 1999, respectively. The Company has the ability to issue securities in fixed or variable denominations with fixed or variable implicit discount rates. At January 29, 2000, the Company had available the following funding sources: Amount Outstanding Average Implicit Funding Funding Capacity January 29, 2000 Discount Rate Basis Expiration Date - ------------------------------------------------------------------------------------------------ Fixed at $75,000 $75,000 6.45% June 2000 Fixed at $421,500 421,500 6.25% June 2001, August 2002 Fixed at $400,675 400,675 Variable LIBOR June 2001, July 2002, August 2002 Variable up to $300,000 206,950 Variable CP June 2000 Variable up to $100,000 63,850 Variable CP June 2000 - ------------------------------------------------------------------------------------------------ $1,167,975 ================================================================================================
At January 29, 2000 and January 30, 1999, the weighted average variable rates for the commercial paper based facilities were 6.30% and 5.10%, respectively. The various agreements contain covenants requiring the maintenance of certain financial ratios and receivables portfolio performance measures. While the Company has no obligations to reimburse the trust or investors for credit losses, the Company is obligated to repurchase receivables related to customer credits such as merchandise returns and other receivables defects. 36 Finance charges earned by the certificate investors were $65,156, $66,930 and $47,311 for 1999, 1998 and 1997, respectively. Net finance charge income included in selling, general and administrative expenses in the consolidated statements of income totaled $201,214 in 1999, $194,590 in 1998 and $166,221 in 1997. Gains on sales of accounts receivable included within net finance charge income were $19,500, $36,400 and $15,000 in 1999, 1998 and 1997 respectively. Note.5. Property and Equipment A summary of property and equipment is as follows: January 29, January 30, 2000 1999 - ----------------------------------------------------------------------- Land and land improvements $286,678 $286,193 Buildings 1,167,946 1,137,562 Leasehold improvements 327,371 187,259 Fixtures and equipment 1,163,135 1,020,443 Construction in progress 169,392 162,296 - ----------------------------------------------------------------------- 3,114,522 2,793,753 Accumulated depreciation (763,979) (697,288) - ----------------------------------------------------------------------- 2,350,543 2,096,465 Property held for sale, net of accumulated depreciation --- 15,500 - ----------------------------------------------------------------------- $2,350,543 $2,111,965 ======================================================================= At each balance sheet date and as changes in circumstances arise, the Company evaluates the recoverability of its property and equipment based upon the utilization of the assets and expected future cash flows. For 1999, the Company recognized a $4,800 impairment charge that is included in (gains) losses from long- lived assets in the accompanying income statements. In 1998, primarily as a result of the merger with SFA, the Company reviewed the carrying value of several store locations not meeting the Company's minimum investment return criteria, closed and relocated stores and unused corporate office space and terminated planned store projects. This process resulted in an impairment charge comprised of: store closings/relocations, $28,900; termination of new store projects, $12,600; non-cash flow generating store locations, $12,700; other miscellaneous assets, $1,800; and accrued closure costs of $6,000. Approximately $42,000 of this aggregate $62,000 charge was recognized in the fourth quarter of 1998. Based upon its most recent analysis, the Company believes that no additional impairment of property and equipment exists at January 29, 2000. As a part of the Company's merger with SFA, the Company commenced a process to determine the ongoing utility and value of its existing information technology systems hardware and software. The valuation process included performing an inventory of the Company's in-process development projects and significant operating systems and hardware and determining the future use of the identified projects and systems. As a result, the Company wrote down its investment in capitalized information technology systems software and hardware by $23,000 in 1998. This charge, which is included in merger and integration charges in the consolidated statement of income, primarily represented the termination of SFA software development projects that were in process before SFA's merger with the Company. 37 Note.6. Income Taxes The components of income tax provision (benefit) are as follows: 1999 1998 1997 - ---------------------------------------------------------------------- Current: Federal $42,278 $8,574 $51,562 State 678 1,134 8,845 - ---------------------------------------------------------------------- 42,956 9,708 60,407 Deferred: Federal 61,035 14,724 (239,397) State 8,560 202 (22,598) - ---------------------------------------------------------------------- 69,595 14,926 (261,995) - ---------------------------------------------------------------------- Total provision (benefit) $112,551 $24,634 $(201,588) ====================================================================== The tax effect for extraordinary losses on early extinguishment of debt was a benefit of $5,925, $16,547 and $7,162 for 1999, 1998 and 1997, respectively. Components of the net deferred tax asset or liability recognized in the consolidated balance sheets are as follows: January 29, January 30, 2000 1999 - ------------------------------------------------------------------------- Current: Deferred tax assets: Accrued expenses $56,199 $56,844 AMT credit 2,695 800 NOL carryforwards 32,999 32,999 Valuation allowance (6,155) (6,155) - ------------------------------------------------------------------------- 85,738 84,488 Deferred tax liabilities: Trade accounts receivable (11,015) --- Inventory (11,938) --- Other (587) (530) - ------------------------------------------------------------------------- (23,540) (530) - ------------------------------------------------------------------------- Net current deferred tax asset $62,198 $83,958 ========================================================================= Non-current: Deferred tax assets: Capital leases $20,588 $20,567 Other long-term liabilities 43,687 47,133 NOL carryforwards 281,643 294,906 Valuation allowance (9,251) (25,251) - ------------------------------------------------------------------------- 336,667 337,355 Deferred tax liabilities: Property and equipment (91,754) (59,652) Other assets (31,709) (27,887) - ------------------------------------------------------------------------- (123,463) (87,539) - ------------------------------------------------------------------------- Net non-current deferred tax asset $213,204 $249,816 ========================================================================= 38 At January 29, 2000, the Company had $806,774 in federal and state tax net operating loss carryforwards related to losses incurred by SFA and Carson's. The carryforwards will expire between 2006 and 2018. The future utilization of these carryforwards is restricted under federal income tax change-in- ownership rules. The continued improvement in SFA's operating income in fiscal 1997, as well as estimates of SFA's future profitability, enabled the Company to recognize a $294,846 deferred tax asset in the fourth quarter of 1997. The benefit reflects the elimination of the valuation allowance relating to the tax benefit of SFA's net operating loss carryforwards. The realization of this tax benefit also enabled SFA to reduce goodwill by $34,525 due to SFA recording certain assets and liabilities at their date of acquisition for financial reporting purposes which were not recognized for income tax purposes. The valuation allowance attributable to Carson's losses and tax basis differences was reduced by $16,000 for each of the years 1999, 1998 and 1997, based on management's reassessment of the realizability of the related deferred tax asset in future years. The tax benefit resulting from the reduction in the valuation allowance is credited directly to shareholders' equity. The Company believes it is more likely than not that the benefit of the net deferred tax assets will be realized. Income tax expense varies from the amount computed by applying the statutory federal income tax rate to income before taxes. The reasons for this difference are as follows: 1999 1998 1997 - -------------------------------------------------------------------- Expected income taxes at 35% $105,768 $8,308 $71,164 State income taxes, net of federal benefit 6,100 857 7,015 Nondeductible merger related costs (1,837) 14,887 7,004 Amortization of goodwill 3,656 3,100 3,475 Favorable settlement of tax examination --- (3,000) --- Recognition of NOL carryforward --- --- (294,846) Non-deductible ESOP expenses --- --- 4,415 Other items, net (1,136) 482 185 - -------------------------------------------------------------------- Provision (benefit) for income taxes $112,551 $24,634 $(201,588) The Company received net tax refunds of $14,007 in 1999 and made income tax payments, net of refunds received, of $19,852 and $12,664 during 1998 and 1997, respectively. Note.7. Long-Term Debt A summary of long-term debt is as follows: January 29, January 30, 2000 1999 - ----------------------------------------------------------------- Revolving credit agreements $159,000 $608,000 Notes 8.25%, maturing 2008 500,000 500,000 Notes 7.50%, maturing 2010 250,000 250,000 Notes 7.25%, maturing 2004 350,000 350,000 Notes 7.00%, maturing 2004 350,000 --- Notes 7.375% maturing 2019 200,000 --- SFA real estate financing -- REMIC certificates --- 235,841 Real estate notes, mortgage notes and industrial revenue bonds 10,523 17,144 Capital lease obligations 155,050 160,681 - ----------------------------------------------------------------- 1,974,573 2,121,666 Current portion (7,771) (11,271) - ----------------------------------------------------------------- $1,966,802 $2,110,395 ================================================================= 39 REVOLVING CREDIT FACILITIES In conjunction with the Carson's and SFA mergers, the Company replaced its revolving credit agreement with new variable rate revolving credit facilities. Previously unamortized debt issuance costs associated with the replaced revolvers were written off and reflected in the extraordinary loss on early extinguishment of debt in 1998. At January 29, 2000, the Company maintains a $750,000 revolving credit facility which expires in September 2003 and a $250,000 364 day revolving credit facility that includes a four-year term-out option exercisable in August 2000. At January 29, 2000, $833,966 was available to borrow under its existing credit facilities. Of the available amount, $583,966 expires in 2003 and $250,000 expires in August 2000. Interest on the two facilities remained variable at January 29, 2000 and the weighted average interest rate at January 29, 2000 was 6.1%. SENIOR NOTES In 1999, the Company sold $350,000 of uncollateralized 7.0% notes which mature in 2004 and $200,000 of uncollateralized 7.375% notes which mature in 2019. The net proceeds of the notes were used to reduce outstanding amounts on the Company's revolving credit facilities, which had been used to fund the purchase of the 15 former Mercantile stores and the repurchase of SFA convertible debentures. In connection with the 1998 SFA merger, the Company completed a tender offer for the $125,000, 8.125% notes resulting in an extraordinary charge on early extinguishment of debt of $11,625 and sold $1,100,000 of uncollateralized notes with interest rates ranging from 7.25% to 8.25% and maturities ranging from 2004 to 2010. REAL ESTATE FINANCING In May 1995, SFA, through a subsidiary trust, completed a real estate financing aggregating $335,000 through the issuance of mortgage loans collateralized by intercompany leases. Mortgage certificates in the principal amount of $175,000 bore interest at variable rates based on three-month LIBOR, payable quarterly. The remaining $160,000 in certificates, which were subordinated to the other certificates, bore interest at annual fixed rates ranging from 8.98% to 12.36%, payable semi-annually. The Company repurchased approximately $95,000 of its outstanding REMIC certificates and recorded extraordinary charges of $3,352 and $8,174 in 1997 and 1998, respectively, associated with the repurchase premium and accelerated write-off of deferred financing costs related to these repurchases. In the first quarter of fiscal 1999, the Company prepaid the remaining $235,841 in outstanding REMIC certificates and reflected an extraordinary charge of $9,261 associated with the prepayment premium and accelerated write-off of deferred financing costs related to this prepayment. SUBORDINATED DEBT In September 1996, SFA issued $276,000 aggregate principal amount of 5.50% convertible debentures for net cash proceeds, after offering expenses and financing costs, of $267,500. During the fourth quarter of 1998, the Company repurchased $271,748 of the 5.50% convertible subordinated notes and redeemed the remaining $4,252 of notes in 1999, which was reflected in the current portion of long-term debt at January 30, 1999. During 1998, the Company recorded an extraordinary loss of $6,175 relating to the accelerated write-off of deferred financing costs related to the prepayments. In October 1997, the Company converted its 4.75% convertible debentures into 4,040 shares of the Company's common stock. As a result of this conversion, certain deferred debt issuance costs aggregating $600 were written off as an extraordinary item. Effective with the Parisian acquisition, the Company assumed $125,000 of existing Parisian subordinated notes. In 1997, the Company purchased approximately 90% of these notes which resulted in an extraordinary loss from the extinguishment of debt of approximately $7,900. In July 1998, the remaining outstanding notes were repurchased. 40 MATURITIES At January 29, 2000, maturities of long-term debt for the next five years and thereafter, giving consideration to lenders' call privileges are as follows: Year Maturities - ----------------------------------------------------------------- 2000 $7,771 2001 5,870 2002 5,231 2003 164,310 2004 711,684 Thereafter 1,079,707 - ----------------------------------------------------------------- $1,974,573 ================================================================= The Company made interest payments, net of capitalized interest, of $143,701, $93,999 and $97,745 during 1999, 1998 and 1997, respectively. Note.8. Leases The Company leases certain land and buildings under various non- cancelable capital and operating leases. The leases generally provide for contingent rentals based upon sales in excess of stated amounts and require the Company to pay real estate taxes, insurance and occupancy costs. Generally, the leases have primary terms ranging from 20 to 30 years and include renewal options ranging from 5 to 20 years. At January 29, 2000, future minimum rental commitments under capital leases and non-cancelable operating leases consisted of the following: Year Operating Leases Capital Leases ----------------------------------------------------------------- 2000 $111,411 $24,973 2001 109,826 23,428 2002 108,368 22,731 2003 106,486 22,533 2004 102,248 22,653 Thereafter 860,303 315,474 ----------------------------------------------------------------- $1,398,642 $431,792 ================================================================= Amounts representing interest (276,742) ----------------------------------------------------------------- Capital lease obligations $155,050 ================================================================= Total rental expense for operating leases was $187,829, $181,966 and $157,018 during 1999, 1998 and 1997, respectively, including contingent rents of approximately $20,983, $22,806 and $20,733, respectively. 41 Note.9. Employee Benefit Plans EMPLOYEE SAVINGS PLANS The Company sponsors various qualified savings plans that cover substantially all full-time employees. Company contributions charged to expense under these plans, or similar predecessor plans, for 1999, 1998 and 1997 were $9,536, $8,667 and $6,509, respectively. DEFINED BENEFIT PLANS The Company sponsors two noncontributory defined benefit pension plans for substantially all employees of Carson's and SFA. Benefits are principally based upon years of service and compensation prior to retirement. The Company generally funds pension costs currently, subject to regulatory funding limitations. In 1998, the SFA defined benefit plan was amended and converted to a cash balance plan. The components of net periodic pension expense are as follows: 1999 1998 1997 - ----------------------------------------------------------------------- Net periodic pension expense: Service cost $11,584 $10,401 $10,652 Interest cost 19,318 18,989 17,839 Expected return on plan assets (21,393) (20,707) (18,699) Net amortization and deferral of prior service costs 293 90 (61) - ----------------------------------------------------------------------- Net pension expense $9,802 $8,773 $9,731 ======================================================================= 42 January 29, January 30, 2000 1999 - -------------------------------------------------------------------------------------------------- Change in benefit obligation: Benefit obligation at beginning of year $296,577 $265,753 Service cost 11,584 10,401 Interest cost 19,318 18,989 Plan amendment 219 2,228 Actuarial (gain) loss (28,877) 17,025 Benefits paid (27,523) (17,819) - -------------------------------------------------------------------------------------------------- Benefit obligation at end of year $271,298 $296,577 ================================================================================================== Change in plan assets: Fair value of plan assets at beginning of year $239,737 $230,422 Actual return on plan assets 36,172 11,992 Employer contributions 6,897 15,142 Benefits paid (27,523) (17,819) - -------------------------------------------------------------------------------------------------- Fair value of plan assets at end of year $255,283 $239,737 ================================================================================================== Pension plans' funding status: Accumulated benefit obligation $(252,209) $(282,041) Effect of projected salary increases (19,089) (14,536) - -------------------------------------------------------------------------------------------------- Projected benefit obligation (271,298) (296,577) Fair value of plan assets 255,283 239,737 - -------------------------------------------------------------------------------------------------- Funded status (16,015) (56,840) Unrecognized actuarial (gain) loss (27,519) 17,843 Unrecognized prior service cost 2,059 1,955 Contributions subsequent to measurement date 2,073 4,549 - -------------------------------------------------------------------------------------------------- Accrued pension cost classified in other liabilities $(39,402) $(32,493) ================================================================================================== Amounts recognized in the consolidated balance sheet: Accrued benefit liability $(39,683) $(46,890) Intangible asset 281 2,123 Additional minimum pension liability (reflected in equity net of tax) --- 12,274 - -------------------------------------------------------------------------------------------------- Net amount recognized $(39,402) $(32,493) ================================================================================================== Assumptions: Discount rate 8.00% 7.00% Expected long-term rate of return on assets 9.50% 9.50% Average assumed rate of compensation increase 3.66% 3.66% Measurement date 11/1/99 11/1/98
43 RETIREE HEALTH CARE PLANS The Company provides health care benefits for certain groups of employees who retired before 1997. The plans were contributory with the Company providing a frozen annual credit of varying amounts based on years of service. The net annual expense and liabilities for the unfunded plans reflected in the Company's consolidated balance sheets are as follows: January 29, January 30, 2000 1999 - -------------------------------------------------------------------------------------------------- Change in benefit obligation: Benefit obligation at beginning of year $9,403 $10,530 Interest cost 625 749 Actuarial gain (566) (1,186) Benefits paid (583) (690) - -------------------------------------------------------------------------------------------------- Benefit obligation at end of year $8,879 $9,403 ================================================================================================== Plan funding status: Accumulated post-retirement benefit obligation $(8,879) $(9,403) Fair value of plan assets --- --- - -------------------------------------------------------------------------------------------------- Funded status (8,879) (9,403) Unrecognized actuarial gain (4,887) (4,644) Contributions subsequent to measurement date 62 181 - -------------------------------------------------------------------------------------------------- Accrued pension cost classified in other liabilities $(13,704) $(13,866) ================================================================================================== Sensitivity analysis: Effect of a 1.0% increase in health care cost trend assumption on total service cost and interest cost components $37 $37 Effect on benefit obligation $536 $526 Effect of a 1.0% decrease in health care cost trend assumption on total service cost and interest cost components $(33) $(33) Effect on benefit obligation $(484) $(473) Assumptions: Discount rate 8.00% 7.00% Pre-Medicare medical inflation 7.00% 7.00% Post-Medicare medical inflation 7.00% 6.25% Ultimate medical inflation (2001) 5.25% 5.00% Measurement date 11/1/99 11/1/98
44 Note.10. Shareholders' Equity PREFERRED STOCK The Company has 10,000 shares of $10 par value Series A Preferred Stock authorized and no shares issued and outstanding at January 29, 2000 or January 30, 1999. COMMON STOCK The Company has 500,000 shares of $0.10 par value common shares authorized of which 143,043 and 144,272 shares were issued and outstanding at January 29, 2000 and January 30, 1999, respectively. In July 1999, the Company authorized a share repurchase program for up to five million shares. At January 29, 2000, the Company had repurchased 2,004 shares under the program for an aggregate amount of $33,316. In August 1997, the Company's Board of Directors approved a 2- for-1 stock split of the outstanding shares of the Company's common stock. The split was effected in the form of a stock dividend; each shareholder received one additional share for each outstanding share of common stock held of record as of the close of business on October 15, 1997. The per share amounts presented in the Company's consolidated financial statements are reflective of the 2-for-1 stock split. Each outstanding share of common stock has one preferred stock purchase right attached. The rights (which were revised in March 1998) generally become exercisable ten days after an outside party acquires, or makes an offer for, 20% or more of the common stock. Each right entitles its holder to buy 1/200 share of Series C Junior Preferred Stock at an exercise price of $278 per 1/100 of a share, subject to adjustment in certain cases. The rights expire in March 2008. Once exercisable, if the Company is involved in a merger or other business combination or an outside party acquires 20% or more of the common stock, each right will be modified to entitle its holder (other than the acquirer) to purchase common stock of the acquiring company or, in certain circumstances, common stock having a market value of twice the exercise price of the right. OTHER Previously, Herberger's was required to repurchase shares from inactive participants of its ESOP at fair value. Treasury stock transactions were accounted for under the cost method with gains or losses on transactions credited or charged to additional paid-in capital. No shares were purchased in 1999 and 1998 and 3 shares were purchased in 1997. In connection with the rescission of the put option on the ESOP shares (see Note 11), the Company retired all 13,794 shares of the Company's common stock held in Treasury. 45 Note.11. Employee Stock Plans ESOP Herberger's sponsored an employee stock ownership plan for the benefit of its employees. During 1997, the ESOP was terminated. As a result, the Company received approximately $10,000 in cash representing payment of a $9,000 note receivable from the ESOP. All previously unallocated common shares of the Company held by the ESOP were allocated to the ESOP participants, resulting in a primarily non-cash charge of $7,900. STOCK OPTIONS AND GRANTS The Company utilizes the intrinsic value method of accounting for stock option grants. As the option exercise price is generally equal to fair value of the common shares at the date of the option grant, no compensation cost is recognized. Had compensation cost for the Company's stock-based compensation plans been determined under the fair value method, using the Black-Scholes option-pricing model, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below. 1999 - -------------------------------------------------------------------------- As Reported Pro Forma - -------------------------------------------------------------------------- Net income $189,643 $169,804 Basic earnings per common share $1.32 $1.18 Diluted earnings per common share $1.30 $1.16 1998 - -------------------------------------------------------------------------- As Reported Pro Forma - -------------------------------------------------------------------------- Net income (loss) $(896) $(21,127) Basic earnings (loss) per common share $(0.01) $(0.15) Diluted earnings (loss) per common share $(0.01) $(0.14) 1997 - -------------------------------------------------------------------------- As Reported Pro Forma - -------------------------------------------------------------------------- Net income $404,914 $395,237 Basic earnings per common share $2.94 $2.87 Diluted earnings per common share $2.79 $2.72 The four assumptions for determining compensation costs under the fair value method include (1) a risk-free interest rate based on zero-coupon government issues on each grant date with the maturity equal to the expected term of the option (5.84%, 5.22% and 6.22% for 1999, 1998 and 1997, respectively), (2) an expected term of five years, (3) an expected volatility of 46.2%, 32.7% and 39.7% for 1999, 1998 and 1997, respectively, and (4) no expected dividend yield. The Company maintains stock option plans for the granting of options, stock appreciation rights and restricted shares to officers, employees and directors. At January 29, 2000 and January 30, 1999 the Company had available for grant 9,554 and 7,353 shares of common stock, respectively. Options granted generally vest over a four-year period after issue and have an exercise term of ten years from the grant date. Restricted shares generally vest three to ten years after grant date with accelerated vesting at the discretion of the Company's Board of Directors if the Company meets certain performance objectives. A summary of the stock option plans for 1999, 1998 and 1997 is presented below: 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------ - - Weighted Weighted Weighted Average Average Average Shares Exercise Price Shares Exercise Price Shares Exercise Price - ------------------------------------------------------------------------------------------------------------ - - Outstanding at beginning of year 10,518 $21.63 9,567 $18.17 8,780 $14.07 Granted 2,549 24.13 4,111 25.78 3,519 25.90 Exercised (353) 16.30 (2,568) 14.06 (2,027) 11.37 Forfeited (822) 27.54 (592) 27.41 (705) 25.27 - ------------------------------------------------------------------------------------------------------------ Outstanding at end of year 11,892 $21.92 10,518 $21.63 9,567 $18.17 Options exercisable at year end 5,191 $18.94 4,885 $16.89 5,929 $13.88 - ------------------------------------------------------------------------------------------------------------ Weighted average fair value of options granted during the year $13.60 $9.83 $10.80 ============================================================================================================
46 The following table summarizes information about stock options outstanding at January 29, 2000: Options Outstanding Options Exercisable - ---------------------------------------------------------------------------------------------------- Weighted Number Average Weighted Number Weighted Outstanding at Remaining Average Exercisable at Average January 29, Contractual Exercise January 29, Exercise Range of Exercise Prices 2000 Life (Years) Price 2000 Price - ---------------------------------------------------------------------------------------------------- $3.75 to $5.63 88 1 $4.68 88 $4.68 $5.64 to $8.45 273 4 5.89 273 5.89 $8.46 to $12.69 1,503 4 11.59 1,465 11.57 $12.70 to $18.69 1,422 8 16.02 635 16.53 $18.70 to $28.05 6,455 8 22.99 1,696 20.91 $28.06 to $42.09 2,086 8 32.10 998 31.76 $42.10 to $48.78 65 7 47.54 36 47.10 - ---------------------------------------------------------------------------------------------------- 11,892 $21.92 5,191 $18.94 ====================================================================================================
The Company also granted restricted stock awards of 84, 383 and 176 shares to certain employees in 1999, 1998 and 1997, respectively. The fair value of these awards on the dates of grants was $1,891, $7,284 and $4,600 for 1999, 1998 and 1997, respectively. During 1999, 1998 and 1997, compensation cost of $7,736, $2,870 and $5,700, respectively, has been recognized in connection with these awards. STOCK PURCHASE PLAN The stock purchase plan (the "Plan") provides that an aggregate of 700 shares of the Company's common stock is available for purchase. Under the Plan, an eligible employee may elect to participate by authorizing limited payroll deductions to be applied toward the purchase of common stock at a 15.0% discount to market value. Under the Plan, 228, 73 and 62 shares of the Company's common stock were purchased by employees in 1999, 1998 and 1997 respectively. At January 29, 2000, the Plan has available for future offerings 282 shares. Note.12. Commitments and Contingencies Carson's and its subsidiaries emerged from Chapter 11 bankruptcy in 1993. The Company recognized $200, $1,350 and $680 in 1999, 1998 and 1997, respectively, to reflect the favorable resolution of claims. Management believes Carson's has adequately provided for the resolution of all bankruptcy claims and other matters related to the Plan of Reorganization remaining at January 29, 2000. In 1998, pending litigation between Carson's and Bank One, Wisconsin, related to the Chapter 11 bankruptcy filing, was settled resulting in the Company receiving a settlement payment of $42,500, which is included in other income (expense) in the 1998 consolidated statement of operations. The Company is involved in several legal proceedings arising from its normal business activities, and accruals for such claims have been established where appropriate. Management believes that none of these legal proceedings will have a material adverse effect on the Company's consolidated financial condition, results of operations or liquidity. 47 Note.13. Fair Values of Financial Instruments The Company has entered into three interest rate cap agreements to reduce the effect of increases in interest rates on real estate financing and the accounts receivable securitization. At January 29, 2000, these interest rate cap agreements remain outstanding while the debt and accounts receivable securitization have been replaced. One interest rate cap agreement serves to cap $18,300 at 8.25% through December 2000. The other two interest rate cap agreements serve to cap $175,000 at 9.70% through May 2002. These two interest rate cap agreements were terminated in March 2000. The combined fair value of these interest rate cap agreements at January 29, 2000 was $132. The Company also had two interest rate swap agreements outstanding at January 29, 2000 which have a notional amount of $350,000 related to the July 1999 issuance of the 7.0% senior notes. The agreements swap the fixed 7.0% rate for a variable rate at the three month LIBOR rate plus 71 basis points, 6.75% at January 29, 2000 and mature in 2004. The combined fair value of the Company's interest rate swap agreements represent a liability of $13,692 as of January 29, 2000. The fair values of the Company's cash and cash equivalents, retained interest in accounts receivable and accounts payable approximate their carrying amounts reported in the consolidated balance sheets, due to the immediate or short-term maturity of these instruments. For variable rate notes that reprice frequently, such as the revolving credit facilities, fair value approximates carrying value. The fair value of fixed rate real estate and mortgage notes is estimated using discounted cash flow analyses with interest rates currently offered for loans with similar terms and credit risk, and as of January 29, 2000 and January 30, 1999 the fair value of these notes approximated the carrying value. The fair value of publicly-held REMIC certificates, notes and subordinated debentures is based on quoted market prices. The fair values of the Company's financial instruments other than the instruments considered short-term in nature at January 29, 2000 and January 30, 1999 were as follows: Carrying Amount Estimated Fair Value - ----------------------------------------------------------------- January 29, 2000 7.375% senior notes $200,000 $176,390 8.25% senior notes $500,000 $486,270 7.25% senior notes $350,000 $332,745 7.50% senior notes $250,000 $226,748 7.00% senior notes $350,000 $330,725 January 30, 1999 REMIC certificates $235,841 $238,841 8.25% senior notes $500,000 $547,095 7.25% senior notes $350,000 $359,195 7.50% senior notes $250,000 $259,768 5.50% convertible debentures $4,252 $4,243 The fair values of the long-term debt interest rate swap agreements and interest rate cap agreements were estimated based on quotes obtained from financial institutions for those or similar instruments or on the basis of quoted market prices. 48 Note.14. Merger and Integration Charges Merger and integration charges incurred in 1999, 1998 and 1997 (before income taxes) were as follows: 1999 1998 1997 - --------------------------------------------------------------------------------------------------- Merger transaction costs, principally investment banking, legal and other direct merger costs $981 $44,848 $13,800 Severance and related benefits 11,517 23,568 17,024 Conversion and consolidation of systems and administrative operations 27,412 19,891 2,600 Abandonment and write-down of information technology software, hardware and other assets --- 23,000 6,200 Termination of merchandise purchasing agreements --- --- 3,900 Revisions to prior year estimates (4,250) --- (7,000) - --------------------------------------------------------------------------------------------------- $35,660 $111,307 $36,524 ===================================================================================================
A reconciliation of the aforementioned charges to the amounts of merger and integration costs remaining unpaid at the applicable balance sheet date is as follows: January 29, January 30, 2000 1999 - ------------------------------------------------------------------------- Amounts unpaid at beginning of year $31,951 $25,994 Merger and integration charges 35,660 111,307 Amounts paid (51,180) (76,728) Amounts representing non-cash charges (2,855) (28,622) - ------------------------------------------------------------------------- Amounts unpaid at end of year $13,576 $31,951 ========================================================================= The components of the aforementioned amounts unpaid are as follows: January 29, January 30, 2000 1999 - -------------------------------------------------------------------------- Direct merger costs $5,558 $17,530 Severance 6,874 6,638 Contractual obligations to be paid within one year of merger --- 5,900 Contractual obligations with extended payment terms (such as rents for abandoned leases and payments on abandoned contracts) 248 348 Other 896 1,535 - -------------------------------------------------------------------------- Totals $13,576 $31,951 ========================================================================== 49 Note.15. Quarterly Financial Information (Unaudited) Summarized quarterly financial information, including sales restatement data, is as follows: First Second Third Fourth Quarter Quarter Quarter Quarter - -------------------------------------------------------------------------------------------------- Fiscal year ended January 29, 2000 Total sales, as reported $1,544,521 $1,426,535 $1,599,171 $2,131,987 Leased department and other sales (net of commissions) (83,694) (48,049) (51,695) (94,957) - -------------------------------------------------------------------------------------------------- Total sales, as restated 1,460,827 1,378,486 1,547,476 2,037,030 Gross margin 550,128 513,926 586,810 750,433 Income before extraordinary items 33,735 18,819 25,900 120,450 Net income 24,474 18,819 25,900 120,450 Basic earnings per common share: Before extraordinary items $0.23 $0.13 $0.18 $0.84 After extraordinary items $0.17 $0.13 $0.18 $0.84 Diluted earnings per common share: Before extraordinary items $0.23 $0.13 $0.18 $0.84 After extraordinary items $0.17 $0.13 $0.18 $0.84
First Second Third Fourth Quarter Quarter Quarter Quarter - --------------------------------------------------------------------------------------------------- Fiscal year ended January 30, 1999 Total sales, as reported $1,412,602 $1,283,744 $1,472,817 $2,050,730 Leased department and other sales (net of commissions) (79,212) (46,897) (50,834) (87,708) - --------------------------------------------------------------------------------------------------- Total sales, as restated 1,333,390 1,236,847 1,421,983 1,963,022 Gross margin 490,032 444,894 484,048 707,452 Income (loss) before extraordinary items 28,124 2,982 (106,154) 100,033 Net income (loss) 28,124 2,648 (127,710) 96,042 Basic earnings per common share: Before extraordinary items $0.20 $0.02 $(0.74) $0.70 After extraordinary items $0.20 $0.02 $(0.89) $0.67 Diluted earnings per common share: Before extraordinary items $0.19 $0.02 $(0.74) $0.68 After extraordinary items $0.19 $0.02 $(0.89) $0.65
50 Note.16. Condensed Consolidating Financial Information The following tables present condensed consolidating financial information for 1999, 1998 and 1997 for (1) Saks Incorporated; (2) on a combined basis, the guarantors of Saks Incorporated Senior Notes (which are all of the wholly owned subsidiaries of Saks Incorporated except for special purpose subsidiaries, REMIC subsidiaries and trusts, and the Bank); and (3) on a combined basis, the Company's special purpose subsidiaries, REMIC subsidiaries and trusts, and the Bank, which collectively represent the only non-guarantor subsidiaries of the Senior Notes. Effective January 29, 2000, the REMIC subsidiaries and trusts were dissolved leaving the special purpose subsidiaries and the Bank as the only non-guarantor subsidiaries at January 29, 2000. The operations of the REMIC entities, however, are included in the 1999 results of operations. The condensed consolidating financial statements presented for 1999, 1998 and 1997 reflect the respective legal entity compositions at the respective dates. Separate financial statements of the guarantor subsidiaries are not presented because the guarantors are jointly, severally and unconditionally liable under the guarantees, and the Company believes the condensed consolidating financial statements are more meaningful in understanding the financial position of the guarantor subsidiaries. Borrowings and the related interest expense under the Company's revolving credit facility are allocated to Saks Incorporated and the guaranty subsidiaries under an informal lending arrangement. There are also management and royalty fee arrangements among Saks Incorporated and the subsidiaries. At January 29, 2000, Saks Incorporated was comprised of a majority of the Company's long- term debt and the operations of a small group of corporate employees. 51 SAKS INCORPORATED & SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF INCOME (for Year Ended January 29, 2000) Saks Guarantor Non-Guarantor (Dollars In Thousands) Incorporated Subsidiaries Subsidiaries Eliminations Consolidated - ---------------------------------------------------------------------------------------------------- Net Sales $6,423,819 $6,423,819 Cost of sales 4,022,522 4,022,522 - ---------------------------------------------------------------------------------------------------- Gross Margin 2,401,297 2,401,297 Selling, general and administrative expenses $9,752 1,454,498 $92,259 $(201,214) 1,355,295 Other operating expenses 1,605 561,851 (41,128) 522,328 Store pre-opening costs 13,342 13,342 Merger and integration charges 35,660 35,660 Losses from long-lived assets 12,547 12,547 Year 2000 expenses 5,917 5,917 - ---------------------------------------------------------------------------------------------------- Operating Income (Loss) (11,357) 317,482 (51,131) 201,214 456,208 Other income (expense) Finance charge income, net 201,214 (201,214) Intercompany exchange fees (36,712) 36,712 Intercompany servicer fees 41,076 (41,076) Equity in earnings of subsidiaries 278,964 25,581 (304,545) Interest expense, net (130,422) (8,546) (138,968) Other income (expense), net 140 140 - ---------------------------------------------------------------------------------------------------- Income before Provision for Income Taxes and Extra- ordinary Items 137,185 339,021 145,719 (304,545) 317,380 Provision (benefit) for income taxes (52,458) 117,310 53,624 118,476 - ---------------------------------------------------------------------------------------------------- Income before Extraordinary Items 189,643 221,711 92,095 (304,545) 198,904 Extraordinary items, net of taxes (9,261) (9,261) - ---------------------------------------------------------------------------------------------------- Net Income (Loss) $189,643 $221,711 $82,834 $(304,545) $189,643 ====================================================================================================
52 SAKS INCORPORATED & SUBSIDIARIES CONDENSED CONSOLIDATING BALANCE SHEETS (As of January 29, 2000) Saks Guarantor Non-Guarantor (Dollars In Thousands) Incorporated Subsidiaries Subsidiaries Eliminations Consolidated - ---------------------------------------------------------------------------------------------------- Assets Current Assets Cash and cash equivalents $(3,049) $22,609 $19,560 Retained interest in accounts receivable 202,134 202,134 Merchandise inventories 1,487,783 1,487,783 Deferred income taxes 67,238 (5,040) 62,198 Intercompany borrowings $27,659 23,883 7,636 $(59,178) Other current assets 122,941 42 122,983 - ---------------------------------------------------------------------------------------------------- Total Current Assets 27,659 1,698,796 227,381 (59,178) 1,894,658 Property and Equipment, Net 2,350,543 2,350,543 Goodwill and Intangibles, Net 578,001 578,001 Other Assets 56,657 5,889 62,546 Deferred Income Taxes 213,204 213,204 Investment in and Advances to Subsidiaries 4,023,830 93,042 (4,116,872) - ---------------------------------------------------------------------------------------------------- Total Assets $4,051,489 $4,990,243 $233,270 $(4,176,050) $5,098,952 ==================================================================================================== Liabilities and Shareholders' Equity Current Liabilities Trade accounts payable $235,967 $235,967 Accrued expenses and other current liabilities $22,769 512,130 $5,225 540,124 Intercompany borrowings 7,636 51,542 $(59,178) Current portion of long-term debt 7,771 7,771 - ---------------------------------------------------------------------------------------------------- Total Current Liabilities 22,769 763,504 56,767 (59,178) 783,862 Long-Term debt 1,809,000 157,802 1,966,802 Other Long-Term Liabilities 11,377 128,568 139,945 Investment by and Advances from Parent 3,940,369 176,503 (4,116,872) Shareholders' Equity 2,208,343 2,208,343 - ---------------------------------------------------------------------------------------------------- Total Liabilities and Shareholders' Equity $4,051,489 $4,990,243 $233,270 $(4,176,050) $5,098,952 ====================================================================================================
53 SAKS INCORPORATED & SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS (for Year Ended January 29, 2000) Saks Guarantor Non-Guarantor (Dollars In Thousands) Incorporated Subsidiaries Subsidiaries Eliminations Consolidated - ---------------------------------------------------------------------------------------------------- Operating Activities Net income $189,643 $221,711 $82,834 $(304,545) $189,643 Adjustments to reconcile net income to net cash provided by (used) in operating activities: Equity in earnings of subsidiaries (278,964) (25,581) 304,545 Extraordinary loss on early extinguishment of debt 7,310 7,310 Depreciation and amortization 164,835 13,940 178,775 Deferred income taxes 72,707 (3,112) 69,595 Losses from long-lived assets 12,547 12,547 Changes in operating assets and liabilities, net (185,867) (62,255) (248,122) - ---------------------------------------------------------------------------------------------------- Net Cash Provided by (Used in) Operating Activities (89,321) 260,352 38,717 209,748 Investing Activities Purchases of property and equipment (369,496) (60,852) (430,348) Proceeds from the sale of assets 22,514 22,514 - ---------------------------------------------------------------------------------------------------- Net Cash Used in Investing Activities (346,982) (60,852) (407,834) Financing Activities Inter-company borrowings (4,531) (236,917) 241,448 Proceeds from long-term borrowings 550,000 550,000 Payments on long-term debt (16,504) (16,504) Net repayments under credit and receivables facilities (449,000) (449,000) Repurchase and retirement of common stock (33,316) (33,316) Release of cash held in escrow for debt redemption 363,753 363,753 Payment of REMICs (235,841) (235,841) Proceeds from issuance of stock 5,802 5,802 - ---------------------------------------------------------------------------------------------------- Net Cash Provided by Financing Activities 68,955 110,332 5,607 184,894 Increase (Decrease) in Cash and Cash Equivalents (20,366) 23,702 (16,528) (13,192) Cash and Cash Equivalents at Beginning of Period 20,366 (26,751) 39,137 32,752 - ---------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Period $0 $(3,049) $22,609 $19,560 ====================================================================================================
54 SAKS INCORPORATED & SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF INCOME (for the Year Ended January 30, 1999) Saks Guarantor Non-Guarantor (Dollars In Thousands) Incorporated Subsidiaries Subsidiaries Eliminations Consolidated - ---------------------------------------------------------------------------------------------------- Net Sales $800,592 $5,154,650 $5,955,242 Cost of sales 494,355 3,294,439 3,788,794 - ---------------------------------------------------------------------------------------------------- Gross Margin 306,237 1,860,211 2,166,448 Selling, general and administrative expenses 155,531 1,279,332 $88,977 $(194,590) 1,329,250 Other operating expenses 59,597 469,700 (41,131) 488,166 Store pre-opening costs 1,448 9,119 10,567 Merger and integration charges 31,952 79,355 111,307 Losses from long-lived assets 331 41,005 20,449 61,785 Year 2000 expenses 884 9,553 10,437 - ---------------------------------------------------------------------------------------------------- Operating Income (Loss) 56,494 (27,853) (68,295) 194,590 154,936 Other income (expense) Finance charge income, net 194,590 (194,590) Intercompany exchange fees (7,000) (19,909) 26,909 Intercompany servicer fees 30,412 (30,412) Equity in earnings of subsidiaries 14,321 19,775 (34,096) Interest expense, net (18,466) (64,983) (27,522) (110,971) Other income (expense), net (11,536) 33,737 22,201 - ---------------------------------------------------------------------------------------------------- Income (Loss) before Provision (Benefit) for Income Taxes and Extraordinary Items 33,813 (28,821) 95,270 (34,096) 66,166 Provision (benefit) for income taxes 22,724 (15,389) 33,846 41,181 - ---------------------------------------------------------------------------------------------------- Income (Loss) before Extraordinary Items 11,089 (13,432) 61,424 (34,096) 24,985 Extraordinary items, net of taxes (11,985) (6,994) (6,902) (25,881) - ---------------------------------------------------------------------------------------------------- Net Income (Loss) $(896) $(20,426) $54,522 $(34,096) $(896) ====================================================================================================
55 SAKS INCORPORATED & SUBSIDIARIES CONDENSED CONSOLIDATING BALANCE SHEETS (As of January 30, 1999) Saks Guarantor Non-Guarantor (Dollars In Thousands) Incorporated Subsidiaries Subsidiaries Eliminations Consolidated - ---------------------------------------------------------------------------------------------------- Assets Current Assets Cash and cash equivalents $20,366 $(26,751) $39,137 $32,752 Retained interest in accounts receivable 54 220 159,322 159,596 Merchandise inventories 221,585 1,168,694 1,390,279 Deferred income taxes (3,217) 87,175 83,958 Intercompany borrowings 11,070 $(11,070) Other current assets 19,471 106,713 145 126,329 - ---------------------------------------------------------------------------------------------------- Total Current Assets 269,329 1,336,051 198,604 (11,070) 1,792,914 Property and Equipment, Net 342,355 1,264,176 505,434 2,111,965 Goodwill and Intangibles, Net 125,717 467,170 592,887 Other Assets 1,196 55,592 20,858 77,646 Deferred Income Taxes 249,816 249,816 Cash Placed in Escrow for Debt Redemption 363,753 363,753 Investment in and Advances to Subsidiaries 3,112,552 1,350,621 (4,463,173) - ---------------------------------------------------------------------------------------------------- Total Assets $3,851,149 $5,087,179 $724,896 $(4,474,243) $5,188,981 ==================================================================================================== Liabilities and Shareholders' Equity Current Liabilities Trade accounts payable $48,768 $311,620 $360,388 Accrued expenses and other current liabilities 39,118 452,000 $38,010 529,128 Intercompany borrowings 11,070 $(11,070) Current portion of long- term debt 452 15,071 15,523 - ---------------------------------------------------------------------------------------------------- Total Current Liabilities 88,338 778,691 49,080 (11,070) 905,039 Long-Term Debt 1,709,093 165,461 235,841 2,110,395 Deferred Income Taxes 18,893 (27,045) 8,152 Other Long-Term Liabilities 27,250 136,992 1,730 165,972 Investment by and Advances from Parent 4,033,080 430,093 (4,463,173) Shareholders' Equity 2,007,575 2,007,575 - ---------------------------------------------------------------------------------------------------- Total Liabilities and Shareholders' Equity $3,851,149 $5,087,179 $724,896 $(4,474,243) $5,188,981 ====================================================================================================
56 SAKS INCORPORATED & SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS (for the Year Ended January 30, 1999) Saks Guarantor Non-Guarantor (Dollars In Thousands) Incorporated Subsidiaries Subsidiaries Eliminations Consolidated - ---------------------------------------------------------------------------------------------------- Operating Activities Net income (loss) $(896) $(20,426) $54,522 $(34,096) $(896) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Equity in earnings of subsidiaries (14,321) (19,775) 34,096 Depreciation and amortization 15,263 126,159 13,939 155,361 Deferred income taxes 20,224 (19,897) 14,599 14,926 Extraordinary loss on extinguishment of debt 14,599 14,599 Losses from long-lived assets and merger and integration items 59,086 20,531 79,617 Changes in operating assets and liabilities, net (15,373) 514 274,191 259,332 - ---------------------------------------------------------------------------------------------------- Net Cash Provided by Operating Activities 4,897 140,260 377,782 522,939 Investing Activities Purchases of property and equipment (48,277) (327,785) (45,000) (421,062) Proceeds from sale of assets 2,500 2,500 Acquisition of Dillard's stores, Brody's and Bullock & Jones (248,196) (276,921) (525,117) - ---------------------------------------------------------------------------------------------------- Net Cash Used in Investing Activities (293,973) (604,706) (45,000) (943,679) Financing Activities Intercompany borrowings (1,212,694) 1,375,413 (162,719) Proceeds from long-term borrowings 1,100,000 1,100,000 Payments on long-term debt (10,320) (450,661) (45,979) (506,960) Net borrowings under credit and receivables facilities 398,000 (136,750) (125,000) 136,250 Cash placed in escrow for debt redemption (363,753) (363,753) Proceeds from issuance of stock 19,525 18,040 37,565 Repurchase and retirement of common stock (474) (474) - ---------------------------------------------------------------------------------------------------- Net Cash Provided by (Used in) Financing Activities 294,037 442,289 (333,698) 402,628 Increase (Decrease) in Cash and Cash Equivalents 4,961 (22,157) (916) (18,112) Cash and Cash Equivalents at Beginning of Period 15,405 (4,594) 40,053 50,864 - ---------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Period $20,366 $(26,751) $39,137 $32,752 ====================================================================================================
57 SAKS INCORPORATED & SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF INCOME (for the Year Ended January 31, 1998) Saks Guarantor Non-Guarantor (Dollars In Thousands) Incorporated Subsidiaries Subsidiaries Eliminations Consolidated - ---------------------------------------------------------------------------------------------------- Net Sales $746,896 $4,761,832 $5,508,728 Cost of sales 480,435 2,997,335 3,477,770 - ---------------------------------------------------------------------------------------------------- Gross Margin 266,461 1,764,497 2,030,958 Selling, general and administrative expenses 156,787 1,147,735 $62,722 $(166,221) 1,201,023 Other operating expenses 56,343 405,979 (35,064) 427,258 Store pre-opening costs 412 16,606 17,018 Merger and integration charges 11,500 25,024 36,524 (Gains) from long-lived assets (8) (126) (134) Year 2000 expenses 357 6,233 6,590 ESOP expenses 9,513 9,513 - ---------------------------------------------------------------------------------------------------- Operating Income (Loss) 41,070 153,533 (27,658) 166,221 333,166 Other income (expense) Finance charge income, net 166,221 (166,221) Intercompany exchange fees (4,627) (20,503) 25,130 Intercompany servicer fees 13,372 (13,372) Equity in earnings of subsidiaries 397,357 58,804 (456,161) Interest expense, net (10,612) (59,373) (43,700) (113,685) Other income (expense), net (178) 2,279 229 2,330 - ---------------------------------------------------------------------------------------------------- Income before Provision for Income Taxes and Extra- ordinary Items 423,010 148,112 106,850 (456,161) 221,811 Provision (benefit) for income taxes 14,753 (242,283) 33,104 (194,426) - ---------------------------------------------------------------------------------------------------- Income before Extraordinary Items 408,257 390,395 73,746 (456,161) 416,237 Extraordinary items, net of taxes (3,343) (6,424) (1,556) (11,323) - ---------------------------------------------------------------------------------------------------- Net Income $404,914 $383,971 $72,190 $(456,161) $404,914 ====================================================================================================
58 SAKS INCORPORATED & SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS (for the Year Ended January 31, 1998) Saks Guarantor Non-Guarantor (Dollars In Thousands) Incorporated Subsidiaries Subsidiaries Eliminations Consolidated - ---------------------------------------------------------------------------------------------------- Operating Activities Net income $404,914 $383,971 $72,190 $(456,161) $404,914 Adjustments to reconcile net income to net cash provided by operating activities: Equity in earnings of subsidiaries (397,357) (58,804) 456,161 Depreciation and amortization 12,874 103,240 20,005 136,119 Deferred income taxes 222 34,198 (1,569) 32,851 Recognition of NOL carry- forwards (294,846) (294,846) Extraordinary loss on extinguishment of debt 1,425 5,375 1,556 8,356 (Gains) from long-lived assets (8) (126) (134) ESOP expenses 8,786 8,786 Restructuring items (800) (800) Changes in operating assets and liabilities, net 52,575 (123,494) (15,022) (85,941) - ---------------------------------------------------------------------------------------------------- Net Cash Provided by Operating Activities 74,645 57,500 77,160 209,305 Investing Activities Purchases of property and equipment (13,349) (253,807) (79,720) (346,876) Proceeds from sale of assets 23,221 4,630 27,851 - ---------------------------------------------------------------------------------------------------- Net Cash Provided by (Used in) Investing Activities 9,872 (249,177) (79,720) (319,025) Financing Activities Intercompany borrowings (226,093) 184,610 41,483 Proceeds from long-term borrowings 175,546 175,546 Payments on long-term debt (32,720) (196,082) (30,000) (258,802) Net borrowings under credit and receivables facilities 136,750 11,392 148,142 Proceeds from issuance of stock 15,762 7,423 23,185 Repurchase and retirement of common stock (13,096) (13,096) ESOP loan repayment 9,778 9,778 Payments to shareholders (1,124) (1,124) - ---------------------------------------------------------------------------------------------------- Net Cash Provided by (Used in) Financing Activities (80,601) 141,355 22,875 83,629 Increase (Decrease) in Cash and Cash Equivalents 3,916 (50,322) 20,315 (26,091) Cash and Cash Equivalents at Beginning of Period 11,489 45,728 19,738 76,955 - ---------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Period $15,405 $(4,594) $40,053 $50,864 ====================================================================================================
59 REPORTS Report of Independent Accountants To the Board of Directors and Shareholders Saks Incorporated In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, changes in shareholders' equity and cash flows present fairly, in all material respects, the financial position of Saks Incorporated and Subsidiaries as of January 29, 2000 and January 30, 1999, and the results of their operations and their cash flows for each of the three years in the period ending January 29, 2000, in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion expressed above. /s/ PricewaterhouseCoopers LLP Birmingham, Alabama March 14, 2000 Report of Management The accompanying consolidated financial statements, including the notes thereto, and the other financial information presented in the Annual Report have been prepared by management. The financial statements have been prepared in accordance with generally accepted accounting principles and include amounts that are based upon our best estimates and judgments. Management is responsible for the consolidated financial statements, as well as the other financial information in this Annual Report. The Company maintains an effective system of internal accounting control. We believe that this system provides reasonable assurance that transactions are executed in accordance with management authorization and that they are appropriately recorded in order to permit preparation of financial statements in conformity with generally accepted accounting principles and to adequately safeguard, verify and maintain accountability of assets. Reasonable assurance is based on the recognition that the cost of a system of internal control should not exceed the benefits derived. The consolidated financial statements and related notes have been audited by independent certified public accountants. Management has made available to them all of the Company's financial records and related data and believes all representations made to them during their audits were valid and appropriate. Their report provides an independent opinion upon the fairness of the financial statements. The Audit Committee of the Board of Directors is composed of four independent Directors. The Committee is responsible for recommending the independent certified public accounting firm to be retained for the coming year, subject to shareholder approval. The Audit Committee meets periodically with the independent auditors, as well as with management, to review accounting, auditing, internal accounting control and financial reporting matters. The independent auditors have unrestricted access to the Audit Committee. /s/ R. Brad Martin /s/ Douglas E. Coltharp R. Brad Martin Douglas E. Coltharp Chairman of the Board and Executive Vice President and Chief Executive Officer Chief Financial Officer 60 MARKET INFORMATION Effective September 18, 1998, the Company changed its corporate name from Proffitt's, Inc. to Saks Incorporated and its New York Stock Exchange Symbol from PFT to SKS. As of March 15, 2000, there were approximately 2,600 shareholders of record. The prices in the table below represent the high and low sales prices for the stock as reported by the New York Stock Exchange. The Company presently follows the policy of retaining earnings to provide funds for the operation and expansion of the business and has no present intention to declare cash dividends in the foreseeable future. Future dividends, if any, will be determined by the Board of Directors of the Company in light of circumstances then existing, including the earnings of the Company, its financial requirements and general business conditions. The Company declared no dividends to common shareholders in either 1999 or 1998. Fiscal Year Ended - ----------------------------------------------------------------- January 29, 2000 January 30, 1999 Price Range Price Range - ----------------------------------------------------------------- Quarter High Low High Low - ----------------------------------------------------------------- First $ 39.50 $ 23.13 $ 40.75 $ 29.38 Second $ 30.69 $ 22.56 $ 44.44 $ 29.00 Third $ 24.75 $ 14.63 $ 34.50 $ 16.38 Fourth $ 18.88 $ 13.69 $ 36.94 $ 22.13 61 DIRECTORS AND CERTAIN OFFICERS Board of Directors R. Brad Martin Chairman of the Board and Chief Executive Officer of Saks Incorporated Ronald de Waal Vice Chairman of the Board; Chairman of We International, B.V. Bernard E. Bernstein Partner in the law firm of Bernstein, Stair & McAdams LLP Stanton J. Bluestone Retired Chairman and Chief Executive Officer of Carson Pirie Scott & Co. John W. Burden Retail Consultant; Retired Chairman and CEO of Federated Department Stores and Allied Stores Corporation Edmond D. Cicala President of Edmond Enterprises, Inc.; Retired Chairman of the Goldsmith's Division of Federated Department Stores James A. Coggin President and Chief Administrative Officer of Saks Incorporated Julius W. Erving President of The Erving Group; Executive Vice President of the Orlando Magic Michael S. Gross Vice President of Apollo Capital Management, L.P. Donald E. Hess Chairman Emeritus of Parisian; Chief Executive Officer of Southwood Partners G. David Hurd Emeritus Chairman and retired Chief Executive Officer of Principal Financial Group Philip B. Miller Chairman of Saks Fifth Avenue Robert M. Mosco President of Merchandising and Chief Operating Officer of Saks Incorporated C. Warren Neel Dean of the College of Business at the University of Tennessee Charles J. Philippin Member of the Management Committee of Investcorp Stephen I. Sadove President Bristol-Myers Squibb Co. Worldwide Beauty Care and Nutritionals Marguerite W. Sallee Chairman and Chief Executive Officer of Frontline Group, Inc. Gerald Tsai, Jr. Private Investor Certain Corporate Officers R. Brad Martin Chairman of the Board and Chief Executive Officer James A. Coggin President and Chief Administrative Officer Robert M. Mosco President of Merchandising and Chief Operating Officer Douglas E. Coltharp Executive Vice President and Chief Financial Officer Brian J. Martin Executive Vice President of Law and General Counsel Store Officers Toni E. BrowNing President and Chief Executive Officer of Proffitt's ANTHONY J. BUCCINA President of Carson Pirie Scott Christina Johnson President and Chief Executive Officer of Saks Fifth Avenue Max W. Jones President and Chief Executive Officer of Herberger's Frank E. Kulp, III President and Chief Executive Officer of Younkers Michael R. MacDonald President of the Northern Department Stores Group and Chairman and Chief Executive Officer of Carson Pirie Scott Philip B. Miller Chairman of Saks Fifth Avenue W. Travis Saucer President and Chief Executive Officer of Parisian 62 positioning for growth 63 STORE LOCATIONS Saks Fifth Avenue Stores ARIZONA Phoenix CALIFORNIA Beverly Hills Carmel Costa Mesa La Jolla Mission Viejo Palm Desert Palm Springs Palos Verdes Pasadena San Diego San Francisco Santa Barbara COLORADO Denver CONNECTICUT Greenwich Stamford FLORIDA Bal Harbor Boca Raton Ft. Lauderdale Ft. Myers Naples Orlando Palm Beach Palm Beach Gardens Sarasota South Miami Tampa GEORGIA Atlanta ILLINOIS Chicago Highland Park Oakbrook Old Orchard LOUISIANA New Orleans MARYLAND Chevy Chase MASSACHUSETTS Boston MICHIGAN Dearborn Troy MINNESOTA Minneapolis MISSOURI Frontenac Kansas City NEVADA Las Vegas NEW JERSEY Hackensack Short Hills NEW YORK Garden City Huntington New York City Southampton White Plains OHIO Beachwood Cincinnati OKLAHOMA Tulsa OREGON Portland PENNSYLVANIA Bala Cynwyd Pittsburgh SOUTH CAROLINA Charleston Hilton Head TEXAS Austin Dallas Houston San Antonio VIRGINIA McLean Parisian Stores ALABAMA Birmingham (5) Decatur Dothan Florence Huntsville (2) Mobile Montgomery (2) Tuscaloosa FLORIDA Jacksonville Orlando (4) Pensacola Tallahassee GEORGIA Atlanta (6) Columbus Macon Savannah INDIANA Indianapolis (2) LOUISIANA Baton Rouge Lafayette MICHIGAN Livonia MISSISSIPPI Tupelo OHIO Cincinnati Dayton SOUTH CAROLINA Columbia (2) TENNESSEE Chattanooga Knoxville Nashville Proffitt's Stores GEORGIA Dalton Rome KENTUCKY Ashland Elizabethtown NORTH CAROLINA Asheville Goldsboro Greenville Kinston Rocky Mount SOUTH CAROLINA Greenville Spartanburg TENNESSEE Athens Chattanooga (2) Cleveland Greeneville Johnson City Kingsport Knoxville (2) Maryville Morristown Nashville (5) Oak Ridge VIRGINIA Bristol WEST VIRGINIA Morgantown Parkersburg Mcrae's stores ALABAMA Birmingham (4) Dothan Gadsden Huntsville (2) Mobile Selma Tuscaloosa FLORIDA Mary Esther Pensacola LOUISIANA Baton Rouge (2) Monroe MISSISSIPPI Biloxi Columbus Gautier Greenville Hattiesburg Jackson (3) Laurel McComb Meridian Natchez Tupelo Vicksburg Younkers Stores ILLINOIS Moline IOWA Ames Bettendorf Cedar Falls Cedar Rapids (2) Coralville Davenport Des Moines (4) Dubuque Fort Dodge Iowa City Marshalltown Mason City Sioux City (2) Waterloo West Burlington MICHIGAN Bay City Grandville Holland Marquette Port Huron Traverse City MINNESOTA Austin Duluth NEBRASKA Grand Island Lincoln Omaha (3) SOUTH DAKOTA Sioux Falls WISCONSIN Appleton (2) Eau Claire Fond du Lac Green Bay Madison (2) Manitowoc Marinette Marshfield Racine Sheboygan Sturgeon Bay Superior Wausau Wisconsin Rapids Herberger's Stores COLORADO Grand Junction IOWA Ottumwa MINNESOTA Albert Lea Alexandria Bemidji Bloomington Brainerd Fergus Falls Mankato Minneapolis Moorhead New Ulm Roseville St. Cloud St. Paul Stillwater Virginia Willmar MONTANA Billings Butte Great Falls Havre Kalispell Missoula NEBRASKA Hastings Kearney Norfolk North Platte Scottsbluff NORTH DAKOTA Bismarck Dickinson Fargo Minot SOUTH DAKOTA Aberdeen Rapid City Watertown WISCONSIN Beaver Dam LaCrosse Rice Lake WYOMING Rock Springs Carson Pirie Scott Stores ILLINOIS Aurora (2) Bloomingdale Bourbonnais Calumet City Chicago (3) Chicago Ridge Dundee Evergreen Park Hammond Joliet Lincolnwood Lombard (2) Matteson Mount Prospect Naperville (2) Norridge North Riverside Orland Park Schaumburg St. Charles Vernon Hills Waukegan Wilmette (2) INDIANA Merrillville Michigan City MINNESOTA Rochester Boston Stores Wisconsin Brookfield (2) Janesville Madison (2) Milwaukee (5) Racine Bergner's Stores ILLINOIS Bloomington Champaign Forsyth Galesburg Machesney Park Pekin Peoria Peru Quincy Rockford (2) Springfield Sterling Urbana Off 5th Stores ARIZONA Tempe Tucson CALIFORNIA Anaheim Cabazon Camarillo Folsom Milpitas Ontario Petaluma San Diego COLORADO Castle Rock CONNECTICUT Clinton FLORIDA Ellenton Orlando Sunrise GEORGIA Dawsonville HAWAII Waipahu ILLINOIS Gurnee Schaumburg KANSAS Olathe MASSACHUSETTS Worcester Wrentham MICHIGAN Auburn Dearborn MINNESOTA Minneapolis NEVADA Las Vegas NEW JERSEY Elizabeth Paramus NEW YORK Central Valley Niagara Falls Riverhead Westbury NORTH CAROLINA Concord Morrisville OHIO Aurora PENNSYLVANIA Grove City Philadelphia SOUTH CAROLINA Myrtle Beach TENNESSEE Nashville (2) TEXAS Grapevine Katy San Marcos Stafford VIRGINIA Leesburg Woodbridge 64 SHAREHOLDER INFORMATION Sales Release Dates for 2000 Sales Period Release Date February 2000 3/2/00 March 2000 4/6/00 April 2000 5/4/00 May 2000 6/1/00 June 2000 7/6/00 July 2000 8/3/00 August 2000 8/31/00 September 2000 10/5/00 October 2000 11/2/00 November 2000 11/30/00 December 2000 1/4/01 January 2001 2/8/01 Earnings Release Dates for 2000 Quarter Release Date First 5/16/00 Second 8/15/00 Third 11/14/00 Fourth To be announced Annual Meeting The Annual Meeting of Shareholders of Saks Incorporated will be held at 8:30 a.m. local time, June 21, 2000, at The Dixon Gallery and Gardens, 4339 Park Avenue, Memphis, Tennessee 38117. Shareholders are cordially invited to attend. Inquiries Regarding Your Stock Holdings Registered shareholders (shares held by you in your name) should address communications regarding address changes, lost certificates and other administrative matters to the Company's Transfer Agent and Registrar: Union Planters Bank, NA 7650 Magna Drive Belleville, Illinois 62223 (618) 239-4451 (telephone) (618) 239-4750 ext. 4451 (facsimile) In all correspondence or telephone inquiries, please mention Saks Incorporated, your name as printed on your stock certificate, your Social Security number, your address and your phone number. Beneficial shareholders (shares held by you in the name of your broker or other nominee) should direct communications on all administrative matters to your nominee owner. Financial and Other Information Copies of financial documents and other company information such as Saks Incorporated's Form 10-K and 10-Q reports as filed with the SEC are available free of charge by contacting: Investor Relations Saks Incorporated P.O. Box 9388 Alcoa, Tennessee 37701 (865) 981-9541 Security analysts, portfolio managers, representatives of financial institutions and other individuals with questions regarding Saks Incorporated are invited to contact: Julia Bentley Senior Vice President of Investor Relations and Communications P.O. Box 9388 Alcoa, Tennessee 37701 (865) 981-6243 (telephone) (865) 981-6325 (facsimile) julia_bentley@saksinc.com (e-mail) Financial results, corporate news and other Company information are available on Saks Incorporated's web site: http://www.saksincorporated.com. Corporate Headquarters 750 Lakeshore Parkway Birmingham, Alabama 35211 (205) 940-4000 Saks Fifth Avenue Headquarters 12 East 49th Street New York, New York 10017 (212) 940-4048 Parisian Headquarters 750 Lakeshore Parkway Birmingham, Alabama 35211 (205) 940-4000 Proffitt's Headquarters 115 North Calderwood Street Alcoa, Tennessee 37701 (865) 983-7000 McRae's Headquarters 3455 Highway 80 West Jackson, Mississippi 39209 (601) 968-4400 Younkers Headquarters 701 Walnut Street Des Moines, Iowa 50397 (515) 244-1112 Herberger's Headquarters 600 Mall Germain St. Cloud, Minnesota 56301 (320) 251-5351 Carson Pirie Scott, Boston Store and Bergner's Headquarters 331 West Wisconsin Avenue Milwaukee, Wisconsin 53203 (414) 347-4141 Independent Accountants PricewaterhouseCoopers LLP Birmingham, Alabama 2000 Saks Incorporated [Back cover page] SAKS INCORPORATED EX-21 14 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21.1 SUBSIDIARIES OF REGISTRANT Saks Incorporated and Subsidiaries As of January 29, 2000 Name of Subsidiary Jurisdiction of Formation - -------------------- ------------------------ 1. Cafe SFA - Minneapolis, Inc. California 2. Carson Pirie Holdings, Inc. Delaware 3. Carson Pirie Scott Insurance Services, Inc. Illinois 4. Herberger's Department Stores, LLC Minnesota 5. Jackson Leasing, LLC Mississippi 6. McRae's of Alabama, Inc. Alabama 7. McRae's Stores Partnership Mississippi 8. McRae's Stores Services, Inc. Illinois 9. McRae's, Inc. Mississippi 10. National Bank of the Great Lakes United States of America 11. New York City Saks, LLC New York 12. NorthPark Fixtures, Inc. Delaware 13. Parisian, Inc. Alabama 14. Saks & Company New York 15. Saks Credit Corporation Delaware 16. Saks Distribution Centers, Inc. Illinois 17. Saks Fifth Avenue Distribution Company Delaware 18. Saks Fifth Avenue Food Corporation California 19. Saks Fifth Avenue of Texas, Inc. Delaware 20. Saks Fifth Avenue Texas, L.P. Delaware 21. Saks Fifth Avenue, Inc. Massachusetts 22. Saks Holdings, Inc. Delaware 23. Saks Shipping Company, Inc. Illinois 24. Saks Transitional Credit Corporation Delaware 25. Saks Wholesalers, Inc. Alabama 26. SFA Finance Company II Delaware 27. SFA Folio Collections, Inc. New York 28. SFA Holdings, Inc. Delaware 29. SFA Realty, Inc. Delaware 30. Tex SFA, Inc. New York 31. The Restaurant at Saks Fifth Avenue Corporation New York EX-23 15 CONSENTS OF INDEPENDENT ACCOUNTANTS Exhibit 23.1 Consent of Independent Accountants We hereby consent to the incorporation by reference in the Registration Statements listed below of Saks Incorporated and Subsidiaries of our report dated March 14, 2000 relating to the financial statements, which appears in the Annual Report to Shareholders, which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report dated March 14, 2000 relating to the financial statement schedule, which appears in this Form 10-K. Registration Statements on Form S-3 Registration Numbers 333-66755 333-71933 Registration Statements on Form S-4 Registration Numbers 333-09043 333-41563 333-60123 Registration Statements on Form S-8 Registration Numbers 33-88390 333-00695 333-25213 333-47535 333-66759 333-83161 333-83159 /s/ PricewatershouseCoopers LLP Birmingham, Alabama April 24, 2000 EX-27 16 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the Consolidated Financial Statements as presented in Saks Incorporated 1999 Annual Report as of January 29, 2000 and January 30, 1999 and is qualified in its entirety by reference to such financial statements. 12-MOS 12-MOS JAN-29-2000 JAN-30-1999 JAN-29-2000 JAN-30-1999 19,560,000 32,752,000 0 0 202,134,000 159,596,000 0 0 1,487,783,000 1,390,279,000 1,894,658,000 1,792,914,000 2,350,543,000 2,111,965,000 0 0 5,098,952,000 5,188,981,000 783,862,000 905,039,000 1,966,802,000 2,110,395,000 0 0 0 0 14,281,000 14,401,000 2,194,062,000 1,993,174,000 5,098,952,000 5,188,981,000 6,423,819,000 5,955,242,000 6,423,819,000 5,955,242,000 4,022,522,000 3,788,794,000 0 0 1,945,089,000 2,011,512,000 0 0 138,968,000 110,971,000 317,380,000 66,166,000 118,476,000 41,181,000 198,904,000 24,985,000 0 0 (9,261,000) (25,881,000) 0 0 189,643,000 (896,000) 1.32 (0.01) 1.30 (0.01)

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