10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
        For Fiscal Year Ended: February 2, 2002 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

Saks Incorporated
(Exact Name of Registrant as Specified in Its Charter)

Tennessee (State or Other Jurisdiction of Incorporation)	62-0331040 (IRS Employer Identification No.)
750 Lakeshore Parkway Birmingham, Alabama (Address of Principal Executive Offices)	35211 (Zip Code)

(205) 940-4000
(Registrant's Telephone Number

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.10 and Preferred Stock Purchase Rights

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. (   )

The aggregate market value of the voting stock held by non-affiliates of the Registrant as of March 15, 2002 was approximately $1,848,608,687.

As of March 15, 2002, the number of shares of the Registrant's Common Stock outstanding was 142,464,048.

DOCUMENTS INCORPORATED BY REFERENCE

(1)	Portions of the Saks Incorporated Annual Report to Shareholders for the Fiscal Year Ended February 2, 2002 are incorporated by reference into Part II.
(2)	Portions of the Saks Incorporated Proxy Statement dated April 30, 2002 for the Annual Shareholders' Meeting to be held on June 19, 2002 are incorporated by reference into Part III.

The Exhibit Index is on page 21 of this document.

TABLE OF CONTENTS

	Item		Page
Part I	1	Business	3
	2	Properties	9
	3	Legal Proceedings	10
	4	Submission of Matters to a Vote of Security Holders	10
	Executive Officers of Registrant		11
Part II	5	Market for Registrant's Common Equity and Related Stockholder Matters	13
	6	Selected Financial Data	13
	7	Management's Discussion and Analysis of Financial Condition and Results of Operations	13
	7A	Quantitative and Qualitative Disclosures About Market Risk	13
	8	Financial Statements and Supplementary Data	13
	9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosures	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
	EXHIBIT LIST		21

2

PART I

Item 1. Business

General

Saks Incorporated (formerly Proffitt's, Inc.) was founded in 1919. The Company and its subsidiaries (together the "Company") operate two business segments, Saks Department Store Group ("SDSG") and Saks Fifth Avenue Enterprises ("SFAE").

SDSG currently operates 243 department stores in 24 states under the following nameplates: Parisian (41 stores), Proffitt's (26 stores), McRae's (29 stores), Younkers (50 stores), Herberger's (40 stores), Carson Pirie Scott (33 stores), Bergner's (13 stores), and Boston Store (11 stores). SDSG stores are principally anchor stores in leading regional or community malls, and the stores typically offer a broad selection of upper-moderate to better fashion apparel, shoes, accessories, jewelry, cosmetics, and decorative home furnishings, as well as furniture in selected locations. SDSG stores are promoted as "the best place to shop in your hometown."

SFAE includes Saks Fifth Avenue ("SFA") luxury department stores (61 stores in 24 states) and Off 5th Saks Fifth Avenue Outlet ("Off 5th") (52 stores in 23 states). Saks Fifth Avenue stores are intended to offer customers "the most inviting luxury experience." The locations are principally free-standing stores in exclusive shopping destinations or anchor stores in upscale regional malls, and the stores typically offer a wide assortment of distinctive luxury fashion apparel, shoes, accessories, jewelry, cosmetics, and gifts. Customers may also purchase certain SFA products by catalog or online at saks.com. Off 5th is intended to be the premier luxury off-price retailer in the United States, where customers can find SFA merchandise for a "gem of a deal." Off 5th stores are primarily located in upscale mixed-use and off-price centers and offer luxury apparel, shoes, accessories, cosmetics, and decorative home furnishings, targeting the value-conscious customer.

The Company experienced significant growth between 1994 and 1998, primarily through a series of acquisitions. The Company's major acquisitions are outlined below:

Name	Headquarters	Number of tores Acquired	Locations	Date Acquired
McRae's	Jackson, MS	31	Southeast	March 31, 1994
Younkers	Des Moines, IA	50	Midwest	February 3, 1996
Parisian	Birmingham, AL	40	Southeast/ Midwest	October 11, 1996
Herberger's	St. Cloud, MN	37	Midwest	February 1, 1997
Carson Pirie Scott	Milwaukee, WI	55	Midwest	January 31, 1998
Saks Fifth Avenue	New York, NY	95	National	September 17, 1998

In addition to acquisitions, the Company historically has grown through opening new stores and by expanding and renovating selected stores. In 2001, the Company opened three SDSG stores, two SFA stores, and three Off 5th stores. In addition, the Company opened its first licensed store in Riyadh, Saudi Arabia. The Company has announced plans to open five SDSG stores, one SFA store, and one Off 5th store in 2002.

3

The Company also may sell or close stores from time-to-time. In March 2001, the Company sold nine SDSG store locations and related assets to The May Department Stores Company. The Company also closed two SDSG stores and three SFA stores during the year. The Company closed one additional SDSG store in March 2002.

Merchandising, sales promotion, and store operating support functions are conducted in multiple locations. Certain back office sales support functions for the Company, such as accounting, credit card administration, store planning, and information technology, are largely centralized.

Merchandising

In both the SDSG and SFA stores, the Company believes that its 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.

SDSG stores attempt to consistently offer a wide selection of unique and limited distribution merchandise as well as competitively priced national brands. Key brands featured in the Company's SDSG stores include Liz Claiborne, Susan Bristol, Sigrid Olsen, Calvin Klein, Polo/Ralph Lauren, Tommy Hilfiger, Nautica, Hart Schaffner & Marx, Estee Lauder, Clinique, Lancome, Chanel, Nine West, Enzo, Waterford, and Bali. In addition to the these brands, most Parisian stores carry brands such as Karen Kane, BCBG, Garfield & Marks, Tahari, Robert Talbott, Tommy Bahama, Joseph Abboud, Hugo Boss, Bobbi Brown, Trish McEvoy, MAC, Donald Pliner, Via Spiga, and Brighton, which are typically carried only at specialty stores. SDSG differentiates its offerings from its competitors through exclusive merchandise from its core vendors, assortments from unique and emerging suppliers, and proprietary brands.

Saks Fifth Avenue stores carry luxury merchandise from both core vendors and new and emerging designers. SFA has key relationships with the leading American and European fashion houses, including Giorgio Armani, Chanel, Dolce and Gabbana, Salvatore Ferragamo, Gucci, Donna Karan, Calvin Klein, Ralph Lauren, Judith Leiber, Prada, Escada, Carolina Herrera, Oscar de la Renta, St. John, Yves St. Laurent, J.P. Tod, Ermenegildo Zegna, and Max Mara.

The Company has developed a knowledge of each of its trade areas and customer bases for its SDSG, SFA, and Off 5th stores. 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 characteristics of its trade areas and customer bases and to the lifestyle needs of its local customers.

4

Certain departments in the Company's stores are leased to independent companies in order to provide high quality service and merchandise where specialization, focus, and expertise are critical. The leased departments vary by store to complement the Company's own merchandising departments. The principal leased department in the SDSG stores is fine jewelry, and the principal leased departments in the SFA stores are furs and certain designer handbags. The terms of the lease agreements typically are between one and seven 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 February 2, 2002, the Company's percentages of owned sales (exclusive of sales generated by leased departments) by major merchandise category were as follows:

	SDSG	SFA
Women's Apparel	25.0%	41.0%
Men's Apparel	15.3	14.0
Home and gifts	14.5	1.3
Cosmetics	12.8	15.5
Shoes	7.9	7.5
Women's Accessories	7.5	15.8
Children's Apparel	6.9	1.1
Junior's Apparel	4.3	0.0
Intimate Apparel	3.9	2.3
Outerwear	1.9	1.5
Total	100.0%	100.0%

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 maintains good relationships with its suppliers.

The Company has six distribution facilities serving its stores. Refer to "Item 2. Properties" for a listing of these facilities.

Each of the Company's distribution facilities is linked electronically to the Company's merchandising staffs through a computerized purchase order management system that facilitates re-order and replenishment of merchandise. The Company utilizes electronic data interchange ("EDI") technology with its top vendors that 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 incoming cartons of merchandise to the proper processing areas. Many types of merchandise are processed in the receiving area and immediately "cross docked" to the shipping dock for delivery to the stores. Certain processing areas are staffed with personnel equipped with hand-held radio frequency terminals that can scan a supplier's bar code and transmit the necessary information to a computer to record merchandise on hand.

5

Information Technology

Company management believes that technological investments are necessary to support its business strategies, and, as a result, the Company has upgraded its information systems to improve efficiency and productivity.

The Company's information systems provide information deemed 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 point-of-sale terminals. Information is made available on-line to merchandising staff and store management on a timely basis.

The use of EDI technology allows the Company to speed the flow of information and merchandise in an attempt to capitalize on emerging sales trends, maximize inventory turnover, and minimize out-of-stock conditions. EDI technology includes an advance shipping notice system ("ASN"). The ASN system identifies discrepancies between merchandise that is ready to be shipped from a supplier's warehouse and that which was ordered from the supplier. 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.

Marketing

For the SDSG stores, advertising campaigns include fashion and image advertising, price promotions, and special events. The Company uses a multi-media marketing approach for the SDSG stores, including newspaper, television, radio, and direct mail. To promote its image as the fashion and style leader in its trade areas, the Company also sponsors fashion shows and in-store special events highlighting the Company's key brands and offerings.

For the SFA stores, the Company's marketing principally emphasizes the latest fashion trends in luxury merchandise and primarily utilizes direct mail advertising. To promote its image as the primary source of luxury goods in its trade areas, SFA sponsors fashion shows and in-store special events highlighting the designers represented in the SFA stores.

Regional in-house advertising and sales promotion staffs in conjunction with outside advertising agencies produce the Company's advertising for both SDSG and SFAE.

For both SDSG and SFA, the Company utilizes data captured through the use of proprietary credit cards to develop advertising and promotional events targeted at specific customers who have purchasing patterns for certain brands, departments, and store locations.

6

Proprietary Credit Cards

National Bank of the Great Lakes ("NBGL"), the Company's wholly owned credit card bank subsidiary, issues all proprietary credit cards to the Company's customers and makes all credit card loans.

The Company believes that proprietary credit card holders shop more frequently with the Company and purchase more merchandise than do customers who pay with cash or third-party credit cards. 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 NBGL's proprietary credit cards by, among other things, providing incentives to sales associates to open new credit accounts, which generally can be opened while a customer is visiting one of the Company's stores. Customers who open accounts are entitled to discounts on initial and, when offered, subsequent purchases. Proprietary credit card customers are offered private shopping nights, direct mail catalogs, special discounts, and advance notice of sale events. The Company has created various loyalty programs that reward customers for frequency and volume of proprietary charge card usage.

NBGL has approximately 5.0 million credit accounts that have been active within the prior twelve months and approximately 43% of the Company's 2001 sales were transacted on NBGL's proprietary credit cards.

NBGL'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 NBGL's credit card operations.

Trademarks and Service Marks

The Company owns many 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 terms of these registrations are generally ten years, and they are renewable for additional ten-year periods indefinitely so long as the marks are in use at the time of renewal. 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 that would have a material adverse effect on the Company's consolidated financial position, results of operations, or liquidity.

7

Reliance on Fifth Avenue Store

The Company's Saks Fifth Avenue store located on Fifth Avenue in New York City accounted for approximately 7% of total Company owned sales in 2001 and plays a significant role in creating awareness for the Saks Fifth Avenue brand name.

Customer Service

The Company believes that exceptional customer service contributes to increased store visits and purchases by its customers.

SDSG stores are intended to be customer-friendly and easy to shop. SDSG stores generally offer two types of service. One-on-one, personalized service is typically offered in nine areas of the stores -- cosmetics, shoes, women's better sportswear, women's special size sportswear, men's tailored clothing, men's better sportswear, intimate apparel, china, and furniture. These departments frequently offer clienteling programs and dedicated checkout facilities and are staffed by associates with extensive product training. Fast, friendly, and efficient service is generally offered in the remaining areas of the stores. These areas frequently feature innovative, centralized customer service centers and are staffed with friendly, knowledgeable sales associates delivering efficient transactions.

At Saks Fifth Avenue, the Company's goal is to deliver an inviting, customer-focused luxury shopping experience. Compensation for sales associates is, in part, based upon customer satisfaction measures. Sales associates undergo service, selling, and product knowledge training. Sales associates are encouraged to maintain customer records, send personalized thank-you notes, and routinely communicate with customers to advise them of new merchandise offerings and special promotions.

At both SDSG and SFAE, 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 many retailers, is subject to seasonal influences, with a significant portion of its sales and net income realized during the fourth fiscal 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 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 a high level of customer service and a broad selection of quality fashion merchandise at appropriate prices in prime store locations, provides a competitive advantage.

8

Associates

As of March 15, 2002, the Company employed approximately 53,000 associates, of which approximately 40% were employed on a part-time basis. The Company hires additional temporary associates and increases the hours of part-time employees during seasonal peak selling periods. Approximately 170 of the Company's associates are covered by collective bargaining agreements. The Company considers its relations with its associates to be good.

Item 2. Properties.

The Company currently operates six distribution facilities as follows:

Stores Served	Location of Facility	Square Feet	Owned/Leased
Proffitt's, McRae's, and Parisian	Steele, Alabama	180,000	Owned
Younkers	Green Bay ,Wisconsin	182,000	Owned
Younkers	Ankeny, Iowa	102,000	Leased
Carson Pirie Scott, Bergner's,     Boston Store, and Herberger's	Rockford, Illinois	585,000	Owned
Saks Fifth Avenue and Off 5th	Aberdeen, Maryland	514,000	Leased
Saks Fifth Avenue and Off 5th	Ontario, California	120,000	Leased

The Company's principal administrative offices are as follows:

Office	Location of Facility	Square Fee	Owned/Leased
Proffitt's/McRae's stores support offices	Alcoa, Tennesse	72,000	Leased
Younkers stores support offices	Des Moines, Iowa	127,000	Leased
Parisian stores support offices and     corporate administrative offices	Birmingham, Alabama	125,000	Owned
Carson Pirie Scott, Bergner's, Boston     Store, and Herberger's stores support offices	Milwaukee, Wisconsin	156,000	Owned
Corporate Operations Center	Jackson, Mississippi	272,000	Owned
Saks Fifth Avenue support offices	New York, New York	298,000	Leased
Saks Fifth Avenue support offices	Aberdeen, Maryland	70,000	Leased

The following table sets forth information about the Company's stores as of March 15, 2002. The majority of the Company's stores are leased. Store leases generally require the Company to pay a fixed minimum rent and a variable amount based on a percentage of annual sales at that location. 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 maintenance and is responsible for 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 20 years. Off 5th leases typically have shorter terms.

9

	Owned Locations		Leased Locations		Total
Store Name	Number of Units	Gross Square Feet (in mil.)	Number of Units	Gross Square Feet (in mil.)	Number of Units	Gross Square Feet (in mil)	Locations
Proffitt's	8	1.0	18	1.5	26	2.5	Southeast
McRae's	15	2.1	13	1.2	28	3.3	Southeast
Younkers	5	0.6	45	4.3	50	4.9	Midwest
Parisian	12	1.5	29	3.4	41	4.9	Southeast and Midwest
Herberger's	5	0.6	35	2.2	40	2.8	Midwest
Carson Pirie Scott	8	1.7	25	3.3	33	5.0	Midwest
Boston Store	7	1.2	4	0.4	11	1.6	Midwest
Bergner's	5	0.6	8	0.9	13	1.5	Midwest
Saks Fifth Avenue	29	3.8	32	2.5	61	6.3	National
Off 5th	1	0.0	51	1.4	52	1.4	National
Totals	95	13.1	260	21.1	355	34.2

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.

10

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	50	Chairman of the Board of Directors and Chief Executive Officer
Stephen I. Sadove	50	Vice Chairman; Director
James A. Coggin	60	President and Chief Administrative Officer; Director
Doulgas E. Coltharp	40	Executive Vice President and Chief Financial Officer
Brian J. Martin	45	Executive Vice President of Law and General Counsel
Donald E. Wright	44	Executive Vice President of Finance and Chief Accounting Officer
Julia A. Bentley	43	Senior Vice President of Investor Relations and Communications; Corporate Secretary

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. R. Brad Martin is the brother of Brian J. Martin.

Stephen I. Sadove joined the Company in January 2002 as Vice Chairman. Mr. Sadove served as Senior Vice President of Bristol-Myers Squibb and President of Bristol-Myers Squibb Worldwide Beauty Care from 1996 until January 2002. From 1991 until 1996, Mr. Sadove held various other executive positions with Bristol Myers Squibb. From 1975 until 1991, Mr. Sadove held various positions of increasing responsibility with General Foods USA.

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 1971 to March 1994, Mr. Coggin served in various management and executive positions with McRae's, Inc.

11

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. Prior to joining the Company in 1994 as Vice President and General Counsel, Mr. Martin was affiliated with the Indianapolis, Indiana law firm of Barnes and Thornburg and served as Assistant Solicitor General of the United States. Brian J. Martin is the brother of R. Brad Martin.

Donald E. Wright was promoted to Executive Vice President and Chief Accounting Officer in February 2001. Prior to that, he served as Senior Vice President of Finance and Chief Accounting Officer since joining the Company in April 1997. Prior to joining the Company, Mr. Wright was a Partner with the international accounting firm of Coopers & Lybrand LLP (now PricewaterhouseCoopers LLP).

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.

12

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 66 of the Saks Incorporated Annual Report to Shareholders for the Fiscal Year Ended February 2, 2002 (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 20 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 21 through 32 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. The effects of changes in interest rates on earnings generally have been small relative to other factors that also affect earnings, such as sales and operating margins. 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 uses derivative financial instruments as part of an overall risk management program in order to manage the costs and risks associated with various financial exposures. The Company does not enter into derivative instruments for trading purposes, as clearly defined in its risk management policies. The Company is exposed to interest rate risk primarily through its securitization, borrowings, and derivative financial instrument activities, which are described in Notes 3, 6, and 2 to the Consolidated Financial Statements appearing on pages 40, 45, and 39 respectively, of the Annual Report and are incorporated herein by reference.

Based on the Company's market risk sensitive instruments (including variable rate debt and derivative financial instruments) outstanding at February 2, 2002, 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 33 through 65 of the Annual Report are incorporated herein by reference.

13

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

None.

14

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 7 of the Saks Incorporated Proxy Statement dated April 30, 2002 (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 20 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 x and x through xx, 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" and "Certain Transactions" contained on pages 7 and 8 and 13 respectively, of the Proxy Statement with respect to certain relationships and related transactions is incorporated herein by reference.

15

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.

November 21, 2001 -- Saks Incorporated, as borrower, entered into a new revolving credit agreement among Bank of America, N.A. as agent, and other financial institutions as lenders.

January 23, 2002 -- Saks Incorporated responds to the January 18, 2002 announcement by Moody's Investors Service, Inc., lowered its rating of Saks Incorporated's senior debt from Ba2 with a negative outlook to B1 with a stable outlook.

(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.

16

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 33 through 65 of the Saks Incorporated Annual Report to Shareholders for the Fiscal Year Ended February 2, 2002, are incorporated by reference in Item 8:

• Consolidated Balance Sheets as of February 2, 2002 and February 3, 2001
• Consolidated Statements of Income for Fiscal Years Ended February 2, 2002, February 3, 2001, and January 29, 2000
• Consolidated Statements of Changes in Shareholders' Equity for Fiscal Years Ended February 2, 2002, February 3, 2001, and January 29, 2000
• Consolidated Statements of Cash Flows for Fiscal Years Ended February 2, 2002, February 3, 2001, and January 29, 2000
• Notes to Consolidated Financial Statements

(2) Schedules to Financial Statements

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.

17

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.

 
Date: April 30, 2001 Saks Incorporated   /s/                   Douglas E. Coltharp 
Executive Vice President and 
Chief Financial Officer 
Principal Accounting Officer    /s/                                  Donald E. Wright
Donald E. Wright
Executive Vice President of Finance and
Chief Accounting Officer

18

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
Chief Executive Officer
Principal Executive Officer

/s/                                     Ronald de Waal
Ronald de Waal
Vice Chairman of the Board

/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/                                    James A. Coggin
James A. Coggin
President and Chief Administrative Officer
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/                                    George L. Jones
George L. Jones
President and Chief Executive Officer of
Saks Department Store Group
Director

/s/                                      Philip B. Miller
Philip B. Miller
Director

/s/                                   C. Warren Neel
C. Warren Neel
Director

/s/                               Stephen I. Sadove
Stephen I. Sadove
Director

/s/                           Marguerite W. Sallee
Marguerite W. Sallee
Director

/s/                          Christopher J. Stadler
Christopher J. Stadler
Director

/s/                                   Gerald Tsai, Jr.
Gerald Tsai, Jr.
Director

/s/                                  Julia A. Bentley
Julia A. Bentley
Senior Vice President and Secretary

20

FORM 10-K -- ITEM 14(a)(3) AND 14(c)
SAKS INCORPORATED AND SUBSIDIARIES

EXHIBITS

3.1	Amended and Restated Charter of Saks Incorporated (incorporated by reference from the Exhibits to the Form 10-K of Saks Incorporated for the fiscal year ended January 29, 2000)
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 of 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	Indenture, dated as of October 4, 2001, among the Company, the Subsidiary Guarantors, and Bank One Trust Company, National Association, as trustee ($141,557,000 of 9-7/8% Notes due 2011) (incorporated by reference from the Exhibits to the Form 8-K of Saks Incorporated dated October 11, 2001)
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 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 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	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)
4.10	First Amended and Restated Rights Agreement dated January 28, 2002, by and between Saks Incorporated and The Bank of New York (incorporated by reference to the Exhibits to the Saks Incorporated Form 8-K filed on April 15, 2002)
10.1	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)
10.2	Credit Agreement among Saks Incorporated, as borrower, Bank of America, N.A., as Agent, and the other financial institutions party thereto, as lenders (incorporated by reference from the Saks Incorporated Form 8-K dated November 21, 2001)
10.3	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)
10.4	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 Proffitt's Credit Card Master Trust Current Report on Form 8-K filed on September 23, 1997, Exhibits to the Current Report on Form 8-K filed on February 18, 1998 and Exhibits to the Current Report on Form 8-K filed on July 2, 1999).
10.5	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).
10.6	Transfer and Administration Agreement dated as of July 1, 1999 among Enterprise Funding Corporation, Saks Transitional Credit Corporation, Saks Incorporated, and NationsBank, N.A. (incorporated by reference from the Exhibits to the Form 10-K of Saks Incorporated for the fiscal year ended January 29, 2000)
10.7	Receivables Purchase Agreement dated as of July 1, 1999 among National Bank of the Great Lakes, Saks Transitional Credit Corporation, and Saks Incorporated (incorporated by reference from the Exhibits to the Form 10-K of Saks Incorporated for the fiscal year ended January 29, 2000)
10.8	Series 2001-1 Supplement dated as of March 1, 2001 among Saks Credit Corporation, Saks Incorporated, and Wells Fargo Bank Minnesota, National Association, as trustee, under the Master Pooling and Servicing Agreement dated as of August 21, 1997 (incorporated by reference from the Exhibits to the Form 8-K filed by Saks Credit Card Master Trust on April 19, 2001)
10.9	Certificate Purchase Agreement dated as of March 1, 2001 among Saks Credit Corporation, Saks Incorporated, Enterprise Funding Corporation, and Bank of America, N.A. (Series 2001-1) (incorporated by reference from the Exhibits to the Form 8-K filed by Saks Credit Card Master Trust on April 19, 2001)
10.10	*Third Amended and Restated Series 1997-1 Supplement dated as of November 19, 2001 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
10.11	*Third Amended and Restated Certificate Purchase Agreement (Series 1997-1) dated as of November 19, 2001 among the Saks Credit Corporation, Saks Incorporated, Enterprise Funding Corporation, Falcon Asset Securitization Corporation, Windmill Funding Corporation, Bank of America, N.A., Bank One, NA, and ABN AMRO Bank N.V.
MANAGEMENT CONTRACTS, COMPENSATORY PLANS, OR ARRANGEMENTS, ETC.
10.12	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)
10.13	*Saks Incorporated Amended and Restated Employee Stock Purchase Plan
10.14	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)
10.15	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 February 3, 2001)
10.16	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)
10.17	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)
10.18	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)
10.19	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)
10.20	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)
10.21	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)
10.22	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)
10.23	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)
10.24	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.)
10.25	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.)
10.26	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.)
10.27	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)
10.28	Carson Pirie Scott & Co. Supplemental Executive Retirement Plan (incorporated by reference to Carson Pirie Scott & Co. Common Shares Registration Statement No. 33-67514)
10.29	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)
10.30	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)
10.31	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)
10.32	Saks Fifth Avenue Retirement Savings Plan (incorporated by reference from the Exhibits to the Form S-8 Saks Incorporated Registration Statement No. 333-66759)
10.33	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)
10.34	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)
10.35	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)
10.36	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)
10.37	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)
10.38	$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 Saks Incorporated for the fiscal year ended January 28, 1989)
10.39	Promissory Note for $885,000 between Saks Incorporated and R. Brad Martin dated April 28, 2000 (incorporated by reference from the Exhibits to the Form 10-K of Saks Incorporated for the fiscal year ended February 3, 2001)
10.40	Promissory Note for $265,000 between Saks Incorporated and James A. Coggin dated April 14, 2000 (incorporated by reference from the Exhibits to the Form 10-K of Saks Incorporated for the fiscal year ended February 3, 2001)
10.41	Promissory Note for $255,000 between Saks Incorporated and Douglas E. Coltharp dated April 14, 2000 (incorporated by reference from the Exhibits to the Form 10-K of Saks Incorporated for the fiscal year ended February 3, 2001)
10.42	Promissory Note for $110,000 between Saks Incorporated and Brian J. Martin dated April 14, 2000 (incorporated by reference from the Exhibits to the Form 10-K of Saks Incorporated for the fiscal year ended February 3, 2001)
10.43	Promissory Note for $200,000 between Saks Incorporated and Donald E. Wright dated April 14, 2000 (incorporated by reference from the Exhibits to the Form 10-K of Saks Incorporated for the fiscal year ended February 3, 2001)
10.44	Form of Eighth Amended and Restated Employment Agreement by and between R. Brad Martin, Chairman and Chief Executive Officer, and Saks Incorporated dated May 31, 2001 (incorporated by reference from the Exhibits to the Form 10-Q of Saks Incorporated for the quarter ended August 4, 2001)
10.45	*Form of Amendment No. 1 dated as of February 2, 2002 to Amended and Restated Employment Agreement between Saks Incorporated and R. Brad Martin
10.46	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)
10.47	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)
10.48	Form of Employment Agreement by and between Saks Incorporated and James A. Coggin, President and Chief Administrative Officer, dated November 1, 2000 (incorporated by reference from the Exhibits to the Form 10-Q of Saks Incorporated for the quarter ended October 29, 2000)
10.49	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)
10.50	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)
10.51	Form of Employment Agreement between Saks Incorporated and Douglas E. Coltharp, Executive Vice President and Chief Financial Officer, dated November 1, 2000 (incorporated by reference from the Exhibits to the Form 10-Q of Saks Incorporated for the quarter ended October 29, 2000)
10.52	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)
10.53	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)
10.54	Form of Employment Agreement between Saks Incorporated and Brian J. Martin, Executive Vice President and General Counsel, dated November 1, 2000 (incorporated by reference from the Exhibits to the Form 10-Q of Saks Incorporated for the quarter ended October 29, 2000)
10.55	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)
10.56	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)
10.57	Form of Employment Agreement by and between Saks Incorporated and Donald E. Wright, Executive Vice President of Finance and Chief Accounting Officer, dated November 1, 2000 (incorporated by reference from the Exhibits to the Form 10-Q of Saks Incorporated for the quarter ended October 29, 2000)
10.58	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)
10.59	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)
10.60	Form of Saks Incorporated 1998 Senior Executive Bonus Plan (incorporated by reference from the Exhibits to the Form 10-K of Saks Incorporated for the fiscal year ended January 29, 2000)
10.61	Form of Saks Fifth Avenue Pension Plan -- 1998 Restatement (incorporated by reference from the Exhibits to the Form 10-K of Saks Incorporated for the fiscal year ended January 29, 2000)
10.62	Proffitt's, Inc. 1998 Senior Executive Bonus Plan (incorporated by reference from Exhibit A to the Proffitt's, Inc. proxy statement dated May 4, 1998)
10.63	Saks Incorporated Executive Severance Plan effective September 13, 2000 (incorporated by reference from the Exhibits to the Form 10-K of Saks Incorporated for the fiscal year ended February 3, 2001)
10.64	*Form of Employment Agreement by and between Saks Incorporated and Stephen I. Sadove, Vice Chairman of Saks Incorporated, dated January 7, 2002
13.1	*Annual Report to Shareholders for the fiscal year ended February 2, 2002 (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
99.1	*Cautionary Statements Relating to Forward-Looking Information
99.2	*Saks Incorporated Employee Stock Purchase Plan Financials Statements for the Years Ended December 31, 2001 and 2000

* Filed as a current year Exhibit.

EX-10

EXHIBIT 10.10

SAKS CREDIT CORPORATION
(as successor to Proffitt's Credit Corporation),
as Transferor

and

SAKS INCORPORATED
(formerly named "Proffitt's, Inc."),
as Servicer

and

WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION
(formerly named "Norwest Bank Minnesota, National Association"),
as Trustee

on behalf of the Certificateholders

______________________________

THIRD AMENDED AND RESTATED SERIES 1997-1 SUPPLEMENT

Dated as of November 19, 2001

to

MASTER POOLING AND SERVICING AGREEMENT

Dated as of August 21, 1997

______________________________

$315,000,000

SAKS CREDIT CARD MASTER TRUST
(formerly named the "Proffitt's Credit Card Master Trust")

Series 1997-1

TABLE OF CONTENTS

		Page
PRELIMINARY STATEMENTS		1
SECTION 1.	Designation	2
SECTION 2.	Definitions	2
SECTION 3.	Minimum Transferor Interest Percentage	17
SECTION 4.	Reassignment and Transfer Terms	17
SECTION 5.	Delivery and Payment for the Certificates	17
SECTION 6.	Form of Delivery of the Series 1997-1 Certificates	17
SECTION 7.	Servicing Compensation	18
SECTION 8.	Article IV of the Agreement	18
ARTICLE IV	RIGHTS OF SERIES 1997-1 CERTIFICATEHOLDERS AND ALLOCATION AND APPLICATION OF COLLECTIONS	19
SECTION 4.2	Collections and Allocations	19
SECTION 4.3	Determination of Monthly Principal	20
SECTION 4.4	Application of Collections of Finance Charge Receivables	20
SECTION 4.5	Application of Collections of Principal Receivables	25
SECTION 4.6	Defaulted Amounts; Senior Class Investor Charge Offs	27
SECTION 4.7	Shared Principal Collections	28
SECTION 4.8	Shared Excess Finance Charge Collections	29
SECTION 4.9	Additional Issuances of Senior Class Certificates	29
SECTION 4.10	Additional Issuances of Subordinate Class Certificates	30
SECTION 4.11	Spread Account	31
SECTION 9.	Articles V of the Agreement	33
ARTICLE V	DISTRIBUTIONS AND REPORTS TO CERTIFICATEHOLDERS	33
SECTION 5.1	Distributions	33
SECTION 5.2	Reports and Notices to Series 1997-1 Certificateholders	34
SECTION 10.	Pay Out Events	35
SECTION 11.	Consent to Issuance of Additional Series	38
SECTION 12.	[Reserved]	38
SECTION 13.	Increase or Reduction of Discount Percentage	38
SECTION 14.	Access to Information	38
SECTION 15.	Series 1997-1 Investor Exchange	38
SECTION 16.	Certificate Defeasance	39
SECTION 17.	Transfer of Series 1997-1 Certificates; Legends	39
SECTION 18.	Ratification of Master Pooling and Servicing Agreement	44
SECTION 19.	Counterparts	44
SECTION 20.	Governing Law	44
SECTION 21.	Subordination of Certain Termination Payments	45
SECTION 22.	Opinions of Counsel	45
SECTION 23.	No Third-Party Beneficiaries	45

EXHIBITS

EXHIBIT A-1	Form of Senior Class Certificate
EXHIBIT A-2	Form of Subordinate Class Certificate
EXHIBIT B	Form of Monthly Payment Instructions
EXHIBIT C	Form of Monthly Certificateholder's Statement
EXHIBIT D	Transfer of Certification

        THIS THIRD AMENDED AND RESTATED SERIES 1997-1 SUPPLEMENT, dated as of November 19, 2001 (this "Series Supplement"), is by and among SAKS CREDIT CORPORATION (as successor to Proffitt's Credit Corporation), a Delaware corporation, as Transferor (the "Transferor"), SAKS INCORPORATED (formerly named "Proffitt's, Inc."), a Tennessee corporation, as Servicer (the "Servicer"), and WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION (formerly named "Norwest Bank Minnesota, National Association"), a national banking association, as trustee (together with its successors in trust thereunder as provided in the Agreement referred to below, the "Trustee") under the Master Pooling and Servicing Agreement, dated as of August 21, 1997 (as amended, restated and supplemented from time to time, the "Master Pooling and Servicing Agreement" and, as supplemented by this Series Supplement, the "Agreement").

PRELIMINARY STATEMENTS

        Section 6.9 of the Master Pooling and Servicing Agreement provides, among other things, that the Transferor and the Trustee may at any time and from time to time enter into one or more Supplements to the Master Pooling and Servicing Agreement for the purpose of authorizing the issuance by the Trust to the Transferor, for execution and redelivery to the Trustee for authentication, of one or more Series of Certificates. The Transferor and the Servicer entered into a Supplement (the "Original Supplement"), dated as of August 21, 1997 with the Trustee as required by Section 6.9(c) of the Master Pooling and Servicing Agreement to provide for the issuance, authentication and delivery of the Investor Certificates of Series 1997-1. The Series 1997-1 Certificates are not and shall not be subordinated to any other Series. As of December 1, 1998, and pursuant to both the Master Pooling and Servicing Agreement and the Original Supplement, the Origin al Supplement was amended and restated in its entirety by the First Amended and Restated Series 1997-1 Supplement (the "First Amended Supplement") entered into by the Transferor, the Servicer and the Trustee. The First Amended Supplement subsequently was amended by Amendments Numbers 1 and 2. As of June 28, 2001, pursuant to both the Master Pooling and Servicing Agreement and the First Amended Supplement, the First Amended Supplement was amended and restated in its entirety by the Second Amended and Restated Series 1997-1 Supplement (the "Second Amended Supplement") entered into by the Transferor, the Servicer and the Trustee.

        In accordance with the Master Pooling and Servicing Agreement and the Second Amended Supplement, the Transferor, the Servicer and the Trustee hereby enter into this Series Supplement, which amends and restates the Second Amended Supplement in its entirety. Pursuant to this Series Supplement, the Transferor will, among other things, cancel the Class A-4 Variable Funding Certificates, Series 1997-1, issued on June 28, 2001.

        In the event that any term or provision contained herein shall conflict with or be inconsistent with any term or provision contained in the Master Pooling and Servicing Agreement, the terms and provisions of this Series Supplement shall govern.

1

        SECTION 1. Designation. The Certificates issued hereunder are designated generally as the Series 1997-1 Certificates. The Series 1997-1 Certificates are one of the Series of Investor Certificates in Group One and are a Principal Sharing Series. The Investor Certificates of Series 1997-1 (collectively, the "Series 1997-1 Certificates") were issued initially in three classes, which were designated generally as the Class A-1 Variable Funding Certificates, Series 1997-1, the Class A-2 Variable Funding Certificates, Series 1997-1 and the Subordinate Class Certificates, Series 1997-1. Each of the Class A-1 Variable Funding Certificates, Series 1997-1, the Class A-2 Variable Funding Certificates, Series 1997-1, the Class A-3 Variable Funding Certificates, Series 1997-1 and the Class A-4 Variable Funding Certificates, Series 1997-1, and the initial Subordinate Class Certificates, Series 1997-1 were subsequently cancelled. Additional Sub ordinate Class Certificates were issued December 1, 1998 and designated generally as the Subordinate Class Certificate, Series 1997-1, and remain outstanding. Pursuant to the Second Amended Supplement, additional Senior Class Certificates were issued in four classes, designated generally as the Class A-1 Variable Funding Certificates, Series 1997-1, the Class A-2 Variable Funding Certificates, Series 1997-1, the Class A-3 Variable Funding Certificates, Series 1997-1 and the Class A-4 Variable Funding Certificates, Series 1997-1, respectively. Pursuant to this Series Supplement, the Class A-4 Variable Funding Certificate, Series 1997-1 shall be cancelled.

        SECTION 2. Definitions. All capitalized terms not otherwise defined herein are defined in the Master Pooling and Servicing Agreement. All Article, Section or subsection references herein shall mean Articles, Sections or subsections of the Master Pooling and Servicing Agreement, except as otherwise provided herein. Unless otherwise stated herein, as the context otherwise requires or if such term is otherwise defined in the Master Pooling and Servicing Agreement, each capitalized term used or defined herein shall relate only to the Series 1997-1 Certificates and no other Series of Certificates issued by the Trust.

2

        The following words and phrases shall have the following meanings with respect to the Series 1997-1 Certificates and the definitions of such terms are applicable to the singular as well as the plural form of such terms and to the masculine as well as the feminine and neuter genders of such terms:

        "Accrued Interest Component" shall mean, for any Monthly Period for any Senior Class, the Interest Component of all Related Commercial Paper outstanding with respect to such Senior Class at any time during such Monthly Period which has accrued from the first day through the last day of such Monthly Period, whether or not such Related Commercial Paper matures during such Monthly Period. For purposes of the immediately preceding sentence, the portion of the Interest Component of Related Commercial Paper accrued in a Monthly Period which Related Commercial Paper has a stated maturity date that succeeds the last day of such Monthly Period shall be computed based on the actual number of days that such Related Commercial Paper was outstanding during such Monthly Period.

        "Additional Investor Amount" shall have the meaning specified in the Certificate Purchase Agreement.

        "Additional Senior Class Certificates" shall have the meaning specified in Section 4.9(a).

        "Adjustment Payment Obligations Ratio" shall mean, with respect to any Monthly Period, the percentage equivalent of a fraction, computed as of the last day of each Monthly Period, the numerator of which is the product of (a) the aggregate amount by which Receivables are reduced or cancelled as a result of any defective, rejected or returned merchandise or services and all credits, rebates, discounts, disputes, warranty claims, repossessed or returned goods, chargebacks, allowances, or any other downward adjustments to the balance of such Receivable without receiving Collections therefor and prior to such Receivable becoming a Defaulted Receivable (whether effected through the granting of credits against the applicable Receivables or by the issuance of a check or other payment in respect of (and as payment for) such reduction) by an Eligible Originator, the Transferor or the Servicer, in respect of Receivables during such Monthly Period and (b) the Dilution Factor (as defined in the next sentence), and the denominator of which is the Aggregate Principal Receivables as of the last day of the preceding Monthly Period. "Dilution Factor" means (i) with respect to all Receivables arising under Accounts established using the Servicer's Saks Fifth Avenue, Off Fifth, Bullock & Jones and Folio tradenames, 0.4269, and (ii) with respect to all other Receivables, 0.5273, in each case determined by the Servicer based on procedures performed on statistically valid, random samples of the Receivables.

3

       "Agent" shall mean Bank of America, N.A. (formerly named "NationsBank, N.A."), in its capacity as agent for the Senior Class Conduits and the Bank Investors pursuant to the Certificate Purchase Agreement, and any successor thereto appointed pursuant to the Certificate Purchase Agreement.

        "Aggregate Initial Investor Amount" shall mean the sum of the Class A-1 Initial Investor Amount, the Class A-2 Initial Investor Amount, the Class A-3 Initial Investor Amount and the Subordinate Class Initial Investor Amount.

        "Aggregate Investor Amount" shall mean, on any date of determination, the sum of the Investor Amounts for all Classes on such date.

        "Amortization Period" shall mean the period commencing at the close of business on the Termination Date and ending on the date on which the Aggregate Investor Amount and any other amounts outstanding to the Investor Certificateholders under the Transaction Documents have been paid in full.

        "Assignee" shall have the meaning specified in Section 17 of this Series Supplement.

        "Available Spread Account Amount" shall mean, with respect to any Distribution Date, the lesser of (a) the amount held in and available to be withdrawn from the Spread Account on such date (before giving effect to any deposit or withdrawal to be made to or from the Spread Account on such date) and (b) the Required Spread Account Amount for such Distribution Date.

        "Average Excess Spread Percentage" shall mean, for any Distribution Date, the average of the Excess Spread Percentage for the three consecutive Monthly Periods preceding such Distribution Date; provided, however, that (i) for the December 2001 Distribution Date, the Average Excess Spread Percentage shall equal the Excess Spread Percentage for the November 2001 Monthly Period; and (ii) for the January 2002 Distribution Date, the Average Excess Spread Percentage shall equal the average of the Excess Spread Percentages calculated for the November 2001 Monthly Period (as calculated pursuant to the preceding clause (i)) and for the December 2001 Monthly Period.

4

        "Bank Investors" shall have the meaning specified in the Certificate Purchase Agreement.

        "Base Rate" shall mean, with respect to any Monthly Period, the sum of (a) the annualized percentage equivalent of a fraction, the numerator of which is equal to the aggregate Carrying Costs for all Senior Classes for such Monthly Period and the denominator of which is the average Aggregate Investor Amount for such Monthly Period and (b) 2.00%.

        "Business Day" shall have the meaning specified in the Master Pooling and Servicing Agreement; provided, however, that the cities specified in the definition of "Business Day" in the Master Pooling and Servicing Agreement shall also include Charlotte, North Carolina and Chicago, Illinois.

        "Carrying Costs" shall mean, for each Senior Class, with respect to any Monthly Period, the sum (without duplication) of (i) the sum of the dollar amount of the obligations of the Senior Class Conduit which is a member of such Senior Class for such Monthly Period determined on an accrual basis in accordance with generally accepted accounting principles consistently applied (a) to pay interest accrued during such Monthly Period with respect to the related Senior Class Certificates and other amounts outstanding under the related Program Support Agreement at any time during such Monthly Period, whether or not such interest is payable during such Monthly Period, (b) to pay the Accrued Interest Component of Related Commercial Paper for such Senior Class with respect to such Monthly Period, and (c) to pay the portion of any servicing compensation payable to a Successor Servicer pursuant to Section 4.2 allocable to such Senior Class, and (ii) the sum of (a) amounts payable in respect of such Senior Class by the Transferor pursuant to Section 7.3 of the Master Pooling and Servicing Agreement and Article IV of the Certificate Purchase Agreement, (b) to pay interest, and other amounts without duplication of any other amount, accrued as specified in Section 2.6 of the Certificate Purchase Agreement during the related Monthly Period to each related Program Support Provider and each related Bank Investor which has acquired an interest in such Senior Class Certificates and (c) to pay all fees payable pursuant to the Fee Letter for such Senior Class accrued from the first day of such Monthly Period through the last day of such Monthly Period to the extent not paid by the Transferor in accordance with the provisions of the Certificate Purchase Agreement and such Fee Letter.

5

        "Certificate Purchase Agreement" shall mean the Third Amended and Restated Certificate Purchase Agreement, dated as of November 19, 2001, by and among the Transferor, the Servicer, EFC, Falcon, Windmill, the Bank Investors parties thereto, the Agent and the Senior Class Agents, as amended, modified or supplemented from time to time.

        "Certificate Rate" shall mean for each Senior Class, with respect to the Monthly Period related to any Distribution Date, a per annum interest rate which if multiplied by the average daily Senior Class Investor Amount for such Monthly Period, would produce, on the basis of the actual number of days in such Monthly Period and a 360-day year, an amount equal to the Carrying Costs for such Senior Class.

        "Certificateholder" shall mean each holder of a Series 1997-1 Certificate.

        "Certificates" shall mean any one of the Senior Class Certificates or the Subordinate Class Certificates.

        "Class" shall mean each of the Senior Classes and the Subordinate Class.

        "Class A-1 Initial Investor Amount" shall mean the aggregate initial principal amount of the Class A-1 Variable Funding Certificates, which is $41,600,000.

        "Class A-2 Initial Investor Amount" shall mean the aggregate initial principal amount of the Class A-2 Variable Funding Certificates, which is $41,600,000.

        "Class A-3 Initial Investor Amount" shall mean the aggregate initial principal amount of the Class A-3 Variable Funding Certificates, which is $41,600,000.

        "Closing Date" shall mean November 19, 2001.

        "Commercial Paper" shall have the meaning specified in the Certificate Purchase Agreement.

        "Defeasance Account" shall have the meaning specified in Section 16(b) of this Series Supplement.

        "EFC" shall mean Enterprise Funding Corporation, a Delaware corporation, together with its successors and permitted assigns.

6

        "Enhancement" shall mean, with respect to the Senior Class Certificates, the subordination of the Subordinate Class Certificates and the Spread Account.

        "Enhancement Investor Amount" shall mean the Subordinate Class Investor Amount.

        "Enhancement Provider" shall mean each of the holders of the Subordinate Class Certificates.

        "Excess Spread Percentage" means, for any Monthly Period, the amount (expressed as a percentage), if any, by which (i) the Portfolio Yield for such Monthly Period exceeds (ii) the Base Rate for such Monthly Period.

        "Face Amount" shall mean (i) with respect to Commercial Paper issued on a discount basis, the face amount stated therein, and (ii) with respect to Commercial Paper which is interest-bearing, the principal amount of and interest accrued and to accrue on such Commercial Paper to its stated maturity.

        "Falcon" shall mean Falcon Asset Securitization Corporation, a Delaware corporation, together with its successors and permitted assigns.

        "Finance Charge Shortfall" shall have the meaning specified in Section 4.8.

        "Fixed/Floating Allocation Percentage" shall mean for each Class, with respect to any Monthly Period (with respect to Collections of Principal Receivables for any Monthly Period during the Amortization Period and with respect to Collections of Finance Charge Receivables for any Monthly Period during an Amortization Period in which a Pay Out Event has occurred), the percentage equivalent of a fraction the numerator of which is equal to the Investor Amount of such Class as of the end of the last day of the Revolving Period and the denominator of which is equal to the greater of (i) (x) the Aggregate Principal Receivables as of the last day of such Monthly Period plus (y) the amount on deposit in the Excess Funding Account as of the last day of such Monthly Period, and (ii) the sum of the numerators used to calculate the applicable investor percentages with respect to Collections of Principal Receivables or Finance Charge Receivables, a s applicable, for any Monthly Period during the Amortization Period for each class of each Series outstanding as of the date on which such determination is being made.

7

        "Floating Allocation Percentage" shall mean for each Class, with respect to any Monthly Period (with respect to Collections of Principal Receivables for any Monthly Period during the Revolving Period, with respect to Collections of Finance Charge Receivables at any time other than for any Monthly Period during an Amortization Period in which a Pay Out Event has occurred and with respect to the Default Amount and Adjustment Payment Obligations at any time), the percentage equivalent of a fraction the numerator of which is equal to the Investor Amount of such Class as of the last day of the preceding Monthly Period (provided that during any Monthly Period during which any Additional Investor Amounts are purchased with respect to a Senior Class, from and after the date of such purchase to and including the last day of such Monthly Period, the above-described numerator shall be equal to the Investor Amount of such Class after giv ing effect to any such purchase) and the denominator of which is equal to the greater of (i) (x) the sum of the Aggregate Principal Receivables as of the last day of the preceding Monthly Period plus (y) the amount on deposit in the Excess Funding Account as of the last day of the preceding Monthly Period, and (ii) the sum of the numerators used to calculate the applicable investor percentages with respect to Collections of Principal Receivables and Collections of Finance Charge Receivables, as applicable, for any Monthly Period during the Revolving Period and with respect to the Default Amount and Adjustment Payment Obligations, as applicable, for each class of each Series outstanding as of the date on which such determination is being made.

        "Group One" shall mean Series 1997-1 and each other Series specified in the related Series Supplement to be included in Group One.

        "Indebtedness" shall have the meaning specified in the Certificate Purchase Agreement.

        "Initial Closing Date" shall mean August 21, 1997.

        "Initial Investor Amount" shall mean the Class A-1 Initial Investor Amount, the Class A-2 Initial Investor Amount and the Class A-3 Initial Investor Amount or, with respect to any other Senior Class, the aggregate initial principal amount of the Certificates held by the related Senior Class Conduit or Bank Investors.

        "Interest Component" shall mean, with respect to Commercial Paper issued by a Senior Class Conduit, an amount equal to the "weighted average cost" (as defined below) related to the issuance of Commercial Paper by such Senior Class Conduit that is allocated, in whole or in part, to maintain such Senior Class Conduit's

8

investment in the Senior Class Certificates; provided, however, that if any component of such cost is determined on the basis of a discount rate in calculating the Interest Component, the rate used to calculate such component of such cost shall be a rate resulting from converting such discount rate to an interest bearing equivalent rate per annum. As used in this definition, the "weighted average cost" shall consist of (x) the actual amount to be paid at maturity to purchasers of the Commercial Paper issued by the related Senior Class Conduit (which cost shall reflect and give effect to the commissions of placement agents and dealers in respect of such Commercial Paper, to the extent such commissions are allocated, in whole or in part, to such Commercial Paper by such Senior Class Conduit and are not otherwise paid by the Transferor pursuant to any Fee Letter), (y) the costs associated with the issuance of such Commercial Paper as set forth in the Fee Letter, and (z) interes t costs on other borrowing or funding sources by the related Senior Class Conduit (other than under any Program Support Agreement), including to fund small or odd dollar amounts that are not easily accommodated in the commercial paper market; provided, further, that if any Senior Class Conduit shall employ "pool funding" to maintain such Senior Class Conduit's investment in the Senior Class Certificates, the cost of such funding shall be determined in accordance with such Senior Class Conduit's standard practices.

        "Investor Amount" shall mean, with respect to each Senior Class, the Senior Class Investor Amount for such Senior Class and, with respect to the Subordinate Class, the Subordinate Class Investor Amount.

        "Investor Charge Offs" shall mean, with respect to any date of determination, the sum of the Senior Class Investor Charge Offs and the Subordinate Class Investor Charge Offs for such date of determination.

        "Investor Default Amount" shall mean for each Class, with respect to any Distribution Date, an amount equal to the product of (a) the Default Amount for the immediately preceding Monthly Period and (b) the Investor Percentage for such Class with respect to such preceding Monthly Period.

        "Investor Finance Charge Collections" shall mean for each Class, with respect to any Monthly Period, the product of (a) the Investor Percentage for such Class with respect to such Monthly Period and (b) the Collections of Finance Charge Receivables for such Monthly Period.

9

        "Investor Monthly Servicing Fee" shall have the meaning specified in Section 7 of this Series Supplement.

        "Investor Percentage" shall mean for each Class, with respect to any Monthly Period, (a) when used with respect to Collections of Principal Receivables during the Revolving Period, the Floating Allocation Percentage, (b) when used with respect to Collections of Principal Receivables during the Amortization Period, the Fixed/Floating Allocation Percentage, (c) when used with respect to Collections of Finance Charge Receivables during the Revolving Period, or the Default Amount or Adjustment Payment Obligations at any time, the Floating Allocation Percentage, and (d) when used with respect to Collections of Finance Charge Receivables during an Amortization Period in which a Pay Out Event has occurred, the Fixed/Floating Allocation Percentage.

        "Investor Servicer Advance" shall mean for each Senior Class the aggregate amount of all Servicer Advances made with respect to such Senior Class pursuant to Section 4.4(b).

        "Minimum Enhancement Amount" shall mean, as of any date of determination, the greater of (i) 20.0% of the Aggregate Investor Amount as of such date or (ii) $10,000,000.

        "Minimum Transferor Interest Percentage" shall have the meaning specified in Section 3 of this Series Supplement.

        "Monthly Period" shall have the meaning specified in the Master Pooling and Servicing Agreement.

        "Payment Rate" shall mean the percentage equivalent of a fraction, computed as of the last day of each Monthly Period, the numerator of which is the amount of all Collections of Receivables during such Monthly Period and the denominator of which is the aggregate amount of Receivables as of the last day of the immediately preceding Monthly Period.

        "Pay Out Event" shall mean a Pay Out Event as specified in Section 9.1 of the Master Pooling and Servicing Agreement or Section 10 of this Series Supplement.

10

        "Portfolio Adjusted Yield" shall mean, with respect to any Monthly Period, the Portfolio Yield with respect to such Monthly Period minus the Base Rate with respect to such Monthly Period.

        "Portfolio Yield" shall mean, with respect to any Monthly Period, the annualized percentage equivalent of a fraction, the numerator of which is equal to (a) the amount of Collections of Finance Charge Receivables that are allocated to Series 1997-1 with respect to such Monthly Period, minus (b) the aggregate Investor Default Amount for all Classes of this Series for such Monthly Period and the denominator of which is the average Aggregate Investor Amount for such Monthly Period.

        "Potential Pay Out Event" shall have the meaning specified in the Certificate Purchase Agreement.

        "Principal Shortfall" shall have the meaning specified in Section 4.7.

        "Pro Rata Share" shall mean, for each Senior Class, on any date of determination, the amount (expressed as a percentage) obtained by dividing the Senior Class Investor Amount for such Class by the sum of the Senior Class Investor Amounts for all Senior Classes as of the close of business on the immediately preceding Business Day; provided, however, that in the case of any Additional Investor Amount where all Senior Class Agents shall agree in writing to any other "Pro Rata Share", the "Pro Rata Share" for each Senior Class for such Additional Investor Amount shall be as so agreed provided that the total of such "Pro Rata Shares" equals 100%; provided further, that "Pro Rata Share" when used with respect to a Monthly Period shall mean for each Senior Class the weighted average Pro Rata Share for each day during such Monthly Period for such Senior Class.

        "Program Support Agreement" shall have the meaning specified in the Certificate Purchase Agreement.

        "Program Support Provider" shall have the meaning specified in the Certificate Purchase Agreement.

        "Reallocated Subordinate Class Principal Collections" shall have the meaning specified in Section 4.4(c).

11

        "Related Commercial Paper" shall have the meaning specified in the Certificate Purchase Agreement.

        "Required Investor Certificateholders" shall mean, with respect to any date of determination, the holders of not less than 66 2/3% of the aggregate Senior Class Investor Amounts for all Senior Classes on such date.

        "Required Spread Account Amount" shall mean, as of any Distribution Date, an amount equal to the product of (i) the Required Spread Account Percentage as shown in the following table, and (ii) the Aggregate Investor Amount as of the end of the preceding Monthly Period; provided that the Required Spread Account Amount for the November 2001 Distribution Date shall be zero. No amounts shall be held in the Spread Account as of the Closing Date.

        "Required Spread Account Percentage" shall mean, as of any Distribution Date, the respective percentages specified below, corresponding to the Average Excess Spread Percentage for that Distribution Date. Any reduction in the Required Spread Account Percentage resulting from an increase in the Average Excess Spread Percentage will not take effect until the amount on deposit in the Spread Account is greater than or equal to the Required Spread Account Amount (without giving effect to the reduction due to the increased Average Excess Spread Percentage) for three consecutive Distribution Dates (after giving effect to any withdrawals therefrom or deposits thereto on such Distribution Dates), in which case such reduction will take effect on the third of such Distribution Dates.

Average Excess Spread Percentage	Required Spread Account Percentage
> 5.5%	0.0%
> 5.0% and < 5.5%	1.5%
> 4.5% and < 5.0%	2.5%
> 4.0% and < 4.5%	3.5%
> 3.0% and < 4.0%	5.0%
≥ 1.0% and < 3.0%	7.0%

        "Revolving Period" shall mean the period from and including the Initial Closing Date to but excluding the first day of the Amortization Period.

12

        "Senior Certificateholders" shall mean each holder of a Senior Class Certificate.

        "Senior Class" shall have the meaning specified in the Certificate Purchase Agreement.

        "Senior Class Agent" shall have the meaning specified in the Certificate Purchase Agreement.

        "Senior Class Certificate Principal Balance" shall mean for a Senior Class, when used with respect to any date of determination, an amount equal to (a) the Initial Investor Amount for such Senior Class, minus (b) the aggregate amount of principal payments made to the Senior Class Certificateholders of such Senior Class prior to such day, plus (c) the aggregate initial principal amount of any Additional Investor Amounts purchased by the Senior Class Conduits or the Bank Investors of such Senior Class pursuant to Section 2.2 of the Certificate Purchase Agreement, plus (d) after an assignment to the related Bank Investors pursuant to Section 5.7 of the Certificate Purchase Agreement, any amount paid by the related Bank Investors pursuant to Section 5.7(d) of the Certificate Purchase Agreement.

        "Senior Class Certificates" shall mean any one of the variable funding certificates executed by the Transferor and authenticated by or on behalf of the Trustee, substantially in the form of Exhibit A-1 hereto.

        "Senior Class Conduit" shall have the meaning specified in the Certificate Purchase Agreement.

        "Senior Class Facility Limit" shall have the meaning specified in the Certificate Purchase Agreement.

        "Senior Class Investor Amount" shall mean for each Senior Class, on any date of determination, an amount equal to (a) the Initial Investor Amount of such Senior Class, plus (b) the aggregate initial principal amount of any Additional Investor Amounts purchased by the Senior Class Conduits or the Bank Investors of such Senior Class pursuant to Section 2.2 of the Certificate Purchase Agreement, minus (c) the aggregate amount of principal payments made to the Senior Certificateholders of such Senior Class prior to such date, minus (d) the aggregate amount of Senior Class Investor Charge Offs allocated to such Senior Class for all prior Distribution Dates, plus

13

(e) the aggregate amount of Senior Class Investor Charge Offs allocated to such Senior Class reimbursed pursuant to Section 4.4(a) prior to such date, plus (f) after an assignment to the related Bank Investors pursuant to Section 5.7 of the Certificate Purchase Agreement, any amount paid by the related Bank Investors pursuant to Section 5.7(d) of the Certificate Purchase Agreement; provided, however, that no Senior Class Investor Amount may be reduced below zero.

        "Senior Class Investor Charge Off" shall have the meaning specified in Section 4.6(a).

        "Senior Class Monthly Principal" shall have the meaning specified in Section 4.3(a).

        "Senior Class Servicing Fee" shall have the meaning specified in Section 7 of this Series Supplement.

        "Series Allocation Percentage" shall mean, with respect to any Monthly Period, (i) when used with respect to Collections of Principal Receivables during the Revolving Period, with respect to Collections of Finance Charge Receivables at any time other than for any Monthly Period during an Amortization Period in which a Pay Out Event has occurred and with respect to the Default Amount and Adjustment Payment Obligations at any time, the sum of the Floating Allocation Percentages for such Monthly Period for each Senior Class and the Subordinate Class, and (ii) when used with respect to Collections of Principal Receivables during the Amortization Period and with respect to Collections of Finance Charge Receivables during an Amortization Period in which a Pay Out Event has occurred, the sum of the Fixed/Floating Allocation Percentages for such Monthly Period for each Senior Class and the Subordinate Class.

        "Series 1997-1" shall mean the Series the terms of which are specified in this Series Supplement.

        "Series 1997-1 Certificate" shall have the meaning specified in Section 1 of this Series Supplement.

        "Series 1997-1 Certificateholder" shall mean a holder of a Series 1997-1 Certificate.

14

        "Servicer" shall have the meaning specified in the preamble to this Series Supplement.

        "Servicer Advance" shall have the meaning specified in Section 4.4(b).

        "Servicing Fee Percentage" shall mean 2.00%.

        "Shared Principal Collections" shall mean, with respect to Series 1997-1, amounts to be treated as such pursuant to Sections 4.1(h), 4.5(a) and 4.5(b) (which amounts shall be available for other Series pursuant to Section 4.1(h)).

        "Spread Account" shall have the meaning specified in Section 4.11(a).

        "Stated Series Termination Date" shall mean the fifty-second Distribution Date occurring after the Termination Date.

        "Subordinate Class" shall mean the Subordinate Class Certificates.

       "Subordinate Class Certificates" shall mean any one of the certificates executed by the Transferor and authenticated by or on behalf of the Trustee, substantially in the form of Exhibit A-2 hereto.

        "Subordinate Class Initial Investor Amount" shall mean the aggregate initial principal amount of the Subordinate Class Certificates, which is $31,200,000.

        "Subordinate Class Investor Amount" shall mean, on any date of determination, an amount equal to (a) the Subordinate Class Initial Investor Amount, plus (b) the aggregate initial principal amount of any Subordinate Class Additional Investor Amounts pursuant to Section 4.10, minus (c) the aggregate amount of principal payments made to the holders of the Subordinate Class Certificates prior to such date, minus (d) the aggregate amount of Subordinate Class Investor Charge Offs for all prior Distribution Dates, minus (e) the amount of Reallocated Subordinate Class Principal Collections allocated on all prior Distribution Dates pursuant to Section 4.4(c), minus (f) an amount equal to the amount by which the Subordinate Class Investor Amount has been reduced on all prior Distribution Dates pursuant to Section 4.6(a), plus (g) the aggregate amount by which reductions in the Subordinate Class Investor Amoun t pursuant to clauses (d), (e) and (f) above have been reimbursed pursuant to Section 4.4(a)(ii)(C) prior to such date; provided, however, that the Subordinate Class Investor Amount may not be reduced below zero.

15

        "Subordinate Class Investor Charge Off" shall have the meaning specified in Section 4.6(b).

        "Subordinate Class Investor Default Amount" shall mean, with respect to any Distribution Date, an amount equal to the product of (i) the Default Amount for the immediately preceding Monthly Period and (ii) the Floating Allocation Percentage for the Subordinate Class for such preceding Monthly Period.

        "Subordinate Class Monthly Principal" shall have the meaning specified in Section 4.3(b).

        "Subordinate Class Principal Commencement Date" shall mean the Distribution Date on which the Senior Class Investor Amounts have been paid in full.

        "Subordinate Class Servicing Fee" shall have the meaning specified in Section 7 of this Series Supplement.

        "Targeted Holder" shall mean each holder of a right to receive interest or principal with respect to the Series 1997-1 Certificates (or other interests in the Trust), other than certificates (or other such interests) with respect to which an opinion is rendered that such certificates (or other such interests) will be treated as debt for federal income tax purposes, and any holder of a right to receive any amount in respect of the Transferor Interest; provided, however, that any Person holding more than one interest each of which would cause such Person to be a Targeted Holder shall be treated as a single Targeted Holder.

        "Termination Date" shall have the meaning specified in the Certificate Purchase Agreement.

        "Transfer" shall have the meaning specified in Section 17 of this Series Supplement.

        "Transfer Date" shall mean the Business Day preceding each Distribution Date.

16

        "Transferor" shall have the meaning specified in the preamble to this Series Supplement.

        "Trustee" shall have the meaning specified in the preamble to this Series Supplement.

        "Windmill" shall mean Windmill Funding Corporation, a Delaware corporation, together with its successors and permitted assigns.

        SECTION 3. Minimum Transferor Interest Percentage. The Minimum Transferor Interest Percentage applicable to the Series 1997-1 Certificates shall be 0%.

        SECTION 4. Reassignment and Transfer Terms. The Series 1997-1 Certificates may be reassigned and transferred to the Transferor on any Distribution Date during the Amortization Period on or after which the sum of the Class A-1 Investor Amount, the Class A-2 Investor Amount, the Class A-3 Investor Amount and the Subordinate Class Investor Amount held by parties other than the Transferor or any of its Affiliates is less than or equal to 10% of the sum of the Class A-1 Initial Investor Amount, the Class A-2 Initial Investor Amount, the Class A-3 Initial Investor Amount and the highest amount of the Subordinate Class Investor Amount held by parties other than the Transferor or any of its Affiliates since the Closing Date. The repurchase price for the Series 1997-1 Certificates will be equal to (a) the Investor Amount, plus (b) accrued and unpaid interest on the Series 1997-1 Certificates and other Carrying Costs (without duplication), less (c) the amount held in the Collection Account allocable to Series 1997-1 to be applied other than any excess payable to the Transferor as holder of the Exchangeable Transferor Certificate. The provisions of this Section are subject to the provisions of Section 12.2 of the Agreement.

        SECTION 5. Delivery and Payment for the Certificates. The Trustee has delivered the Series 1997-1 Certificates upon the written direction of the Transferor as authenticated in accordance with Section 6.2 of the Master Pooling and Servicing Agreement. The Trustee shall deliver the Additional Senior Class Certificates upon the written direction of the Transferor when authenticated in accordance with Section 4.9 of this Series Supplement.

        SECTION 6. Form of Delivery of the Series 1997-1 Certificates. Each of the Series 1997-1 Certificates shall be delivered as registered, definitive, physical certificates. Each Class of Senior Class Certificates shall be issued in minimum denominations of $500,000 and in integral multiples of $1,000 in excess thereof. The Subordinate Class Certificates shall be issued in minimum denominations of $1,000 and in integral multiples of $1,000 in excess thereof.

17

        SECTION 7. Servicing Compensation. The share of the Monthly Servicing Fee allocable to the Series 1997-1 Certificateholders with respect to any Distribution Date (the "Investor Monthly Servicing Fee") shall be equal to one-twelfth of the product of (a) the Servicing Fee Percentage and (b) the average daily Aggregate Investor Amount for the related Monthly Period. The share of the Investor Monthly Servicing Fee allocable to the Senior Classes with respect to any Distribution Date (the "Senior Class Servicing Fee") shall be equal to the product of (a) the sum of the Floating Allocation Percentages for all Senior Classes divided by the sum of the Floating Allocation Percentages for all Classes, in each case with respect to the related Monthly Period, and (b) the Investor Monthly Servicing Fee with respect to such Distribution Date. The share of the Investor Monthly Servicing Fee allocable to the Subordinate Class with respect to any Distribution Date (the "Subordinate Class Servicing Fee") shall be equal to the product of (a) the Floating Allocation Percentage for the Subordinate Class divided by the sum of the Floating Allocation Percentages for all Classes, in each case with respect to the related Monthly Period, and (b) the Investor Monthly Servicing Fee with respect to such Distribution Date. The Senior Class Servicing Fee, that portion of the Senior Class Servicing Fee payable in respect of any particular Senior Class and the Subordinate Class Servicing Fee shall be payable solely to the extent amounts are available for distribution in respect thereof pursuant to this Series Supplement. The remainder of the Monthly Servicing Fee shall be paid by the Transferor or from amounts allocable to other Series (as provided in the Master Pooling and Servicing Agreement and the Supplements relating to such other Series) and in no event shall the Trust, the Trustee or the Series 1997-1 Certificateholders be liable for the shar e of the Monthly Servicing Fee to be paid by the Transferor or from amounts allocable to any other Series.

        SECTION 8. Article IV of the Agreement. Any provisions of Article IV of the Master Pooling and Servicing Agreement which distribute Collections to the Transferor on the basis of the Transferor Percentage shall continue to apply irrespective of the issuance of the Series 1997-1 Certificates. Section 4.1 shall read in its entirety as provided in the Master Pooling and Servicing Agreement. Article IV of the Agreement (except for Section 4.1 thereof) as it relates to Series 1997-1 shall read in its entirety as follows:

18

ARTICLE IV

RIGHTS OF SERIES 1997-1 CERTIFICATEHOLDERS AND
ALLOCATION AND APPLICATION OF COLLECTIONS

        Section 4.2 Collections and Allocations.

        (a) Collections of Finance Charge Receivables with respect to a Monthly Period shall be allocated to Series 1997-1 in an amount equal to the product of such Collections of Finance Charge Receivables and the Series Allocation Percentage for such Monthly Period. Collections of Principal Receivables with respect to a Monthly Period shall be allocated to Series 1997-1 in an amount equal to the product of such Collections of Principal Receivables and the Series Allocation Percentage for such Monthly Period. The Servicer shall apply, or shall instruct the Trustee to apply, all Collections and other funds on deposit in the Collection Account that are allocated to the Series 1997-1 Certificates as described in this Article IV. Provided that daily deposits of Collections are required pursuant to subsection 4.1(f) of the Master Pooling and Servicing Agreement, Collections of Finance Charge Receivables allocable to Series 1997-1 with respect to each Mont hly Period need not be deposited into the Collection Account on a daily basis provided that no Pay Out Event shall have occurred and be continuing. If daily deposits of Collections of Finance Charge Receivables are not required pursuant to Section 4.1(f) of the Master Pooling and Servicing Agreement or this Section 4.2(a), the Servicer shall deposit into the Collection Account on each Transfer Date the Series Allocation Percentage of Collections of Finance Charge Receivables with respect to the immediately preceding Monthly Period.

        (b) Provided that daily deposits of Collections are required pursuant to subsection 4.1(f) of the Master Pooling and Servicing Agreement, during the Revolving Period, so long as the Subordinate Class Investor Amount is not less than the Minimum Enhancement Amount, Collections of Principal Receivables allocable to Series 1997-1 with respect to each Monthly Period need not be deposited into the Collection Account on a daily basis during such Monthly Period; provided, however, that in the event that the Minimum Transferor Amount exceeds the Transferor Amount on any date, such Collections of Principal Receivables shall be deposited into the Excess Funding Account until the Transferor Amount equals the Minimum Transferor Amount; and provided, further, that on any date on which the sum of the Aggregate Principal Receivables and the Excess

19

Funding Amount is less than the Aggregate Investor Amount, such Collections of Principal Receivables shall be deposited into the Collection Account on a daily basis. During the Amortization Period, Collections of Principal Receivables allocable to Series 1997-1 with respect to each Monthly Period shall be deposited into the Collection Account on a daily basis.

        (c) All allocations of Collections, Default Amounts and Adjustment Payment Obligations to the Senior Classes shall be made to such classes pari passu.

        Section 4.3 Determination of Monthly Principal.

                (a) The amount of principal allocable to each Senior Class on each Distribution Date (the "Senior Class Monthly Principal"), shall be equal to the lesser of (i) the Fixed/Floating Allocation Percentage for such Senior Class of Collections of Principal Receivables with respect to the preceding Monthly Period, plus the Pro Rata Share for such Senior Class of the amount of any Shared Principal Collections with respect to other Series that are allocated to Series 1997-1 in accordance with the Master Pooling and Servicing Agreement, plus, prior to the Subordinate Class Principal Commencement Date, the Pro Rata Share for such Senior Class of the amount which would be, but for the failure of the Subordinate Class Principal Commencement Date to occur, treated hereunder as the Subordinate Class Monthly Principal for such Distribution Date, minus the amount of Reallocated Subordina te Class Principal Collections allocated to such Senior Class on such Distribution Date pursuant to Section 4.4(c) and (ii) the Senior Class Investor Amount for such Senior Class with respect to such Distribution Date.

                (b) The amount of principal allocable to the Subordinate Class on each Distribution Date (the "Subordinate Class Monthly Principal"), beginning with the Subordinate Class Principal Commencement Date, shall be equal to the lesser of (i) the Floating Allocation Percentage for the Subordinate Class of Collections of Principal Receivables with respect to the preceding Monthly Period, plus the Shared Principal Collections with respect to other Series that are allocated to Series 1997-1 in accordance with the Agreement and remaining after application pursuant to Section 4.3(a) and (ii) the Subordinate Class Investor Amount with respect to such Distribution Date.

        Section 4.4 Application of Collections of Finance Charge Receivables.

                (a) In accordance with Section 4.2(a) of the Agreement, the Servicer shall apply or shall instruct the Trustee to apply on each Distribution Date the Collections of Finance Charge Receivables and any other amounts that are to be treated as Collections of Finance Charge Receivables pursuant to the Master Pooling and

20

Servicing Agreement in each case allocable to Series 1997-1 plus the amount of any Shared Excess Finance Charge Collections allocable to Series 1997-1 to make the distributions specified in this Section 4.4.

                        (i) For each Senior Class, the sum of (x) the Pro Rata Share for such Senior Class for the related Monthly Period of Collections of Finance Charge Receivables allocable to Series 1997-1 plus (y) the Pro Rata Share for such Senior Class for the related Monthly Period of the amount of any Shared Excess Finance Charge Collections allocable to Series 1997-1 will be applied to make the following distributions to the Senior Certificateholders of each such Senior Class in the following priority:

                                    (A) an amount equal to unpaid Investor Servicer Advances for such Senior Class for the related Monthly Period, if any, shall be paid to the Servicer to repay such Investor Servicer Advances;

                                    (B) an amount equal to the Carrying Costs for such Senior Class for the related Monthly Period (less the amount of any such Carrying Costs that has been paid by an Investor Servicer Advance), plus the amount of any Carrying Costs previously due but not paid on a prior Distribution Date plus interest on any such overdue amount at the Base Rate for the prior Monthly Period plus 2.0%, shall be distributed, through the Paying Agent, to each Senior Class Agent for payment to the Certificateholders of such Class;

                                    (C) if neither Saks Incorporated nor an Affiliate of Saks Incorporated is the Servicer, an amount equal to the Pro Rata Share for such Senior Class for the related Monthly Period of the Senior Class Servicing Fee with respect to such Distribution Date, plus an amount equal to the Pro Rata Share for such Senior Class for the related Monthly Period of any Senior Class Servicing Fee previously due but not distributed to the Servicer on a prior Distribution Date, shall be distributed to, or retained by, the Servicer;

                                    (D) an amount equal to the Investor Default Amount for such Senior Class with respect to such Distribution Date, if any, shall be applied with respect to such Class in accordance with the provisions of Section 4.5 governing Collections of Principal Receivables;

21

                                    (E) an amount equal to the Floating Allocation Percentage for such Senior Class for the related Monthly Period of Adjustment Payment Obligations for the related Monthly Period which the Transferor fails to make in accordance with the Agreement shall be applied with respect to such Class in accordance with the provisions of Section 4.5 governing Collections of Principal Receivables, provided that any such application shall not relieve the Transferor of its obligations in respect of such Adjustment Payment Obligations;

                                    (F) an amount equal to the aggregate Senior Class Investor Charge Offs allocable to such Senior Class not previously reimbursed shall be applied with respect to such Class in accordance with the provisions of Section 4.5 governing Collections of Principal Receivables;

                                    (G) if Saks Incorporated or an Affiliate of Saks Incorporated is the Servicer, an amount equal to the Pro Rata Share for such Senior Class for the related Monthly Period of the Senior Class Servicing Fee for such Distribution Date, plus an amount equal to the Pro Rata Share for such Senior Class for the related Monthly Period of any Senior Class Servicing Fee previously due but not distributed to the Servicer on a prior Distribution Date, shall be distributed to, or retained by, the Servicer;

                                    (H) prior to the commencement of the Amortization Period, to the extent Investor Finance Charge Collections for any other Senior Class are insufficient to provide for the payment in respect of such other Senior Class(es) of the amounts described in clauses (A) through (F) above, the balance, if any, remaining after application pursuant to clauses (A) through (F) above shall be applied to cover any such insufficiency(ies) (pro rata among such other Senior Classes, if applicable, based on the amount of their respective Senior Class Investor Amounts);

                                    (I) an amount equal to the excess, if any, of the Required Spread Account Amount over the amount held in the Spread Account shall be deposited into the Spread Account; and

                                    (J) the balance, if any, remaining after application pursuant to clauses (A) through (I) above shall be distributed as described in clause (a)(ii) of this Section 4.4.

22

                        (ii) For the Subordinate Class, the sum of the amounts described in Section 4.4(a)(i)(J) with respect to all Senior Classes will be applied to make the following distributions to the holder of the Subordinate Class Certificate in the following priority:

                                    (A) if neither Saks Incorporated nor an Affiliate of Saks Incorporated is the Servicer, an amount equal to the Subordinate Class Servicing Fee with respect to such Distribution Date, plus an amount equal to any Subordinate Class Servicing Fee previously due but not distributed to the Servicer on a prior Distribution Date, shall be distributed to, or retained by, the Servicer;

                                    (B) an amount equal to the Investor Default Amount for the Subordinate Class with respect to such Distribution Date, if any, shall be applied in accordance with the provisions of Section 4.5 governing Collections of Principal Receivables;

                                    (C) an amount equal to the Floating Allocation Percentage for the Subordinate Class for the related Monthly Period of Adjustment Payment Obligations for the related Monthly Period which the Transferor fails to make in accordance with the Agreement shall be applied in accordance with the provisions of Section 4.5 governing Collections of Principal Receivables, provided that any such application shall not relieve the Transferor of its obligations in respect of such Adjustment Payment Obligations;

                                    (D) an amount equal to the aggregate amount by which the Subordinate Class Investor Amount has been reduced pursuant to clauses (d), (e) and (f) of the definition thereof (but not in excess of the aggregate amount of such reductions which have not been previously reimbursed) shall be applied in accordance with the provisions of Section 4.5 governing Collections of Principal Receivables; and

                                    (E) the balance, if any, remaining after application pursuant to clauses (A) through (D) above shall be distributed as described in clause (d) of this Section 4.4.

                    (b) In the event that, on any date, a Senior Class Conduit does not have sufficient funds to pay any Carrying Costs for such Senior Class Conduit due and payable on such date, such Senior Class Conduit shall provide to the Servicer a notice setting forth the amount of such Carrying Costs and the date on which such

23

Carrying Costs are due, and the Servicer shall make an advance from its own funds to the related Senior Class Agent for the account of the Certificateholders of such Senior Class in an amount equal to such deficiency or deficiencies, but only to the extent the Servicer reasonably expects to be reimbursed therefor (each, a "Servicer Advance"). The amounts set forth in such notice shall be conclusive and binding for all purposes absent manifest error.

        In the event that Carrying Costs for a Senior Class are due and payable to a Bank Investor on any date other than a Distribution Date, the Senior Class Agent shall provide to the Servicer a notice setting forth the amount of such Carrying Costs and the date on which such Carrying Costs are due, and the Servicer shall make an advance from its own funds to the Senior Class Agent for the benefit of the Bank Investors of such Senior Class in an amount equal to such deficiency or deficiencies, but only to the extent the Servicer reasonably expects to be reimbursed therefor (each also, a "Servicer Advance").

        Amounts required to be remitted to a Senior Class Agent pursuant to this Section 4.4(b) shall be remitted in immediately available funds to the account of such Senior Class Agent designated in the Certificate Purchase Agreement no later than 12:00 noon, New York City time, on the date due; provided, however, that in lieu of such direct payment by the Servicer, to the extent of available funds, the Servicer may instruct the Trustee in writing to remit such amounts from the Investor Finance Charge Collections on deposit in the Collection Account, any such payment to be netted from amounts to be paid with respect to the related Senior Class pursuant to Section 4.4(a)(i)(B). The Servicer shall record in its books and records such withdrawal and the application of funds and net such amounts so applied from the amounts to be paid with respect to such Senior Class under Section 4.4(a)(i)(B) on the succeeding Distribution Date.

                (c) If the Investor Finance Charge Collections with respect to any Monthly Period are insufficient to pay the sum of the amounts to be distributed with respect to a Senior Class on the related Distribution Date pursuant to clauses (A) through (F) of Section 4.4(a)(i), the Servicer shall pay on such Distribution Date, through the Paying Agent, to the related Senior Class Agent for the account of the Certificateholders of such Senior Class, out of the Pro Rata Share for such Senior Class for the related Monthly Period of the Collections of Principal Receivables allocated to the Subordinate Class for such Monthly Period, an amount equal to such deficiency (all such amounts, "Reallocated Subordinate Class Principal Collections"). Such amount shall be applied with respect to such Senior Class in the order of priority set forth in Section 4.4(a)(i) (without giving effect to the distributions in cl auses (G), (H) and (I) thereof).

24

                (d) On each Distribution Date with respect to the Revolving Period, the amount determined pursuant to Section 4.4(a)(ii)(E) shall be treated as "Shared Excess Finance Charge Collections" to be applied in accordance with Section 4.1(i) of the Agreement; and thereafter the balance shall be distributed to the Transferor. On each Distribution Date with respect to the Amortization Period, the amount determined pursuant to Section 4.4(a)(ii)(E) shall be distributed, through the Paying Agent, to each Senior Class Agent in accordance with the Pro Rata Share for the related Senior Class for the account of the Certificateholders of such Senior Class in reduction of the Senior Class Investor Amount for such Senior Class until paid in full; and thereafter the balance shall be distributed to the Transferor.

        Section 4.5 Application of Collections of Principal Receivables.

                (a) On each Distribution Date with respect to the Revolving Period, an amount equal to the Collections of Principal Receivables allocable to Series 1997-1 for the related Monthly Period (after giving effect to any reallocation thereof pursuant to Section 4.4(c) and any distribution described in Section 4.5(d)) shall, at the Transferor's option, either (i) be distributed, through the Paying Agent, in whole or in part to each Senior Class Agent in accordance with the Pro Rata Share for the related Senior Class for the account of the Certificateholders of such Senior Class in reduction of the Senior Class Investor Amount for such Senior Class (provided that the amounts so distributed on any Distribution Date shall not exceed the Floating Allocation Percentage for the related Monthly Period of the Collections of Principal Receivables allocated to Series 1997-1 and received during the relat ed Monthly Period) or (ii) to the extent not distributed pursuant to clause (i) of this Section 4.5(a), be treated as "Shared Principal Collections" to be applied to other Series in Group One in accordance with Section 4.1(h) of the Agreement. Notwithstanding the foregoing, at any time (x) to the extent that the Transferor Amount is less than the Minimum Transferor Amount or (y) after the occurrence of a Potential Pay Out Event, Collections of Principal Receivables allocable to Series 1997-1 (after giving effect to any reallocation thereof pursuant to Section 4.4(c) and any distribution described in Section 4.5(d)) shall be applied, in the case of clause (x) above, to the extent of such deficiency, in the case of clause (y) above, in whole, as described in clause (i) of this Section 4.5(a).

25

                (b) On each Distribution Date following the commencement of the Amortization Period, an amount equal to the Collections of Principal Receivables allocable to Series 1997-1 for the related Monthly Period (after giving effect to any reallocation thereof pursuant to Section 4.4(c) and any distribution described in Section 4.5(d)) plus the amount of any Shared Principal Collections allocable to Series 1997-1 plus that portion of the amount on deposit in the Excess Funding Account allocable to Series 1997-1 shall be applied in the following priority:

                        (i) an amount equal to the Senior Class Monthly Principal for each Senior Class for such Distribution Date shall be distributed, through the Paying Agent, to the related Senior Class Agent for payment to the related Senior Certificateholders pro rata until the Senior Class Investor Amount of such Senior Class has been paid in full;

                        (ii) an amount equal to the Subordinate Class Monthly Principal for such Distribution Date shall be distributed to the Paying Agent for payment to the holders of the Subordinate Class Certificates pro rata until the Subordinate Class Investor Amount has been paid in full; and

                        (iii) the balance, if any, shall be treated as "Shared Principal Collections" to be applied to other Series in Group One in accordance with Section 4.1(h) of the Agreement.

                (c) [Reserved]

                (d) The Transferor may direct the Servicer to (i) deposit to the Collection Account and (ii) release from the Collection Account, Collections of Principal Receivables allocable to Series 1997-1 and on deposit therein and direct that such amounts be distributed to each Senior Class Agent in accordance with the Pro Rata Share for the related Senior Class for the account of the Certificateholders of such Senior Class in reduction of the Senior Class Investor Amount for such Senior Class. Any such release and distribution may occur only in order (i) to reduce the sum of the Senior Class Investor Amount and the Interest Component of all outstanding Related Commercial Paper for a Senior Class to an amount which is less than the Senior Class Facility Limit or (ii) to reduce the sum of the Senior Class Certificate Principal Balances for all Senior Classes to an amount which is less than the product of (x) the aggregate Floating Allocation Percentage with respect to Default Amounts for all Senior Classes and (y) the sum of the Excess Funding Amount and the Aggregate Principal

26

Receivables; provided that amounts must be distributed to each Senior Class in accordance with the Pro Rata Share as described above, notwithstanding that the reduction described in clause (ii) may not be required for each Senior Class. For the purposes of this subsection, the Servicer shall have the option to calculate the Floating Allocation Percentage on a daily basis method, using the current day Aggregate Investor Amount in the numerator and the current day Aggregate Principal Receivables and Excess Funding Account balance in the denominator.

        Section 4.6 Defaulted Amounts; Senior Class Investor Charge Offs.

                (a) If, on any Distribution Date, (i) the sum of the amounts required to be paid with respect to each Senior Class pursuant to Sections 4.4(a)(i)(A) through (E) of this Series Supplement on such Distribution Date exceeds (ii) the sum of (x) the amount available therefor pursuant to Section 4.4(a)(i) for such Distribution Date, and (y) the Pro Rata Share for such Senior Class for the related Monthly Period of the Collections of Principal Receivables allocated to the Subordinate Class for the related Monthly Period, then (1) amounts then on deposit in the Spread Account, up to the Pro Rata Share for such Senior Class for the related Monthly Period, of the Available Spread Account Amount, shall be applied in compliance with Sections 4.4(a)(1)(A) through (E) to reduce the amount of such excess to zero, and, to the extent that amounts on deposit in the Spread Account are insufficient to reduce such exces s to zero, such that, after giving effect to such distributions from the Spread Account, the sum calculated in clause (i) above continues to exceed the sum calculated in clause (ii) above, (2) the Subordinate Class Investor Amount shall be reduced by the amount of such remaining excess, but not by more than the excess of (A) the sum of the Investor Default Amount for such Senior Class and the Floating Allocation Percentage for such Class for the related Monthly Period of Adjustment Payment Obligations for such Monthly Period which the Transferor failed to make in accordance with the Agreement over (B) the amount available therefor pursuant to Section 4.4(a)(i) for such Distribution Date plus the Pro Rata Share for such Senior Class for the related Monthly Period of the Collections of Principal Receivables allocated to the Subordinate Class for the related Monthly Period, in each case used to fund the Investor Default Amount for such Senior Class and the Floating Allocation Percentage for the related M onthly Period of Adjustment Payment Obligations which the Transferor failed to make in accordance with the Agreement. In the event that such reduction would cause the Subordinate Class Investor Amount to be a negative number, the Subordinate Class Investor Amount shall be reduced to zero, and the Senior Class Investor Amount for such Senior Class shall be reduced by the amount by which the Subordinate Class Investor Amount would have been reduced below zero

27

(with respect to such Senior Class, a "Senior Class Investor Charge Off"); provided, however, that the Senior Class Investor Amount for such Senior Class shall not be reduced below zero. Senior Class Investor Charge Offs for such Class shall thereafter be reimbursed and the Senior Class Investor Amount for such Senior Class increased (but not by an amount in excess of the aggregate unreimbursed Senior Class Investor Charge Offs for such Class) on any Distribution Date by the amounts allocated and available for that purpose pursuant to Section 4.4(a)(i)(F). Nothing herein shall affect the Transferor's obligations to make Adjustment Payment Obligations in accordance with the Agreement whether before or after any Investor Charge Offs are made with respect to such Adjustment Payment Obligations.

                (b) If, on any Distribution Date, the sum of the amounts to be paid pursuant to Sections 4.4(a)(ii)(A) through (C) of the Agreement exceeds the amounts available therefor under Section 4.4(a)(ii), then the Subordinate Class Investor Amount (after giving effect to any reduction thereof pursuant to Sections 4.4(c) and 4.6(a) of the Agreement) shall be reduced by the amount of such excess, but not by more than the excess of (A) the sum of the Subordinate Class Investor Default Amount and the Floating Allocation Percentage with respect to the Subordinate Class for the related Monthly Period of Adjustment Payment Obligations which the Transferor failed to make in accordance with the Agreement over (B) the amounts available therefor under Section 4.4(a)(ii) used to fund the Subordinate Class Investor Default Amount and the Floating Allocation Percentage with respect to the Subordinate Class for the relate d Monthly Period of Adjustment Payment Obligations which the Transferor failed to make in accordance with the Agreement (each, a "Subordinate Class Investor Charge Off"); provided, however, that the Subordinate Class Investor Amount shall not be reduced below zero. Any such reduction of the Subordinate Class Investor Amount shall be given effect after any reduction of the Subordinate Class Investor Amount pursuant to Sections 4.4(c) and 4.6(a) of the Agreement. Subordinate Class Investor Charge Offs shall thereafter be reimbursed and the Subordinate Class Investor Amount increased (but not by an amount in excess of the aggregate unreimbursed Subordinate Class Investor Charge Offs) on any Distribution Date by the amounts allocated and available for that purpose pursuant to Section 4.4(a)(ii)(D) of the Agreement.

        Section 4.7 Shared Principal Collections. Subject to Section 4.1(h) of the Agreement, Shared Principal Collections for any Distribution Date will be allocated to Series 1997-1 in an amount equal to the product of (x) the aggregate amount of Shared Principal Collections with respect to all Series in Group One for such Distribution Date and (y) a fraction, the numerator of which is the Principal Shortfall for Series 1997-1 for such

28

Distribution Date and the denominator of which is the aggregate amount of Principal Shortfalls for all Series in Group One. The "Principal Shortfall" for Series 1997-1 will be equal to (a) for any Distribution Date with respect to the Revolving Period, zero or such other greater amount not exceeding the Aggregate Investor Amount as may be designated by the Transferor, at its option, and (b) for any Distribution Date with respect to the Amortization Period, the excess, if any, of the Aggregate Investor Amount over the sum of the Fixed/Floating Allocation Percentages for all Classes for the related Monthly Period of Collections of Principal Receivables for such Distribution Date (excluding any portion thereof attributable to Shared Principal Collections).

        Section 4.8 Shared Excess Finance Charge Collections. Shared Excess Finance Charge Collections for any Distribution Date will be allocated to Series 1997-1 in an amount equal to the product of (x) the aggregate amount of Shared Excess Finance Charge Collections with respect to all Series in Group One for such Distribution Date and (y) a fraction, the numerator of which is the Finance Charge Shortfall for Series 1997-1 for such Distribution Date and the denominator of which is the aggregate amount of Finance Charge Shortfalls for all Series in Group One. The "Finance Charge Shortfall" for Series 1997-1 for any Distribution Date will be equal to the excess, if any, of (a) the full amount described in clauses (i) and (ii) of Section 4.4(a) on such Distribution Date for all Classes over (b) the sum of the Collections of Finance Charge Receivables for such Distribution Date allocable to Series 1997-1 and any other amounts that are to b e treated as Collections of Finance Charge Receivables allocable to Series 1997-1 in accordance with the Agreement with respect to the related Monthly Period.

        Section 4.9 Additional Issuances of Senior Class Certificates.

                (a) On the first day of any Monthly Period during the Revolving Period, in connection with the issuance of a new Senior Class, the Trustee shall issue to the Transferor for execution, upon the Transferor's request, and the Trustee shall authenticate and deliver, in accordance with the Transferor's instructions, an additional principal amount of Senior Class Certificates ("Additional Senior Class Certificates") as provided in this Section 4.9.

                (b) Additional Senior Class Certificates may be issued, executed and delivered upon satisfaction of the following conditions:

                        (i) after giving effect to the issuance of such Additional Senior Class Certificates, (A) the Transferor Amount shall be at least equal to the Minimum Transferor Amount, (B) the Aggregate Principal Receivables shall be at least equal to the Minimum Aggregate Principal Receivables and (C) the Subordinate Class Investor Amount shall be at least equal to the Minimum Enhancement Amount;

29

                        (ii) the Transferor shall have given prior written notice to the Trustee, the Paying Agent and the Agent (which the Agent shall forward to each Senior Class Agent) of the proposed issuance of such Additional Senior Class Certificates not less than ten (10) Business Days prior to the date such Additional Senior Class Certificates are proposed to be issued;

                        (iii) on or before the date on which such Additional Senior Class Certificates are issued, the Transferor shall have obtained the prior written consents of the Agent and each Senior Class Agent, which consents may not be unreasonably withheld or delayed (it being understood that the execution by such Persons of the Certificate Purchase Agreement shall be conclusive evidence of such consent with regard to the issuance of the Additional Senior Class Certificates described in Section 1 hereto);

                        (iv) on or before the date on which such Additional Senior Class Certificates are issued, the Transferor, the Servicer, the Agent, each Senior Class Agent, each Senior Class Conduit and each Bank Investor shall have executed a supplement to the Certificate Purchase Agreement with respect to the addition of such Senior Class Conduit and any related Bank Investors as parties thereto;

                        (v) on or before the date on which such Additional Senior Class Certificates are issued, the Transferor, if so requested by the Trustee or the Agent, shall have delivered a Tax Opinion to the Trustee and the Agent; and

                        (vi) on or before the date on which such Additional Senior Class Certificates are issued, the Transferor shall deliver to the Trustee an Officer's Certificate confirming the items set forth in clauses (i) through (iv) above. The Trustee may conclusively rely on such certificate, shall have no duty to make inquiries with regard to matters set forth therein and shall incur no liability in so relying.

        Section 4.10 Additional Issuances of Subordinate Class Certificates.

                (a) On any day during the Revolving Period, upon instruction by the Transferor, the Subordinate Class Investor Amount may be increased by an additional principal amount (each, a "Subordinate Class Additional Investor Amount") as provided in this Section 4.10.

30

                (b) the Subordinate Class Investor Amount may be increased upon satisfaction of the following conditions:

                        (i) after giving effect to any such increase, (A) the Transferor Amount shall be at least equal to the Minimum Transferor Amount and (B) the Aggregate Principal Receivables shall be at least equal to the Minimum Aggregate Principal Receivables;

                        (ii) 9; the Transferor shall have given prior written notice to the Trustee, the Paying Agent and the Agent (which the Agent shall forward to each Senior Class Agent) of the proposed issuance of such Additional Subordinate Class Certificates not less than ten (10) days prior to the date such Additional Subordinate Class Certificates are proposed to be issued;

                        (iii) on or before the date of such increase, the Transferor, if so requested by the Trustee or the Agent, shall have delivered a Tax Opinion to the Trustee and the Agent; and

                        (iv) on or before the date of such increase, on which the Transferor shall deliver to the Trustee an Officer's Certificate confirming the items set forth in clauses (i) and (ii) above. The Trustee may conclusively rely on such certificate, shall have no duty to make inquiries with regard to matters set forth therein and shall incur no liability in so relying.

        Section 4.11 Spread Account.

                (a) The Servicer shall establish and maintain, in the name of the Trustee, for the benefit of the Series 1997-1 Senior Certificateholders, with a Qualified Institution, a segregated trust account (the "Spread Account"), bearing a designation clearly indicating that the funds held therein are held for the benefit of the Series 1997-1 Senior Certificateholders. The Spread Account shall initially be established with the Trustee. The Spread Account shall be under the sole dominion and control of the Trustee, which shall possess all right, title and interest in all funds held from time to time in the Spread Account and in all proceeds thereof for the benefit of the Series 1997-1 Senior Certificateholders. If, at any time, the institution holding the Spread Account ceases to be

31

a Qualified Institution, the Trustee (or the Servicer on its behalf) shall within five (5) Business Days establish a new Spread Account meeting the conditions specified above with a Qualified Institution and shall transfer any monies and/or any investments to such new Spread Account. The Trustee, at the direction of the Servicer, shall make deposits to and withdrawals from the Spread Account in the amounts and at the times set forth in this Series Supplement. All withdrawals from the Spread Account shall be made in the priority set forth herein.

                (b) Funds held in the Spread Account shall be invested at the direction of the Servicer by the Trustee in Permitted Investments. Funds held in the Spread Account on any Distribution Date, after giving effect to any withdrawals from the Spread Account on such Distribution Date, shall be invested in such investments that will mature so that such funds will be available for withdrawal on or prior to the following Distribution Date. The Trustee shall maintain, for the benefit of the Series 1997-1 Senior Certificateholders, control of the negotiable instruments or securities, if any, evidencing such Permitted Investments. Such control may be maintained through a Clearing Agency or other securities intermediary, which shall agree with the Trustee that (i) such investment property shall at all times be credited to a securities account of the Trustee, (ii) such securities intermediary sha ll treat the Trustee as entitled to exercise the rights that comprise each financial asset credited to such securities account, (iii) all property credited to such securities account shall be treated as a financial asset, (iv) such securities intermediary shall comply with entitlement orders originated by the Trustee without the further consent of any other person or entity, (v) such securities intermediary shall not agree with any person other than the Trustee to comply with entitlement orders originated by such other person, (vi) such securities intermediary waives any lien on, security interest in, or right of set-off with respect to any property credited to such securities account, and (vii) such agreement shall be governed by the laws of the State of New York. No Permitted Investment shall be disposed of prior to its maturity; provided, however, that the Trustee may sell, liquidate or dispose of any Permitted Investment before its maturity, if so directed by the Servicer, provided the Ser vicer having reasonably determined that the interest of the Series 1997-1 Senior Certificateholders may be adversely affected if such Permitted Investment is held to its maturity. The proceeds of any such investments that are sold, liquidated or disposed of shall be invested in such investments that will mature so that funds will be available for withdrawal on or prior to the Distribution Date immediately following the date of such investment. The Trustee shall maintain for the benefit of the Series 1997-1 Senior Certificateholders possession of the negotiable instruments or securities, if any, evidencing such Permitted Investments. On each Distribution Date, all interest

32

and earnings (net of losses and investment expenses) on funds held in the Spread Account, to the extent not required to be maintained in the Spread Account as a portion of the Required Spread Account Amount shall constitute "Shared Excess Finance Charge Collections" with respect to Group One to be applied in accordance with Section 4.1(i).

                (c) On the Stated Series Termination Date, the Trustee shall withdraw amounts from the Spread Account to pay to the Senior Class Certificateholders, to the extent not otherwise paid, any outstanding Senior Class Investor Amount plus any other amounts due to the Senior Class Certificateholders, including interest and, to the extent that the amount on deposit in the Spread Account is not sufficient to cover such amounts, the investment earnings, if any, on deposit in the Spread Account up to the amount required to cover such amounts.

                (d) If the amount in the Spread Account (including any interest or other amounts) on any Distribution Date (including the Stated Series Termination Date) exceeds the Required Spread Account Amount, after taking into account all amounts deposited in the Spread Account and distributed therefrom on such Distribution Date, such excess, if any, shall constitute "Shared Excess Finance Charge Collections" with respect to Group One to be applied in accordance with Section 4.1(i).

[END OF ARTICLE IV]

        SECTION 9. Article V of the Agreement. Article V of the Agreement shall read in its entirety as follows and shall be applicable to the Series 1997-1 Certificates:

ARTICLE V

DISTRIBUTIONS AND REPORTS TO
CERTIFICATEHOLDERS

        Section 5.1 Distributions. On each Distribution Date, the Servicer shall deliver to the Trustee and the Paying Agent a certificate in substantially the form of Exhibit B hereto prepared by the Servicer.

                (a) On each Distribution Date, the Paying Agent shall distribute to each Senior Class Agent (other than as provided in Section 12.2 of the Agreement respecting a final distribution) for the account of the Certificateholders of the related Senior Class the amounts that are distributable on such Distribution Date in respect of Carrying Costs for such Senior Class pursuant to this Series Supplement.

33

                (b) On each Distribution Date with respect to the Amortization Period and on each Distribution Date during the Revolving Period on which principal is to be distributed pursuant to subsection 4.5(a)(i), the Paying Agent shall distribute to each Senior Class Agent (other than as provided in Section 12.2 of the Agreement respecting a final distribution) for the account of the Certificateholders of the related Senior Class the amounts that are distributable on such Distribution Date in respect of principal pursuant to this Series Supplement.

                (c) On each Distribution Date, the Paying Agent shall distribute to each holder of record of a Subordinate Class Certificate as of the preceding Record Date (other than as provided in Section 12.2 of the Agreement respecting a final distribution) such holder's pro rata share of the amounts that are available on such Distribution Date to be distributed on the Subordinate Class Certificates pursuant to this Series Supplement.

                (d) On each Distribution Date with respect to the Amortization Period on or after the Subordinate Class Principal Commencement Date, the Paying Agent shall distribute to each holder of record of a Subordinate Class Certificate as of the preceding Record Date (other than as provided in Section 12.2 of the Agreement respecting a final distribution) such holder's pro rata share of the amounts that are available on such Distribution Date to pay principal of the Subordinate Class Certificates pursuant to this Series Supplement.

                (e) Except as provided in Section 12.2 of the Agreement with respect to a final distribution, distributions to any Senior Class Agent or any Series 1997-1 Certificateholder hereunder shall be made by wire transfer of immediately available funds to such Senior Class Agent or such Certificateholder's account so long as the Paying Agent was notified of such account at least five Business Days prior to such Distribution Date, without presentation or surrender of any such Series 1997-1 Certificate or the making of any notation thereon.

        Section 5.2 Reports and Notices to Series 1997-1 Certificateholders. On each Distribution Date, the Paying Agent, on behalf of the Trustee, shall forward to each Series 1997-1 Certificateholder a statement substantially in the form of Exhibit C prepared by the Servicer setting forth certain information relating to the

34

Trust and the Series 1997-1 Certificates. On or before January 31 of each calendar year, beginning with calendar year 1998, the Paying Agent, on behalf of the Trustee, shall furnish or cause to be furnished to each Person who at any time during the preceding calendar year was a Certificateholder of Series 1997-1, a statement prepared by the Servicer containing the information which is required to be contained in the monthly statement to the Certificateholders in the form of Exhibit C referred to in the immediately preceding sentence, aggregated for such calendar year or the applicable portion thereof during which such Person was a Certificateholder of such Series, together with other information as is required to be provided by an issuer of indebtedness under the Internal Revenue Code and such other customary information as is necessary to enable the Certificateholders of such Series to prepare their tax returns. Such obligation of the Servicer shall be deemed to have been satisfi ed to the extent that substantially comparable information shall be provided by the Paying Agent pursuant to any requirements of the Internal Revenue Code as from time to time in effect.

[END OF ARTICLE V]

        SECTION 10. Pay Out Events. If any one of the events specified in Section 9.1 of the Master Pooling and Servicing Agreement or any one of the following events shall occur with respect to the Series 1997-1 Certificates:

                (a) the Transferor or the Servicer shall fail to make any payment or deposit on the date required under the Receivables Purchase Agreement, the Agreement or the Certificate Purchase Agreement, as applicable;

                (b) any representation, warranty, certification or statement made by the Transferor in the Receivables Purchase Agreement, the Agreement, the Certificate Purchase Agreement or 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;

                (c) the Transferor 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 3.3(a)(vi), 3.3(a)(vii), 3.3(b), 3.3(c), 3.3(h), 3.3(k), 3.3(q), 3.3(t), 3.3(u), 3.3(v), 3.3(w), 3.4(c), 3.4(d) or 3.4(f) (but only after the expiration of the period specified in paragraph (iii) of Section 3.4(f)) of the Certificate Purchase Agreement or Sections 2.5(e) or 2.5(g) of the Agreement or (ii) to be performed or observed under any other provision of the Agreement or the Certificate Purchase Agreement and such default in the case of this clause (ii) shall continue for ten (10) days;

35

                (d) failure or the default by the Transferor or any Eligible Originator in the performance of any material term, provision or condition contained in any agreement to which any such Person is a party and under which any Indebtedness greater than $10,000,000 was created or is governed, if such event is an "event of default" or "default" under any such agreement; or any Indebtedness of the Transferor or any Eligible Originator greater than $10,000,000 shall be declared to be due and payable or required to be prepaid (other than by a regularly scheduled payment) prior to the scheduled date of maturity thereof;

                (e) the Trustee on behalf of the Investor Certificateholders shall fail for any reason to have a valid and perfected first priority security or ownership interest in the Receivables and other Trust Property of the type covered by Article 9 of the UCC;

                (f) a Servicer Default shall have occurred;

                (g) any Receivables Purchase Agreement shall have terminated, without the consent of the Agent and each Senior Class Agent;

                (h) the Transferor, the Servicer or any Eligible Originator shall enter into any transaction or merger whereby it is not the surviving entity; provided that any Eligible Originator may merge into any other Eligible Originator and, with the consent of the Agent and each Senior Class Agent, the Transferor may merge or liquidate into the Bank;

                (i) the Transferor shall fail to (x) designate, or be unable to designate, Additional Accounts the Receivables of which will be Eligible Receivables, as required by Section 2.6(a) of the Agreement or (y) reduce the Investor Amount pursuant to Section 2.6(a) of the Agreement within the time it is required to designate Additional Accounts or reduce the Investor Amount pursuant to Section 2.6(a) of the Agreement;

                (j) the Payment Rate averaged for any three consecutive Monthly Periods is less than 16.00%;

36

               (k) the average Portfolio Adjusted Yield for any three consecutive Monthly Periods is less than 1.00%;

                (l) the Adjustment Payment Obligations Ratio averaged over any three consecutive Monthly Periods is greater than or equal to 3.5%;

                (m) [Reserved];

                (n) [Reserved];

                (o) the Subordinate Class Investor Amount is less than the Minimum Enhancement Amount and the Transferor fails to cure such insufficiency within ten Business Days; or

                (p) the product of (i) the aggregate Floating Allocation Percentage with respect to Default Amounts for all Senior Classes and (ii) the sum of the Excess Funding Amount and the Aggregate Principal Receivables, is less than the sum of the Senior Class Certificate Principal Balances for all Senior Classes;

then, in the case of any event described in subparagraphs (e), (o) and (p) above, a Pay Out Event with respect to only the Series 1997-1 Certificates will be deemed to have occurred without any notice or other action on the part of the Trustee or the Certificateholders, immediately upon the occurrence of such event, and, in the case of any other event described above in this Section 10, after the applicable grace periods, if any, specified for such events, the Trustee or the Required Investor Certificateholders by notice in writing to the Transferor and the Servicer (and to the Trustee if given by Certificateholders), may declare that a Pay Out Event with respect to the Series 1997-1 Certificates only has occurred as of the date of such notice; provided, however, that 100% of the Senior Class Agents may waive any such Pay Out Event with respect to the Series 1997-1 Certificates. For the purposes of this subsection, the Servicer shall have the option to calculate the Floating Allocation Percentage on a daily basis method, using the current day Aggregate Investor Amount in the numerator and the current day Aggregate Principal Receivables and Excess Funding Account balance in the denominator. Upon any such waiver, such Pay Out Event shall be deemed not to have occurred for every purpose of the Agreement. No such waiver shall extend to any subsequent or other event or impair any right consequent thereon.

37

        SECTION 11. Consent to Issuance of Additional Series and Additional Eligible Originators. The Transferor shall obtain the prior written consent of the Agent and each Senior Class Agent prior to the issuance of any Series other than Series 1997-1 and Series 1997-2 and prior to the designation of any Eligible Originator other than G.R. Herberger's, Inc., McRae's, Inc., Parisian, Inc., Carson, Pirie Scott & Co., National Bank of the Great Lakes, Saks & Company and Saks Incorporated, which consents may not be unreasonably withheld or delayed.

        SECTION 12. [Reserved]

        SECTION 13. Increase or Reduction of Discount Percentage. The Transferor shall provide to the Agent (and the Agent shall forward to each Senior Class Agent) 30 days' prior written notice of any increase, reduction or elimination of the Discount Percentage which would cause the Discount Percentage to be less than 1% or more than 3% and shall obtain the prior written consent of the Agent and each Senior Class Agent to any such increase, reduction or elimination, which consents may not be unreasonably withheld or delayed.

        SECTION 14. Access to Information. Notwithstanding the provisions of Section 2.2(b) of the Agreement, the Trustee may disclose to the Agent, each Senior Class Agent and each Senior Class Certificateholder the information contained in the computer files and microfiche lists delivered by the Transferor to the Trustee under the Agreement.

        SECTION 15. Series 1997-1 Investor Exchange. Pursuant to subsection 6.9(b) of the Agreement, the Certificateholders may tender their Certificates, and the holder of the Exchangeable Transferor Certificate may tender the Exchangeable Transferor Certificate, in exchange for (i) one or more newly issued classes of Investor Certificates and (ii) a reissued Exchangeable Transferor Certificate in accordance with the terms and conditions contained in a notice of exchange delivered to the Certificateholders. Such notice of exchange will specify, among other things: (a) the amount of Certificates that may be tendered, (b) the certificate rate (or the method for allocating interest payments or other cash flows to the new Series), if any, with respect to the new Series, (c) the term of the new Series, (d) the method of computing the investor percentage, (e) the manner of Enhancement, if any, with respect to the new Series and (f) the time and the manner at which the tender and cancellation of the Series 1997-1 Certificates and the issuance of the new Certificates will be effectuated. Upon satisfaction of the conditions contained in subsections 6.9(b) and 6.9(c) of the Agreement, and the receipt by the

38

Trustee of the exchange notice and the related Supplement, the Trustee shall cancel the existing Exchangeable Transferor Certificate and the Series 1997-1 Certificates which have been tendered pursuant to this Section 12(a), and shall issue such new Series of Investor Certificates and a new Exchangeable Transferor Certificate, each dated the Exchange Date.

        SECTION 16. Certificate Defeasance.

                (a) The Trustee, at the request of the Transferor and for the benefit of the Series 1997-1 Certificateholders, shall establish and maintain or shall cause to be established and maintained in the name of the Trustee, on behalf of the Series 1997-1 Certificateholders, with a Qualified Institution a certain segregated trust account (the "Defeasance Account"). At the option of the Transferor, all amounts received by the Trustee from the issuance of new Certificates or an increase in the invested amount of another Series (or any class within any such other Series) on the settlement date for such issuance shall be deposited in the Defeasance Account.

                (b) Amounts on deposit in the Defeasance Account shall be applied as Collections allocable to the Series 1997-1 Certificates in payment of all accrued and unpaid interest on the Senior Class Certificates and all other amounts outstanding to the Senior Class Certificateholders under the Transaction Documents, in accordance with Section 4.4 of the Agreement, then to the payment in full of the Senior Class Certificate Principal Balance and then, to the extent funds are available, to the payment in full of the Subordinate Class Investor Amount. Any Business Day upon which payments are received in the Defeasance Account shall be deemed to be a Distribution Date. Any funds remaining in the Defeasance Account after all amounts payable to the Certificateholders pursuant to Section 4.4 of the Agreement have been paid in full shall be paid to the Transferor.

        SECTION 17. Transfers of Series 1997-1 Certificates; Legends.

                (a) No Senior Class Certificate or any interest therein may be sold (including in the initial offering), conveyed, assigned, hypothecated, pledged, participated, or otherwise transferred (each, a "Transfer") except in accordance with this Section 17. No Subordinate Class Certificate or any interest therein may be Transferred. Any Transfer of a Senior Class Certificate otherwise permitted by this Section 17 will be permitted only if it consists of a pro rata percentage interest in all payments made with respect to such holder's Senior Class Certificates. No Senior Class Certificate or any interest therein may be Transferred to any Person (each, an

39

"Assignee"), unless the Assignee shall have executed and delivered the certification referred to in subsection 17(f) below and each of the Transferor and the Servicer shall have granted its prior consent thereto; provided that the consent of the Transferor and the Servicer shall not be required in connection with any transfer to the Bank Investors pursuant to the Certificate Purchase Agreement or to any Program Support Provider. The consent of the Transferor and the Servicer shall be granted unless the Transferor reasonably determines that such Transfer would create a risk that the Trust would be classified for federal or any applicable state tax purposes as an association or publicly traded partnership taxable as a corporation. Notwithstanding anything to the contrary contained herein or in the Master Pooling and Servicing Agreement, any attempted Transfer that would cause the number of Targeted Holders to exceed ninety-nine shall be void.

                (b) Notwithstanding subsection 6.3(d)(i) of the Agreement, transfers of less than $500,000 in principal amount of a Senior Class Certificate may be made, provided that no transfer of a Senior Class Certificate (or a portion thereof) shall be of less than $200,000 in principal amount and provided further that any transfer to any Bank Investor pursuant to the Certificate Purchase Agreement or to any Program Support Provider may be made in any principal amount.

                (c) Each (x) Senior Class Agent shall certify to the Transferor, the Servicer, and the Trustee that the initial purchaser of a Senior Class Certificate (of the Senior Class with respect to which such Person is the Senior Class Agent) or any interest therein and any Assignee thereof which is either a related Bank Investor or a Program Support Provider is, and (y) each other Assignee shall certify as to itself to the Transferor, the Servicer, and the Trustee that it is, either (i)(A) a citizen or resident of the United States, (B) a corporation or other entity organized in or under the laws of the United States or any political subdivision thereof which, if such entity is a tax-exempt entity, recognizes that payments with respect to the Senior Class Certificates may constitute unrelated business taxable income or (C) a person not described in (A) or (B) whose ownership of the Senior Class Certificates is effectively connected with the conduct of a trade or business within the United States (within the meaning of the Code) and whose ownership of any interest in a Senior Class Certificate will not result in any withholding obligation with respect to any payments with respect to the Senior Class Certificates by any person and who will furnish to the Senior Class Agent, the Certificateholder making the Transfer, the Servicer and the Trustee, a properly executed United States Internal Revenue Service Form 4224 (and to agree to provide a new Form 4224 upon the expiration or obsolescence of any previously delivered form and comparable statements in accordance with applicable United States laws) or (ii) an estate or trust the income of which is includible in gross income for United States federal income tax purposes.

40

                (d) Each (i) Senior Class Agent shall certify to the Transferor, the Servicer, and the Trustee that the initial purchaser of a Senior Class Certificate (of the Senior Class with respect to which such Person is the Senior Class Agent) or any interest therein and any Assignee thereof which is either a related Bank Investor or a Program Support Provider has, and (ii) each other Assignee shall certify as to itself to the Transferor, the Servicer, and the Trustee, that it has, neither acquired nor will it sell, trade or transfer any interest in a Senior Class Certificate or cause an interest in a Senior Class Certificate to be readily tradable on a secondary market (or the substantial equivalent thereof) within the meaning of Section 7704(b)(2) of the Code and any treasury regulation thereunder or to be marketed on or through an "established securities market" within the meaning of Section 7704(b)(1) of the Code and any treasury regulation thereunder, including, without limitation, an over-the-counter-market or an interdealer quotation system that regularly disseminates firm buy or sell quotations. In addition, each initial purchaser of a Senior Class Certificate or any interest therein and any Assignee shall certify, prior to any delivery or Transfer to it of a Senior Class Certificate that it is not and will not become, for so long as it holds an interest in a Senior Class Certificate, a partnership, Subchapter S corporation or grantor trust for United States federal income tax purposes. If an initial purchaser of an interest in a Senior Class Certificate or an Assignee cannot make the certification described in the preceding sentence, the Transferor may, in its sole discretion, prohibit a Transfer to such entity; provided, however, that if the Transferor agrees to permit such a Transfer, the Transferor, the Servicer or the Trustee may require additional certifications in order to prevent the Trust from being treated as a publicly traded partnership.

                (e) Each Senior Class Certificate will bear a legend or legends substantially in the following form:

                                EACH PURCHASER REPRESENTS AND WARRANTS FOR THE BENEFIT OF SAKS CREDIT CORPORATION AND THE TRUSTEE THAT SUCH PURCHASER IS NOT (I) AN EMPLOYEE BENEFIT PLAN (AS DEFINED IN SECTION 3(3) OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA")) THAT IS SUBJECT TO THE PROVISIONS OF TITLE I OF ERISA, (II) A PLAN DESCRIBED IN SECTION 4975(E)(1) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), (III) A GOVERNMENTAL

41

PLAN, AS DEFINED IN SECTION 3(32) OF ERISA, SUBJECT TO ANY FEDERAL, STATE OR LOCAL LAW WHICH IS, TO A MATERIAL EXTENT, SIMILAR TO THE PROVISIONS OF SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE, (IV) AN ENTITY WHOSE UNDERLYING ASSETS INCLUDE "PLAN ASSETS" (AS DESCRIBED IN 29 C.F.R. 2510.3-101) BY REASON OF A PLAN'S INVESTMENT IN THE ENTITY OR (V) A PERSON INVESTING "PLAN ASSETS" (AS DESCRIBED IN 29 C.F.R. 2510.3-101) OF ANY SUCH PLAN (INCLUDING FOR PURPOSES OF CLAUSES (IV) AND (V), INSURANCE COMPANY GENERAL ACCOUNTS (WITHIN THE MEANING OF SECTION 401(C) OF ERISA), BUT EXCLUDING, ANY ENTITY REGISTERED UNDER THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED).

                                THIS CERTIFICATE MAY NOT BE ACQUIRED, SOLD, TRADED OR TRANSFERRED, NOR MAY AN INTEREST IN THIS CERTIFICATE BE MADE READILY TRADABLE ON A SECONDARY MARKET (OR THE SUBSTANTIAL EQUIVALENT THEREOF) WITHIN THE MEANING OF SECTION 7704(b)(2) OF THE CODE AND ANY TREASURY REGULATION THEREUNDER OR MARKETED, ON OR THROUGH AN "ESTABLISHED SECURITIES MARKET" WITHIN THE MEANING OF SECTION 7704(b)(1) OF THE CODE AND ANY TREASURY REGULATION THEREUNDER, INCLUDING, WITHOUT LIMITATION, AN OVER-THE-COUNTER-MARKET OR AN INTERDEALER QUOTATION SYSTEM THAT REGULARLY DISSEMINATES FIRM BUY OR SELL QUOTATIONS.

                                    THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAW. THE HOLDER HEREOF, BY PURCHASING THIS CERTIFICATE, AGREES THAT THIS CERTIFICATE MAY BE REOFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY IN COMPLIANCE WITH THE SECURITIES ACT AND OTHER APPLICABLE LAWS AND ONLY (1) TO THE TRANSFEROR, (2) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) AND IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (UPON DELIVERY OF THE DOCUMENTATION REQUIRED BY THE MASTER POOLING AND SERVICING AGREEMENT AND, IF THE TRUSTEE SO REQUIRES, AN OPINION OF COUNSEL SATISFACTORY TO THE TRUSTEE) OR (3) PUR SUANT TO RULE 144A UNDER THE SECURITIES ACT TO A PERSON THAT THE HOLDER

42

REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A ("QIB") PURCHASING FOR ITS OWN ACCOUNT OR A QIB PURCHASING FOR THE ACCOUNT OF A QIB, WHOM THE HOLDER HAS INFORMED, IN EACH CASE, THAT THE REOFFER, RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A. EACH CERTIFICATE OWNER BY ACCEPTING A BENEFICIAL INTEREST IN THIS CERTIFICATE IS DEEMED TO REPRESENT THAT IT IS EITHER A QIB PURCHASING FOR ITS OWN ACCOUNT, A QIB PURCHASING FOR THE ACCOUNT OF ANOTHER QIB OR AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT). THIS CERTIFICATE WILL NOT BE ACCEPTED FOR REGISTRATION OF TRANSFER EXCEPT UPON PRESENTATION OF EVIDENCE SATISFACTORY TO THE TRANSFER AGENT AND REGISTRAR THAT THE RESTRICTIONS ON TRANSFER SET FORTH IN THE SERIES 1997-1 SUPPLEMENT HAVE BEEN COMPLIED WITH. THIS CERTIFICATE MAY NOT BE REOFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED TO ANY PERSON OTHER THAN A BANK INV ESTOR OR A PROGRAM SUPPORT PROVIDER WITHOUT THE PRIOR WRITTEN CONSENT OF EACH OF THE TRANSFEROR AND THE SERVICER AND UNLESS AND UNTIL THE TRUSTEE SHALL HAVE RECEIVED THE CERTIFICATIONS REQUIRED BY THE SERIES 1997-1 SUPPLEMENT.

                                        Each Subordinate Class Certificate will bear a legend or legends substantially in the following form:

                                        THIS CERTIFICATE MAY NOT BE REOFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED.

                                        EACH PURCHASER REPRESENTS AND WARRANTS FOR THE BENEFIT OF SAKS CREDIT CORPORATION AND THE TRUSTEE THAT SUCH PURCHASER IS NOT (I) AN EMPLOYEE BENEFIT PLAN (AS DEFINED IN SECTION 3(3) OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA")) THAT IS SUBJECT TO THE PROVISIONS OF TITLE I OF ERISA, (II) A PLAN DESCRIBED IN SECTION 4975(E)(1) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), (III) A GOVERNMENTAL PLAN, AS DEFINED IN SECTION 3(32) OF ERISA, SUBJECT TO ANY FEDERAL, STATE OR LOCAL LAW WHICH IS, TO A MATERIAL EXTENT, SIMILAR TO THE PROVISIONS OF

43

SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE, (IV) AN ENTITY WHOSE UNDERLYING ASSETS INCLUDE "PLAN ASSETS" (AS DESCRIBED IN 29 C.F.R. 2510.3-101) BY REASON OF A PLAN'S INVESTMENT IN THE ENTITY OR (V) A PERSON INVESTING "PLAN ASSETS" (AS DESCRIBED IN 29 C.F.R. 2510.3-101) OF ANY SUCH PLAN (INCLUDING FOR PURPOSES OF CLAUSES (IV) AND (V), INSURANCE COMPANY GENERAL ACCOUNTS (WITHIN THE MEANING OF SECTION 401(C) OF ERISA), BUT EXCLUDING, ANY ENTITY REGISTERED UNDER THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED).

                (f) Upon surrender for registration of transfer of a Senior Class Certificate at the office of the Transfer Agent and Registrar, accompanied by a certification by the Senior Class Certificateholder substantially in the form attached as Exhibit D hereto, executed by the registered owner, in person or by such Senior Class Certificateholder's attorney thereunto duly authorized in writing, and receipt by the Trustee of the written consent of each of the Transferor and the Servicer to such transfer, such Senior Class Certificate shall be transferred upon the Certificate Register, and the Transferor shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferees one or more new registered Senior Class Certificates of any authorized denominations and of a like aggregate principal amount and tenor. Such transfers of Senior Class Certificates shall be subject to the restrictions set forth in this Section 17, to such other restrictions as shall be set forth in the text of the Senior Class Certificates. Successive registrations and registrations of transfers as aforesaid may be made from time to time as desired, and each such registration shall be noted on the Certificate Register.

        SECTION 18. Ratification of Master Pooling and Servicing Agreement. As supplemented by this Series Supplement, the Master Pooling and Servicing Agreement is in all respects ratified and confirmed and the Master Pooling and Servicing Agreement as so supplemented by this Series Supplement shall be read, taken, and construed as one and the same instrument.

        SECTION 19. Counterparts. This Series Supplement may be executed in any number of counterparts (and by different parties on different counterparts), each of which so executed shall be deemed to be an original, but all of such counterparts shall together constitute but one and the same instrument.

        SECTION 20. Governing Law. THIS SERIES SUPPLEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE

44

TO ITS CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.

        SECTION 21. Subordination of Certain Termination Payments. Notwithstanding anything contained in Section 12.2(c) of the Agreement, upon the sale of Receivables or interests therein as provided in Section 12.2(c) of the Agreement, the proceeds of any such sale payable in respect of the Series 1997-1 Certificates shall be payable first to the holders of the Senior Class Certificates on a pro rata basis until all obligations payable in respect of the Senior Class Certificates are paid in full and then to the holders of the Subordinate Class Certificates on a pro rata basis until the Subordinate Class Certificates are paid in full.

        SECTION 22. Opinions of Counsel. Any Opinion of Counsel required to be delivered pursuant to the Agreement shall be acceptable to the Agent, in its sole discretion.

        SECTION 23. No Third-Party Beneficiaries. As provided in Section 13.12 of the Agreement, the Agreement will inure to the benefit of the Series 1997-1 Certificateholders and their respective successors and permitted assigns. Except as otherwise provided herein, no other person will have any right or obligation hereunder, whether as third party beneficiary or otherwise.

45

        IN WITNESS WHEREOF, the parties hereto have caused this Second Amended and Restated Series Supplement to be duly executed by their respective officers thereunto duly authorized as of the day and year first above written.

SAKS CREDIT CORPORATION,
as Transferor

By:____________________________
Name: Scott A. Honnold
Title: Vice President

SAKS INCORPORATED,
as Servicer

By:____________________________
Name: Scott A. Honnold
Title: Vice President 9; 9; & Treasurer

WELLS FARGO BANK MINNESOTA,
NATIONAL ASSOCIATION,
as Trustee

By:____________________________
Name:
Title:
 

EXHIBIT A-1
TO THE SERIES
1997-1 SUPPLEMENT

FORM OF SENIOR CLASS CERTIFICATE

REGISTERED
No. __-1 One Unit
100%

        EACH PURCHASER REPRESENTS AND WARRANTS FOR THE BENEFIT OF SAKS CREDIT CORPORATION AND THE TRUSTEE THAT SUCH PURCHASER IS NOT (I) AN EMPLOYEE BENEFIT PLAN (AS DEFINED IN SECTION 3(3) OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA")) THAT IS SUBJECT TO THE PROVISIONS OF TITLE I OF ERISA, (II) A PLAN DESCRIBED IN SECTION 4975(E)(1) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), (III) A GOVERNMENTAL PLAN, AS DEFINED IN SECTION 3(32) OF ERISA, SUBJECT TO ANY FEDERAL, STATE OR LOCAL LAW WHICH IS, TO A MATERIAL EXTENT, SIMILAR TO THE PROVISIONS OF SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE, (IV) AN ENTITY WHOSE UNDERLYING ASSETS INCLUDE "PLAN ASSETS" (AS DESCRIBED IN 29 C.F.R. 2510.3-101) BY REASON OF A PLAN'S INVESTMENT IN THE ENTITY OR (V) A PERSON INVESTING "PLAN ASSETS" (AS DESCRIBED IN 29 C.F.R. 2510.3-101) OF ANY SUCH PLAN (INCLUDING FOR PURPOSES OF CLAUSES (IV) AND (V), INSURANCE COMPANY GENERAL AC COUNTS (WITHIN THE MEANING OF SECTION 401(C) OF ERISA), BUT EXCLUDING, ANY ENTITY REGISTERED UNDER THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED).

&#        THIS CERTIFICATE MAY NOT BE ACQUIRED, SOLD, TRADED OR TRANSFERRED, NOR MAY AN INTEREST IN THIS CERTIFICATE BE MADE READILY TRADABLE ON A SECONDARY MARKET (OR THE SUBSTANTIAL EQUIVALENT THEREOF) WITHIN THE MEANING OF SECTION 7704(b)(2) OF THE CODE AND ANY TREASURY REGULATION THEREUNDER OR MARKETED, ON OR THROUGH AN "ESTABLISHED SECURITIES MARKET" WITHIN THE MEANING OF SECTION 7704(b)(1) OF THE CODE AND ANY TREASURY REGULATION THEREUNDER, INCLUDING, WITHOUT LIMITATION, AN OVER-THE-COUNTER-MARKET OR AN INTERDEALER QUOTATION SYSTEM THAT REGULARLY DISSEMINATES FIRM BUY OR SELL QUOTATIONS.

        THIS CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAW. THE HOLDER HEREOF, BY PURCHASING THIS CERTIFICATE, AGREES THAT THIS CERTIFICATE MAY BE REOFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY IN COMPLIANCE WITH THE SECURITIES ACT AND OTHER APPLICABLE LAWS AND ONLY (1) TO THE TRANSFEROR, (2) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) AND IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (UPON DELIVERY OF THE DOCUMENTATION REQUIRED BY THE MASTER POOLING AND SERVICING AGREEMENT AND, IF THE TRUSTEE SO REQUIRES, AN OPINION OF COUNSEL SATISFACTORY TO THE TRUSTEE) OR (3) PURSUANT TO RULE 144A UNDER THE SECURITIES ACT TO A PERSON THAT THE HOLDER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A ("QIB") PURCHASIN G FOR ITS OWN ACCOUNT OR A QIB PURCHASING FOR THE ACCOUNT OF A QIB, WHOM THE HOLDER HAS INFORMED, IN EACH CASE, THAT THE REOFFER, RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A. EACH CERTIFICATE OWNER BY ACCEPTING A BENEFICIAL INTEREST IN THIS CERTIFICATE IS DEEMED TO REPRESENT THAT IT IS EITHER A QIB PURCHASING FOR ITS OWN ACCOUNT, A QIB PURCHASING FOR THE ACCOUNT OF ANOTHER QIB OR AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT). THIS CERTIFICATE WILL NOT BE ACCEPTED FOR REGISTRATION OF TRANSFER EXCEPT UPON PRESENTATION OF EVIDENCE SATISFACTORY TO THE TRANSFER AGENT AND REGISTRAR THAT THE RESTRICTIONS ON TRANSFER SET FORTH IN THE SERIES 1997-1 SUPPLEMENT HAVE BEEN COMPLIED WITH. THIS CERTIFICATE MAY NOT BE REOFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED TO ANY PERSON OTHER THAN A BANK INVESTOR OR A PROGRAM SUPPORT PROVIDER WITHOUT THE PRIOR WRITTEN CONSENT OF EACH OF THE TRANSFEROR AND THE SERVICER AND UNLESS AND UNTIL THE TRUSTEE SHALL HAVE RECEIVED THE CERTIFICATIONS REQUIRED BY THE SERIES 1997-1 SUPPLEMENT.

SAKS CREDIT CARD MASTER TRUST

CLASS A-_ VARIABLE FUNDING CERTIFICATE,
SERIES 1997-1

        Evidencing an undivided interest in a trust, the corpus of which consists of receivables acquired from time to time by

SAKS CREDIT CORPORATION

(Not an interest in or an obligation of Saks
Credit Corporation or any affiliate thereof)

        This certifies that ________ (the "Class A-_ Certificate holder") is the registered owner of a fractional undivided interest in certain assets of a trust (the "Trust") created pursuant to the Master Pooling and Servicing Agreement, dated as of August 21, 1997 (as amended and supplemented from time to time, the "Agreement"), among Saks Credit Corporation (as successor to Proffitt's Credit Corporation), a Delaware corporation, as Transferor, Saks Incorporated, a Tennessee corporation, as Servicer, and Wells Fargo Bank Minnesota, National Association (formerly named "Norwest Bank Minnesota, National Association), a national banking association as trustee (the "Trustee"), as supplemented by the Third Amended and Restated Series 1997-1 Supplement, dated as of November 15, 2001 (as amended and supplemented from time to time, the "Series Supplement"), by and among the Transferor, the Servicer and the Trustee. The corpus of the Trust consists of all of t he Transferor's right, title and interest in, to and under (i) all Receivables, now existing and hereafter created, all monies due or to become due with respect thereto (including all Finance Charges, Recoveries and Interchange, if any) on and after the Cut-Off Date, and all proceeds of such Receivables (including Insurance Proceeds), (ii) all monies as are from time to time deposited in the Collection Account, the Excess Funding Account and any other account or accounts maintained for the benefit of the Certificateholders and (iii) the benefits of any Enhancement and all monies as are from time to time existing under any Enhancement. Although a summary of certain provisions of the Agreement and the Series Supplement is set forth below and on the Summary of Terms and Conditions attached hereto and made a part hereof, this Class A-_ Certificate does not purport to summarize the Agreement and the Series Supplement and reference is made to the Agreement and the Series Supplement for information with respect to the interests, rights, benefits, obligations, proceeds and duties evidenced hereby and the rights, duties and obligations of the Trustee. A copy of the Agreement and the Series Supplement (without schedules) may be requested from the Trustee by writing to the Trustee at the Corporate Trust Office. To the extent not defined herein, the capitalized terms used herein have the meanings ascribed to them in the Agreement or the Series Supplement, as applicable.

        This Class A-_ Certificate is issued under and is subject to the terms, provisions and conditions of the Agreement and the Series Supplement, to which Agreement and Series Supplement, each as amended and supplemented from time to time, the Class A-_ Certificateholder by virtue of the acceptance hereof assents and is bound.

        It is the intent of the Transferor and the Investor Certificateholders that, for federal, state and local income and franchise tax purposes only, the Investor Certificates will qualify as indebtedness of the Transferor secured by the Receivables (unless otherwise specified in the related Supplement). The Class A-_ Certificateholder (or Certificate Owner), by acceptance of this Certificate (or, in the case of a Certificate Owner, by virtue of such Certificate Owner's acquisition of a beneficial interest therein), is deemed to agree to treat this Class A-_ Certificate (or beneficial interest therein) for purposes of federal, state and local income or franchise taxes and any other tax imposed on or measured by income, as indebtedness. The Class A-_ Certificateholder is deemed to agree that it will cause any Certificate Owner acquiring an interest in a Certificate through it to comply with this Agreement as to treatment as indebtedness for certain t ax purposes.

        Carrying Costs will be payable on the Class A-_ Certificates from the Closing Date through the last day of the Monthly Period preceding the ____________ Distribution Date, and with respect to each Monthly Period thereafter, in the amount determined in accordance with the Series Supplement. Carrying Costs with respect to the Class A-_ Certificates will be distributed on the fifteenth day of each month, or, if such day is not a Business Day, on the next succeeding Business Day (each, a "Distribution Date"), commencing ____________.

        All principal of and interest on the Class A-__ Certificates is due and payable no later than the fifty-second Distribution Date occurring after the Termination Date (the "Stated Series Termination Date"), but the Class A-_ Certificates may be paid earlier or later under certain circumstances described in the Agreement and the Series Supplement.

        Unless the certificate of authentication hereon has been executed by or on behalf of the Trustee, by manual signature, this Class A-_ Certificate shall not be entitled to any benefit under the Agreement or the Series Supplement or be valid for any purpose.

        IN WITNESS WHEREOF, the Transferor has caused this Class A-_ Certificate to be duly executed.

Dated: November 19, 2001 SAKS CREDIT CORPORATION By:___________________________
Name:
Title:

TRUSTEE'S CERTIFICATE OF AUTHENTICATION

        This is one of the Class A-_ Certificates described in the within-mentioned Agreement and Series Supplement.

WELLS FARGO BANK MINNESOTA,
NATIONAL ASSOCIATION,
as Trustee

By:___________________________
Authorized Officer
or

By:___________________________
as Authenticating Agent
for the Trustee

By:___________________________
Authorized Officer

SAKS CREDIT CARD MASTER TRUST

Class A-_ VARIABLE FUNDING CERTIFICATES,
SERIES 1997-1

Summary of Terms and Conditions

        This Class A-_ Certificate is one of a Series of Certificates entitled Saks Credit Card Master Trust, Series 1997-1 Certificates (the "Series 1997-1 Certificates"), and one of a class thereof entitled Class A-_ Variable Funding Certificates, Series 1997-1 (the "Class A-_ Certificates"), each of which represents a fractional undivided interest in certain assets of the Trust. The Trust Property is allocated in part to the Investor Certificateholders of all outstanding Series (the "Certificateholders' Interest") and the interests, if any, of any Enhancement Providers, with the remainder allocated to the Transferor. The aggregate interest represented by the Class A-_ Certificates at any time in the Trust shall not exceed an amount equal to the Class A-_ Investor Amount at such time. The Class A-_ Initial Investor Amount is $________. The Class A-_ Investor Amount will be an amount equal to (a) the Class A-_ Initial Investor Amount, plus (b) the aggregate principal amount of any Additional Investor Amounts purchased by the Senior Class Conduits or the Bank Investors of such class pursuant to Section 2.2 of the Certificate Purchase Agreement, minus (c) the aggregate amount of principal payments made to the Class A-_ Certificateholders prior to such date, minus (d) the aggregate amount of Senior Class Investor Charge Offs allocated to such class for all prior Distribution Dates, plus (e) the aggregate amount of Senior Class Investor Charge Offs allocated to such class reimbursed pursuant to Section 4.4(a) of the Agreement prior to such date plus (f) after an assignment to the related Bank Investors pursuant to Section 5.7 of the Certificate Purchase Agreement, any amount paid by the related Bank Investors pursuant to Section 5.7(d) of the Certificate Purchase Agreement; provided, however, that the Class A-_ Investor Amount may not be reduced below zero. An additional class of the Series 1997-1 Certificat es entitled the Subordinate Class Certificates, Series 1997-1 (the "Subordinate Class Certificates") will be issued pursuant to the Agreement and the Series Supplement. Also, an Exchangeable Transferor Certificate has been issued to Saks Credit Corporation pursuant to the Agreement which represents the Transferor Interest.

        Subject to the terms and conditions of the Agreement, the Transferor may from time to time direct the Trustee, on behalf of the Trust, to issue one or more new Series of Investor Certificates, which will represent fractional undivided interests in certain Trust Property.

        Pursuant to Section 2.2 of the Third Amended and Restated Certificate Purchase Agreement, dated as of November 19, 2001 (as amended and supplemented from time to time, the "Certificate Purchase Agreement"), by and among the Transferor, the Servicer, Enterprise Funding Corporation, Falcon Asset Securitization Corporation, Windmill Funding Corporation, Bank of America, N.A. (formerly named "NationsBank, N.A."), Bank One, NA (Main Office Chicago) and ABN AMRO Bank N.V., the holders of this Class A-_ Certificate may from time to time be required, prior to the commencement of the Amortization Period for the Certificates, to purchase Additional Class A-_ Investor Amounts on the terms and conditions specified in the Certificate Purchase Agreement.

        On each Distribution Date, the Paying Agent shall distribute to the Senior Class Agent for the account of the Certificateholders of such Senior Class of record on the last day of the preceding calendar month (each a "Record Date") the amounts that are distributable on such Distribution Date in respect of Carrying Costs for such Senior Class pursuant to the Series Supplement. Distributions with respect to this Class A-_ Certificate will be made by the Paying Agent by wire transfer of immediately available funds to Senior Class Agent's or such Certificateholder's account so long as the Paying Agent was notified of such account at least five Business Days prior to the related Distribution Date, in each case without the presentation or surrender of this Class A-_ Certificate or the making of any notation thereon (except for the final distribution in respect of this Class A-_ Certificate). Final payment of this Class A-_ Certificate will be made only upon presentation and surrender of this Class A-_ Certificate at the office or agency specified in the notice of final distribution delivered (or published) by the Trustee in accordance with the Agreement and the Series Supplement.

        The Series 1997-1 Certificates may be reassigned to the Transferor on any Distribution Date during the Amortization Period on or after which the sum of the Class A-1 Investor Amount, the Class A-2 Investor Amount, the Class A-3 Investor Amount and the Subordinate Class Investor Amount held by parties other than the Transferor or any of its affiliates is less than or equal to 10% of the sum of the Class A-1 Initial Investor Amount, the Class A-2 Initial Investor Amount, the Class A-3 Initial Investor Amount and the highest amount of the Subordinate Class Investor Amount held by parties other than the Transferor or any of its affiliates since the Closing Date. The repurchase price for the Series 1997-1 Certificates will be equal to (a) the Investor Amount, plus (b) accrued and unpaid interest on the Series 1997-1 Certificates, less (c) the amount held in the Collection Account allocable to Series 1997-1 to be applied other than any excess payable t o the Transferor as holder of the Exchangeable Transferor Certificate.

        Subject to certain conditions in the Agreement, if the Investor Amount of the Series 1997-1 Certificates is greater than zero on the Stated Series Termination Date, the Trustee shall sell or cause to be sold an amount of Receivables (or interests therein) up to 110% of the Investor Amount at the close of business on such date and apply the proceeds of such sale as provided in the Agreement and the Series Supplement.

        This Class A-_ Certificate is limited in right of payment to certain Collections with respect to the Receivables (and certain other amounts) and is senior to the Subordinate Class Certificates, all as more specifically set forth hereinabove and in the Agreement and the Series Supplement.

        The Agreement and any Supplement may be amended from time to time by the Servicer, the Transferor and the Trustee, without (unless otherwise provided in the related Supplement) the consent of any of the Investor Certificateholders, to cure any ambiguity, to correct or supplement any provisions herein which may be inconsistent with any other provisions herein or to add any other provisions with respect to matters or questions raised under this Agreement which shall not be inconsistent with the provisions of this Agreement, including any matters arising under subsection 2.5(d) of the Agreement necessary to affect the conveyance contemplated thereunder; provided, however, that such action shall not adversely affect in any material respect the interests of any of the Investor Certificateholders. Additionally, the Agreement and any Supplement may be amended from time to time by the Servicer, the Transferor and the Trustee, without the co nsent of any of the Certificateholders, to add to, change or eliminate any of the provisions of this Agreement to enable Bearer Certificates to be issued in conformity with the Bearer Rules, to provide that Bearer Certificates may be registrable as to principal, to change or eliminate any restrictions on the payment of principal of, premium, if any, or any interest on Bearer Certificates to comply with the Bearer Rules, to permit Bearer Certificates to be issued in exchange for Registered Certificates (if then permitted by the Bearer Rules), to permit Bearer Certificates to be issued in exchange for Bearer Certificates of other authorized denominations or to permit the issuance of Certificates in uncertificated form, provided any such action shall not adversely affect the interests of the Holders of Bearer Certificates of any Series or any related Coupons in any material respect unless such amendment is necessary to comply with the Bearer Rules, or any right of the Investor Certificateholders under the Agree ment or the Supplement; provided that (x) the Servicer shall have furnished the Trustee with an Officer's Certificate to the effect that such amendment will not materially and adversely affect the interests of the Investor Certificateholders of any outstanding Series, (ii) such amendment shall not cause the Trust to be characterized as a corporation for Federal income tax purposes or otherwise have any material adverse impact on the Federal income tax characterization of any outstanding Series of Investor Certificates, (iii) each Rating Agency assigning a rating for any class of Investor Certificates of any then outstanding Series shall confirm that such amendment shall not cause a reduction or withdrawal of the rating of any outstanding Series of Certificates and (iv) the Persons, if any, specified in the Supplement shall consent to such amendment; provided, further, that such amendment shall not (i) reduce in any manner the amount of, or delay the timing of, distributions which are required to be made on any Investor Certificate of such Series, (ii) change the definition of or the manner of calculating the interest of any Investor Certificateholder, (iii) alter the requirements for changing the percentage by which the Minimum Transferor Amount is determined, (iv) change the manner in which the Transferor Amount is determined or (v) reduce the percentage required to consent to any such amendment.

        The Agreement and any Supplement may also be amended from time to time by the Servicer, the Transferor and the Trustee with the consent of the Holders of Investor Certificates evidencing Undivided Interests aggregating not less than 50% of the Investor Amount of all Series adversely affected, for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Agreement or modifying in any manner the rights of the Investor Certificateholders of any Series then issued and outstanding; provided, however, that no such amendment shall (i) reduce in any manner the amount of, or delay the timing of, distributions which are required to be made on any Investor Certificate of such Series without the consent of the related Investor Certificateholders, (ii) change the definition of or the manner of calculating the Investor Amount, the Investor Percentage, the required amount under any Enhancement or the Investor Default Amount of such Series, or (iii) reduce the aforesaid percentage required to consent to any such amendment, without the consent of each related Investor Certificateholder.

        Each Certificateholder, by acquiring an interest in a Certificate, will be deemed to have consented to any amendment to the Agreement or any Supplement necessary for the Transferor to elect FASIT status for the Trust or any portion thereof under the Code, provided that such election may not be made unless the Transferor delivers to the Trustee an Opinion of Counsel to the effect that (i) the issuance of FASIT regular interests will not adversely affect the tax characterization as debt of Certificates of any outstanding Series or Class with respect to which an Opinion of Counsel was delivered at the time of their issuance that such Certificates would be characterized as debt, (ii) following such issuance, the Trust will not be classified for Federal income tax purposes as an association (or publicly traded partnership) taxable as a corporation and (iii) such issuance will not cause or constitute an event in which gain or loss would be recognized for federal income tax purposes by any Certificateholder.

        Upon surrender for registration of transfer of any Class A-_ Certificate at the office of the Transfer Agent and Registrar, accompanied by a certification by the Certificateholder substantially in the form attached as Exhibit D to the Supplement and by a written instrument of transfer in the form approved by the Transferor and the Trustee, executed by the registered owner, in person or by such Certificateholder's attorney thereunto duly authorized in writing, and upon receipt of the written instructions required by Section 6.3(d) of the Agreement such Class A-_ Certificate shall be transferred upon the register, and the Transferor shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferees one or more new registered Class A-_ Certificates of any authorized denominations and of a like aggregate principal amount and tenor.

        As provided in the Agreement and subject to certain limitations therein and herein set forth, Class A-_ Certificates are exchangeable for new Class A-_ Certificates evidencing like aggregate fractional undivided interests, as requested by the Certificateholder surrendering such Class A-_ Certificates.

        No service charge may be imposed for any exchange or registration of transfer but the Transfer Agent and Registrar may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith.

        Any of the preceding provisions concerning registration of transfer or exchange of the Class A-_ Certificates notwithstanding, the Trustee or the Transfer Agent and Registrar, as the case may be, shall not be required to register the transfer of or exchange any Class A-_ Certificates for a period of 15 days preceding the due date for any payment with respect to the Class A-_ Certificates.

        The Transferor, the Servicer, the Trustee, the Paying Agent and the Transfer Agent and Registrar and any agent of any of them, may treat the person in whose name this Class A-_ Certificate is registered as the owner hereof for all purposes, and neither the Transferor, the Servicer nor the Trustee, the Paying Agent, the Transfer Agent and Registrar, nor any agent of any of them, shall be affected by notice to the contrary except in certain circumstances described in the Agreement.

                        THIS CLASS A-_ CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.

EXHIBIT A-2
TO THE SERIES
1997-1 SUPPLEMENT

FORM OF SUBORDINATE CLASS CERTIFICATE

REGISTERED $_______

No. _-1

        THIS CERTIFICATE MAY NOT BE REOFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED.

        EACH PURCHASER REPRESENTS AND WARRANTS FOR THE BENEFIT OF SAKS CREDIT CORPORATION AND THE TRUSTEE THAT SUCH PURCHASER IS NOT (I) AN EMPLOYEE BENEFIT PLAN (AS DEFINED IN SECTION 3(3) OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA")) THAT IS SUBJECT TO THE PROVISIONS OF TITLE I OF ERISA, (II) A PLAN DESCRIBED IN SECTION 4975(E)(1) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), (III) A GOVERNMENTAL PLAN, AS DEFINED IN SECTION 3(32) OF ERISA, SUBJECT TO ANY FEDERAL, STATE OR LOCAL LAW WHICH IS, TO A MATERIAL EXTENT, SIMILAR TO THE PROVISIONS OF SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE, (IV) AN ENTITY WHOSE UNDERLYING ASSETS INCLUDE "PLAN ASSETS" (AS DESCRIBED IN 29 C.F.R. 2510.3-101) BY REASON OF A PLAN'S INVESTMENT IN THE ENTITY OR (V) A PERSON INVESTING "PLAN ASSETS" (AS DESCRIBED IN 29 C.F.R. 2510.3-101) OF ANY SUCH PLAN (INCLUDING FOR PURPOSES OF CLAUSES (IV) AND (V), INSURANCE COMPANY GENERAL AC COUNTS (WITHIN THE MEANING OF SECTION 401(C) OF ERISA), BUT EXCLUDING, ANY ENTITY REGISTERED UNDER THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED).

SAKS CREDIT CARD MASTER TRUST

SUBORDINATE CLASS CERTIFICATE,
SERIES 1997-1

Evidencing an undivided interest in a trust, the corpus of which consists primarily of receivables acquired from time to time by

SAKS CREDIT CORPORATION

(Not an interest in or an obligation of Saks
Credit Corporation or any affiliate thereof)

        This certifies that Saks Credit Corporation (the "Subordinate Class Certificateholder") is the registered owner of a fractional undivided interest in certain assets of a trust (the "Trust") created pursuant to the Master Pooling and Servicing Agreement, dated as of August 21, 1997 (as amended and supplemented from time to time, the "Agreement"), by and among Saks Credit Corporation (as successor to Proffitt's Credit Corporation, a Delaware corporation, as Transferor, Saks Incorporated, a Tennessee corporation, as Servicer, and Wells Fargo Bank Minnesota, National Association (formerly named "Norwest Bank Minnesota, National Association), a national banking association, as trustee (the "Trustee"), as supplemented by the Third Amended and Restated Series 1997-1 Supplement, dated as of November 19, 2001 (as amended and supplemented from time to time, the "Series Supplement"), by and among the Transferor, the Servicer and the Trustee. The corpus of t he Trust consists of all of the Transferor's right, title and interest in, to and under (i) all Receivables, now existing and hereafter created, all monies due or to become due with respect thereto (including all Finance Charges, Recoveries and Interchange, if any) on and after the Cut-Off Date, and all proceeds of such Receivables (including Insurance Proceeds), (ii) all monies as are from time to time deposited in the Collection Account, the Excess Funding Account and any other account or accounts maintained for the benefit of the Certificateholders and (iii) the benefits of any Enhancement and all monies as are from time to time existing under any Enhancement. Although a summary of certain provisions of the Agreement and the Series Supplement is set forth below and on the Summary of Terms and Conditions attached hereto and made a part hereof, this Subordinate Class Certificate does not purport to summarize the Agreement and the Series Supplement and reference is made to the Agreement and the Series Suppl ement for information with respect to the interests, rights, benefits, obligations, proceeds and duties evidenced hereby and the rights, duties and obligations of the Trustee. A copy of the Agreement and the Series Supplement (without schedules) may be requested from the Trustee by writing to the Trustee at the Corporate Trust Office. To the extent not defined herein, the capitalized terms used herein have the meanings ascribed to them in the Agreement or the Series Supplement, as applicable.

        This Subordinate Class Certificate is issued under and is subject to the terms, provisions and conditions of the Agreement and the Series Supplement, to which Agreement and Series Supplement, each as amended and supplemented from time to time, the Subordinate Class Certificateholder by virtue of the acceptance hereof assents and is bound.

        It is the intent of the Transferor and the Investor Certificateholders that, for federal, state and local income and franchise tax purposes only, the Investor Certificates will qualify as indebtedness of the Transferor secured by the Receivables (unless otherwise specified in the related Supplement). The Subordinate Class Certificateholder (or Certificate Owner), by acceptance of this Certificate (or, in the case of a Certificate Owner, by virtue of such Certificate Owner's acquisition of a beneficial interest therein), is deemed to agree to treat this Subordinate Class Certificate (or beneficial interest therein) for purposes of Federal, state and local income or franchise taxes and any other tax imposed on or measured by income, as indebtedness. The Subordinate Class Certificateholder is deemed to agree that it will cause any Certificate Owner acquiring an interest in a Certificate through it to comply with this Agreement as to treatment as in debtedness for certain tax purposes.

        All principal of and interest on the Subordinate Class Certificates is due and payable no later than the fifty-second Distribution Date occurring after the Termination Date (the "Stated Series Termination Date"), but the Subordinate Class Certificates may be paid earlier or later under certain circumstances described in the Agreement and the Series Supplement. Principal payments with respect to the Subordinate Certificates will not commence until the Class A Certificates, the Class B Certificates and the Class C Certificates have been paid in full.

        Unless the certificate of authentication hereon has been executed by or on behalf of the Trustee, by manual signature, this Subordinate Class Certificate shall not be entitled to any benefit under the Agreement or the Series Supplement or be valid for any purpose.

        IN WITNESS WHEREOF, the Transferor has caused this Subordinate Class Certificate to be duly executed.

Dated: November 19, 2001 SAKS CREDIT CORPORATION By:___________________________
Name:
Title:

TRUSTEE'S CERTIFICATE OF AUTHENTICATION

        This is one of the Subordinate Class Certificates described in the within-mentioned Agreement and Series Supplement.

WELLS FARGO BANK MINNESOTA,
NATIONAL ASSOCIATION,
as Trustee

By:___________________________
Authorized Officer

or

By:___________________________
as Authenticating Agent
for the Trustee

By:___________________________
Authorized Officer

SAKS CREDIT CARD MASTER TRUST

SUBORDINATE CLASS CERTIFICATES,
SERIES 1997-1

Summary of Terms and Conditions

        This Subordinate Class Certificate is one of a Series of Certificates entitled Saks Credit Card Master Trust Series 1997-1 Certificates (the "Series 1997-1 Certificates"), and one of a class thereof entitled the Subordinate Class Certificates, Series 1997-1 (the "Subordinate Class Certificates"), each of which represents a fractional undivided interest in certain assets of the Trust. The Trust Property is allocated in part to the Investor Certificateholders of all outstanding Series (the "Certificateholders' Interest") and the interests, if any, of any Enhancement Providers, with the remainder allocated to the Transferor. The aggregate interest represented by the Subordinate Class Certificates at any time in the Receivables in the Trust shall not exceed an amount equal to the Subordinate Class Investor Amount at such time. The Subordinate Class Initial Investor Amount is $___________. The Subordinate Class Investor Amount on any date will be a n amount equal to (a) the Subordinate Class Initial Investor Amount, plus (b) the initial principal amount of any Additional Subordinate Class Certificates issued pursuant to Section 4.10, minus (c) the aggregate amount of principal payments made to the holders of the Subordinate Class Certificates prior to such date, minus (d) the aggregate amount of Subordinate Class Investor Charge Offs for all prior Distribution Dates, minus (e) the amount of Reallocated Subordinate Class Principal Collections allocated on all prior Distribution Dates pursuant to Section 4.4(c), minus (f) an amount equal to the amount by which the Subordinate Class Investor Amount has been reduced on all prior Distribution Dates pursuant to Section 4.6(a), plus (g) the aggregate amount by which reductions in the Subordinate Class Investor Amount pursuant to clauses (d), (e) and (f) above have been reimbursed pursuant to Section 4.4(a)(ii)(C) prior to such date; provided, however, th at the Subordinate Class Investor Amount may not be reduced below zero.

        In addition, three classes of the Series 1997-1 Certificates entitled Class A-1 Variable Funding Certificates, Series 1997-1 (the "Class A-1 Certificates"), Class A-2 Variable Funding Certificates, Series 1997-1 (the "Class A-2 Certificates") and Class A-3 Variable Funding Certificates, Series 1997-1 (the "Class A-3 Certificates") will be issued pursuant to the Agreement and the Series Supplement. Also, an Exchangeable Transferor Certificate has been issued to Saks Credit Corporation pursuant to the Agreement which represents the Transferor Interest.

        Subject to the terms and conditions of the Agreement, the Transferor may from time to time direct the Trustee, on behalf of the Trust, to issue one or more new Series of Investor Certificates, which will represent fractional undivided interests in certain Trust Property.

        On each Distribution Date, the Paying Agent shall distribute to each holder of record of a Subordinate Class Certificate as of the last day of the preceding calendar month (each a "Record Date") such holder's pro rata share of the amounts that are available to pay interest on the Subordinate Class Certificates pursuant to the Series Supplement. Distributions with respect to this Subordinate Class Certificate will be made by the Paying Agent by wire transfer of immediately available funds to such Certificateholder's account so long as the Paying Agent was notified of such account at least five Business Days prior to the related Distribution Date, in each case without the presentation or surrender of this Subordinate Class Certificate or the making of any notation thereon (except for the final distribution in respect of this Subordinate Class Certificate). Final payment of this Subordinate Class Certificate will be made only upon presentation and surrender of this Subordinate Class Certificate at the office or agency specified in the notice of final distribution delivered (or published) by the Trustee in accordance with the Agreement and the Series Supplement.

        The Series 1997-1 Certificates may be reassigned to the Transferor on any Distribution Date during the Amortization Period on or after which the sum of the Class A-1 Investor Amount, the Class A-2 Investor Amount, the Class A-3 Investor Amount and the Subordinate Class Investor Amount held by parties other than the Transferor or any of its affiliates is less than or equal to 10% of the sum of the Class A-1 Initial Investor Amount, the Class A-2 Initial Investor Amount, the Class A-3 Initial Investor Amount and the highest amount of the Subordinate Class Investor Amount held by parties other than the Transferor or any of its affiliates since the Closing Date. The repurchase price for the Series 1997-1 Certificates will be equal to (a) the Investor Amount, plus (b) accrued and unpaid interest on the Series 1997-1 Certificates, less (c) the amount held in the Collection Account allocable to Series 1997-1 to be applied other than any excess payable t o the Transferor as holder of the Exchangeable Transferor Certificate.

        Subject to certain conditions in the Agreement, if the Investor Amount of the Series 1997-1 Certificates is greater than zero on the Stated Series Termination Date, the Trustee shall sell or cause to be sold an amount of Receivables (or interests therein) up to 110% of the Investor Amount at the close of business on such date, but not more than the total amount of Receivables allocable to the Series 1997-1 Certificates pursuant to the Agreement, and apply the proceeds of such sale as provided in the Agreement and the Series Supplement.

        This Subordinate Class Certificate is limited in right of payment to certain Collections with respect to the Receivables (and certain other amounts) and is subordinated to the Senior Class Certificates, all as more specifically set forth hereinabove and in the Agreement and the Series Supplement.

        The Agreement and any Supplement may be amended from time to time by the Servicer, the Transferor and the Trustee, without (unless otherwise provided in the related Supplement) the consent of any of the Investor Certificateholders, to cure any ambiguity, to correct or supplement any provisions herein which may be inconsistent with any other provisions herein or to add any other provisions with respect to matters or questions raised under this Agreement which shall not be inconsistent with the provisions of this Agreement, including any matters arising under subsection 2.5(d) of the Agreement necessary to affect the conveyance contemplated thereunder; provided, however, that such action shall not adversely affect in any material respect the interests of any of the Investor Certificateholders. Additionally, the Agreement and any Supplement may be amended from time to time by the Servicer, the Transferor and the Trustee, without the co nsent of any of the Certificateholders, to add to, change or eliminate any of the provisions of this Agreement to enable Bearer Certificates to be issued in conformity with the Bearer Rules, to provide that Bearer Certificates may be registrable as to principal, to change or eliminate any restrictions on the payment of principal of, premium, if any, or any interest on Bearer Certificates to comply with the Bearer Rules, to permit Bearer Certificates to be issued in exchange for Registered Certificates (if then permitted by the Bearer Rules), to permit Bearer Certificates to be issued in exchange for Bearer Certificates of other authorized denominations or to permit the issuance of Certificates in uncertificated form, provided any such action shall not adversely affect the interests of the Holders of Bearer Certificates of any Series or any related Coupons in any material respect unless such amendment is necessary to comply with the Bearer Rules, or any right of the Investor Certificateholders under the Agree ment or the Supplement; provided that (x) the Servicer shall have furnished the Trustee with an Officer's Certificate to the effect that such amendment will not materially and adversely affect the interests of the Investor Certificateholders of any outstanding Series, (ii) such amendment shall not cause the Trust to be characterized as a corporation for Federal income tax purposes or otherwise have any material adverse impact on the Federal income tax characterization of any outstanding Series of Investor Certificates, (iii) each Rating Agency assigning a rating for any class of Investor Certificates of any then outstanding Series shall confirm that such amendment shall not cause a reduction or withdrawal of the rating of any outstanding Series of Certificates and (iv) the Persons, if any, specified in the Supplement shall consent to such amendment; provided, further, that such amendment shall not (i) reduce in any manner the amount of, or delay the timing of, distributions which are required to be made on any Investor Certificate of such Series, (ii) change the definition of or the manner of calculating the interest of any Investor Certificateholder, (iii) alter the requirements for changing the percentage by which the Minimum Transferor Amount is determined, (iv) change the manner in which the Transferor Amount is determined or (v) reduce the percentage required to consent to any such amendment.

        The Agreement and any Supplement may also be amended from time to time by the Servicer, the Transferor and the Trustee with the consent of the Holders of Investor Certificates evidencing Undivided Interests aggregating not less than 50% of the Investor Amount of all Series adversely affected, for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Agreement or modifying in any manner the rights of the Investor Certificateholders of any Series then issued and outstanding; provided, however, that no such amendment shall (i) reduce in any manner the amount of, or delay the timing of, distributions which are required to be made on any Investor Certificate of such Series without the consent of the related Investor Certificateholders, (ii) change the definition of or the manner of calculating the Investor Amount, the Investor Percentage, the required amount under any Enhancement or the Investor Default Amount of such Series, or (iii) reduce the aforesaid percentage required to consent to any such amendment, without the consent of each related Investor Certificateholder.

        Each Certificateholder, by acquiring an interest in a Certificate, will be deemed to have consented to any amendment to the Agreement or any Supplement necessary for the Transferor to elect FASIT status for the Trust or any portion thereof under the Code, provided that such election may not be made unless the Transferor delivers to the Trustee an Opinion of Counsel to the effect that (i) the issuance of FASIT regular interests will not adversely affect the tax characterization as debt of Certificates of any outstanding Series or Class with respect to which an Opinion of Counsel was delivered at the time of their issuance that such Certificates would be characterized as debt, (ii) following such issuance, the Trust will not be classified for Federal income tax purposes as an association (or publicly traded partnership) taxable as a corporation and (iii) such issuance will not cause or constitute an event in which gain or loss would be recognized for federal income tax purposes by any Certificateholder.

        The Subordinate Class Certificates are issuable only in minimum denominations of $1,000 and integral multiples of $1,000. The transfer of this Subordinate Class Certificate is prohibited.

        The Transferor, the Servicer, the Trustee, the Paying Agent and the Transfer Agent and Registrar and any agent of any of them, may treat the person in whose name this Subordinate Class Certificate is registered as the owner hereof for all purposes, and neither the Transferor, the Servicer nor the Trustee, the Paying Agent, the Transfer Agent and Registrar, nor any agent of any of them, shall be affected by notice to the contrary except in certain circumstances described in the Agreement.

        THIS SUBORDINATE CLASS CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.

  
EXHIBIT B
TO THE SERIES
1997-1 SUPPLEMENT

FORM OF MONTHLY PAYMENT INSTRUCTIONS

[Previously Delivered]

EXHIBIT C
TO THE SERIES
1997-1 SUPPLEMENT

FORM OF MONTHLY CERTIFICATEHOLDER'S STATEMENT

[To Come from Bank of America]

EXHIBIT D
TO THE SERIES
1997-1 SUPPLEMENT

FORM OF TRANSFER CERTIFICATION

[DATE]

Saks Credit Corporation,
as Transferor
140 Industrial Drive
Elmhurst, Illinois 60126
Attention: Chief Financial Officer

Saks Incorporated,
as Servicer
750 Lakeshore Parkway
Birmingham, Alabama 35211
Attention: Chief Financial Officer

Wells Fargo Bank Minnesota,
National Association
as Trustee
Sixth and Marquette N9311-161
Minneapolis, Minnesota 55479
Attention: Corporate Trust Services --
Asset Backed Administration

Re:  Class A-__ Variable Funding Certificates,
       Series 1997-1

Ladies and Gentlemen:

        In connection with our proposed purchase of $_________ in principal amount of Saks Credit Card Master Trust, Class A-_ Variable Funding Certificates, Series 1997-1 (the "Class A-_ Certificates"), we confirm that:

1 We agree to be bound by the restrictions and conditions set forth in the Master Pooling and Servicing Agreement, dated as of August 21, 1997 (the "Master Pooling and Servicing Agreement"), as supplemented by the Third Amended and Restated Series 1997-1 Supplement, dated as of November 19, 2001 (the "Series 1997-1 Supplement" and, together with the Master Pooling and Servicing Agreement, the "Pooling and Servicing Agreement"), each by and among Saks Credit Corporation, as Transferor, Saks Incorporated, as Servicer, and Wells Fargo Bank Minnesota, National Association, as trustee (the "Trustee"), relating to the Class A-_ Certificates and agree to be bound by, and not resell, reconvey, reassign, hypothecate, pledge, participate or otherwise transfer (any such act, a "Transfer") except in accordance with Section 17 of the Series 1997-1 Supplement.

2 We understand that the Class A-_ Certificates have not been and will not be registered under the Securities Act of 1933, as amended (the "Securities Act") or any state securities law and agree that the Class A-_ Certificates may be reoffered, resold, pledged or otherwise transferred only in compliance with the Securities Act and other applicable laws and only (i) to the Transferor, (ii) to an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) and in a transaction exempt from the registration requirements of the Securities Act (upon delivery of the documentation required by the Pooling and Servicing Agreement and, if the Trustee so requires, an opinion of counsel satisfactory to the Trustee) or (iii) pursuant to Rule 144A under the Securities Act to a person that we reasonably believe is a qualified institutional buyer within the meaning of Rule 144A ("QIB") purchasing for its own account or a QIB purchasing for the account of a QIB, whom we have informed, in each case, that the reoffer, resale, pledge or other transfer is being made in reliance on Rule 144A.

3 We have neither acquired nor will we sell, trade or transfer any Class A-_ Certificate we acquire (or any interest therein) or cause any Class A-_ Certificate (or any interest therein) to be marketed on or through an "established securities market" within the meaning of Section 7704(b)(1) of the Internal Revenue Code of 1986, as amended (the "Code") and any treasury regulation thereunder, including, without limitation, an over-the-counter-market or an interdealer quotation system that regularly disseminates firm buy or sell quotations.

4 We are not and will not become a partnership, Subchapter S corporation or grantor trust for United States federal income tax purposes. [If this representation cannot be made, the Transferor, the Servicer or the Trustee may require additional representations.]

5 We are a person who is either (A)(i) a citizen or resident of the United States, (ii) a corporation or other entity organized in or under the laws of the United States or any political subdivision thereof or (iii) a person not described in (i) or (ii) whose ownership of the Class A-_ Certificates is effectively connected with the conduct of a trade or business within the United States (within the meaning of the Code) and whose ownership of any interest in a Senior Class Certificate will not result in any withholding obligation with respect to any payments with respect to the Senior Class Certificates by any person or (B) an estate or trust the income of which is includible in gross income for United States federal income tax purposes. We agree that if we are a person described in clause (A)(iii) above, we will furnish to the person from whom we are acquiring a Class A-_ Certificate, the Servicer and the Trustee, a properly executed United States Internal Revenue Service Form 4224 (and to agree to provide a new Form 4224 upon the expiration or obsolescence of any previously delivered form and comparable statements in accordance with applicable United States laws). We recognize that if we are a tax-exempt entity, payments with respect to the Class A-_ Certificates may constitute unrelated business taxable income.

6 We understand that no subsequent Transfer of a Class A-_ Certificate is permitted unless the Transferor and the Servicer each consent in writing to the proposed Transfer; provided, that the consent of the Transferor and the Servicer shall not be required in connection with any transfer to the Bank Investors pursuant to the Certificate Purchase Agreement or any Program Support Provider. The consent of the Transferor and the Servicer shall be granted unless the Transferor reasonably determines that such Transfer would create a risk that the Trust would be classified for federal or any applicable state tax purposes as an association or a publicly traded partnership taxable as a corporation; provided, that any attempted Transfer that would cause the number of Targeted Holders (as defined in the Series 1997-1 Supplement) to exceed ninety-nine shall be void.

7. We are either (i) an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3), or (7) of Regulation D under the Securities Act) and have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the Class A-_ Certificates, and we and any account for which we are acting are each able to bear the economic risk of our or its investment or (ii) a "qualified institutional buyer" (as defined in Rule 144A under the Securities Act) purchasing for our own account or for the account of a "qualified institutional buyer" and we understand that the sale to us is being made in reliance on Rule 144A under the Securities Act.

8. We are acquiring each of the Class A-_ Certificates purchased by us for our own account or for a single account (each of which is an institutional "accredited investor") as to which we exercise sole investment discretion.

9. We are not (i) an employee benefit plan (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") that is subject to the provisions of Title I of ERISA, (ii) a plan described in Section 4975(e)(1) of the Internal Revenue Code of 1986, as amended (the "Code"), (iii) a governmental plan, as defined in Section 3(32) of ERISA, subject to any federal, state or local law which is, to a material extent, similar to the provisions of Section 406 of ERISA or Section 4975 of the Code, (iv) an entity whose underlying assets include "plan assets" (as described in 29 C.F.R. 2510.3-101) by reason of a plan's investment in the entity or (v) a person investing "plan assets" (as described in 29 C.F.R. 2510.3-101) of any such plan (including for purposes of clauses (iv) and (v), insurance company general accounts (within the meaning of Section 401(c) of ERISA) but excluding any entity registered under the Investment Company Act of 1940, as amended).

10. We understand that any purported Transfer of any Class A-_ Certificate in contravention of the restrictions and conditions in paragraphs 1 through 9 above (including any violation of the representation in paragraph 5 by an investor who continues to hold a Class A-_ Certificate occurring any time after the Transfer in which it acquired such Class A-_ Certificate) shall be null and void and the purported transferee shall not be recognized by the Trust or any other person as a Class A-_ Certificateholder for any purpose.

11. We further understand that, on any proposed resale, pledge or transfer of any Class A-_ Certificates, we will be required to furnish to the Trustee and the Registrar, such certification and other information as the Trustee or the Registrar may reasonably require to confirm that the proposed sale complies with the foregoing restrictions and with the restrictions and conditions of the Class A-_ Certificates and the Pooling and Servicing Agreement pursuant to which the Class A-_ Certificates were issued and we agree that if we determine to Transfer any Class A-_ Certificate, we will cause our proposed transferee to provide the Transferor, the Servicer and the Trustee with a letter substantially in the form of this letter. We further understand that Class A-_ Certificates purchased by us will bear a legend to the foregoing effect.

        You are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceeding or official inquiry with respect to the matters covered hereby.

Very truly yours,

[NAME OF TRANSFEREE]

By:________________________
Name:
Title:

EX-10

EXHIBIT 10.11

THIRD AMENDED AND RESTATED
CERTIFICATE PURCHASE AGREEMENT

(Series 1997-1)

by and among

SAKS CREDIT CORPORATION,
(as successor to Proffitt's Credit Corporation)

SAKS INCORPORATED
(formerly named "Proffitt's, Inc."),

ENTERPRISE FUNDING CORPORATION,

FALCON ASSET SECURITIZATION CORPORATION,

WINDMILL FUNDING CORPORATION,

BANK OF AMERICA, N.A.
(formerly named "NationsBank, N.A."),

BANK ONE, NA (Main Office Chicago)
(formerly named "The First National Bank of Chicago"),

and

ABN AMRO BANK N.V.

Dated as of November 19, 2001

TABLE OF CONTENTS

	Page
ARTICLE I    DEFINITIONS	2
SECTION 1.1. Definitions	2
SECTION 1.2. Other Terms	11
SECTION 1.3. Computation of Time Periods	12
ARTICLE II PURCHASE OF SENIOR CERTIFICATES	12
SECTION 2.1. Purchase	12
SECTION 2.2. Increase of Senior Class Investor Amount.	12
SECTION 2.3. Fees	14
SECTION 2.4. Financial Accomodation.	14
SECTION 2.5. Sharing of Payments, Etc.	15
SECTION 2.6. Right of Setoff	15
SECTION 2.7. Interest Rate; Eurodollar Rate Protection; Illegality	15
SECTION 2.8. Notice of Reinvestment Termination Date	18
ARTICLE III REPRESENTATIONS, WARRANTIES AND COVENANTS	19
SECTION 3.1. Representations and Warranties of the Transferor	19
SECTION 3.2. Representations and Warranties of the Servicer	23
SECTION 3.3. Covenants of the Transferor	25
SECTION 3.4. Covenants of the Servicer	32
SECTION 3.5. Tax Treatment	35
SECTION 3.6. Conditions Precedent to Initial Transfer	35
SECTION 3.7. Quarterly Certificate	37
SECTION 3.8. Periodic Notices and Reports	37
ARTICLE IV INDEMNIFICATION; EXPENSES; RELATED MATTERS	38
SECTION 4.1. Indemnities by the Transferor	38
SECTION 4.2. Indemnity for Taxes, Reserves and Expenses	41
SECTION 4.3. Taxes	43
SECTION 4.4. Other Costs, Expenses and Related Matters	43
SECTION 4.5. Indemnification by Servicer	44
ARTICLE V THE AGENT; BANK COMMITMENT; SENIOR CLASS AGENTS	44
SECTION 5.1. Authorization and Action of Agent	45
SECTION 5.2. Agent's Reliance, Etc.	46
SECTION 5.3. Credit Decision	47
SECTION 5.4. Indemnification of the Agent	47
SECTION 5.5. Successor Agent	47
SECTION 5.6. Payments by the Agent	48
SECTION 5.7. Bank Commitment; Assignment to Bank Investors	48
SECTION 5.8. Authorization and Action of Senior Class Agent	53
SECTION 5.9. Senior Class Agents' Reliance, Etc.	54
SECTION 5.10. Credit Decision	55
SECTION 5.11. Indemnification of the Senior Class Agent	55
SECTION 5.12. Successor Senior Class Agent	56
SECTION 5.13. Payments by the Senior Class Agents	56
ARTICLE VI MISCELLANEOUS	57
SECTION 6.1. Term of Agreement	57
SECTION 6.2. Waivers; Amendments	57
SECTION 6.3. Notices, Etc.	57
SECTION 6.4. Governing Law; Submission to Jurisdiction; Integration	58
SECTION 6.5. Severability	59
SECTION 6.6. Counterparts	59
SECTION 6.8. Confidentiality	60
SECTION 6.9. No Bankruptcy Petition Against the Senior Class Conduits	61
SECTION 6.10. No Recourse	62
SECTION 6.11. Setoff	62
SECTION 6.12. Further Assurances	62

EXHIBITS

EXHIBIT A Form of Additional Investment Certificate

EXHIBIT B Form of Assignment and Assumption Agreement

EXHIBIT C Form of Secretary's Certificate

EXHIBIT D Terms of Back-Up Servicer Arrangements

EXHIBIT E Form of Opinion

EXHIBIT F Form of Quarterly Certificate

EXHIBIT G Defined Terms in Financial Covenants

EXHIBIT H Proceedings

        THIS THIRD AMENDED AND RESTATED CERTIFICATE PURCHASE AGREEMENT (this "Agreement"), dated as of November 19, 2001, by and among SAKS CREDIT CORPORATION (as successor to Proffitt's Credit Corporation), a Delaware corporation (together with its successors and permitted assigns, the "Transferor"), SAKS INCORPORATED (formerly named "Proffitt's, Inc."), a Tennessee corporation, as servicer (in such capacity, the "Servicer"), ENTERPRISE FUNDING CORPORATION, a Delaware corporation (together with its successors and permitted assigns, "EFC"), FALCON ASSET SECURITIZATION CORPORATION, a Delaware corporation (together with its successors and permitted assigns, "Falcon"), WINDMILL FUNDING CORPORATION, a Delaware corporation (together with its successors and permitted assigns, "Windmill", and collectively with EFC and Falcon, the "Purchasers"), BANK OF AMERICA, N.A. (formerly named "NationsBank, N.A.") a national banking association ("Bank of America"), as agent for the Senior Class Conduits and the Bank Investors (in such capacity, the "Agent"), as a Senior Class Agent and individually as a Bank Investor, BANK ONE, NA (Main Office Chicago) (formerly named "The First National Bank of Chicago"), a national banking association ("Bank One"), as a Senior Class Agent and individually as a Bank Investor and ABN AMRO BANK N.V., a "Naamloze Vennootschap" (public company with limited liability) organized under the laws of The Netherlands ("ABN AMRO"), as a Senior Class Agent and individually as a Bank Investor.

W I T N E S S E T H:

        WHEREAS, the Transferor desires to convey, transfer and assign, from time to time, to each of the Senior Class Conduits, one or more certificates issued by the Saks Credit Card Master Trust (formerly named the "Proffitt's Credit Card Master Trust") pursuant to a master pooling and servicing agreement (as amended, restated and supplemented from time to time, the "Master Pooling and Servicing Agreement") dated as of August 21, 1997 among the Transferor, the Servicer and Wells Fargo Bank Minnesota, National Association (formerly named "Norwest Bank Minnesota, National Association"), a national banking association, as trustee (the "Trustee") as supplemented by a Third Amended and Restated Series 1997-1 Supplement dated as of the date hereof (as amended, restated or supplemented from time to time, the "Series Supplement") among the Transferor, the Servicer and the Trustee;

        WHEREAS, the Senior Class Conduits desire to, and the Bank Investors, if requested, shall, accept such conveyance, transfer and assignment of such certificates on the terms and conditions set forth herein;

        WHEREAS, the Servicer has joined in this Agreement to make certain representations, warranties, covenants and agreements for the benefit of the Agent, the Senior Class Agents, the Senior Class Conduits and the Bank Investors; and

        WHEREAS, this Agreement amends and restates in its entirety the Second Amended and Restated Agreement.

        NOW THEREFORE, the parties hereto hereby agree as follows:

ARTICLE I

DEFINITIONS

        SECTION 1.1. Definitions. All capitalized terms used herein shall have the meanings herein specified or as specified in the Master Pooling and Servicing Agreement or the Series Supplement, and shall include in the singular number the plural and in the plural number the singular:

        "ABN AMRO" shall mean ABN AMRO Bank N.V., a "Naamloze Vennootschap" (public company with limited liability) organized under the laws of the Netherlands, together with its successors and permitted assigns.

        "Act" shall mean the Securities Act of 1933, as amended.

        "Additional Investor Amount" shall have the meaning set forth in Section 2.2(a) hereof.

        "Additional Investment Certificate" shall mean a certificate of the Transferor substantially in the form of Exhibit A hereto.

        "Adjusted LIBOR Rate" means, with respect to any period during which the return to any Bank Investor or a related Program Support Provider is to be calculated by reference to the London interbank offered rate, a rate which is 2.25% 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, used for determining the maximum reserve requirement as specified in Regulation D (including, without limitation, any marginal, emergency, supplemental, special or other reserves) that is applicable to the 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 the Agent for determining the current annual assessment, if any, payable by the Agent to the Federal Deposit Insurance Corporation in respect of eurocurrency or eurodollar funding, lending or liabilities.

        "Affected Assets" shall mean, collectively, the Senior Class Certificates and the Trust Property.

        "Agent" shall mean Bank of America, in its capacity as agent for the Senior Class Conduits and the Bank Investors, and any successor agent appointed pursuant to Article V hereof.

2

        "Agreement" shall mean this Third Amended and Restated Certificate Purchase Agreement, as it may from time to time be amended, supplemented or otherwise modified in accordance with the terms hereof.

        "Assignment" shall mean, with respect to each Senior Class, an assignment pursuant to an Assignment and Assumption Agreement by which a Senior Class Conduit or a Bank Investor may assign its interests in the Senior Class Certificates, the Senior Class Certificate Principal Balance and the Trust Property pursuant to Section 5.7 hereof.

"Assignment Amount" shall mean, with respect to each Bank Investor at any time, an amount equal to the lesser of (a) such Bank Investor's Commitment and (b) the sum of, without duplication, (i) the Bank Pro Rata Share for such Bank Investor of the Senior Class Investor Amount for the related Senior Class held by the related Senior Class Conduit at such time, (ii) an amount equal to the Bank Pro Rata Share for such Bank Investor of all Carrying Costs accrued through the date of Assignment, and (iii) to the extent not paid by the Transferor as provided in subsection 5.7(d) hereof, an amount equal to the Bank Pro Rata Share for such Bank Investor of all Carrying Costs to accrue with respect to each Senior Class through the maturity of all outstanding Related Commercial Paper.

        "Assignment and Assumption Agreement" shall mean an Assignment and Assumption Agreement substantially in the form of Exhibit B hereto.

        "Back-Up Servicer" shall have the meaning set forth in Section 3.4(f) hereof.

        "Back-Up Servicing Agreement" shall have the meaning set forth in Section 3.4(f) hereof.

        "Bank Base Rate" means, a rate per annum equal to the greater of (i) the prime rate of interest announced publicly by the 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 the 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 the Agent from three Federal funds brokers of recognized standing selected by it.

        "Bank Investors" shall mean, (i) with respect to the Senior Class of which EFC is a member, Bank of America and its successors and permitted assigns, (ii) with respect to the Senior Class of which Falcon is a

3

member, Bank One and its successors and permitted assigns, (iii) with respect to the Senior Class of which Windmill is a member, ABN AMRO and its successors and permitted assigns, and (iv) with respect to any other Senior Class, the financial institutions specified as such in any supplement hereto and their respective successors and permitted assigns.

        "Bank of America" means Bank of America, N.A., together with its successors and permitted assigns.

        "Bank One" means Bank One, NA (Main Office Chicago), together with its successors and permitted assigns.

        "Bank Pro Rata Share" shall mean, for each Bank Investor, the percentage equivalent of a fraction, the numerator of which is the Commitment of such Bank Investor and the denominator of which is the sum of the Commitments of all Bank Investors in the Senior Class of which such Bank Investor is a member.

        "Benefit Plan" shall mean any employee benefit plan as defined in Section 3(3) of ERISA which the Transferor or any Eligible Originator maintains.

        "Business Taxes" shall mean any Federal, state or local income taxes or taxes measured by income, property taxes, excise taxes, franchise taxes or other similar taxes.

        "Code" shall mean the Internal Revenue Code of 1986, as amended.

        "Closing Date" shall mean November 19, 2001.

        "Collateral Agent" shall mean, (i) with respect to EFC, any Person acting as collateral agent for certain secured parties under the EFC commercial paper program and (ii) with respect to any other Senior Class Conduit, the collateral agent specified in any supplement hereto for such Senior Class Conduit, if any.

        "Commercial Paper" shall mean the promissory notes of a Senior Class Conduit issued by such Senior Class 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 Senior Class Conduit in accordance herewith in an amount not to exceed (i) for Bank of America, Bank One and ABN AMRO, 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 5.7 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

4

a Bank Investor for any other Senior Class, the amount set forth in any supplement hereto for the related Senior Class, minus the dollar amount of any Commitment or portion thereof assigned pursuant an Assignment and Assumption Agreement in accordance with Section 5.7 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 5.7 hereof, the amount set forth in the Assignment and Assumption Agreement pursuant to which such assignee acquired its interest in the Senior Class Certificates, the Senior Class Investor Amount and the Trust Property, minus the dollar amount of any Commitment or portion thereof assigned pursuant an Assignment and Assumption Agreement in accordance with Section 5.7 hereof prior to the time of determination, plus the dollar amo unt of any increase to such Bank Investor's Commitment consented to by such Bank Investor prior to the time of determination.

        "Commitment Termination Date" shall mean November 15, 2002, or any later date to which the Commitment Termination Date may be extended in accordance with Section 5.7(g) of this Agreement.

        "Conduit Assignee" shall mean (i) with respect to EFC, any commercial paper conduit administered by Bank of America, (ii) with respect to Falcon, any commercial paper conduit administered by Bank One, and (iii) with respect to Windmill, any commercial paper conduit administered by ABN AMRO, in each case designated from time to time by the related Senior Class Agent to accept an assignment from such Purchaser of all or a portion of the Senior Class Certificates, Senior Class Investor Amount and Trust Property, and in each case that has the same or higher rating by each of Moody's and Standard & Poor's as EFC, Windmill or Falcon, as applicable; provided, that in the case of Windmill, the "Conduit Assignee" may be Amsterdam Funding Corporation ("AFC"), a commercial paper conduit administered by ABN AMRO, so long as AFC has a rating of at least "A-1" or "P-1" from Standard & Poor's or Moody's, respectively.

        "Early Collection Fee" means, for any funding period (such funding period to be determined without regard to the last sentence in Section 2.7(a) hereof) during which the portion of the Senior Class Certificate Principal Balance that was allocated to such funding period is reduced for any reason whatsoever, the excess, if any, of (i) the additional Carrying Costs that would have accrued during such funding period if such reductions had not occurred, minus (ii) the income, if any, received by the recipient of such reductions from investing the proceeds of such reductions.

        "EBITDA" shall have the meaning set forth in Exhibit G attached hereto.

        "EFC" shall mean Enterprise Funding Corporation, a Delaware corporation, together with its successors and permitted assigns.

5

        "Eligible Receivables" shall mean (solely for the purposes of any Program Support Agreement) the product of (x) the aggregate Floating Allocation Percentage with respect to Default Amounts for all Senior Classes and (y) the sum of the Excess Funding Amount and the Aggregate Principal Receivables. For the purposes of this definition, the Servicer shall have the option to calculate the Floating Allocation Percentage on a daily basis method, using the current day Aggregate Investor Amount in the numerator and the current day Aggregate Principal Receivables and Excess Funding Account balance in the denominator.

        "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and the rulings issued thereunder.

        "ERISA Affiliate" shall mean, with respect to any Person, any corporation, partnership, trust, sole proprietorship or trade or business which, together with such Person, is treated as a single employer under Section 414(b) or (c) of the Code or, with respect to any liability for contributions under Section 302(c) of ERISA, Section 414(m) or Section 414(o) of the Code.

        "Excluded Taxes" shall have the meaning set forth in Section 4.3 hereof.

        "Falcon" shall mean Falcon Asset Securitization Corporation, a Delaware corporation, together with its successors and permitted assigns.

        "Federal Reserve Board" shall mean the Board of Governors of the Federal Reserve System.

        "Fee Letters" shall mean, collectively, the letter agreement or agreements, dated as of the date hereof, (i) among the Transferor and the Senior Class Conduits and (ii) among the Transferor, the Agent and the Senior Class Agents on behalf of the Bank Investors, in each case, with respect to the fees to be paid by the Transferor hereunder, as amended, modified or supplemented from time to time.

        "Fixed Charge Coverage Ratio" shall have the meaning set forth in Exhibit G attached hereto.

        "GAAP" shall mean generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and the statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such accounting profession, which are in effect on the date of determination.

        "Guaranty" shall mean, 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

6

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.

        "Indemnified Amounts" shall have the meaning set forth in Section 4.1 hereof.

        "Indemnified Parties" shall have the meaning set forth in Section 4.1 hereof.

        "Law" shall mean any applicable 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 funding 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 prior to the first day of such funding period for a term of one month or three months, as determined in accordance with Section 2.7 hereof. If for any reason such rate is not available, the term "LIBOR Rate" shall mean, for any funding 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 prior to the first day of such funding period for a term of one month or three months, as applicable; 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. If for any reason neither of such rates is available, the term "LIBOR Rate" shall mean, for any funding period, the rate at which deposits in U.S. dollars are offered to the Agent in the London interbank market at approximately 11:00 a.m. (London time) two London Business Days prior to the first day of such funding period for a term of one month or three months, as applicable.

        "London Business Day" shall mean, with respect to the determination of the LIBOR Rate, any Business Day other than a Business Day on which banking institutions in London, England trading in dollar deposits in the London interbank market are authorized or obligated by Law or executive order to be closed.

        "Majority Investors" shall mean at any time, with respect to a Senior Class, Persons consisting of the Bank Investors for such Senior Class and assignees thereof which hold commitments in respect of the Senior Class Facility Limit aggregating in excess of 51% of the applicable Senior Class Facility Limit as of such date.

        "Master Pooling and Servicing Agreement" shall have the meaning specified in the recitals hereto.

7

        "Material Adverse Effect" shall mean any event or condition which would have a material adverse effect on (i) the collectibility of the Receivables considered in the aggregate, (ii) the condition (financial or otherwise), businesses or the property of the Transferor or Saks and its subsidiaries taken as a whole, (iii) the ability of the Transferor, Saks or any Eligible Originator to perform its respective obligations under the Transaction Documents to which it is a party or (iv) the interests of the Agent, any Senior Class Agent, any Senior Class Conduit or any Bank Investor under the Transaction Documents.

        "McRae's" shall mean McRae's, Inc., a Mississippi corporation, together with its successors and permitted assigns.

        "Merrill" shall mean Merrill Lynch Money Markets Inc., a Delaware corporation.

        "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 Transferor, any Eligible Originator or any ERISA Affiliate of the Transferor or any Eligible Originator on behalf of its employees.

        "Net Investment" shall (solely for the purposes of this Agreement and any Program Support Agreement) mean the sum of the Senior Class Certificate Principal Balances for all Senior Classes.

        "Official Body" shall mean 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.

        "Original Agreement" shall mean the Certificate Purchase Agreement dated as of August 21, 1997 among the Transferor, the Servicer, EFC, RCC, the Bank Investors parties thereto, the Agent and the Senior Class Agents parties thereto.

        "Other Transferor" shall mean any Person other than the Transferor that has entered into a receivables purchase agreement, transfer and administration agreement or other similar agreement with a Senior Class Conduit.

        "Parisian, Inc." shall mean Parisian, Inc., an Alabama corporation, together with its successors and permitted assigns.

        "PBGC" shall mean the Pension Benefit Guaranty Corporation or any other entity succeeding to the functions currently performed by the Pension Benefit Guaranty Corporation.

8

        "Pension Plan" shall mean an employee pension benefit plan as defined in Section 3(2) of ERISA, which is subject to Title IV of ERISA (other than a Multiemployer Plan) and to which the Originator, the Transferor or an ERISA Affiliate of either may have any liability, including any liability by reason of having been a substantial employer within the meaning of Section 4063 of ERISA or by reason of being deemed to be a contributing sponsor under Section 4069 of ERISA.

        "Potential Pay Out Event" shall mean an event which, but for the lapse of time or the giving of notice, or both, would constitute a Pay Out Event.

        "Program Support Agreement" shall mean an agreement between a Senior Class Conduit and a Program Support Provider evidencing the obligation of such Program Support Provider to provide liquidity support, credit enhancement or asset purchase facilities for or in respect of any assets or liabilities of any Senior Class Conduit in connection with the issuance by such Senior Class Conduit of Commercial Paper.

        "Program Support Provider" shall mean the Person or Persons who will provide liquidity or program support to a Senior Class Conduit in connection with the issuance by such Senior Class Conduit of Commercial Paper.

        "Purchasers" shall have the meaning specified in the preamble to this Agreement.

        "RCC" shall mean Receivables Capital Corporation, a Delaware corporation, together with its successors and permitted assigns.

        "Recipient" shall have the meaning set forth in Section 2.5 hereof.

        "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.

        "Reinvestment Termination Date" shall mean the Business Day on which the Agent or a Senior Class Agent delivers to the Transferor (and, in the case of notice from a Senior Class Agent, to the Agent) written notice that a Senior Class Conduit has elected not to maintain its interest in the related Senior Class Investor Amount. Any such notice shall be effective on the Business Day given if such notice is given by 11:00 a.m. (New York time) on such Business Day and shall be effective on the immediately succeeding Business Day if such notice is given after 11:00 a.m. (New York time) on such Business Day.

9

        "Related Commercial Paper" shall mean (i) with respect to EFC and Windmill, Commercial Paper issued by EFC or Windmill, respectively, all or a portion of the proceeds of which were used to finance the acquisition of an interest in the Senior Class Certificates, (ii) with respect to Falcon, Commercial Paper that is allocated, in whole or in part, by Falcon or its administrator to fund or maintain the interest of Falcon in the Senior Class Certificates, and (iii) with respect to any other Senior Class Conduit, the Commercial Paper specified as "Related Commercial Paper" in any supplement hereto.

        "Reportable Event" shall mean any of the events set forth in Section 4043(b) of ERISA, other than those events for which notice to the PBGC is waived under applicable PBGC regulations.

        "Saks" shall mean Saks Incorporated, a Tennessee corporation (formerly named "Proffitt's, Inc."), together with its successors and permitted assigns.

        "Second Amended and Restated Agreement" shall mean the Second Amended and Restated Certificate Purchase Agreement, dated as of June 28, 2001, by and among the Transferor, the Servicer, the Purchasers parties thereto, the Agent and the Senior Class Agents and Bank Investors parties thereto.

        "Section 4.2 Costs" shall have the meaning set forth in Section 4.2 hereof.

        "Senior Class" shall mean each group of Senior Certificateholders consisting of a multi-seller commercial paper conduit, the related Bank Investors and their respective assigns and participants.

        "Senior Class Agent" shall mean, (i) with respect to the Senior Class of which EFC is a member, Bank of America, (ii) with respect to the Senior Class of which Falcon is a member, Bank One, (iii) with respect to the Senior Class of which Windmill is a member, ABN AMRO, and (iv) with respect to any other Senior Class, the financial institution or other Person identified in any supplement hereto for such Senior Class.

        "Senior Class Conduit" shall mean, with respect to any Senior Class, the Certificateholder in such Senior Class which is a multi-seller commercial paper conduit (and if more than one Certificateholder in such Senior Class is a multi-seller commercial paper conduit, "Senior Class Conduit" shall mean such Certificateholders collectively).

        "Senior Class Facility Limit" shall mean, (i) with respect to the Senior Class of which EFC is a member, $105,000,000, (ii) with respect to the Senior Class of which Falcon is a member, $105,000,000, (iii) with respect to the Senior Class of which Windmill is a member, $105,000,000, and (iv) with respect to any other Class, the amount indicated in any supplement hereto for such Senior Class; provided that in each case such amount may not at any time exceed the aggregate Commitments for the related Bank Investors.

        "Series Supplement" shall have the meaning specified in the recitals hereto.

10

        "Subordinated Note" shall have the meaning specified in the Receivables Purchase Agreements.

        "Taxes" shall have the meaning set forth in Section 4.3 hereof.

        "Telerate Page 3750" shall mean the British Bankers Association Libor Rates (determined at 11:00 a.m. London time) that are published by Bridge Information Systems, Inc.'s service (or any successor service).

        "Termination Date" shall mean the earliest of (i) the Business Day designated by the Transferor to the Agent and each Senior Class Agent as the termination date at any time following 60 days' written notice to the Agent and each Senior Class Agent, (ii) the date on which a Pay Out Event is declared or automatically occurs pursuant to the Master Pooling and Servicing Agreement or the Series Supplement, (iii) two Business Days prior to the Commitment Termination Date, (iv) the Reinvestment Termination Date (unless, on such Business Day, the related Bank Investors accept an assignment of the Senior Class Investor Amount with respect to the related Senior Class) and (v) the date on which a Program Support Agreement shall have terminated.

        "Termination Event" shall, solely for the purposes of this Agreement and any Program Support Agreement, have the same meaning as "Pay Out Event" under the Master Pooling and Servicing Agreement and the Series Supplement.

        "Transaction Costs" shall have the meaning set forth in Section 4.4 hereof.

        "Transaction Documents" shall mean, collectively, this Agreement, each Receivables Purchase Agreement, the Master Pooling and Servicing Agreement, the Series Supplement, the Fee Letters, the Certificates and all of the other instruments, documents and other agreements executed and delivered by the Transferor or any Eligible Originator in connection with any of the foregoing in connection with Series 1997-1, in each case, as the same may be amended, restated, supplemented or otherwise modified from time to time.

        "Transferor" shall mean Saks Credit Corporation (as successor to Proffitt's Credit Corporation), a Delaware corporation, together with its successors and permitted assigns.

        "Windmill" shall mean Windmill Funding Corporation, a Delaware corporation, together with its successors and permitted assigns.

11

        SECTION 1.2. Other Terms. All accounting terms not specifically defined herein shall be construed in accordance with GAAP. The symbol "$" shall mean the lawful currency of the United States of America. 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". 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.

ARTICLE II

PURCHASE OF SENIOR CERTIFICATES

        SECTION 2.1. Purchase. Pursuant to the Second Amended and Restated Agreement, each of EFC, Falcon and Windmill has accepted the conveyance, transfer and assignment from the Transferor of Senior Class Certificates in the aggregate face amount of $105,000,000 in connection with the execution of such Second Amended and Restated Agreement. The Senior Class Certificates shall accrue interest as described in the Master Pooling and Servicing Agreement, as supplemented by the Series Supplement, from and including the Closing Date. The Senior Class Certificate purchased under the Second Amended and Restated Agreement by Delaware Funding Corporation, which was delivered to and is presently registered in the name of "Morgan Guaranty Trust Company of New York, as agent for the members of the Senior Class of which Delaware Funding Corporation and Morgan Guaranty Trust Company of New York are members" and is in the face amount of $105,000,000, will be cancelled in connection with the execution of this Agreement.

        SECTION 2.2. Increase of Senior Class Investor Amount.

                (a) Upon the terms and subject to the conditions set forth herein and provided that neither the Commitment Termination Date nor the Termination Date (excluding, in the case of the Bank Investors, a "Termination Date" occurring as a result of clause (iv) or (v) of the definition of "Termination Date") shall have occurred, (x) the Transferor may, at its option, on any Business Day during the Revolving Period, after delivery to the Agent (which the Agent shall forward to each Senior Class Agent) of an Additional Investment Certificate (to be received by the Agent and each Senior Class Agent not later than 1:00 P.M., New York City time, on the second Business Day prior to the Business Day on which the proposed increase in the Senior Class Investor Amount is to occur), convey, transfer and assign to the Senior Class Conduits or the Bank Investors, as applicable, and (y) the Senior Class Conduits may, at their respective option, or the Bank Investors shall, if the related Senior Class Conduit has assigned its interest in the Senior Class Certificate Principal Balance in whole to

12

the related Bank Investors and if so requested under subsection 2.2(b), accept such conveyance, transfer and assignment from the Transferor of, without recourse except as provided herein and in the other Transaction Documents, an additional undivided interest in the Trust in the amount specified in such Additional Investment Certificate (each, an "Additional Investor Amount"); provided that (i) such Additional Investor Amount shall not cause the Senior Class Certificate Principal Balance for any Class plus the Interest Component of all Related Commercial Paper issued by the related Senior Class Conduit and then outstanding, if any, to exceed the Senior Class Facility Limit for such Class, (ii) after giving effect to such Additional Investor Amount, the Transferor Amount as of the Business Day immediately preceding the date of the Additional Investment Certificate and as reported in such Additional Investment Certificate, shall not be less than the Minimum Transferor Amount, (iii) after giving effect to such Additional Investor Amount, the Subordinate Class Investor Amount, as of the Business Day immediately preceding the date of the Additional Investment Certificate and as reported in such Additional Investment Certificate, shall not be less tha n the Minimum Enhancement Amount, (iv) no Potential Pay Out Event or Pay Out Event shall have occurred and be continuing and (v) all of the representations and warranties of the Transferor and the Servicer made herein shall be true and correct as of such date (except to the extent any such representation or warranty expressly relates to an earlier date). The Senior Class Conduits or the Bank Investors, as the case may be, shall acquire such additional interest in consideration of the Senior Class Conduits' or the Bank Investors', as the case may be, payment to the Transferor in immediately available funds in an amount equal to the Additional Investor Amount for the related Senior Class, and the Senior Class Investor Amount for each Senior Class shall be increased to be equal to the Senior Class Investor Amount immediately prior to such acquisition plus the Additional Investor Amount for such Senior Class so acquired. Each Additional Investor Amount shall be an amount that results in the acquisition by each Senior Class, subject to the limitations on allocation in this Section, of an Additional Investor Amount of not less than $500,000 and integral multiples of $100,000 in excess thereof. Each acquisition of an Additional Investor Amount hereunder by a Senior Class shall be made ratably in accordance with the respective Senior Class Facility Limits, up to the amount of the Senior Class Facility Limit for such Senior Class; provided that if one or more (but not all) Senior Class Facility Limits have been reached, but availability exists under one or more other Senior Class Facility Limits related to one or more Senior Class, acquisitions of Additional Investor Amounts hereunder by such Senior Class(es) shall be made ratably among them in accordance with their respective Senior Class Facility Limits. Each acquisition of an Additional Investor Amount hereunder by the Bank Investors of a Senior Class (in the aggregate) shall be made ratably in accordance with the respective Commitments of su ch Bank Investors up to the Commitment of such Bank Investor. Subject to the terms and conditions of this Agreement, the Transferor shall use commercially reasonable efforts to allocate Additional Investor Amounts such that the Senior Class Certificate Principal Balance for each Senior Class is substantially equal.

                (b) If a Senior Class Conduit elects not to acquire any such Additional Investor Amount, the Transferor (i) may withdraw its request that the Senior Class Conduits acquire such Additional Investor Amount

13

or (ii) may request the related Bank Investors to accept an assignment of the Additional Investor Amount for the related Senior Class Conduit, in which case, the Senior Class Certificate Principal Balance for such Senior Class Conduit, prior to such request to acquire such Additional Investor Amount, shall be assigned to the related Bank Investors. The Transferor may not request and no Bank Investor shall acquire an Additional Investor Amount on or after the occurrence and during the continuation of a Potential Pay Out Event or a Pay Out Event or after the Commitment Termination Date.

                (c) In the event the Transferor requests the Senior Class Conduits or any or all Bank Investors to make any such acquisition of additional interests in the Trust, the Transferor shall indemnify each Senior Class Conduit and each such Bank Investor against any loss or expense incurred by any Senior Class Conduit or any such Bank Investor, either directly or indirectly (including, in the case of the Senior Class Conduits, through a Program Support Agreement), as a result of any failure by the Transferor to complete any such acquisition of an Additional Investor Amount (other than as a result of an election by such Senior Class Conduit not to acquire such Additional Investor Amount) including, without limitation, any loss or reasonable out-of-pocket expenses incurred by the Senior Class Conduits or any such Bank Investor, either directly or indirectly (including, in the case of the Senior Class Conduit s, pursuant to a Program Support Agreement), by reason of the liquidation or reemployment of funds acquired by the Senior Class Conduits (or any Program Support Provider) or any such Bank Investor (including, without limitation, funds obtained by issuing commercial paper or promissory notes or obtaining deposits as loans from third parties) for the Senior Class Conduits to fund such acquisition of an Additional Investor Amount.

                (d) Each acquisition of an Additional Investor Amount shall be subject to the further condition precedent that, prior to the date of such acquisition, the Transferor shall have delivered to the Agent (and the Agent shall forward to each Senior Class Agent) on the date that the Additional Investment Certificate is delivered under subsection 2.2(a), a certification in form and substance satisfactory to the Agent and each Senior Class Agent, dated the date that such certificate is delivered, that the conditions specified in clauses (i), (ii), (iii), (iv), and (v) of subsection 2.2(a) have been satisfied (it being understood that such certification may be included on the face of the Additional Investment Certificate).

        SECTION 2.3. Fees. The Transferor shall pay such fees as are set forth in the Fee Letters at the times and in the amounts set forth therein.

        SECTION 2.4. Financial Accomodation. Without changing any other terms or conditions hereof, each of the parties hereto further expressly acknowledges and agrees that the Commitments of the Bank Investors hereunder, regardless of the intended true sale nature of the overall transaction, are financial accomodations (within the meaning of Section 365(c)(2) of the Bankruptcy Code) to or for the benefit of the Transferor.

14

        SECTION 2.5. Sharing of Payments, Etc. If any Senior Class Conduit or any Bank Investor (for purposes of this Section only, a "Recipient") shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of setoff, or otherwise) on account of Senior Class Certificates owned by it (other than pursuant to Section 2.2(c) or Section 2.3 or Article IV hereof) in excess of its ratable share of payments on account of Senior Class Certificates obtained by the Senior Class Conduits and/or the Bank Investors entitled thereto, such Recipient shall forthwith purchase from the Senior Class Conduits and/or the Bank Investors entitled to a share of such amount participations in the Senior Class Certificates 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 2.5. Right of Setoff. Without in any way limiting the provisions of Section 2.5, each of the Senior Class Conduits and the Bank Investors is hereby authorized (in addition to any other rights it may have) at any time after the Termination Date or during the continuance of a Potential Pay Out Event to setoff, 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 a Senior Class Conduit or a Bank Investor to, or for the account of, the Transferor against all amounts owing by the Transferor to such Senior Class Conduit or Bank Investor under this Agreement (even if contingent or unmatured), provided that no Senior Class Conduit and no Bank Investor shall setoff against any property of the Transferor which shall have been pledged to the Trust or in which the Trust shall have been granted an interest.

        SECTION 2.6. Interest Rate; Eurodollar Rate Protection; Illegality.

                (a) Prior to the Termination Date. At all times hereafter, but prior to the Termination Date, and not with respect to any portion of the Senior Class Certificate Principal Balance held by any Bank Investor, the Transferor may, subject to the applicable Senior Class Agent's approval (which approval shall be transmitted through the Agent) and the limitations described below, request (which request shall be made through the Agent) that the Senior Class Certificate Principal Balance held by a Senior Class Conduit be allocated among one or more funding periods, so that the aggregate amounts so allocated with respect to such Senior Class Conduit at all times shall equal the Senior Class Certificate Principal Balance held by such Senior Class Conduit. The Transferor shall give each Senior Class Agent irrevocable notice (which notice shall be given through the Agent) by telephone of the new request ed funding period(s) at least two (2) Business Days prior to the expiration of any

15

then existing funding period; provided, however, that the applicable Senior Class Conduit or the related Senior 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) such Senior Class Conduit or the related Senior Class Agent determines, in its sole discretion, that the funding period requested by the Transferor is unavailable or for any reason commercially undesirable. Each Senior Class Conduit confirms that it is its intention to fund all or substantially all of the Senior Class Certificate Principal Balance held by such Senior Class Conduit by issuing Related Commercial Paper; provided that such Senior Class Conduit or the related Senior Class Agent may determine, from time to time, in its sole discretion, that funding such Senior Class Certificate Principal Balance by means of Related Commercial Paper is not possible or is not desirable for any reason. In the case of any funding period outstanding upon the Termination Date, such funding period shall end on such date. In the case of the Senior Class of which EFC, Falcon or Windmill is a member, if any Program Support Provider acquires from EFC, Falcon or Windmill an interest in the Senior Class Certificate Principal Balance held by EFC, Falcon or Windmill, then (i) in the case of EFC, Bank of America, (ii) in the case of Falcon, Bank One, and (iii) in the case of Windmill, ABN AMRO, on behalf of such Program Support Provider, may exercise the right of selection granted to EFC, Falcon or Windmill, as applicable, or its related Senior Class Agent hereby. If any Program Support Provider acquires from a Purchaser an interest in the Senior Class Certificate Principal Balance held by such Purchaser, then the initial funding period applicable to any such interest shall be a period of not greater than 14 days and shall accrue Carrying Costs on the basis of the Bank Base Rate. Thereafter, with respect to such portion o f the Senior Class Certificate Principal Balance and with respect to any other portion of the Senior Class Certificate Principal Balance held by the Program Support Providers (or any of them), provided that the Termination Date shall not have occurred, Carrying Costs shall accrue on the basis of either the Bank Base Rate or the Adjusted LIBOR Rate (with a funding period of either one month, two months or three months), as determined by Bank of America, Bank One or ABN AMRO, as applicable.

        Any portion of the Senior Class Certificate Principal Balance transferred to the Bank Investors (or any of them) pursuant to this Agreement prior to the Termination Date, shall initially bear interest at the Bank Base Rate for a period of not greater than 14 days. Thereafter, with respect to such portion of the Senior Class Certificate Principal Balance and with respect to any other portion of the Senior Class Certificate Principal Balance held by the Bank Investors (or any of them), provided that the Termination Date shall not have occurred, the interest rate applicable thereto shall be the Adjusted LIBOR Rate for such period as may be specified by the Transferor. The Transferor shall give the Agent irrevocable notice by telephone (and the Agent shall immediately forward such notice to the applicable Senior Class Agent) of each requested funding period (which funding period in the case of the Adjusted LIBOR Rate shall be a period of either one or three months) at least two (2) Business Days prior to the expiration of any then existing funding period; provided, however, that such Senior Class Agent may select, in its sole discretion, the term of any such subsequent funding period and the rate applicable thereto if (i) the Transferor fails to provide such notice on a timely basis or (ii) such Senior Class Agent determines, in its sole

16

discretion, that the requested funding period is unavailable or for any reason commercially undesirable. Each Senior Class Agent confirms that it is its intention to fund all or substantially all of the Senior Class Certificate Principal Balance funded by the related Bank Investors at the Adjusted LIBOR Rate; provided that such Senior Class Agent may determine, from time to time, in its sole discretion, that funding the related Senior Class Certificate Principal Balance by such means is not possible or is not desirable for any reason. 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.

        (b) After the Termination Date. At all times on and after the Termination Date, the Senior Class Certificate Principal Balance (or applicable portion thereof) shall bear interest at the Bank Base Rate plus 2.0%.

        (c) Eurodollar Rate Protection. If a Senior Class Agent is unable to obtain on a timely basis the information necessary to determine the LIBOR Rate for any proposed funding period, then

        (i) the Agent (acting at the direction of such Senior Class Agent) shall forthwith notify the Bank Investors and the Transferor that the Adjusted LIBOR Rate cannot be determined for such funding period, and

        (ii) while such circumstances exist, none of the Senior Class Agents, the Bank Investors or the Agent shall allocate the Senior Class Certificate Principal Balance purchased during such period or reallocate the Senior Class Certificate Principal Balance allocated to any then existing funding period ending during such period, to a funding period which accrues Carrying Costs on the basis of the Adjusted LIBOR Rate.

        If, with respect to any outstanding funding period which accrues Carrying Costs on the basis of the Adjusted LIBOR Rate, the Senior Class Conduits or any of the Bank Investors owning any interest in Senior Class Certificates notifies the related Senior Class Agent that it or any Program Support Provider is unable to obtain matching deposits in the London interbank market to fund its purchase or maintenance of such interest in the Senior Class Certificates or that the Adjusted LIBOR Rate applicable to the Senior Class Certificate Principal Balance will not adequately reflect the cost to the Person of funding or maintaining its respective interest in the Senior Class Certificates for such funding period then the Agent (acting at the direction of such Senior Class Agent) shall forthwith so notify the Transferor, whereupon neither any Senior Class Conduit nor the Bank Investors, as applicable, shall, while such circumstances exist, allocate any Senior Class Certificate Principal Balance acquired during such period or reallocate the Senior Class Certificate Principal Balance allocated to any funding period ending during such period, to a funding period which accrues Carrying Costs on the basis of the Adjusted LIBOR Rate.

17

                (d) Illegality. Notwithstanding any other provision of this Agreement, if a Senior Class Conduit or any of the Bank Investors, as applicable, shall notify the related Senior Class Agent that such Person has determined (or has been notified by any Program Support Provider) that the introduction of or any change in or in the interpretation of any law or regulation makes it unlawful (either for a Senior Class Conduit, such Bank Investor, or such Program Support Provider, as applicable), or any central bank or other governmental authority asserts that it is unlawful, for the Senior Class Conduit, such Bank Investor or such Program Support Provider, as applicable, to fund the purchases or maintenance of the Senior Class Certificate Principal Balance at the Adjusted LIBOR Rate, then (x) as of the effective date of such notice from such Person to such Senior Class Agent, the obligation or ability of such Senior Class Conduit or such Bank Investor, as applicable, to fund its purchase or maintenance of the S enior Class Certificate Principal Balance at the Adjusted LIBOR Rate shall be suspended until such Person notifies such Senior Class Agent that the circumstances causing such suspension no longer exist and (y) such Senior Class Certificate Principal Balance 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 interest in the Senior Class Certificate Principal Balance 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 Senior Class Certificate Principal Balance 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 interest in the Senior Class Certificate Principal Balance at the Adjusted LIBOR Rate until the end of the applicable funding period, such Person's share of the Senior Class Certificate Principal Balance allocated to such funding period shall be deemed to accrue Carrying Costs on the basis of the Bank Base Rate from the effective date of such notice until the end of such funding period.

                (e) Compensation. The Transferor shall compensate each Senior Class Conduit and each Bank Investor, upon its written request (which request shall set forth in reasonable detail the basis for requesting such amounts and shall be delivered to the Transferor through the Agent), for all reasonable losses, out-of-pocket expenses and liabilities (including, without limitation, any interest paid by such Senior Class Conduit or Bank Investor to lenders of funds borrowed by it to make or carry any Senior Class Certificate Principal Balance and any loss sustained by such Senior Class Conduit or Bank Investor in connection with the re-employment of such funds), which such Senior Class Conduit or Bank Investor actually sustains if any payment in respect of any portion of the Senior Class Certificate Principal Balance funded by such Senior Class Investor or Bank Investor at a fixed rate occurs on a date which is not a day agreed upon by the Transferor and such Senior Class Conduit or Bank Investor.

        SECTION 2.7. Notice of Reinvestment Termination Date. A Senior Class Conduit that elects not to maintain its interest in the related Senior Class Investor Amount shall use commercially reasonable efforts to give the related Senior Class Agent and the Agent two (2) Business Days prior written notice of such election;

18

provided that the Senior Class Conduit shall give the related Senior Class Agent and the Agent notice immediately after such election is made by such Senior Class Conduit. The Agent shall use commercially reasonable efforts to give the Transferor by facsimile immediate written notice of such election. Notwithstanding anything to the contrary in this Section 2.8, the giving of such notice shall not be a condition to the effectiveness of any such election and the failure to give any such notice shall not prevent any transfer in connection with such election; provided, that the foregoing shall not relieve such Senior Class Conduit and the Agent of their notice obligations and the Transferor shall retain all rights and remedies with respect to the failure to give any such notice.

ARTICLE III

REPRESENTATIONS, WARRANTIES AND COVENANTS

        SECTION 3.1. Representations and Warranties of the Transferor. As of the date hereof and as of each day that an acquisition of an Additional Investor Amount is made hereunder, the Transferor represents and warrants to the Agent, each Senior Class Agent, each Senior Class Conduit and each Bank Investor, that all representations and warranties described in this Section 3.1 are true and correct as of such day as though made on and as of such day:

                (a) Corporate Existence and Power. The Transferor is a corporation duly organized and validly existing in good standing under the laws of its jurisdiction of incorporation, and has all corporate power, authority and legal right and all material governmental licenses, authorizations, consents and approvals required to own its properties and conduct its business as such properties are presently owned and such business is presently conducted in each jurisdiction in which it presently owns properties and presently conducts its business, except where the absence of any such licenses, authorizations, consents or approvals would not have a Material Adverse Effect, and to execute, deliver and perform its obligations under this Agreement, the Master Pooling and Servicing Agreement, the Series Supplement and all other Transaction Documents to which the Transferor is a party, and to execute and deliver to the Senior Class Agents the Senior Class Certificates pursuant to the Series Supplement.

                (b) Due Qualification. The Transferor is duly qualified to do business and is in good standing (or is exempt from such requirement) in each jurisdiction in which the nature of its business requires it to be so qualified, and has obtained all necessary licenses and approvals in each jurisdiction in which the failure to be so qualified or to obtain such licenses and approvals would have a Material Adverse Effect.

                (c) Corporate and Governmental Authorization; Contravention. The execution and delivery by the Transferor of this Agreement, each Receivables Purchase Agreement, the Master Pooling and Servicing Agreement, the Series Supplement, the Fee Letters, the Certificates and the other Transaction Documents to

19

which the Transferor is a party, the performance by the Transferor of the transactions contemplated hereby and thereby and the fulfillment by the Transferor of the terms hereof and thereof, are within the Transferor's corporate powers, have been duly authorized by all necessary corporate action, require no action, approval or consent by or in respect of, or filing with, any Official Body or official thereof that has not been taken or obtained, and do not conflict with, violate or result in any breach of any of the 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 Transferor, or the Certificate of Incorporation or Bylaws of the Transferor or any agreement, judgment, injunction, order, writ, decree or other instrument binding upon the Transferor, or result in the creation or imposition of any Lien on the assets of the Transferor or any of its Subsidiaries.

                (d) Binding Effect. Each of this Agreement, the Master Pooling and Servicing Agreement, the Series Supplement, the Fee Letters, the Certificates and the other Transaction Documents to which the Transferor is a party constitutes the legal, valid and binding obligation of the Transferor, enforceable against the Transferor in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, conservatorship, receivership, moratorium or other similar laws now or hereafter in effect affecting the rights of creditors generally and to general equitable principles whether or not considered at law or in equity, and to limitations upon indemnification and contribution contained in applicable securities laws and regulations.

                (e) Accuracy of Information. All information heretofore furnished by the Transferor to the Agent, any Senior Class Agent, any Senior Class Conduit or any Bank Investor for purposes of or in connection with this Agreement, the Master Pooling and Servicing Agreement, the Series Supplement or any transaction contemplated hereby or thereby is, and all such information hereafter furnished by the Transferor to any such party 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 consistent with GAAP for the payment of all its taxes, assessments and other governmental charges.

                (g) No Proceedings. Except as set forth in Exhibit H hereto, there are no actions, suits, proceedings or investigations pending or, to the best 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, regulatory body, administrative agency, arbitrator or other tribunal or governmental instrumentality (i) asserting the invalidity of this Agreement, the Master Pooling and Servicing Agreement, the Series Supplement, the Certificates or the other Transaction Documents, (ii) seeking to prevent the issuance of the Certificates or the consummation of any of the transactions contemplated by this Agreement, the Master Pooling and Servicing Agreement, the Series Supplement, the Certificates or the other Transaction Documents, or (iii) seeking any determination or ruling that, individual ly or in the aggregate, would have a Material Adverse Effect.

20

                (h) Use of Proceeds. The Transferor is not engaged in the business of extending credit for the purposes of purchasing or carrying margin stock, and no proceeds of any acquisition of an interest in the Senior Class Certificates, directly or indirectly, will be used for a purpose that violates, or would be inconsistent with, Regulations T, U and X promulgated by the Federal Reserve Board from time to time.

                (i) Aggregate Principal Balance. On each day, the product of (i) the aggregate Floating Allocation Percentage with respect to Default Amounts for all Senior Classes and (ii) the sum of the Excess Funding Amount and the Aggregate Principal Receivables, shall at least equal the sum of the Senior Class Certificate Principal Balances for all Senior Classes. For the purposes of this subsection, the Servicer shall have the option to calculate the Floating Allocation Percentage on a daily basis method, using the current day Aggregate Investor Amount in the numerator and the current day Aggregate Principal Receivables and Excess Funding Account balance in the denominator.

                (j) Transferor Amount; Subordinate Class Investor Amount. After giving effect to the issuance of the Senior Class Certificates on the Closing Date, (i) the Transferor Amount is not less than the Minimum Transferor Amount and (ii) the Subordinate Class Investor Amount is not less than the Minimum Enhancement Amount.

                (k) Credit Card Guidelines. The Servicer has delivered the Credit Card Guidelines as changed through the date hereof, and since such date, no material adverse change has occurred in the overall rate of collection of the Receivables.

                (l) No Pay Out Event. No event has occurred and is continuing and no condition exists which constitutes a Pay Out Event or a Potential Pay Out Event.

                (m) Not an Investment Company. The Transferor is not, and is not controlled by, an "investment company" within the meaning of the 1940 Act, or is exempt from all provisions of such Act.

                (n) ERISA. No steps have been taken by any Person to terminate any Pension Plan the assets of which are not sufficient to satisfy all of its benefit liabilities (as determined under Title IV of ERISA), no contribution failure has occurred with respect to any Pension Plan sufficient to give rise to a lien under Section 302(f) of ERISA, and each Pension Plan has been administered in all material respects in compliance with its terms and applicable provision of ERISA and the Code.

                (o) Bulk Sales. No transaction contemplated by this Agreement, any Receivables Purchase Agreement or the Master Pooling and Servicing Agreement requires compliance with any bulk sales act or similar law.

21

                (p) Transfers Under Receivables Purchase Agreement. Each Receivable which has been transferred to the Transferor by an Eligible Originator has been purchased by the Transferor from such Eligible Originator pursuant to, and in accordance with, the terms of a Receivables Purchase Agreement.

                (q) Reasonable Equivalent Value. The Transferor has given reasonably equivalent value to each Eligible Originator in consideration for the transfer to the Transferor of the applicable Receivables and Collections and Related Security, if any, from such Eligible Originator, and each such transfer shall not have been made for or on account of an antecedent debt owed by such Eligible Originator to the Transferor. The Transferor has received reasonably equivalent value in consideration for the transfer to the Trust of the Receivables and Collections and Related Security, if any, and will have received reasonably equivalent value in consideration for the sale of the Senior Certificates (and any sale of additional interests in the Trust in connection with any Additional Investor Amount) to the Senior Class Conduits and the Bank Investors.

                (r) Representations and Warranties. Each representation and warranty of the Transferor set forth in Article IV of each Receivables Purchase Agreement and in Article II of the Master Pooling and Servicing Agreement is true and correct in all material respects and the Transferor hereby remakes all such representations and warranties for the benefit of the Agent, each Senior Class Agent, each Senior Class Conduit and each Bank Investor.

                (s) Validity of Certificates. The Certificates have been or will be issued pursuant to the terms of the Master Pooling and Servicing Agreement and the Series Supplement and, as or when executed by the Transferor and authenticated by the Trustee in accordance with the Master Pooling and Servicing Agreement and the Series Supplement and delivered pursuant to this Agreement, have been or will be validly issued and outstanding and entitled to the benefits of the Master Pooling and Servicing Agreement and the Series Supplement. The Certificates are or will be in all material respects in the form contemplated by the Master Pooling and Servicing Agreement and the Series Supplement. At the time of transfer to the Purchasers hereunder, the Transferor had or shall have good and marketable title to the Certificates free and clear of any Lien.

                (t) No General Solicitation. None of the Transferor or any of its affiliates (as defined in Rule 501(b) under the Act) or any Person (other than the Purchasers and their respective affiliates, as to whom the Transferor makes no representation) acting on its behalf has engaged, in connection with the offering of the Senior Class Certificates, in any form of general solicitation or general advertising within the meaning of Rule 502(c) under the Act.

                (u) No Registration under the Act; Trust Indenture Act. It is not necessary in connection with the offer, sale and delivery of the Certificates to the Purchasers to register the Certificates under the Act. The Master Pooling and Servicing Agreement is not required to be qualified under the Trust Indenture Act of 1939.

22

        The representations and warranties set forth in this Section shall survive the sale of the Senior Class Certificates to the Senior Class Conduits or the Bank Investors and the acquisition by the Senior Class Conduits or the Bank Investors of any additional interests in the Trust in connection with any Additional Investor Amounts. Upon discovery by the Transferor, the Agent, any Senior Class Agent, any Senior Class Conduit or any Bank Investor of a breach of any of the foregoing representations and warranties, the party discovering such breach shall give prompt written notice thereof to each other party, provided that the failure by any such party to give any such notice shall not impair any of such parties' rights hereunder.

        SECTION 3.2. Representations and Warranties of the Servicer. As of the date hereof and as of each day that an acquisition of an Additional Investor Amount is made hereunder, the Servicer hereby makes and shall be deemed to have made the following representations and warranties:

                (a) Organization and Good Standing. The Servicer is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all corporate power , authority and legal right and all material governmental licenses, authorizations, consents and approvals required to own its properties and conduct its business as such properties are presently owned and such business is presently conducted in each jurisdiction in which it presently owns properties and presently conducts its business, except where the absence of any such licenses, authorizations, consents or approvals would not have a Material Adverse Effect, and to execute, deliver and perform its obligations under this Agreement, the Master Pooling and Servicing Agreement and all other Transaction Documents to which it is a party and to service the Receivables as required under federal a nd state law.

                (b) Due Qualification. The Servicer is duly qualified to do business and is in good standing (or is exempt from such requirements) in each jurisdiction in which the nature of its business requires it to be so qualified and has obtained all necessary licenses and approvals in each jurisdiction in which the failure to be so qualified or to obtain such licenses and approvals would have a Material Adverse Effect or a material adverse effect on the Servicer's ability to perform its obligation under the Master Pooling and Servicing Agreement or to service the Receivables as required under federal and state law.

                (c) Corporate and Governmental Authorization; Contravention. The execution and delivery and performance by the Servicer of this Agreement and the other Transaction Documents to which the Servicer is a party, the performance by the Servicer of the transactions contemplated hereby and thereby and the fulfillment by the Servicer of the terms hereof and thereof are within the Servicer's corporate powers, have been duly authorized by all necessary corporate action, require no action, consent or approval by or in respect of, or filing

23

with, any Official Body or official thereof that has not been taken or obtained, and do not conflict with, violate or result in any breach of any of the 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 Servicer, or the Articles of Incorporation or Bylaws of the Servicer or any agreement, judgment, injunction, order, writ, decree or other instrument binding upon the Servicer and will not result in the creation or imposition of any Lien on assets of the Servicer or any of its Subsidiaries.

                (d) Binding Effect. Each of this Agreement and the other Transaction Documents to which the Servicer is a party constitutes the legal, valid and binding obligation of the Servicer, enforceable against the Servicer in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereinafter in effect affecting the enforcement of creditors' rights in general and to general equitable principles, whether or not considered at law or in equity, and to limitations upon indemnification and contribution contained in applicable securities laws and regulations.

                (e) Accuracy of Information. All information heretofore furnished by the Servicer to the Transferor, the Agent, any Senior Class Agent, any Senior Class Conduit or any Bank Investor for purposes of or in connection with this Agreement, the Master Pooling and Servicing Agreement, the Series Supplement or any transaction contemplated hereby or thereby is, and all such information hereafter furnished by the Servicer to any such party will be, true and accurate in every material respect, on the date such information is stated or certified.

                (f) Tax Status. The Servicer has filed all tax returns (federal, state and local) required to be filed and has paid or made adequate provision consistent with GAAP for the payment of all taxes, assessments and other governmental charges.

                (g) No Proceedings. Except as set forth in Exhibit H hereto, there are no proceedings or investigations pending or, to the best knowledge of the Servicer, threatened against the Servicer or any Affiliate of the Servicer before any court, regulatory body, administrative agency or other tribunal or governmental instrumentality (i) asserting the invalidity of this Agreement or the other Transaction Documents, (ii) seeking to prevent the issuance of the Certificates or the consummation of any of the transactions contemplated by this Agreement and the other Transaction Documents or (iii) seeking any determination or ruling that, individually or in the aggregate, would have a Material Adverse Effect.

                (h) Credit Card Guidelines. The Servicer has delivered the Credit Card Guidelines as changed through the date hereof, and since such date, no change has been made in the Credit Card Guidelines that would impair the collectibility of any substantial portion of the Receivables or otherwise result in a Material Adverse Effect.

24

                (i) Collections and Servicing. Since July 15, 1999, there has been no material adverse change in the ability of the Servicer to service and collect the Receivables and no material adverse change has occurred in the overall rate of collections of Receivables.

                (j) Not an Investment Company. The Servicer is not an "investment company" within the meaning of the 1940 Act, or is exempt from all provisions of such Act.

                (k) ERISA. The Servicer is in compliance in all material respects with ERISA.

        The representations and warranties set forth in this Section shall survive the sale of the Senior Class Certificates to the Senior Class Conduits or the Bank Investors and the acquisition by the Senior Class Conduits or the Bank Investors of any additional interests in the Trust in connection with any Additional Investor Amounts. Upon discovery by the Servicer, the Transferor, the Agent, any Senior Class Agent, any Senior Class Conduit or any Bank Investor of a breach of any of the foregoing representations and warranties, the party discovering such breach shall give prompt written notice thereof to each other party, provided that the failure by any such party to give any such notice shall not impair any of such parties' rights hereunder.

        SECTION 3.3. Covenants of the Transferor. At all times from the date hereof to the later to occur of (i) the Termination Date or (ii) the date on which all amounts due to the Senior Certificateholders under this Agreement and the other Transaction Documents shall have been paid in full, unless the Agent and each Senior Class Agent shall otherwise consent in writing:

                (a) Financial Reporting. The Transferor will, and will cause each Eligible Originator and each of such Eligible Originator's Subsidiaries to, maintain, for itself and each of its respective Subsidiaries, a system of accounting established and administered in accordance with GAAP, and will furnish to the Agent (and the Agent shall furnish to each Senior Class Agent):

                                (i) Annual Reports. Within one hundred (100) days after the close of the Transferor's and Saks' fiscal years, (beginning with the fiscal year ending in 2002) audited financial statements, prepared in accordance with GAAP on a consolidated basis for (x) the Transferor and (y) for Saks 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 PricewaterhouseCoopers, LLP, or other 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 (i) a certificate of said accountants that Saks is in compliance w ith the financial covenants set forth in Section 3.4(d) hereof, or, if Saks is not in compliance with such covenants, stating the nature and status thereof and (ii) a certificate of the chief financial officer or chairman, president, treasurer or any executive or senior vice president of the Transferor stating that no Pay Out Event or Potential Pay Out Event exists, or if any Pay Out Event or Potential Pay Out Event exists, stating the nature and status thereof and showing the computation of each of the financial ratios and restrictions set forth in Section 3.4(d) hereof. The foregoing notwithstanding, no separate audited financial statements for the Transferor shall be required, and only unaudited financial statements need be supplied with respect to the Transferor and its Subsidiaries.

25

                                (ii) Quarterly Reporting. Within fifty (50) days after the close of the first three quarterly periods of each of the Transferor's and Saks' fiscal years, for (x) the Transferor and (y) for Saks and its Subsidiaries, in each case, consolidated unaudited balance sheets and consolidated related statements of operations and cash flows as at the end of such period for such period and for the period from the beginning of such fiscal year to the end of such quarter, and showing the computation of each of the financial ratios and restrictions set forth in Section 3.4(d) hereof all certified by its chief financial officer, chairman, president, treasurer or any executive or senior 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 or senior vice president of the Transferor or Saks, 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 Saks as applicable (in the case of quarterly statements, subject to normal adjustments) and (y) to the best of such Person's knowledge, no Pay Out Event or Potential Pay Out Event exists, or if any Pay Out Event or Potential Pay Out Event exists, stating the nature and status thereof and showing the computation of, and showing compliance with, each of the financial ratios and restrictions set forth in Section 3.4(d) hereof.

                                (iv) Shareholders' Statements and Reports. Promptly upon the furnishing thereof generally to the shareholders of Saks, copies of all financial statements, reports and proxy statements so furnished to the extent not included in the filings provided pursuant to paragraph (v) below.

                                (v) S.E.C. Filings. Promptly upon (x) the filing thereof, copies of all annual, quarterly, monthly or other regular reports and reports on Form 8-K and (y) the effectiveness thereof, copies of all registration statements, in each case which Saks or any subsidiary files with the Securities and Exchange Commission (excluding any filings on Form S-8).

                                (vi) Notice of Pay Out Events or Potential Pay Out Events. As soon as possible and in any event within two (2) days after the occurrence of each Pay Out Event or each Potential Pay Out Event, a statement of the chief financial officer or chief accounting officer of the Transferor setting forth details of such Pay Out Event or Potential Pay Out Event and the action which the Transferor proposes to take with respect thereto.

26

                                (vii) Change in Credit Card Guidelines and Debt Ratings. Within thirty (30) days after the date of any material change in or amendment to the Credit Card Guidelines is made, a copy of the Credit Card Guidelines then in effect indicating such change or amendment, and attaching a copy of such change or amendment. Within fifteen (15) days after any change in Saks' public or private debt ratings by any rating agency that has been requested by Saks to provide any such rating, if any, a written certification of Saks' public and private debt ratings after giving effect to any such change.

                                (viii) Credit Card Guidelines. Within ten (10) Business Days of the request of the Agent or any Senior Class Agent (which request by any Senior Class Agent shall be made through the Agent), a complete copy of the Credit Card 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 which the Transferor, any Eligible Originator or any ERISA Affiliate of the Transferor or any Eligible Originator files under ERISA with the Internal Revenue Service, the PBGC or the U.S. Department of Labor or which the Transferor, any Eligible Originator or any ERISA Affiliates of the Transferor or any Eligible Originator receives from the Internal Revenue Service, the PBGC or the U.S. Department of Labor.

                                (x) Other Information. Such other information (including non-financial information) as the Agent or any Senior Class Agent may from time to time reasonably request (which request by any Senior Class Agent shall be made through the Agent) with respect to any Eligible Originator, 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 duly incorporated, validly existing and in good standing as a domestic corporation in its jurisdiction of incorporation and maintain all requisite authority to conduct its business in each jurisdiction in which its business is conducted. The Transferor may merge or consolidate with any Subsidiary of Saks that is a special purpose entity designed to be a bankruptcy-remote financing vehicle (i) where the successor entity, if not the Transferor, adopts the obligations of the Transferor hereunder, (ii) no Pay Out Event, Potential Pay Out Event or Servicer Default shall have occurred and be continuing whether as a result thereof or otherwise, and (iii) upon delivery of a n opinion of counsel of the Transferor that the assets and liabilities of such entity would not be consolidated with the assets and liabilities of Saks.

                (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.

27

                (d) Furnishing of Information and Inspection of Records. The Transferor will, and will exercise its rights under Section 5.1(c) of each Receivable Purchase Agreement to obtain information from each Eligible Originator in order to, furnish to the Agent (which the Agent shall furnish to each Senior Class Agent) from time to time such information with respect to the Receivables as the Agent or such Senior Class Agent may reasonably request (which request by any Senior Class Agent shall be made through the Agent), including, without limitation, listings identifying the Obligor and the Outstanding Principal Balance for each Receivable. The Transferor will permit, and will exercise its rights under Section 5.1(c) of each Receivable Purchase Agreement in order to permit, at any time and from time to time during regular business hours and upon reasonable prior notice (which notice by any Senior Cla ss Agent shall be given through the Agent), the Agent and each Senior Class Agent, or their respective agents or representatives, (i) to examine and make copies of and take abstracts from all Records (at the expense of the Transferor) and (ii) to visit the offices and properties of the Transferor or such Eligible Originator, as applicable, for the purpose of examining such Records, and to discuss matters relating to Receivables or the Transferor's or such Eligible Originator'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 or such Eligible Originator, as applicable, having knowledge of such matters.

                (e) Keeping of Records and Books of Account. The Transferor will, and will cause each Eligible Originator to, 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 customary 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 the Agent shall give each Senior Class Agent) notice of any material change in the administrative and operating procedures of the Transferor or any Eligible Originator.

                (f) Sale Treatment. The Transferor will not (i) account for (including for accounting and tax purposes), or otherwise treat, the transactions contemplated by each Receivables Purchase Agreement in any manner other than as a sale of the Receivables by such Eligible Originator to the Transferor, or (ii) account for (other than for tax purposes) or otherwise treat the transactions contemplated hereby in any manner other than as a sale of an undivided percentage ownership interest in the Receivables by the Transferor to the Senior Class Conduits or the Bank Investors, as applicable. In addition, the Transferor shall, and shall cause each Eligible Originator 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 contempla ted by the Master Pooling and Servicing Agreement and by each Receivables Purchase Agreement and the interest of the Transferor (in the case of an Eligible Originator's financial statements), the Senior Class Conduits and the Bank Investors in the Affected Assets.

28

                (g) Corporate Documents. The Transferor shall not amend, alter, change or repeal any Articles of its Certificate of Incorporation without the prior written consent of the Agent and each Senior Class Agent.

                (h) No Sales, Liens, Etc. Except as otherwise permitted by the Master Pooling and Servicing Agreement, the Series Supplement, this Agreement or any other Transaction Document, the Transferor will not sell, assign (by operation of law or otherwise) or otherwise dispose of, or create or suffer to exist any Lien upon (or the filing of any financing statement with respect to), any of the Trust Property.

                (i) No Extension or Amendment of Receivables; Discount Percentage. Except as otherwise permitted by the Transaction Documents, the Transferor will not, and will not change or waive Section 5.1(f) of any Receivable Purchase Agreement to permit any Eligible Originator to, 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 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 Portfolio Adjusted Yield as of such date would be less than 1.00%.

                (j) Changes to Account Agreements. The Transferor shall not 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, and the timing, of uncollectible Receivables), except to the extent permitted by the Master Pooling and Servicing Agreement.

                (k) No Change in Business or Credit Card Guidelines. The Transferor will not make any change in the character of its business or in the Credit Card Guidelines, which change would, in either case, impair the collectibility of any substantial portion of the Receivables or otherwise result in a Material Adverse Effect.

                (l) Amendment of Receivables Purchase Agreement, Master Pooling and Servicing Agreement and Series Supplement. The Transferor will not amend, waive, modify or supplement any Receivables Purchase Agreement, the Master Pooling and Servicing Agreement, the Series Supplement or any other Transaction Document to which it is a party without the prior written consent of the Agent and each Senior Class Agent to the substance and form of any such amendment, modification, waiver or supplement and, in addition, will not permit any Eligible Originator to take (or acquiesce in the taking of any such action) any action (including any omission to act) under any Transaction Document to which it is a party that would have a material adverse effect on the Agent, any Senior Class Conduit or any Bank Investor or which is inconsistent with the terms of the Master Pooling and Servicing Agreement, the Series Supplement or this Agreement.

29

                (m) Other Debt. Except as permitted by this Agreement or the Master Pooling and Servicing Agreement, 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, under any Series Supplement, any Enhancement or under a Receivables Purchase Agreement for the purchase price of the Receivables under such Receivables Purchase Agreement, and (ii) other indebtedness incurred in the ordinary course of its business, the amount thereof which is past due not to exceed $9,750 at any time outstanding.

                (n) ERISA Matters. Neither the Transferor nor any ERISA Affiliate will institute steps to terminate any Pension Plan if (i) the assets of such Pension Plan are insufficient to satisfy all of its benefit liabilities (as determined under Title IV of ERISA), and (ii) such termination would result in a contribution failure with respect to any Pension Plan which is sufficient to give rise to a lien under Section 302(f) of ERISA.

                (o) Receivables Purchase Agreement. The Transferor, in its capacity as purchaser of the Receivables from the Eligible Originators pursuant to the related Receivables Purchase Agreement, will at all times enforce the covenants and agreements of each Eligible Originator in each Receivables Purchase Agreement. With respect to any Receivable sold by an Eligible Originator to the Transferor, the Transferor shall, and shall cause such Eligible Originator to, effect such sale under, and pursuant to the terms of, a Receivables Purchase Agreement, including, without limitation, the payment by the Transferor, either in cash, by increase in the amount of the Subordinated Note, a contribution of capital or any combination thereof, to such Eligible Originator in an aggregate amount equal to the purchase price for such Receivable as required by the terms of such Receivables Purchase Agreement.

                (p) Master Pooling and Servicing Agreement. The Transferor will comply with the covenants set forth in Section 2.5 of the Master Pooling and Servicing Agreement.

                (q) Notice of Breach; Liens. The Transferor shall advise the Agent (and the Agent shall forward such advisement to each Senior Class Agent) promptly, in reasonable detail, (i) after becoming aware of any Lien on any Receivable or other Trust Property other than the conveyances under the Master Pooling and Servicing Agreement or under a Receivables Purchase Agreements or Liens permitted under Section 2.5(b) of the Master Pooling and Servicing Agreement or under Section 5.2(a) of each Receivable Purchase Agreement, (ii) of any breach by the Transferor or the Servicer of any of their respective representations, warranties and covenants contained herein or in the Master Pooling and Servicing Agreement and (iii) of the occurrence of any other event which would have a material adverse effect on the Trustee's interest in the Receivables or the collectibility thereof.

30

                (r) Notice of Additions. On or before the fifth Business Day prior to the Additional Account Closing Date with respect to any Additional Accounts designated pursuant to subsections 2.6(a) or (b) of the Master Pooling and Servicing Agreement, the Transferor shall give the Agent (and the Agent shall forward to each Senior Class Agent) written notice that the Receivables in such Additional Accounts will be included, specifying the approximate aggregate amount of Receivables in such Additional Accounts. The Transferor shall give the Agent (and the Agent shall forward to each Senior Class Agent) five (5) Business Days prior written notice of (i) any designation of Accounts to be included as Accounts pursuant to subsection 2.5(d) of the Master Pooling and Servicing Agreement and (ii) any discontinuance or suspension of any such designation. The Transferor shall not include as Automatic Additional Accounts any Accounts of a type not included as Accounts on the Initial Closing Date or included on any Addi tional Account Closing Date pursuant to which Additional Accounts are designated pursuant to subsection 2.6(b) of the Master Pooling and Servicing Agreement or consented to in writing by the Agent and each Senior Class Agent.

                (s) Protection of Interest in Trust Property. The Transferor shall execute and file such continuation statements and any other documents reasonably requested by the Trustee, the Agent, any Senior Class Agent, any Senior Class Conduit or any Bank Investor (in the case of any Senior Class Agent, any Senior Class Conduit or any Bank Investor, such request to be made through the Agent) or which may be required by law to fully preserve and protect the interest of the Trustee in and to the Receivables and the other Trust Property.

                (t) Transfer of Transferor Interest and Subordinate Class Certificates. The Transferor shall not assign, transfer or otherwise convey to any Person any interest in the Transferor Interest or the Subordinate Class Certificates held by it without (i) the prior written consent of the Agent and each Senior Class Agent and (ii) delivering to the Trustee prior thereto an Opinion of Counsel to the effect that (x) the conveyed interest in the Transferor's Interest or the Subordinate Class Certificates will be treated as either debt or an interest in a partnership for federal income tax purposes and that the conveyance of such interest will not cause the Trust to be characterized for federal income tax purposes as an association or a publicly traded partnership taxable as a corporation or otherwise have any material adverse impact on the federal or applicable state income taxation of any outstanding Certificates or any Certificate Owner and (y) such transfer will not cause a taxable event for federal income tax purposes to any Investor Certificateholder.

                (u) No Assignment. The Transferor shall not assign any of its rights or delegate any of its duties hereunder or under the Master Pooling and Servicing Agreement or the Series Supplement or under any of the other Transaction Documents to which it is a party without the prior written consent of the Agent and each Senior Class Agent.

                (v) No Designation. The Transferor shall not designate an Eligible Originator other than G.R. Herberger's, Inc., McRae's, Inc., Parisian, Inc., Carson Pirie Scott & Co., National Bank of the Great Lakes, Saks & Company or Saks, without the prior written consent of the Agent and each Senior Class Agent.

31

                (w) Consent of Agent and Senior Class Agent. The Transferor shall obtain the written consent of the Agent and each Senior Class Agent prior to taking any action under the Master Pooling and Servicing Agreement that would require (i) the satisfaction of the Rating Agency Condition under the Master Pooling and Servicing Agreement (whether or not any Series is then currently rated by any rating agency) or (ii) the consent of the Trustee.

                (x) Notice of Delegation of Servicer's Duties. The Transferor promptly shall notify the Agent (and the Agent shall forward such notice to each Senior Class Agent) of any delegation by the Servicer of any of the Servicer's duties under the Master Pooling and Servicing Agreement or the Series Supplement, provided that the designation of McRae's, Inc., Parisian, Inc. or any other Affiliate of the Transferor as Subservicer shall be permitted without notice.

                (y) Notice of Resignation or Removal of the Trustee. The Transferor promptly shall notify the Agent (and the Agent shall forward such notice to each Senior Class Agent) of any resignation or removal of the Trustee under the Master Pooling and Servicing Agreement.

                (z) Reduction of Investor Amounts. If, on any day, (x) the Senior Class Certificate Principal Balance for any Senior Class plus the Interest Component of all Related Commercial Paper issued by the related Senior Class Conduit and then outstanding, if any, exceeds the Senior Class Facility Limit for such Class or (y) the product of (i) the aggregate Floating Allocation Percentage with respect to Default Amounts for all Senior Classes and (ii) the sum of the Excess Funding Amount and the Aggregate Principal Receivables, is less than the sum of the Senior Class Certificate Principal Balances for all Senior Classes, the Transferor shall distribute on such day to such Senior Class Conduit, in accordance with subsection 4.5(d) of the Series Supplement an amount sufficient to (I) reduce the sum of the Senior Class Investor Amount and the Interest Component of all outstanding Related Commerci al Paper for such Senior Class to an amount which is less than the Senior Class Facility Limit for such Senior Class or (II) reduce the sum of the Senior Class Certificate Principal Balances for all Senior Classes plus the Minimum Enhancement Amount to an amount which is less than the Series Allocation Percentage with respect to Principal Receivables of the Aggregate Outstanding Principal Balance, as applicable. For the purposes of this subsection, the Servicer shall have the option to calculate the Floating Allocation Percentage on a daily basis method, using the current day Aggregate Investor Amount in the numerator and the current day Aggregate Principal Receivables and Excess Funding Account balance in the denominator.

        SECTION 3.4. 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 all amounts due to the Senior Certificateholders under this Agreement and the other Transaction Documents shall have been paid in full, unless the Agent and each Senior Class Agent shall otherwise consent in writing:

32

                (a) Records. The Senior Class Certificateholders and their agents and representatives shall at all times upon reasonable prior notice have full access during normal business hours to all Records of the Servicer, and the Agent, each Senior Class Agent and the Senior Class Certificateholders and their agents and representatives may examine the same, take extracts therefrom and make photocopies thereof, and the Servicer agrees to render to such Persons, at the Servicer's cost and expense, such clerical and other assistance as may be reasonably requested with regard thereto.

                (b) No Extension or Amendment of Receivables. Except as otherwise expressly permitted by the Transaction Documents, 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 Portfolio Adjusted Yield as of such date would be less than 1.00%.

                (c) Conduct of Business. The Servicer will, and will cause each of its Subsidiaries to which it delegates any servicing functions under the Master Pooling and Servicing Agreement to, carry on and conduct its business in substantially the same fields of enterprise as it is presently conducted and do all things necessary to remain duly incorporated, 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, except where the failure to be so qualified will not have a Material Adverse Effect. All Eligible Originators shall at all times be direct or indirect wholly-owned (except for director's qualifying shares and/or shares of preferred stock) subsidiaries of Saks.

                (d) Financial Covenants. While a Liquidity Event exists, the Servicer shall maintain as of the end of each fiscal quarter, for the Twelve-Month Period then ended, a Fixed Charge Coverage Ratio of 1.00 to 1.00 for such period, beginning with the fiscal quarter ended most recently prior to the occurrence of the applicable Liquidity Event.

                (e) No Assignment. The Servicer shall not assign any of its rights or delegate any of its duties hereunder or under the Master Pooling and Servicing Agreement or the Series Supplement or under any of the other Transaction Documents to which it is a party without the prior written consent of the Agent and each Senior Class Agent provided that any designation of McRae's, Parisian, Inc. or any other Affiliate of the Transferor as Subservicer shall be permitted without notice.

                (f) Back-Up Servicer.

33

                                (i) On or before April 1, 2002, the Servicer shall designate a back-up servicer reasonably acceptable to the Senior Class Agents (the "Back-Up Servicer"). By April 1, 2002, (A) the Servicer shall cause the designated Back-Up Servicer to conduct such reasonable diligence upon the Servicer and its operations as may be necessary to satisfy the provisions of this paragraph, (B) the Servicer shall develop, and shall cause the designated Back-Up Servicer to assist in the development of, a reasonably-detailed written transition plan (the "Transition Plan") for converting, in accordance with the Master Pooling and Servicing Agreement, all necessary functions of the Servicer to the designated Back-Up Servicer, as Successor Servicer, expeditiously following the occurrence and continuation of a Servicer Default and in accordance with the Transition Plan and the Master Pooling and Servicing Agreement, (C) the Servicer shall complete, and shall cause the designated Back-Up Servicer to assist in the completion of, commercially reasonable testing using sampling techniques of the data and programs necessary to effect the Transition Plan, copies of the results of which shall be provided to the Senior Class Agents, and (D) the Servicer shall develop with the Back-Up Servicer reasonably detailed estimates of the costs and time to implement the Transition Plan, which shall be contained in a document prepared and provided by the Back-Up Servicer and the Servicer to the Senior Class Agents. From the Closing Date to April 1, 2002, the Servicer shall provide a reasonably detailed monthly report to the Senior Class Agents on the status and progress of these activities.

                                (ii) The Servicer shall use all commercially reasonable efforts to enter into a back-up servicing agreement meeting the requirements of this paragraph and reasonably acceptable to the Senior Class Agents as soon as practicable with the Back-Up Servicer (a "Back-Up Servicing Agreement"). Without limiting the generality of the immediately preceding paragraph, the Back-Up Servicing Agreement will provide that (A) the Servicer will provide the Back-Up Servicer with data in forms utilized by the Servicer and will document the procedures used by the Servicer to prepare the Monthly Servicer's Certificate, (B) the Back-Up Servicer will utilize the information provided in the immediately preceding clause and use commercially reasonable testing each month of key inputs to the Monthly Servicer's Certificate, (C) the Back-Up Servicer will identify any discrepancies in its data and the data in the Monthly Servicer's Certificate in a reasonably detailed written report to the Servicer which shall be provided promptly upon receipt to the Senior Class Agents, provided the Back-Up Servicer shall have no obligation to determine the materiality of any of such data, (D) the Servicer shall upon the occurrence and continuance of a Servicer Default (x) cause all of the department stores that it or its subsidiaries operate (the "Department Stores") to discontinue the acceptance of Collections of Receivables via point-of-sale terminals in the Department Stores, and (y) direct the Department Stores to physically deliver payments directly to the lockboxes maintained for Collections of Receivables, and (E) all other items reasonably needed to enable the Back-Up Servicer to perform the Servicer's duties under the Master Pooling and Servicing Agreement following the occurrence and continuation of a Servicer Default (the "Back-Up Services"). The Servicer shall provide a draft copy of the Back-Up Servicing Agreement to the Senior Class Agents not less than 10 Business Days prior to its effective time. The Senior Class Agents or their designated representatives, may observe the test of Back-Up Services once per calendar year, and Saks shall pay the reasonable expenses thereof. The Senior Class Agents shall cooperate in good faith with the Servicer to develop commercially reasonable and mutually acceptable solutions with respect to the development and implementation of the items in this paragraph (ii).

34

                                    (iii) In the event the entity serving as Back-Up Servicer resigns, the Servicer shall, prior to the effectiveness of such resignation, designate a replacement Back-Up Servicer reasonably acceptable to the Senior Class Agents. Any such replacement Back-Up Servicer shall have entered into a Back-Up Servicing Agreement meeting the criteria set forth above in paragraph (ii) of this Section 3.4(f) on or prior to the effective date of the resignation of the resigning Back-Up Servicer.

                                (iv) If the Back-Up Servicer has failed in any material respect to perform its Back-Up Services pursuant to the Back-Up Servicing Agreement, then the Servicer shall designate a replacement Back-Up Servicer reasonably acceptable to the Senior Class Agents, within ninety (90) days of receipt of such notice, and enter into a Back-Up Servicing Agreement with the successor Back-Up Servicer. Any such successor Back-Up Servicer shall have entered into a Back-Up Servicing Agreement meeting the criteria set forth above in paragraph (ii) of this Section 3.4(f) within sixty (60) days after such designation (it being understood that prior to the designation of a replacement Back-Up Servicer, the existing Back-Up Servicer shall continue to serve as back-up servicer).

                                (v) The provisions of this paragraph (v) are set forth on Exhibit D hereto.

                (g) ERISA Matters. Neither the Servicer nor any ERISA Affiliate will institute steps to terminate any Pension Plan if (i) the assets of such Pension Plan are insufficient to satisfy all of its benefit liabilities (as determined under Title IV of ERISA) and (ii) such termination would result in a contribution failure with respect to any Pension Plan which is sufficient to give rise to a lien under Section 302(f) of ERISA.

        SECTION 3.5. Tax Treatment. The Transferor, the Senior Class Conduits and the Bank Investors have entered into this Agreement, and the Transferor has entered into the Series Supplement, with the intention that the Senior Class Certificates will qualify under applicable tax law as indebtedness, and the Transferor and each Senior Class Conduit and Bank Investor by its acceptance of the Senior Class Certificates agree to and shall treat the Senior Class Certificates for purposes of federal and state income or franchise taxes and any other tax imposed on or measured by income, as indebtedness unless otherwise required by the Internal Revenue Service.

        SECTION 3.6. Conditions Precedent to Initial Transfer. On or prior to the Closing Date, the Transferor and the Servicer shall deliver to the Agent (with sufficient copies for each Senior Class Agent and their

35

respective counsel) the following documents, instruments and fees, all of which shall be in a form and substance acceptable to the Agent and each Senior Class Agent:

                (a) A copy of the resolutions of the Board of Directors (or Executive Committee) of each of the Transferor and the Servicer, certified by an Executive Vice President, Senior Vice President, Treasurer, Secretary or Assistant Secretary, approving the execution, delivery and performance by the Transferor and the Servicer, respectively, of the Series Supplement, this Agreement, the Certificates and the other Transaction Documents to which the Transferor or the Servicer is a party.

                (b) The Certificate of Incorporation and the Articles of Incorporation of the Transferor and the Servicer, respectively, certified by the Secretary of State or other similar official of its jurisdiction of incorporation dated a recent date and further certified by an officer of each respective corporation.

                (c) A Good Standing Certificate for the Transferor and the Servicer and issued by the Secretary of State or other similar official of its jurisdiction of incorporation 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 the Transaction Documents to which such Person is a party, in each case dated a date reasonably prior to the Closing Date.

                (d) A certificate of an Executive Vice President, Senior Vice President, Treasurer, Secretary or Assistant Secretary of the Transferor and the Servicer substantially in the form of Exhibit C hereto.

                (e) Favorable opinion of Alston & Bird LLP, counsel to the Transferor, the Servicer and each Eligible Originator in substantially the form of Exhibit E hereto with respect to certain corporate and enforceability matters.

                (f) Favorable opinions of counsel to the Trustee, as to the due authorization, execution and delivery by the Trustee of the Series Supplement and each other Transaction Document executed by the Trustee.

                (g) An executed copy of the Master Pooling and Servicing Agreement, the Series Supplement, this Agreement, the Fee Letters, and executed or a certified copy of each of the other Transaction Documents to be executed by the Transferor or the Servicer.

                (h) The Class A-1 Variable Funding Certificates in the face amount of up to $105,000,000, the Class A-2 Variable Funding Certificates in the face amount of $105,000,000, the Class A-3 Variable Funding Certificates in the face amount of up to $105,000,000, and the Subordinate Class Certificates in the face amount of $78,750,000, in each case duly executed by the Transferor and duly authenticated by the Trustee and issued, in the case of the Senior Class Certificates, to the parties specified in Section 2.1 hereof and, in the case of the Subordinate Class Certificates, to the Transferor.

36

                (i) Payment of (i) any fees to be paid on or prior to the Closing Date pursuant to the Fee Letters and (ii) all up-front fees to be paid to the Senior Class Conduits.

                (j) Reliance letter of Alston & Bird LLP in form and substance acceptable to the Agent and each Senior Class Agent.

                (k) The previously issued and outstanding Class A-4 Variable Funding Certificate has been delivered to the Trustee for cancellation.

                (l) Such other documents, instruments, certificates and opinions as the Agent, any Senior Class Agent or any Bank Investor shall reasonably request.

        SECTION 3.7. Quarterly Certificate. The Servicer shall deliver, or the Transferor shall cause the Servicer (if Saks is not the Servicer) to deliver, to the Agent (which the Agent shall deliver to each Senior Class Agent) (i) within forty-five (45) days after the end of each fiscal quarter of each calendar year, beginning with the fiscal quarter ending November 3, 2001, an officer's certificate substantially in the form of Exhibit F hereto stating that (a) a review of the activities of the Servicer during the preceding calendar quarter (or such shorter period as may have elapsed since the Closing Date), and of its performance under this Agreement and the other Transaction Documents to which it is a party was made under the supervision of the officer signing such certificate and (b) to the best of such officer's knowledge, based on such review, the Servicer has fully performed all of its obligations under this Agreement, the Series S upplement, the Master Pooling and Servicing Agreement and the other Transaction Documents to which it is a party throughout such quarter (or such shorter period as may have elapsed since the Closing Date), or, if there has occurred an event which, with the giving of notice or passage of time or both, would constitute a Pay Out Event or Servicer Default, specifying each such event known to such officer and the nature and status thereof and (ii) the Officer's Certificate required to be delivered to the Trustee pursuant to Section 3.5 of the Master Pooling and Servicing Agreement concurrently with the delivery of such Officer's Certificate to the Trustee.

        SECTION 3.8. Periodic Notices and Reports.

                (a) Notices, Certificates and Reports Delivered to the Trustee and the Rating Agencies. In addition to those notices, certificates and reports required to be delivered to the Agent pursuant to Section 3.3 hereof, the Transferor shall furnish to the Agent (and the Agent shall forward to each Senior Class Agent) a copy of each notice, certificate or report delivered to the Trustee or a Rating Agency pursuant to the Master Pooling and Servicing Agreement or the Series Supplement concurrently with the delivery of any such notice, certificate or report to the Trustee or a Rating Agency, as the case may be.

37

                (b) Annual Opinion of Counsel. The Transferor will deliver to the Agent (and the Agent shall forward to each Senior Class Agent) each Opinion of Counsel required to be delivered to the Trustee pursuant to subsection 13.2(d)(ii) of the Master Pooling and Servicing Agreement concurrently with the delivery of such Opinion of Counsel to the Trustee.

ARTICLE IV

INDEMNIFICATION; EXPENSES; RELATED MATTERS

        SECTION 4.1. Indemnities by the Transferor. Without limiting any other rights which the Agent, the Senior Class Agents, the Senior Class Conduits or the Bank Investors may have hereunder or under applicable law, the Transferor hereby agrees to indemnify the Senior Class Conduits, the Bank Investors, the Agent, the Senior Class Agent, the Collateral Agents, each Program Support Provider and any successors and permitted assigns and any of 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 a Program Support Provider, the Agent, a Senior Class Agent or a Collateral Agent, as applicable) and disbursements (all of the foregoing being collectively referred to as "Indemnified Amounts") awarded against or reasonably incurred by any Indemnified Party in any action or proceeding between the Transferor or 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 Senior Class Agent, any Senior Class Conduit or any Bank Investor of the Senior Class Certificates 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 such Indemnified Party, (ii) recourse (except as otherwise specifically provided in this Agreement or the Master Pooling and Servicing Agreement) for amounts due under the Receivables which are uncollectible and (iii) In demnified Amounts specifically excluded from coverage under Section 4.2. 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, any Eligible Originator or the Servicer or any officer of the Transferor, any Eligible Originator or the Servicer under or in connection with this Agreement, any Receivables Purchase Agreement, any of the other Transaction Documents or any other information or report delivered by the Transferor or the Servicer pursuant hereto or thereto, which shall have been false or incorrect in any material respect when made or deemed made;

38

                                (ii) the failure by the Transferor, any Eligible Originator or the Servicer 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 Trustee, on behalf of the Trust, an undivided first priority, perfected percentage ownership or security interest in the Trust Property free and clear of any Lien (except as expressly permitted by the Transaction Documents);

                                (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 Trust Property;

                                (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 failure of the Servicer to perform its duties or obligations in accordance with the provisions of the Master Pooling and Servicing Agreement and the Series Supplement; or

                                (vii) 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;

                                (viii) the transfer of an ownership interest in any Receivable other than an Eligible Receivable as defined in the Master Pooling and Servicing Agreement;

                                    (ix) the failure by the Transferor, any Eligible Originator 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;

39

                                    (x) the failure of any Eligible Originator to pay when due any taxes, including without limitation, sales, excise or personal property taxes payable in connection with any of the Receivables;

                                    (xi) any repayment by any Indemnified Party of any amount previously distributed in reduction of the Senior Class Investor Amount which such Indemnified Party believes in good faith is required to be made;

                                    (xii) the commingling by the Transferor, any Eligible Originator or the Servicer of Collections of Receivables at any time with other funds, except as permitted in the Transaction Documents;

                                    (xiii) any investigation, litigation or proceeding related to this Agreement, any of the other Transaction Documents, the use of proceeds of the acquisition of interests in the Senior Class Certificates by the Transferor, the ownership of the Senior Class Certificates or any Trust Property;

                                    (xiv) 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 any Eligible Originator to qualify to do business or file any notice of business activity report or any similar report;

                                    (xv) any failure of the Transferor to give reasonably equivalent value to an Eligible Originator in consideration of the purchase by the Transferor from such Eligible Originator of any Receivable, or any attempt by any Person to void, rescind or set-aside any such transfer under statutory provisions or common law or equitable action, including, without limitation, any provision of the Bankruptcy Code;

                                    (xvi) the Senior Class Certificates being conclusively determined to be other than indebtedness for purposes of the Code, other than as a result of Senior Class Conduits or Bank Investors breaching their obligations under Section 3.5 hereof; or

                                    (xvii) any action taken by the Transferor, any Eligible Originator or the Servicer in the enforcement or collection of any Receivable; provided, however, that if the Senior Class Conduits enter into agreements for the purchase of certificates representing interests in amounts due under receivables or of interests in receivables from one or more Other Transferors, the Senior Class Conduits shall allocate such Indemnified Amounts which are in connection with a Program Support Agreement or the program support furnished by a Program Support Provider among 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 Transfe ror 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.

40

        SECTION 4.2. 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 the Senior Class Certificates, 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 this Agreement, the other Transaction Documents, the ownership, maintenance or financing of the Senior Class Certificates, the Receivables or payments of amounts due hereunder or its obligation to advance funds hereunder, under a Program Support Agreement or otherwise in respect of this Agreement, the other Transaction Documents, the ownership, maintenance or financing of the Senior Class Certificates or the Re ceivables (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 in determining the 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 London interbank market any other condition affecting this Agreement, the other Transaction Documents, the ownership, maintenance or financing of the Senior Class Certificates, the Receivables or payments of amounts due hereunder or its obligation to advance funds hereunder, under a Program Support Agreement or otherwise in respect of this Agreement, the other Transactio n Documents, the ownership, maintenance or financing of the Senior Class Certificates or the Receivables; 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 this Agreement, the other Transaction Documents, the ownership, maintenance or financing of the Senior Class Certificates, the Receivables or payments of amounts due hereunder or its obligation to advance funds hereunder, under a Program Support Agreement or otherwise in respect of this Agreement, the other Transaction Documents, the ownership, maintenance or financing of the Senior Class Certificates or the Receivables;

41

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 the Senior Class Certificates, the Receivables, the obligations hereunder, the funding of any purchases hereunder, a Program Support Agreement, by an amount deemed by such Indemnified Party to be material, then, within ten (10) 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 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 t o time, within ten (10) 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) Each Senior Class Agent will notify the Agent and 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. 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 4.2 to the contrary notwithstanding, if a Senior Class Conduit enters into agreements for the acquisition of certificates representing interests in other receivables from one or more Other Transferors, such Senior Class Conduit shall allocate the liability for any amounts under this Section which are in connection with a Program Support Agreement or the program support provided by a Program Support Provider ("Section 4.2 Costs") to the Transferor and each Other Transferor; provided, however, that if such Section 4.2 Costs are attributable to the Transferor, an Eligible Originator or the Servicer and not attributable to any Other Transferor, the Transferor shall be solely liable for such Section 4.2 Costs or if such Section 4.2 Costs are attributable to Other Transferors and not attributable to the Transferor, an Eligible Originator or the Servicer, such Other Transferors shall be solely liable for such Section 4.2 Costs.

42

        SECTION 4.3. Taxes. All payments made hereunder by the Transferor or the Servicer (each, a "payor") to any Senior Class Conduit, any Bank Investor or the Agent (each, 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 imposed on net income (or any interest or penalties with respect thereto) and taxes imposed on or measured by the recipient's net income required to be paid by any recipient in connection herewith to any taxing authority ("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 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 shall promptly notify the Transferor and the Servicer, and 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 4.4. Other Costs, Expenses and Related Matters.

                (a) The Transferor agrees, upon receipt of a written invoice in reasonable detail, to pay or cause to be paid, and to save the Senior Class Conduits, the Bank Investors, the Senior Class Agents 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 the Senior Class Conduits, the Bank Investors, the Agent and/or the Senior Class

43

Agents) or intangible, documentary or recording taxes incurred by or on behalf of any Senior Class Conduit, any Bank Investor, the Agent and any Senior Class Agent (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, 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 Senior Class Conduit's, any Bank Investor's, the Agent's or any Senior Class Agent's enforcement or preservation of rights, 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 to each Senior Class Agent, for the account of the related Senior Class Conduit and Bank Investors, as applicable, on demand any Early Collection Fee due on account of the receipt by a Senior Class Conduit or Bank Investor of any amounts applied in reduction of the Senior Class Investor Amount on any day other than the last day of any applicable funding period.

        SECTION 4.5. Indemnification by Servicer. The Servicer shall indemnify and hold harmless each Indemnified Party from and against any loss, liability, expense, damage or injury suffered or sustained by reason of willful misfeasance, bad faith, or negligence in the performance of the duties of the Servicer or by reason of reckless disregard of obligations and duties of the Servicer hereunder or under the Master Pooling and Servicing Agreement or by reason of any acts, omissions or alleged acts or omissions of the Servicer pursuant to this Agreement or the Master Pooling and Servicing Agreement; provided, however, that the Servicer shall not indemnify any such Indemnified Party for any such loss, liability, expense, damage or injury suffered or sustained by reason of any action taken or omitted at the written request of such Indemnified Party; and provided, further, that the Servicer shall not indemnify any such I ndemnified Party for any such loss, liability, expense, damage or injury incurred with respect to any action taken by such Indemnified Party constituting fraud, gross negligence, breach of fiduciary duty or willful misconduct, with respect to the uncollectibility of the Receivables or with respect to any federal, state or local income or franchise taxes (or any interest or penalties with respect thereto) required to be paid by any such Indemnified Party in connection herewith to any taxing authority. The Servicer shall not be liable for acts or omissions of any Successor Servicer. The provisions of this indemnity shall run directly to and be enforceable by an injured party subject to the limitations hereof.

ARTICLE V

THE AGENT; BANK COMMITMENT; SENIOR CLASS AGENTS

        SECTION 5.1. Authorization and Action of Agent.

44

                (a) Each Senior Class Conduit and each Bank Investor hereby appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement and the other Transaction Documents as are delegated to the Agent by the terms hereof and thereof, together with such powers as are reasonably incidental thereto. In furtherance, and without limiting the generality of the foregoing, each Senior Class Conduit and each Bank Investor hereby appoints the Agent as its agent to execute and deliver all further instruments and documents, and take all further action that the Agent may deem necessary or appropriate or that a Senior Class Conduit or a Bank Investor may reasonably request in order to perfect, protect or more fully evidence the interests transferred or to be transferred from time to time by the Transferor hereunder, or to enable any of them to exercise or enforc e any of their respective rights hereunder. The Senior Class Agents jointly may direct the Agent to take any such incidental action hereunder. With respect to other actions which are incidental to the actions specifically delegated to the Agent hereunder, the Agent shall not be required to take any such incidental action hereunder, but shall be required to act or to refrain from acting (and shall be fully protected in acting or refraining from acting) upon the joint direction of the Senior Class Agents; provided, however, that the Agent shall not be required to take any action hereunder if the taking of such action, in the reasonable determination of the Agent, shall be in violation of any applicable law, rule or regulation or contrary to any provision of this Agreement or shall expose the Agent to liability hereunder or otherwise. Upon the occurrence and during the continuance of any Pay Out Event or Potential Pay Out Event, the Agent shall take no action hereunder (other than ministerial a ctions or such actions as are specifically provided for herein) without the prior consent of the Required Investor Certificateholders. The Agent shall not, without the prior written consent of each Senior Class Agent and Bank Investor, agree to (i) amend, modify or waive any provision of this Agreement in any way which would (A) reduce or impair Collections or the payment of fees payable hereunder to the Senior Class Conduits or the Bank Investors or delay the scheduled dates for payment of such amounts, (B) increase the Servicing Fee Percentage, (C) modify any provisions of this Agreement, the Master Pooling and Servicing Agreement or the Series Supplement relating to the timing of payments required to be made by the Transferor or the Servicer or the application of the proceeds of such payments, (D) the appointment of any Person (other than the Trustee) as successor Servicer, (E) release any property from the lien provided by this Agreement (other than as expressly contemplated herein or permitted in the T ransaction Documents), or (F) modify Section 3.4(d) hereof or the definition of "Minimum Enhancement Amount" in the Series Supplement or the definitions of "Defaulted Account" or "Eligible Receivable" in the Master Pooling and Servicing Agreement, or (ii) amend, modify or waive any provision of any Transaction Document relating to a Pay Out Event or Potential Pay Out Event or waive any Pay Out Event or Potential Pay Out Event. The Agent shall not agree to any amendment of or waiver under this Agreement which increases the dollar amount of a Bank Investor's Commitment without the prior written consent of such Bank Investor. In addition, the Agent shall not agree to any amendment of or waiver under this Agreement not specifically described in the two preceding sentences without the consent of the Required Investor Certificateholders. In the event the Agent

45

requests a Senior Class Agent's, a Senior Class Conduit's or a Bank Investor's consent pursuant to the foregoing provisions and the Agent does not receive a response (either positive or negative) from such Senior Class Agent, Senior Class Conduit or Bank Investor within 10 Business Days of such Person's receipt of such request in writing, then such Senior Class Agent, Senior Class Conduit or Bank Investor (and its percentage interest hereunder, if applicable) shall be disregarded in determining whether the Agent shall have obtained sufficient consent hereunder.

                (b) The Agent shall use commercially reasonable efforts to (i) forward any communication (whether written or otherwise) received by it from the Transferor to each applicable Senior Class Agent, and (ii) forward, at the direction of any Senior Class Agent, any Senior Class Conduit or any Bank Investor or as otherwise provided by this Agreement, any communication received by it from any Senior Class Agent, any Senior Class Conduit or any Bank Investor, to the Transferor or the Servicer, as applicable. Any communication between the Transferor or the Servicer and any Senior Class Agent, any Senior Class Conduit or any Bank Investor made pursuant to this Agreement or any other Transaction Document (other than such Person's Fee Letters) shall be made, to the extent possible, through the Agent. The Agent may, where appropriate, deliver copies (including facsimile or electronic copies) of any communicatio n it is required to deliver pursuant to this Agreement or any other Transaction Document.

                (c) The Agent shall exercise such rights and powers vested in it by this Agreement and the other Transaction Documents, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs.

        SECTION 5.2. Agent's Reliance, Etc. Neither the Agent nor any of its directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or them as Agent under or in connection with this Agreement or any of the other Transaction Documents, except for its or their own gross negligence or willful misconduct. Without limiting the foregoing, the Agent: (i) may consult with legal counsel (including counsel for the Transferor or the Servicer), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (ii) makes no warranty or representation to any Senior Class Conduit or Bank Investor and shall not be responsible to any Senior Class Conduit or Bank Investor for any statements, warranties or representations made in or in connection w ith this Agreement; (iii) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement or any of the other Transaction Documents on the part of the Transferor or the Servicer or to inspect the property (including the books and records) of the Transferor or the Servicer; (iv) shall not be responsible to any Senior Class Conduit or any Bank Investor for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement, any of the other Transaction Documents or any other instrument or document furnished pursuant hereto or thereto; and (v) shall incur no liability under or in respect of this Agreement or any of the other Transaction Documents by acting upon any notice (including notice

46

by telephone), consent, certificate or other instrument or writing (which may be by telex or facsimile) believed by it to be genuine and signed or sent by the proper party or parties.

        SECTION 5.3. Credit Decision. Each Senior Class Conduit and Bank Investor acknowledges that it has, independently and without reliance upon the Agent, any of the Agent's Affiliates, any other Bank Investor or any other Senior Class Conduit and based upon such documents and information as it has deemed appropriate, made its own evaluation and decision to enter into this Agreement and the other Transaction Documents to which it is a party and, if it so determines, to accept the transfer of all or any portion of the Senior Class Certificates. Each Senior Class Conduit and Bank Investor also acknowledges that it will, independently and without reliance upon the Agent, any of the Agent's Affiliates, any other Bank Investor or any other Senior Class Conduit and based on such documents and information as it shall deem appropriate at the time, continue to make its own decisions in taking or not taking action under this Agreement and the other Tr ansaction Documents to which it is a party.

        SECTION 5.4. Indemnification of the Agent. Each Bank Investor agrees to indemnify the Agent (to the extent not reimbursed by the Transferor), ratably (and not jointly) in accordance with their respective Commitments, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Agent (in its capacity as such) in any way relating to or arising out of this Agreement and the other Transaction Documents or any action taken or omitted by the Agent hereunder or thereunder, provided that a Bank Investor shall not be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Agent's gross negligence or willful misconduct. Without limitation of the foregoing, the Bank Investors agree to reimburse the Agent, ratably (and not jointly) in accordance with their respective Commitments, promptly upon demand for any out-of-pocket expenses (including counsel fees) incurred by the Agent (in its capacity as such) in connection with the 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 Senior Class Conduits or the Bank Investors hereunder and/or thereunder and to the extent that the Agent is not reimbursed for such expenses by the Transferor.

        SECTION 5.5. Successor Agent. The Agent may resign at any time, effective upon the appointment and acceptance of a successor Agent as provided below, by giving written notice thereof to each Senior Class Agent, each Senior Class Conduit, each Bank Investor, the Transferor and the Servicer and may be removed at any time with cause by holders of more than 50% of the aggregate Senior Class Investor Amounts. Upon any such resignation or removal, the Required Investor Certificateholders shall appoint a successor Agent. Each Senior Class Conduit and each Bank Investor agrees that it shall not unreasonably withhold or delay its approval

47

of the appointment of a successor Agent. If no such successor Agent shall have been so appointed, and shall have accepted such appointment, within 30 days after the retiring Agent's giving of notice of resignation or the holders of more than 50% of the aggregate Senior Class Investor Amounts removal of the retiring Agent then the retiring Agent may, on behalf of the Senior Class Conduits and the Bank Investors, appoint a successor Agent which successor Agent shall be either (i) a commercial bank organized under the laws of the United States or of any state thereof and have a combined capital and surplus of at least $500,000,000 or (ii) an Affiliate of such a bank. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations under this Agreement. After any r etiring Agent's resignation or removal hereunder as Agent, the provisions of this Article V shall continue to inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. The successor agent shall promptly notify the Transferor and the Servicer of its appointment hereunder.

        SECTION 5.6. Payments by the Agent. Unless specifically allocated to a Bank Investor or a Senior Class Conduit pursuant to the terms of this Agreement, all amounts received by the Agent, if any, on behalf of the Senior Class Conduits or the Bank Investors shall be paid by the Agent to the applicable Senior Class Agent (at the account specified on the signature pages hereto or as may be specified in writing to the Agent) in accordance with their respective related pro rata interests in the Senior Class Investor Amount on the Business Day received by the Agent, unless such amounts are received after 12:00 noon on such Business Day, in which case the Agent shall use commercially reasonable efforts to pay such amounts to the Senior Class Conduits or Bank Investors on such Business Day, but, in any event, shall pay such amounts to the Senior Class Conduits or Bank Investors in accordance with their respective related pro rata interests in the Senior Class Investor Amount not later than the following Business Day.

        SECTION 5.7. Bank Commitment; Assignment to Bank Investors.

                (a) Bank Commitment. At any time prior to the Commitment Termination Date and prior to the Termination Date (excluding a "Termination Date" occurring as a result of clause (iii), (iv) or (v) of the definition of "Termination Date"), in the event that any Senior Class Conduit does not acquire an Additional Investor Amount as requested under Section 2.2(a), then at any time, the Transferor shall have the right, by written notice to the applicable Senior Class Agent, to require such Senior Class Conduit to assign its interests in the Senior Class Certificate Principal Balance in whole to the related Bank Investors pursuant to this Section 5.7, and the applicable Senior Class Conduit shall have the right to assign, and does hereby assign effective as of the Assignment Date referred to below, its interest in the Senior Class Certificate Principal Balance in whole to the related Bank Investors, and the Transferor agrees to pay the amounts described in Section 5.7(d) below. At any time prior to the Commitment Termination Date, in the event that (i) a Program Support Provider shall have

48

notified the related Senior Class Agent that an event of default has occurred under a related Program Support Agreement or (ii) the Commercial Paper of any Senior Class Conduit shall not be rated at least "A-2" by Standard & Poor's and at least "P-2" by Moody's and, in either event, such Senior Class Conduit cannot, or does not, acquire an Additional Investor Amount as requested under Section 2.2(a) or otherwise fund and meet its obligation hereunder, then, upon written request of the Transferor, the Senior Class Agent shall direct and require such Senior Class Conduit to assign its interests in the Senior Class Certificate Principal Balance in whole to the related Bank Investors pursuant to this Section 5.7. In addition, at any time prior to the Commitment Termination Date (i) upon the occurrence of a Pay Out Event, a Senior Class Agent may request that the related Senior Class Conduit assign its interest in the Senior Class Certificate Principal Balance in whole to the related Bank Investors pursuant to this Section 5.7, and (ii) if a Senior Class Conduit gives notice to the Transferor and the related Senior Class Agent of a Reinvestment Termination Date and requests that its interest in the Senior Class Certificate Principal Balance be assigned to the related Bank Investors, such interest shall be assigned in whole to the related Bank Investors pursuant to this Section 5.7, and, in each case, the applicable Senior Class Conduit shall have the right to assign, and does hereby assign effective as of the Assignment Date referred to below, its interest in the Senior Class Certificate Principal Balance in whole to the related Bank Investors, and the Transferor agrees to pay the amounts described in Section 5.7(d) below. No further documentation or action on the part of the applicable Senior Class Conduit or the Transferor shall be required to exercise the rights or obligations of the applicable Senior Class Conduit to assign its interest in the Senior Class Certificate Principal Balance in whole to the related Bank Investors pursuant to the preceding provisions of this Section 5.7(a), other than the giving of notice to the applicable Bank Investors and the Transferor by the applicable Senior Class Agent and the delivery by the applicable Senior Class Agent of a copy of any notice received from the Transferor (if applicable) (the date of receipt by the applicable Senior Class Agent of any such notice being the "Assignment 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 Assignment Date to the applicable Senior Class Conduit in immediately available funds to an account designated by the related Senior Class Agent. Upon payment of its Assignment Amount, each Bank Investor shall acquire an interest in the Senior Class Certificate Principal Balance and the related Senior Class Conduit's rights hereunder equal to its pro rata share (based on the outstanding portions of the Senior Class Certificate Balance funded by it) thereof (it being understood that notwithstanding the foregoing assignment of Senior Class Certificate Principal Balance, the related Bank Investors, as assignees, continue to be obligated to fund Additional Investor Amounts under Section 2.2 in accordance with the terms thereof and shall not have the right to elect the commencement of the amortization of such Senior Class Certificate Principal Balance pursuant to the definition of "Reinvestment Termination Date" notwithstanding that the Purchaser had such right). Consent of the Transferor shall in no event be required in order for any Senior Class Conduit to assign any interest in the Senior Class Certificate Principal Balance to the related Bank Investors. Upon any Assignment by a Senior Class Conduit to the related Bank Investors contemplated hereunder, such Senior Class Conduit shall cease to acquire any Additional Investor Amounts hereunder.

49

                (b) Assignment. No Bank Investor may assign all or a portion of its interests in the Senior Class Certificates, the Senior Class Certificate Principal Balance, the Trust Property or its rights and obligations hereunder to any Person unless approved in writing by the Agent, the related Senior Class Agent and the Transferor (in each case such approval not to be unreasonably withheld or delayed) and made in accordance with the Master Pooling and Servicing Agreement and the Series Supplement. In the case of an Assignment by a Bank Investor to another Person, the assignor shall deliver to the assignee(s) an Assignment and Assumption Agreement in substantially the form of Exhibit B hereto, duly executed, assigning to the assignee a pro rata interest in the Senior Class Certificates, the Senior Class Certificate Principal Balance, the Trust Property and the assignor's rights and obligations hereunder and the assignor shall promptly execute and deliver all instruments and documents required by the Master Pooling and Servicing Agreement and the Series Supplement and 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, 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 interest for all purposes of this Agreement and under the other Transaction Documents to which such assignor is or, immediately prior to such Assign ment, was a party, and (ii) the assignor shall relinquish its rights with respect to such interest 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 Transferor. All reasonable out-of-pocket costs and reasonable legal expenses of the Agent and the initial Bank Investors hereto incurred in connection with any Assignment from the initial Bank Investors to other Bank Investors hereunder shall be borne by the Transferor. No Bank Investor shall assign any portion of its Commitment hereunder without also simultaneously assigning an equal portion of its interest in the applicable Program Support Agreement.

                (c) Effects of Assignment. 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 other Transaction Documents or any other instrument or document furnished pursuant hereto or thereto or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement, the other Transaction Documents or any such other instrument or document; (ii) the

50

assignor makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Transferor or the Servicer or the performance or observance by the Transferor or the Servicer of any of their respective obligations under this 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 Master Pooling and Servicing Agreement, the Series Supplement 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 of its 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 t aking action under this Agreement and the other Transaction Documents; (v) such assignee appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement, the other Transaction Documents and any other instrument or document furnished pursuant hereto or thereto as are delegated to the Agent 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 other Transaction Documents and the Trust Property; (vi) such assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Agreement 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 Senior Class Conduit any proceeding of the type referred to in Section 6.9 prior to the date which is one year and one day after the payment in full of all Commercial Paper issued by any Senior Class Conduit.

                (d) Transferor's Obligation to Pay Certain Amounts; Additional Assignment Amount. The Transferor shall pay to the Agent for the benefit of the related Senior Class Agent, and the Agent shall pay to such related Senior Class Agent, for the account of the related Senior Class Conduit, in connection with any Assignment by a Senior Class Conduit to the related Bank Investors pursuant to this Section 5.7, an amount equal to all Carrying Costs to accrue through the maturity of all outstanding Related Commercial Paper. To the extent that such Carrying Costs relate to interest or discount on Commercial Paper issued to fund the related Senior Class Certificate Principal Balance, if the Transferor fails to make payment of such amounts at or prior to the time of Assignment by a Senior Class Conduit to the related Bank Investors, such amount shall be paid by such Bank Investors (in accordance with thei r respective Bank Pro Rata Shares) to the Senior Class Conduit as additional consideration for the interests assigned to the Bank Investors and the amount of the "Senior Class Certificate Principal Balance" of the Senior Class Certificates held by the Bank Investors and the "Senior Class Investor Amount" of the related Senior Class shall be increased by an amount equal to the additional amount so paid by the Bank Investors.

                (e) Payments. After any Assignment by the Senior Class Conduit to the related Bank Investors pursuant to this Agreement, all payments to be made hereunder by the Transferor or the Servicer for the benefit of the related Senior Class Agent, for the benefit of the related Senior Class Conduit, shall be made to the

51

Agent's account as such account shall have been notified to the Transferor and the Servicer, and the Agent shall forward such payment to the related Senior Class Agent's account as such account shall have been notified to the Agent for the benefit of the related Bank Investors. In the event that the sum of the Assignment Amount paid by the Bank Investors and the amounts paid to the related Senior Class Conduit pursuant to 5.7(d) in connection with such assignment is less than the sum of the related Senior Class Investor Amount plus the Interest Component of all outstanding Related Commercial Paper, then to the extent payments made hereunder in respect of the Senior Class Investor Amount exceed such Assignment Amount plus all other amounts accruing to the applicable Bank Investors after the date of such Assignment, such excess shall be remitted by the Agent to the related Senior Class Agent for the benefit of such Senior Class Conduit.

                (f) Downgrade of Bank Investor. If at any time prior to any Assignment by a Senior Class Conduit to the related Bank Investors as contemplated pursuant to this Section, the short term debt rating of any Bank Investor shall be "A-2" or "P-2" from Standard & Poor's or Moody's, respectively, with negative credit implications (or, in the case of a Senior Class of which Falcon is a member, less than "A-1" or "P-1" from Standard & Poor's or Moody's, respectively) (or, in the case of a Senior Class of which Windmill is a member, less than "A-1+" by Standard & Poor's or "P-1" by Moody's), such Bank Investor, upon request of the related Senior Class Agent, shall, at its own expense, 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 & Poor's or Moody's, respectively, (or, in the case of a Class of which Falcon is a member, at least "A-1" or "P-1" from Standard & Poor's or Moody's, respectively)(or, in the case of a Senior Class of which Windmill is a member, at least "A-1+" by Standard & Poor's or "P-1" by Moody's), and which shall not be so rated with negative credit implications). 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 Senior Class Agent, shall, within five (5) Business Days of such request, at its own expense, 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). 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 Senior Class Conduit or the Transferor shall have the right to require such Bank Investor to accept the Assignment of the Bank Pro Rata Share for such Bank Investor of the related Senior Class Investor Amount; such Assignment shall occur in accordance with the applicable provisions of this Section. Such Bank Investor shall be obligated to pay to the related Senior Class Conduit, in connection with such Assignment, in addition to the Bank Pro Rata Share of the related Senior Class Investor Amount, an amount equal to the interest component of the outstanding Commercial Paper issued to fund the portion of the related Senior Class Investor Amount being assigned to such Bank

52

Investor, as reasonably determined by the Agent. Notwithstanding anything contained herein to the contrary, upon any such Assignment to a downgraded Bank Investor as contemplated pursuant to the immediately preceding sentence, the aggregate available amount of the related Senior Class Facility Limit, solely as it relates to the acquisition of any Additional Investor Amount by the related Senior Class Conduit, shall be reduced by the amount of the unused Commitment of such downgraded Bank Investor; it being understood and agreed, that nothing in this sentence or the two preceding sentences shall affect or diminish in any way any such downgraded Bank Investor's Commitment to the Transferor or such downgraded Bank Investor's other obligations and liabilities hereunder and under the other Transaction Documents. The related Senior Class Agent shall give the Agent and the Transferor prompt written notice of any Assignment to a Bank Investor pursuant to this Section 5.7.

                (g) Extension of Commitment Termination Date. With the consent of the Senior Class Agents and the Bank Investors and in accordance with the following sentences, the Transferor may elect to extend the then-current Commitment Termination Date for an additional period of up to 364 days commencing on such Commitment Termination Date. The Transferor shall notify the Senior Class Agents and the Bank Investors of the Transferor's request for such an extension by delivering to the Agent a notice of such request (which the Agent shall forward to each Senior Class Agent and each Bank Investor) not less than 45 days prior to such Commitment Termination Date. Each Senior Class Agent and each Bank Investor shall notify the Agent, and the Agent shall notify the Transferor, not later than 30 days prior to such Commitment Termination Date of the decision of each Senior Class Agent and each Bank Investor. Failure by a Senior Class Agent or a Bank Investor to respond shall constitute its refusal to consent.

        SECTION 5.8. Authorization and Action of Senior Class Agent.

                (a) Each of the Senior Class Conduits and related Bank Investors of each Class hereby appoints and authorizes the Senior Class Agent with respect to such Class to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Senior Class Agent by the terms hereof, together with such powers as are reasonably incidental thereto. In furtherance, and without limiting the generality, of the foregoing, each of the Senior Class Conduits and related Bank Investors hereby appoint the related Senior Class Agent as their agent to execute and deliver all further instruments and documents, and take all further action that the related Senior Class Agent may deem necessary or appropriate or that the related Senior Class Conduit or Bank Investors may reasonably request in order to perfect, protect or more fully evidence the interests transferred or to be transferr ed from time to time by the Transferor hereunder, or to enable any of them to exercise or enforce any of their respective rights hereunder or under the Senior Class Certificates, and such other instruments or notices, as may be necessary or appropriate for the purposes stated hereinabove. With respect to actions which are incidental to the actions specifically delegated to the Agent hereunder, the Majority Investors may direct the related Senior Class Agent to direct the Agent to take any such incidental action hereunder and the approval of the Majority Investors is required to direct and/or approve the related Senior Class Agent's decision to remove the Agent pursuant to Section 5.5. The Majority Investors may direct the related Senior Class Agent to direct the Agent not to take or to cease taking any action which is incidental to the actions specifically delegated to the Agent hereunder. With respect to other actions which are incidental to the actions specifically delegated to a Senior Class Agent here under, a Senior Class Agent shall not be required to

53

take any such incidental action hereunder, but shall be required to act or to refrain from acting (and shall be fully protected in acting or refraining from acting) upon the direction of the related Majority Investors; provided, however, that no Senior Class Agent shall be required to take any action hereunder if the taking of such action, in the reasonable determination of such Senior Class Agent, shall be in violation of any applicable law, rule or regulation or contrary to any provision of this Agreement or shall expose such Senior Class Agent to liability hereunder or otherwise. Upon the occurrence and during the continuance of any Pay Out Event or Potential Pay Out Event, the Senior Class Agent shall take no action hereunder (other than ministerial actions or such actions as are specifically provided for herein) without the prior consent of each related Investor. Unless otherwise provided herein, the Senior Class Agent shall not authorize the release by the Agent of an y property conveyed to the Agent by the Transferor hereunder without the prior consent of the Majority Investors. The Senior Class Agent shall not, without the prior written consent of each of the related Senior Class Conduits (if any interest is held by a Senior Class Conduit at such time) and Bank Investors, agree to (i) amend, modify or waive any provision of this Agreement in any way which would (A) reduce or impair Collections or the payment of Carrying Costs or fees payable under the related Fee Letters or delay the scheduled dates for payment of such amounts, (B) increase the applicable Class Monthly Servicing Fee, (C) modify any provisions of this Agreement relating to the timing of payments required to be made by the Transferor or the application of the proceeds of such payments, or (D) the appointment of any Person (other than the Agent) as Successor Servicer. In addition, each Senior Class Agent agrees that it shall not agree to any amendment of or waiver under this Agreement not specifically co ntemplated by the preceding sentence without the consent of the related Majority Investors. In the event the Senior Class Agent requests a Person's consent pursuant to the foregoing provisions and the Senior Class Agent does not receive a consent (either positive or negative) from such Person within 10 Business Days of such Person's receipt of such request, then such Person (and its percentage interest hereunder) shall be disregarded in determining whether the Senior Class Agent shall have obtained sufficient consent hereunder.

                (b) The Senior Class Agent shall exercise such rights and powers vested in it by this Agreement, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs.

        SECTION 5.9. Senior Class Agents' Reliance, Etc. Neither any Senior Class Agent nor any of their respective directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or them as Senior Class Agent under or in connection with this Agreement, except for its or their own gross negligence or willful misconduct. Without limiting the foregoing, the Senior Class Agent: (i) may consult with legal counsel (including counsel for the Transferor), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the

54

advice of such counsel, accountants or experts; (ii) makes no warranty or representation to any Senior Class Conduit or Bank Investor and shall not be responsible to any Senior Class Conduit or Bank Investor for any statements, warranties or representations made in or in connection with this Agreement; (iii) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement on the part of the Transferor or to inspect the property (including the books and records) of the Transferor; (iv) shall not be responsible to any Investor for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement, the Senior Class Certificates or any other instrument or document furnished pursuant hereto; and (v) shall incur no liability under or in respect of this Agreement by acting upon any notice (including notice by telephone), consent, certificate or other instrument or writing (which may be by telex) believed by it to be genuine and signed or sent by the proper party or parties.

        SECTION 5.10. Credit Decision. Each Senior Class Conduit and Bank Investor acknowledges that it has, independently and without reliance upon the Senior Class Agent or any of the Senior Class Agent's Affiliates, and based upon such documents and information as it has deemed appropriate, made its own evaluation and decision to enter into this Agreement and, if it so determines, to accept the transfer of an interest in a Certificate hereunder. Each Investor also acknowledges that it will, independently and without reliance upon the Senior Class Agent or any of the Senior Class Agent's Affiliates and based on such documents and information as it shall deem appropriate at the time, continue to make its own decisions in taking or not taking action under this Agreement.

        SECTION 5.11. Indemnification of the Senior Class Agent. Each Bank Investor agrees to indemnify the related Senior Class Agent (to the extent not reimbursed by the Transferor), ratably (and not jointly) according to their respective Commitments, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Senior Class Agent in any way relating to or arising out of this Agreement or any action taken or omitted by the Senior Class Agent under this Agreement, provided that a Bank Investor shall not be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the related Senior Class Agent's gross negligence or willful misconduct. Without limitation of the fore going, each Bank Investor agrees to reimburse the related Senior Class Agent, ratably (and not jointly) according to their respective Commitments, promptly upon demand for any out-of-pocket expenses (including counsel fees) incurred by such Senior Class Agent in connection with the modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, to the extent that such expenses are incurred in the interests of or otherwise in respect of the Series 1997-1 Certificates and to the extent that the Senior Class Agent is not reimbursed for such expenses by the Transferor.

55

        SECTION 5.12. Successor Senior Class Agent. A Senior Class Agent may resign at any time by giving written notice thereof to the Agent, each other Senior Class Agent, each member of the Class, the Transferor and the Servicer and may be removed at any time with cause by the related Senior Class Conduit or Bank Investor. Upon any such resignation or removal, the members of the related Class acting jointly shall appoint a successor Senior Class Agent. Each Senior Class Conduit and Bank Investor agrees that it shall not unreasonably withhold or delay its approval of the appointment of a successor Senior Class Agent. If no such successor Senior Class Agent shall have been so appointed, and shall have accepted such appointment, within 30 days after the retiring Senior Class Agent's giving of notice of resignation or the removal of the retiring Senior Class Agent, then the retiring Senior Class Agent may, on behalf of the related Senior Class Conduits and Bank Investors, appoint a successor Senior Class Agent which successor agent shall be either (i) a commercial bank organized under the laws of the United States or of any state thereof and have a combined capital and surplus of at least $500,000,000 or (ii) an Affiliate of such a bank. Upon the acceptance of any appointment as Senior Class Agent hereunder by a successor Senior Class Agent, such successor Senior Class Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Senior Class Agent, and the retiring Senior Class Agent shall be discharged from its duties and obligations under this Agreement. After any retiring Senior Class Agent's resignation or removal hereunder as Senior Class Agent, the provisions of this Article V shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Senior Class Agent under this Agreement. Each successor Senior Class Agent shall promptly notify the Transferor and the Servicer of its appointment hereunder.

        SECTION 5.13. Payments by the Senior Class Agents. Unless specifically allocated to a Senior Class Conduit or a Bank Investor pursuant to the terms of this Agreement, all amounts received by the Senior Class Agent on behalf of the Senior Class Conduit or the Bank Investors shall be paid by the Senior Class Agent to the Senior Class Conduit or the Bank Investors, as applicable (at the accounts specified to the Senior Class Agent) in accordance with their respective related pro rata interests in the Senior Class Investor Amount on the Business Day received by the Senior Class Agent, unless such amounts are received after 12:00 noon on such Business Day, in which case the Senior Class Agent shall use commercially reasonable efforts to pay such amounts on such Business Day, but, in any event, shall pay such amounts in accordance with their respective related pro rata interests in the Senior Class Investor Amount not later than the following B usiness Day.

56

ARTICLE VI

MISCELLANEOUS

        SECTION 6.1. Term of Agreement. This Agreement shall terminate on the date following the Termination Date upon which all amounts due to the Series 1997-1 Certificateholders under this Agreement and the other Transaction Documents have been paid in full; provided, however, that (i) the rights and remedies of the Agent, the Senior Class Agents, the Senior Class Conduits and the Bank Investors with respect to any representation and warranty made or deemed to be made by the Transferor or the Servicer pursuant to this Agreement, (ii) the indemnification and payment provisions of Article IV, and (iii) the agreement set forth in Section 6.9 hereof, shall be continuing and shall survive any termination of this Agreement.

        SECTION 6.2. Waivers; Amendments. No failure or delay on the part of the Agent, any Senior Class Agent, any Senior Class Conduit 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. Any provision of this Agreement may be amended in a writing signed by the Transferor, the Servicer, the Agent, each Senior Class Agent, each Senior Class Conduit (prior to an assignment in whole by such Senior Class Conduit of its interest in the related Senior Class Certificate Principal Balance), and each Bank Investor and any right or remedy herein provided to the Agent, any Senior Class Agent, any Senio r Class Conduit or any Bank Investor may be waived in a writing signed by the Agent and each Senior Class Agent; provided, however, that (i) any supplement to this Agreement to add an additional Senior Class Conduit as a party hereto must be signed only by the Transferor, the Servicer, the Agent, each Senior Class Agent, such additional Senior Class Conduit and the Bank Investors related to such Senior Class Conduit, and (ii) any amendment to the representations, warranties and covenants of the Servicer in this Agreement in connection with the appointment of a Successor Servicer shall not require the consent of the Transferor or the Servicer.

        SECTION 6.3. Notices, Etc. Except where telephonic instructions or notices are authorized herein to be given, all notices, demands, instructions and other communications required or permitted to be given to or made upon any party hereto shall be in writing and shall be sent by mail or facsimile transmission with a confirmation of the receipt thereof and shall be deemed to be given for purposes of this Agreement five (5) days after such mail has been deposited or, where applicable, on the day that the receipt of such facsimile transmission is confirmed in accordance with the provisions of this Section 6.3. Unless otherwise specified in a notice sent or delivered in accordance with the foregoing provisions of this Section, notices, demands, instructions and other communications in writing shall be given to or made upon the respective parties hereto at their respective addresses or facsimile numbers indicated on the signature pages hereto, and, in the case of telephonic instructions or notices, by calling the telephone number or numbers indicated for such party on the signature pages hereto or, in the case of a Bank Investor which becomes a party hereto pursuant to an Assignment and Assumption Agreement, on the signature page to the Assignment and Assumption Agreement pursuant to which it becomes a party hereto.

57

        SECTION 6.4. 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. THE TRANSFEROR AND THE SERVICER EACH 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. The Transferor and the Servicer each 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 shall affect the right of the Senior Class Conduits to bring any action or proceeding against the Transferor, the Servicer or their 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 and each Eligible Originator hereby appoint CT Corporation, 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 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 the Agent, any Senior Class Agent, any Senior Class Conduit, any Bank Investor or any assignee of any of them.

58

        SECTION 6.5. Severability. Any provisions of this Agreement which are prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

        SECTION 6.6. Counterparts. This Agreement may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all of such counterparts shall together constitute but one and the same instrument.

        SECTION 6.7. Successors and Assigns.

                (a) This Agreement shall be binding on the parties hereto and their respective successors and permitted assigns; provided, however, that the Transferor may not assign any of its rights or delegate any of its duties hereunder without the prior written consent of the Agent and each Senior Class Agent.

                (b) Without limiting the foregoing, a Purchaser may, from time to time, with prior or concurrent notice to the Transferor and the Servicer, in one transaction or a series of transactions, assign all or a portion of the Senior Class Certificates and its rights and obligations under this Agreement and any other Transaction Documents to which it is a party to a Conduit Assignee. Upon and to the extent of such assignment by a Purchaser to a Conduit Assignee, (i) such Conduit Assignee shall be the owner of the assigned portion of the Senior Class Certificates, (ii) the related administrative or managing agent for such Conduit Assignee will act as the Senior Class Agent for such Conduit Assignee, with all corresponding rights and powers, express or implied, granted to the Senior Class Agent hereunder or under the other Transaction Documents, (iii) such Conduit Assignee and its Program Support Providers and other related parties shall have the benefit of all the rights and protections provided to the Purchaser and its Program Support Providers, 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 Purchaser's obligations, if any, hereunder or any other Transaction Document, and the Purchaser shall be released from such obligations, in each case to the extent of such assignment, and the obligations of the Purchaser and such Conduit Assignee shall be several and not joint, (v) all distributions in respect of the Senior Class Certificates shall be made to the applicable agent or administrative agent, as applicable, on behalf of such Purchaser and such Conduit Assignee on a pro rata basis according to their respective interests, (vi) the definition of the "Interest Component" with respect to the portion of the Senior Class Investor Amount funded with commercial paper issued by the Purchaser from time to time shall be determined in the manner set forth in the definition of "Interest Component" applicable to such Purchaser on the basis of the interest rate or discount applicable to commercial

59

paper issued by such Conduit Assignee (rather than such Purchaser), (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 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 agent or administrative agent may reasonably request to evidence and give effect to the foregoing. No Assignment by a Purchaser to a Conduit Assignee of all or any portion of the Class A Certificates shall in any way diminish the related Bank Investors' obligation under Section 5.7(i) to fund any Additional Invested Amount not funded by the related Purchaser or such Conduit Assignee or (ii) to acquire from the related Purchaser or such Conduit Assignee all or any portion of the Senior Class Certificates.

                (c) The Transferor hereby agrees and consents to the assignment by each Senior Class Conduit from time to time of all or any part of its rights under, interest in and title to this Agreement and the Senior Class Certificates to any Program Support Provider for such Senior Class Conduit; provided, however, that any such assignment shall be made in accordance with the provisions of the Master Pooling and Servicing Agreement and the Series Supplement and any applicable provisions of this Agreement. In addition, the Transferor hereby consents to and acknowledges the assignment by (i) EFC of all of its rights under, interest in and title to this Agreement and the Senior Class Certificates to the Collateral Agent and (ii) each other Senior Class Conduit of all of its rights under, interest in and title to this Agreement and the Senior Class Certificates to any Program Support Provider for s uch Senior Class Conduit.

        SECTION 6.8. Confidentiality.

                (a) The Transferor and the Servicer agree to maintain the confidentiality of this Agreement, the Senior Class Certificates, the Fee Letters, and all other related documents and drafts thereof in communications with third parties (other than its employees, accountants, auditors, regulators, shareholders or counsel); provided, however, that this Agreement may be disclosed to third parties to the extent such disclosure is (i) required in order to comply with any applicable law, order, regulation or ruling, or (ii) required in response to any summons or subpoena or in connection with any litigation; and provided, further, however, that the Transferor and the Servicer shall have no obligation of confidentiality in respect of any information which may be generally available to the public or becomes available to the public through no fault of theirs. Such documents shall include, but not be limited to, research studies, proprietary technology, trade secrets, know-how, market studies and forecasts, competitive analyses, pricing policies, the substance of agreements with customers and others, marketing arrangements, customer lists and other documents embodying such confidential information.

60

                (b) The Agent, each Senior Class Agent, each Senior Class Conduit and each Bank Investor agree to maintain the confidentiality of any information obtained by it in respect of the Receivables (including credit losses and delinquency levels) and any other proprietary or confidential information with respect to Obligors, the Accounts, the Transferor or any Eligible Originator in communications with third parties (other than its employees, accountants, auditors, regulators, shareholders or counsel); provided, however, that such information may be disclosed to third parties to the extent such disclosure is (i) required in order to comply with any applicable Law, or (ii) required in response to any summons or subpoena or in connection with any litigation or (iii) to any Program Support Provider, Collateral Agent or Bank Investor or any prospective Bank Investor or Program Support Provider or to any rating agency providing a rating for the Related Commercial Paper, provided that the Agent, the applicable Senior Class Agent, the applicable Senior Class Conduit and the applicable Bank Investor inform such person that such information is sensitive, proprietary and confidential information. Notwithstanding the foregoing, (i) each Senior Class Conduit shall be permitted to disclose Receivable performance information and details concerning the structure of the facility contemplated hereby and by the Series Supplement, in summary form and in a manner not identifying the Transferor, to prospective investors in Related Commercial Paper, and (ii) the Agent, each Senior Class Agent and each Senior Class Conduit shall have no obligation of confidentiality in respect of any information which may be generally available to the public or becomes available to the public through no fault of theirs.

                The Agent, each Senior Class Agent, each Senior Class Conduit and each Bank Investor further understand and agree that, pursuant to the securities laws, including, without limitation, the Securities and Exchange Commission's Regulation FD, each of them may from time to time, in the course of performing their respective obligations and receiving their respective benefits under this Agreement, be the recipient of material nonpublic information relating to the Transferor, the Servicer or their respective affiliates, and that each of them will maintain such information strictly confidential in accordance with such laws and will not trade in any securities, including, without limitation any hedging or similar activities, on the basis of, or in reliance upon, such information.

        SECTION 6.9. No Bankruptcy Petition Against the Senior Class Conduits. Each of the Transferor, the Servicer, the Agent, the Senior Class Agents and the Bank Investors 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 the Senior Class Conduits, it will not institute against, or join any other Person in instituting against, or knowingly and intentionally cooperate with or encourage any other Person in instituting against, any Senior Class 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. Each of the Senior Class Conduits 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 o f any other Senior Class Conduits, it will not institute against, or join any other Person in instituting against, or knowingly and intentionally cooperate with or encourage any other Person in instituting against, any other Senior Class Conduit any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings or similar proceeding under the laws of the United States or any state of the United States. The provisions of this Section 6.9 shall survive the termination of this Agreement.

        SECTION 6.10. No Recourse. (a) The obligations of each Senior Class Conduit under this Agreement are solely the corporate obligations of such Senior Class Conduit. Notwithstanding anything to the contrary contained in this Agreement, the obligations of the Senior Class Conduits under this Agreement and all other Transaction Documents are solely the corporate obligations of the respective Senior Class Conduits and shall be payable solely to the extent of funds received by any of them, as appropriate, from the Transferor or the Trust in accordance herewith or the Series Supplement 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.

61

                (b) The obligations of the Transferor arising under this Agreement shall be payable solely from amounts available therefore in accordance with the Series Supplement and amounts otherwise released by the Trust to the Transferor as holder of the Transferor Interest or any other interest in the Trust.

                SECTION 6.11. Setoff. The Transferor and the Servicer hereby irrevocably and unconditionally waive all right of setoff that it may have under contract (including this Agreement), applicable law or otherwise with respect to any funds or monies of the Senior Class Conduits at any time held by or in the possession of the Transferor.

                SECTION 6.12. Further Assurances.

                (a) The Transferor and the Servicer each agrees to do such further acts and things and to execute and deliver to the Agent, each Senior Class Agent, each Senior Class Conduit, each Bank Investor or each Collateral Agent such additional assignments, agreements, powers and instruments as are reasonably required by such party to carry into effect the purposes of this Agreement or to better assure and confirm unto such party its rights, powers and remedies hereunder.

                (b) Each of the Agent, each Senior Class Agent and each Senior Class Conduit agrees to do such further acts and things and to execute and deliver to the Transferor such additional instruments as are reasonably required by such party to carry into effect the purposes of this Agreement or to better assure and confirm unto such party its rights, powers and remedies hereunder.

62

        IN WITNESS WHEREOF, the parties hereto have executed and delivered this Third Amended and Restated Certificate Purchase Agreement as of the date first written above.

	SAKS CREDIT CORPORATION, as Transferor By:  _______________________________         Name:  Scott A. Honnold         Title:  Vice President Address for notices: Saks Credit Corporation 140 Industrial Drive Elmhurst, Illinois  60126 Attention:  Scott A. Honnold Telephone:  (205) 940-4708 Facsimile:  (205) 940-4709 SAKS INCORPORATED, as Servicer By:  _________________________________        Name:  Scott A. Honnold        Title:  Vice President and Treasurer Address for notices: Saks Incorporated 750 Lakeshore Parkway Birmingham, Alabama  35211 Telephone:  (205) 940-4708 Facsimile: (205) 940-4709
	ENTERPRISE FUNDING CORPORATION, as a Purchaser and a Senior Class Conduit By:  _________________________________        Name;  Kevin Burns        Title:  Vice President Address for notices; Enterprise Funding Corporation c/o Global Securitization Services, LLC 25 West 43rd Street, Suite 1715 New York, New York  10036 Attention:  Kevin Burns Telephone:  (212) 302-8331 Facsimile:  (212) 302-8767 (with a copy to the Agent and the related Senior Class Agent)
	FALCON ASSET SECURITIZATION CORPORATION, as a purchaser and a Senior Class Conduit By:  _________________________________        Name:        Title: Address for notices: c/o Bank ONe, NA (Main Office Chicago) Asset-Backed Finance One First National Plaza Suite 0597, 1-21 Chicago, Illinois  60670-0597 Attention:  Credit Manager Telephone:  _______________________ Facsimile:  (312) 732-4487 (with a copy to the related Senior Class Agent
	WINDMILL FUNDING CORPORATION, as a Purchaser and a Senior Class Conduit By:  ________________________________        Name:        Title: Address for notices: c/o ABN AMRO Bank N.V. 135 South LaSalle Street, Suite 725 Chicago, Illinois  60603 Attention:  Vice President -- Secruitization Telephone:  (312) 904-2227 Facsimilie:  (312) 904-4958 (with a copy to the related Senior Class Agent)
	BANK OF AMERICAN, N.A., as Agent, as a Senior Class Agent and as a Bank Investor By:  _________________________________         Name:         Title: Address for notices: Bank of America, N.A. Bank of America Corporate Center 100 North Tryon Street, 10th Floor NC1-007-10-07 Charlotte, North Carolina  28255 Attention:  Michelle M. Heath -- Global Asset Back Securitization Group Telephone:  (704) 386-7922 Telecopy:  (704) 388-9169 Account for payments: Bank of America, N.A. ABA No.:  053000196 For Credit To:  Bank of America, Charolotte Account No.:  109-360-065-6600 Attention:  Camille Zerbinos
Commitment: $105,000,000	BANK ONE, NA (Main Office Chicago), as a Senior Class Agent and as a Bank Investor By:  _______________________________        Name:        Title: Address for notices: Bank One, NA (Main Office Chicago) One First National Plaza, 19th Floor Chicago, Illinois  60670-0612 Attention:  ____________________ Telephone:  ____________________ Facsimile:  _____________________ (with a copy to the related Senior Class Agent) Account for payments: Attention:  Bill Marshall -- Asset Backed Finance ABA No.:  071000013 For Credit to:  Saks Credit Card Master Trust Account No.:  51 14810
Committement: $105,000,000	ABN AMRO BANK N.V., as a Senior Class Agent and as a Bank Investor By:  ________________________________        Name:        Title: Address for notices: ABN AMRO BANK, N.V. 135 South LaSalle Street, Suite 725 Chicago, Illinois  60603 Attention:  Vice President -- Securitization Telephone:  (312) 904-9234 Telecopy:  (312) 904-4958 (with a copy to the Agent) Account for payments: Bank:  ABN AMRO Bank, New York, NY ABA No.:  026009580 For Credit to:  Amsterdam Funding Corp. Account No.:  671042302550 Reference:  Saks

EXHIBIT A

TO THE THIRD AMENDED AND RESTATED
CERTIFICATE PURCHASE AGREEMENT

FORM OF ADDITIONAL INVESTMENT CERTIFICATE

        The undersigned, [Name of Officer], [Title of Officer] of Saks Credit Corporation, a Delaware corporation (the "Transferor"), and [Name of Officer], [Title of Officer] of Saks Incorporated, a Tennessee Corporation, as Servicer (the "Servicer"), pursuant to Section 2.2 of the Third Amended and Restated Certificate Purchase Agreement, dated as of November 19, 2001 (the "Agreement"), by and among the Transferor, the Servicer, Enterprise Funding Corporation, a Delaware corporation, Falcon Asset Securitization Corporation, a Delaware corporation, Windmill Funding Corporation, a Delaware corporation, Bank of America, N.A., a national banking association, as agent for the Senior Class Conduits and the Bank Investors, as a Senior Class Agent and individually as a Bank Investor, Bank One, NA (Main Office Chicago), a national banking association, as a Senior Class Agent and individually as a Bank Investor, and ABN AMRO Bank N.V., a "Naamloze Vennootschap" (public company with limited liability) organized under the laws of The Netherlands, as a Senior Class Agent and individually as a Bank Investor, hereby certify that:

(1) All of the representations and warranties of the Transferor and the Servicer in the Agreement are true and correct as of the date hereof (except to the extent that any such representation and warranty expressly relates to an earlier date).

(2) The Aggregate Outstanding Principal Balance as of the end of the immediately preceding Monthly Period $_____

(3) The Senior Class Investor Amount for each Senior Class as of the date hereof                                                                                             $_____[A-1]
                                                                                                      $_____ [A-2]
                                                                                                      $_____ [A-3]

(4) The Senior Class Certificate Principal Balance for each Senior Class as of the date hereof                                                                                     $_____[A-1]
                                                                                                      $_____ [A-2]
                                                                                                      $_____ [A-3]

(5) The Interest Component of Related Commercial Paper issued by the related Senior Class Conduit, if any, as of the Business Day immediately preceding the date hereof                                                                                             $_____[A-1]
                                                                                                      $_____ [A-2]
                                                                                                      $_____ [A-3]

(6) The Subordinate Class Investor Amount as of the Business Day immediately preceding the date hereof $_____

(7) The total amount of the Additional Investor Amount requested by the Transferor and the share of such Additional Investor Amount to be acquired by each Senior Class                                                                                              $_____[Total]
                                                                                                      $ _____[A-1]
                                                                                                      $_____ [A-2]
                                                                                                      $_____ [A-3]

(8) The Senior Class Certificate Principal Balance for each Senior Class after giving effect to the Additional Investor Amount (line 4 plus line 7)              $_____ [A-1]
                                                                                                      $_____ [A-2]
                                                                                                      $_____ [A-3]

(9) The estimated additional Interest Component of the Related Commercial Paper to be issued to fund the Additional Investor Amount (Assuming: Discount Rate: _____; Term: _____) $_____[A-1]

(10) The Senior Class Certificate Principal Balance after giving effect to the Additional Investor Amount plus the Interest Component of Related Commercial Paper issued by the related Senior Class Conduit, if any (line 5 plus line 8 plus line 9)                                                                                                   $_____[A-1]
                                                                                                      $_____ [A-2]
                                                                                                      $_____ [A-3]

(11) Are the amounts on line 10 less than the related Senior Class Facility Limit [Yes]

(12) The Transferor Amount after giving effect to the Additional Investor Amount, each as of the Determination Date preceding the Distribution Date $_____

(13) The Transferor Amount is not less than the Minimum Transferor Amount [Yes]

(14) The Subordinate Class Investor Amount (line (6)) is not less than the Minimum Enhancement Amount [Yes]

(15) No Potential Pay Out Event or Pay Out Event under the Agreement has occurred and is continuing [Yes]

        Capitalized terms used and not otherwise defined herein shall have the meaning assigned to such terms in the Agreement.

        IN WITNESS WHEREOF, I have duly executed and delivered this Additional Investment Certificate on this ____ day of ______, 20__.

                                                                    SAKS CREDIT CORPORATION
                                                                    as Transferor

                                                                    By: 9; _____________________________
                                                                            Name: 9;
                                                                            Title:

EXHIBIT B

TO THE THIRD AMENDED AND RESTATED
CERTIFICATE PURCHASE AGREEMENT

FORM OF ASSIGNMENT AND ASSUMPTION AGREEMENT

        Reference is made to the Third Amended and Restated Certificate Purchase Agreement, dated as of November 19, 2001 (as may be amended or otherwise modified from time to time, the "Agreement"), by and among Saks Credit Corporation, a Delaware corporation, as transferor, Saks Incorporated, a Tennessee corporation, as servicer, Enterprise Funding Corporation, a Delaware corporation, Falcon Asset Securitization Corporation, a Delaware corporation, Windmill Funding Corporation, a Delaware corporation, Bank of America, N.A., a national banking association, as agent for the Senior Class Conduits and the Bank Investors, as a Senior Class Agent and individually as a Bank Investor, Bank One, NA (Main Office Chicago), a national banking association, as a Senior Class Agent and individually as a Bank Investor, and ABN AMRO Bank N.V., a "Naamloze Vennootschap" (public company with limited liability) organized under the laws of The Netherlands, as a Senior Class Agent and individually as a Bank Investor.

        [NAME OF ASSIGNOR], in its capacity as [a Bank Investor] under the Agreement (the "Assignor") and [NAME OF ASSIGNEE] (the "Assignee") hereby agree as follows:

        1. The Assignor hereby sells and assigns to the Assignee, and the Assignee hereby purchases and assumes from the Assignor, an interest in and to all of the Assignor's rights and obligations under the Agreement, such interest, expressed as a percentage of all rights and obligations of the members of the Senior Class of which the Assignor is a member, being equal to the percentage equivalent of a fraction the numerator of which is $[________] and the denominator of which is the Senior Class Facility Limit for such Senior Class.

        2. The Assignor (i) represents and warrants that it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any Lien created by it; (ii) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Agreement or any other instrument or document furnished pursuant thereto or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Agreement or the Receivables, or any other instrument or document furnished pursuant thereto; and (iii) makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Transferor or the performance or observance by the Transferor of any of its obligations under the Agreement or any instrument or document furnished pursuant thereto.

        3. The Assignee (i) confirms that it has received a copy of the Agreement, the Pooling and Servicing Agreement and the Series Supplement, together with copies of the financial statements referred to in Section 3.3 of the Agreement, to the extent delivered through the date of this Assignment and Assumption Agreement, and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Assumption Agreement and purchase such interest in the Assignor's rights and obligations under the Agreement; (ii) agrees that it will, independently and without reliance upon the Agent or any of its Affiliates, any Senior Class Agent, the Assignor or any other Senior Class Conduit or Bank Investor and based on such 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 the Agreement and the othe r Transaction Documents; (iii) appoints and authorizes each of the Agent and the Senior Class Agent for the Senior Class of which the Assignor is a member to take such action as agent on its behalf and to exercise such power under the Agreement and the Transaction Documents and any other instrument or document furnished pursuant thereto as are delegated to the Agent and the Senior Class Agent, respectively, by the terms thereof, together with such powers as are reasonably incidental thereto; (iv) appoints the Agent to enforce its respective rights and interests in and under the Agreement and the Receivables in accordance with Article V of the Agreement; (v) agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Agreement are required to be performed by it as a Bank Investor; (vi) specifies as its address for notices and its account for payments the office and account set forth beneath its name on the signature pages hereof; (vii) attaches the forms prescri bed by the Internal Revenue Service of the United States of America certifying as to the Assignee's status for purposes of determining exemption from United States withholding taxes with respect to all payments to be made to the Assignee under the Agreement or such other documents as are necessary to indicate that all such payments are subject to such rates at a rate reduced by an applicable tax treaty; and (viii) 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 the Senior Class Conduits, it will not institute against, or join any other Person in instituting against any Senior Class 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.

        4. The effective date for this Assignment and Assumption Agreement shall be the later of (i) the date on which the Agent receives this Assignment and Assumption Agreement executed by the parties hereto, and receives the consent of the Senior Class Agent, on behalf of the Assignor, and (ii) the date of this Assignment and Assumption Agreement (the "Effective Date"). Following the execution of this Assignment and Assumption Agreement and the consent of the Senior Class Agent, on behalf of the Assignor, this Assignment and Assumption Agreement will be delivered to the Agent for acceptance and, with respect to the Assignment and Assumption Agreement, recording by the Agent.

        5. Upon such acceptance and recording, as of the Effective Date, (i) the Assignee shall be a party to the Agreement and, to the extent provided in this Assignment and Assumption Agreement, have the rights and obligations of a Bank Investor thereunder and (ii) the Assignor shall, to the extent provided in this Assignment and Assumption Agreement, relinquish its rights and be released from its obligations under the Agreement.

        6. Upon such acceptance and recording, from and after the Effective Date, the Agent shall make all payments under the Agreement in respect of the interest assigned hereby (including, without limitation, all payments in respect of such interest in the related Senior Class Certificates, Carrying Costs allocable to the related Bank Investor and fees) to the Assignee. The Assignor and Assignee shall make all appropriate adjustments in payments under the Agreement for periods prior to the Effective Date directly between themselves.

        7. This Assignment and Assumption Agreement shall be governed by, and construed in accordance with, the laws of the State of New York.

        IN WITNESS WHEREOF, the parties hereto have caused this Assignment and Assumption Agreement to be executed by their respective officers thereunto duly authorized as of the ___ day of _______, 20__.

[NAME OF ASSIGNOR]

By:
Name:
Title:

[NAME OF ASSIGNEE]

By:
Name:
Title:

Address for notices and Account for payments:

For Credit Matters:                                    For Administrative Matters:

[NAME]                                                   [NAME]
[ADDRESS]                                             [ADDRESS]
Attention:                                                  Attention:
Telephone:                                                Telephone:
Facsimile:                                                  Facsimile:
 

Account for Payments:

[ACCOUNT NAME]
[ROUTING ADDRESS]
ABA Number:
Account Number:
Attn:
 

Accepted this ___ day
of _______, 20__

BANK OF AMERICA, N.A.,
as Agent

By:
Name:
Title:

Consented to this ___ day
of _________, 20__

[Senior Class Agent],
as Senior Class Agent

By:
Name:
Title:

EXHIBIT C

TO THE THIRD AMENDED AND RESTATED
CERTIFICATE PURCHASE AGREEMENT

FORM OF [OFFICER'S] CERTIFICATE

        I, _______________, the undersigned [Officer] of [NAME OF COMPANY], a [_________] corporation (the "Company"), DO HEREBY CERTIFY that:

        1. Attached hereto as Annex A is a true and complete copy of the Certificate of Incorporation of the Company as in effect on the date hereof.

        2. Attached hereto as Annex B is a true and complete copy of the By-Laws of the Company as in effect on the date hereof.

3. Attached hereto as Annex C is a true and complete copy of the resolutions duly adopted by the Board of Directors of the Company on ________, 20__, approving the execution, delivery and performance of each of the documents mentioned therein, which resolutions have not been revoked, modified, amended or rescinded and are still in full force and effect.

4. The below-named persons have been authorized on the Company's behalf to execute the Third Amended and Restated Certificate Purchase Agreement and any other documents to be delivered by the Company thereunder, and at all times since _______, 20__ (to and including the date hereof) have been officers or representatives of the Company holding the respective offices or positions below set opposite their names and the signatures below set opposite their names are their genuine signatures:

Name Title Signature

______________ _______________ _______________

______________ _______________ _______________

______________ _______________ _______________

______________ _______________ _______________

5. The representations and warranties of the Company contained in Section [3.1][3.2] of the Third Amended and Restated Certificate Purchase Agreement, dated as of June 28, 2001, by and among the Transferor, Saks Incorporated, as servicer, Enterprise Funding Corporation, a Delaware corporation, Falcon Asset Securitization Corporation, a Delaware corporation, Windmill Funding Corporation, a Delaware corporation, Bank of America, N.A., a national banking association, as agent for the Senior Class Conduits and the Bank Investors, as a Senior Class Agent and individually as a Bank Investor, Bank One, NA (Main Office Chicago), a national banking association, as a Senior Class Agent and individually as a Bank Investor, and ABN AMRO Bank N.V., a "Naamloze Vennootschap" (public company with limited liability) organized under the laws of The Netherlands, as a Senior Class Agent and individually as a Bank Investor, are true and correct as if made on the date hereof.

    WITNESS my hand as of this _____ day of November, 2001.

___________________________
[Name]
[Title]

    I, the undersigned, [Title of Officer] of the Transferor, do hereby certify that [Name of Secretary/Assistant Secretary] is the duly elected and qualified [Secretary][Assistant Secretary] of the Company and the signature above is his/her genuine signature.

    WITNESS my hand as of this _____ day of November, 2001.

___________________________
[Name]
[Title]

EXHIBIT D

TO THE THIRD AMENDED AND RESTATED
CERTIFICATE PURCHASE AGREEMENT

        In the event the Servicer fails to perform its obligations under Section 3.4(f)(i) of this Agreement by April 1, 2002, then the Servicer shall pay to the Senior Class Agents a fee of $1 million, which the Senior Class Agents shall allocate and distribute to each of the Senior Class Agents based upon each of their respective Pro Rata Shares; provided, however, that the Servicer shall not pay such fee if its failure to observe such obligations results from any of the following events that affects the ability of any of the designated Back-Up Servicer, or any service provider necessary to the Back-Up Servicer for performing any of the items in Section 3.4(f)(i), the Servicer or the Senior Class Agents to perform their respective obligations under Section 3.4(f)(i): (i) any banking moratorium declared by any United States federal or state authorities or other applicable authorities, including, without limitation, regulatory authorities; (ii) any outbreak or escalation of hostilities, any declaration of war by the United States or any other national or international calamity, crisis or emergency, or any act or acts of terrorism; (iii) any flood, fire, storm or other catastrophe, whether natural or caused by a third party, including, without limitation, acts of God; and (iv) any failure in electricity or other power, communications, other utilities or transportation services.

EXHIBIT E

TO THE THIRD AMENDED AND RESTATED
CERTIFICATE PURCHASE AGREEMENT

[Delivered Separately]

EXHIBIT F

TO THE THIRD AMENDED AND RESTATED
CERTIFICATE PURCHASE AGREEMENT

FORM OF QUARTERLY SERVICER'S CERTIFICATE

SAKS INCORPORATED

        The undersigned, a duly authorized representative of Saks Incorporated, as Servicer pursuant to the Master Pooling and Servicing Agreement, dated as of August 21, 1997, as amended (the "Pooling and Servicing Agreement"), as supplemented by a Third Amended and Restated Series 1997-1 Supplement, dated as of November 19, 2001 (the "Series Supplement"), each by and among Saks Credit Corporation, as Transferor, Saks Incorporated, as Servicer, and Wells Fargo Bank Minnesota, National Association, as Trustee, does hereby certify that:

1. Capitalized terms used in this Officer's Certificate have their respective meanings set forth in the Pooling and Servicing Agreement and the Series Supplement.
    

2. Saks Incorporated is as of the date hereof the Servicer under the Pooling and Servicing Agreement. 
    

3. The undersigned is duly authorized pursuant to the Pooling and Servicing Agreement to execute and deliver this Officer's Certificate to Bank of America, N.A., as the Agent, and to each Senior Class Agent under the Certificate Purchase Agreement referred to in the Series Supplement. 
    

4. This certificate is delivered pursuant to Section 3.7 of the Third Amended and Restated Certificate Purchase Agreement. 
    

5. A review of the activities of the Servicer during the calendar quarter ended ______ __,      and of its performance under the Certificate Purchase Agreement and the other Transaction Documents was made under my supervision. 
    

6. To the best of my knowledge, based on such review, the Servicer has fully performed all its obligations under the Pooling and Servicing Agreement, the Series Supplement, the Certificate Purchase Agreement and the other Transaction Documents throughout such calendar quarter and no event which, with the giving of notice or passage of time or both, would constitute a Pay Out Event or Servicer Default has occurred or is continuing except as set forth in paragraph 7 below. 
    

7. The following is a description of each Pay Out Event or Servicer Default known to me to have been made during the calendar quarter ended ______ __, ____ including the (i) nature of each such Pay Out Event or Servicer Default, (ii) the action taken by the Servicer, if any, to remedy each such Pay Out Event or Servicer Default and (iii) the current status of each such Pay Out Event or Servicer Default:

        IN WITNESS WHEREOF, the undersigned, a duly authorized officer of the Servicer, has duly executed this Certificate this ___ day of __________, ____.

SAKS INCORPORATED

By:
Name:
Title:

EXHIBIT G

DEFINED TERMS UNDER THE FINANCIAL COVENANTS

        Capitalized terms, to the extent not defined within this Exhibit G, shall have the meanings assigned to them in the Credit Agreement.

        "Acquisition" means the acquisition, including without limitation by means of merger or consolidation, by the Servicer or any Subsidiary of (i) a controlling equity interest in another Person (including the purchase of an option, warrant or convertible or similar type security to acquire such a controlling interest at the time it becomes exercisable by the holder thereof), whether by purchase of such equity interest or upon exercise of an option or warrant for, or conversion of securities into, such equity interest, (ii) assets of another Person which constitute all or substantially all of the assets of such Person or (iii) a Business Unit.

        "Adjusted Net Earnings from Operations" means, with respect to any fiscal period of the Servicer, the Servicer's consolidated net income after provision for income taxes for such fiscal period, as determined in accordance with GAAP and reported on the Financial Statements for such period, excluding any and all of the following included in such net income: (a) gain or loss arising from the sale of any capital assets; (b) gain arising from any write-up in the book value of any asset; (c) earnings of any Person, substantially all the assets of which have been acquired by the Servicer or its Subsidiaries in any manner, to the extent realized by such other Person prior to the date of acquisition; (d) earnings of any Person in which the Servicer or any Subsidiary has an ownership interest unless (and only to the extent) such earnings shall actually have been received by the Servicer or such Subsidiary in the form of cash distributions; (e) earnings of any Person [to which assets of the Servicer shall have been sold, transferred or disposed of, or] into which any Subsidiary shall have been merged, or which has been a party with any Subsidiary to any consolidation or other form of reorganization, prior to the date of such transaction; (f) gain arising from the acquisition of debt or equity securities of the Servicer or any Subsidiary or from cancellation or forgiveness of Debt; and (g) gain arising from extraordinary or non-recurring items, as determined in accordance with GAAP, or from any other non-recurring transaction.

        "Authorized Representative" means any of the Chairman, Vice Chairmen, President or Executive Vice Presidents of the Servicer and, with respect to financial matters, the Treasurer or Chief Financial Officer of the Servicer.

        "Business Unit" means (i) one or more retail stores, warehouses or distribution centers, including the related land, buildings and trade fixtures of a Person or a division of a Person, which may, but is not required to, include inventory, receivables, furniture, fixtures and equipment, and intangible and other assets related to such retail stores, warehouses or distribution centers or (ii) all or substantially all of a line or lines of business conducted by a Person or a division of a Person.

        "Capital Expenditures" means all payments due (whether or not paid during any fiscal period) in respect of the cost of any fixed asset or improvement, or replacement, substitution, or addition thereto, which has a useful life of more than one year, including, without limitation, those costs arising in connection with the direct or indirect acquisition of such asset by way of increased product or service charges or in connection with a Capital Lease.

        "Capital Lease" means any lease of property by the Servicer or any of its Subsidiaries which, in accordance with GAAP, should be reflected as a capital lease on the balance sheet of the Servicer and its Subsidiaries.

        "Closing Date" means, solely for purposes of this Exhibit G, the date of the Credit Agreement.

        "Cost of Acquisition" means, as at the date of closing any Acquisition, the sum of the following: (i) the value of the capital stock, or warrants or options to acquire capital stock, of the Servicer or any Subsidiary to be transferred in connection therewith, (ii) any cash or other property (excluding property described in clause (i)) or the unpaid principal amount of any debt instrument given as consideration in such Acquisition, and (iii) any Debt or liabilities assumed by the Servicer or its Subsidiaries in connection with such Acquisition. For purposes of determining the Cost of Acquisition for any transaction, (A) the capital stock of the Servicer shall be valued (I) at its market value as reported on the New York Stock Exchange or any national securities exchange with respect to shares that are freely tradable, and (II) with respect to shares that are not freely tradable, as determined by the Board of Directors of t he Servicer (which determination shall be conclusive), (B) the capital stock of any Subsidiary shall be valued as determined by the Board of Directors of such Subsidiary (which determination shall be conclusive), and (C) with respect to any Acquisition accomplished pursuant to the exercise of options or warrants or the conversion of securities, the Cost of Acquisition shall include both the cost of acquiring such option, warrant or convertible security as well as the cost of exercise or conversion.

        "Credit Agreement" shall mean the Credit Agreement among the Servicer, each Lender party thereto, and Bank of America, N.A., as the Agent, entered into at or about the same time as the Third Amended and Restated Certificate Purchase Agreement.

        "Debt" means, without duplication, all liabilities, obligations and indebtedness of the Servicer and its Subsidiaries to any Person, of any kind or nature, now or hereafter owing, arising, due or payable, howsoever evidenced, created, incurred, acquired or owing, whether primary, secondary, direct, contingent, fixed or otherwise, consisting of indebtedness for borrowed money or the deferred purchase price of property, excluding trade payables, but including (a) all Obligations; (b) all Debt of any other Person secured by any Lien on the Servicer's or any Subsidiary's property, even though the Servicer or such Subsidiary shall not have assumed or become liable for the payment thereof; provided, however, that all such obligations and liabilities under this clause (b) which are limited in recourse to such property shall be included in Debt only to the extent of the book value of such property as would be shown on a bala nce sheet of the Servicer and its Subsidiaries prepared in accordance with GAAP; (c) all obligations or liabilities created or arising under any Capital Lease or conditional sale or other title retention agreement with respect to property used or acquired by the Servicer or its Subsidiaries, even if the rights and remedies of the lessor, seller or lender thereunder are limited to repossession of such property; provided, however, that all such obligations and liabilities under this clause (c) which are limited in recourse to such property shall be included in Debt only to the extent of the book value of such property as would be shown on a balance sheet of the Servicer and its Subsidiaries prepared in accordance with GAAP; (d) all obligations and liabilities under Guaranties and (e) Synthetic Lease Indebtedness.

        "Default" means any event or circumstance which, with the giving of notice, the lapse of time, or both, would (if not cured, waived, or otherwise remedied during such time) constitute an Event of Default.

        "Dollars" and the symbol "$" means dollars constituting legal tender for the payment of public and private debts in the United States of America.

        "EBITDA" means, with respect to any fiscal period of the Servicer, Adjusted Net Earnings from Operations, plus, to the extent deducted in the determination of Adjusted Net Earnings from Operations for that fiscal period, interest expenses, Federal, state, local and foreign income taxes, depreciation and amortization.

        "Event of Default" has the meaning specified in Section 9.1 of the Credit Agreement.

        "Financing Charges" means those charges owed and allocated to third parties in the ordinary course of business with respect to accounts receivable securitizations transacted in the ordinary course of business.

        "Financial Statements" means, according to the context in which it is used, the financial statements referred to in Sections 5.2 and 6.6 of the Credit Agreement or any other financial statements required to be given to the Lenders pursuant to this Agreement.

        "Fixed Charge Coverage Ratio" means, with respect to any fiscal period of Servicer, the ratio of (i) the sum of EBITDA plus rental and all other payments made in respect of or in connection with operating leases plus Financing Charges to (ii) Fixed Charges.

        "Fixed Charges" means, with respect to any fiscal period of the Servicer on a consolidated basis, without duplication, the sum of (a) interest expense, (b) rental and all other payments made by the Servicer and its consolidated Subsidiaries in respect of or in connection with operating leases, (c) Financing Charges, (d) Capital Expenditures other than (i) Capital Expenditures funded with Debt other than Revolving Loans (but including, without duplication, principal payments with respect to such Debt), (ii) Capital Expenditures funded with the Net Proceeds of the issuance of capital stock of the Servicer (other than to a Subsidiary), (iii) Capital Expenditures arising in connection with a Permitted Acquisition to the extent the Cost of Acquisition is paid through the issuance of capital stock of the Servicer, and (iv) Capital Expenditures funded with the Net Proceeds of Dispositions permitted under Section 7.8(a)(v) of the Credit A greement, (e) scheduled principal payments of Debt paid during such fiscal period, and (f) Federal, state, local and foreign income taxes paid in cash.

        "GAAP" means generally accepted accounting principles and practices set forth from time to time in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the U.S. accounting profession).

        "Governmental Authority" means any nation or government, any state or other political subdivision thereof, any central bank (or similar monetary or regulatory authority) thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, and any corporation or other entity owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing.   

        "Guaranty" means, with respect to any Person, all obligations of such Person which in any manner directly or indirectly guarantee or assure, or in effect guarantee or assure, the payment or performance of any indebtedness or dividend or Debt of any other Person (the "guaranteed obligations"), or assure or in effect assure the holder of the guaranteed obligations against loss in respect thereof, including any such obligations incurred through an agreement, contingent or otherwise: (a) to purchase the guaranteed obligations or any property constituting security therefor; (b) to advance or supply funds for the purchase or payment of the guaranteed obligations or to maintain a working capital or other balance sheet condition; or (c) to lease property or to purchase any debt or equity securities or other property or services.

        "Lien" means any interest in property securing an obligation owed to, or a claim by, a Person other than the owner of the property, whether such interest is based on the common law, statute, or contract, and including a security interest, charge, claim, or lien arising from a mortgage, deed of trust, encumbrance, pledge, hypothecation, assignment, deposit arrangement, agreement, security agreement, conditional sale or trust receipt or a lease, consignment or bailment for security purposes.

        "Liquidity Event" means the determination of the Agent that Availability is less than $100,000,000.

        "Permitted Acquisition" means an Acquisition beyond the normal course of business effected with the consent and approval of the board of directors or other applicable governing body of the Person being acquired, and with the duly obtained approval of such shareholders or other holders of equity interest as such Person may be required to obtain, so long as (i) immediately prior to and immediately after the consummation of such Acquisition, no Default or Event of Default has occurred and is continuing, (ii) substantially all of the sales and operating profits generated by such Person (or assets) so acquired or invested are derived from (A) the same or related line or lines of business as conducted by the Servicer and its Subsidiaries on the Closing Date or (B) a line or lines of business not inconsistent with the business substantially as conducted by the Servicer and its Subsidiaries on the Closing Date; provided that the Cost of Acquisition of all such Acquisitions permitted pursuant to this clause (ii)(B) shall not in the aggregate exceed $150,000,000 during any Four-Quarter Period and (iii) if the Cost of Acquisition therefor equals or exceeds $50,000,000, pro forma historical financial statements as of the end of the most recently completed Four-Quarter Period giving effect to such Acquisition are delivered to the Agent not less than five (5) Business Days prior to the consummation of such Acquisition, together with a certificate of an Authorized Representative demonstrating compliance with the financial covenants set forth in Article 7 of the Credit Agreement after giving effect to such Acquisition.

        "Person" means any individual, sole proprietorship, partnership, limited liability company, joint venture, trust, unincorporated organization, association, corporation, Governmental Authority, or any other entity.

        "Servicer" shall mean, for the purpose of these financial covenant definitions, Saks Incorporated, having a principal place of business in Birmingham, Alabama.

        "Subsidiary" of a Person means any corporation, association, partnership, limited liability company, joint venture or other business entity of which more than fifty percent (50%) of the voting stock or other equity interests (in the case of Persons other than corporations), is owned or controlled directly or indirectly by the Person, or one or more of the Subsidiaries of the Person, or a combination thereof. Unless the context otherwise clearly requires, references herein to a "Subsidiary" refer to a Subsidiary of the Servicer.

        "Synthetic Lease Indebtedness" means, with respect to a Person that is a lessee under a synthetic lease, an amount equal to (i) the aggregate purchase price of any property that the lessor under such synthetic lease acquired, through one or a series of related transactions, and thereafter leased to such Person pursuant to such synthetic lease less (ii) the aggregate amount of all payments of fixed rent or other rent payments which reduce such Person's obligation under such synthetic lease and which are not the financial equivalent of interest. Synthetic Lease Indebtedness of a Person shall also include, without duplication, the amount of Synthetic Lease Indebtedness of others to the extent guarantied by such Person.

        "Twelve-Month Period" shall mean a period of twelve full consecutive fiscal months taken together as one accounting period.

EXHIBIT H

TO THE THIRD AMENDED AND RESTATED
CERTIFICATE PURCHASE AGREEMENT

PROCEEDINGS

[None]

EX-10

EXHIBIT 10.13

Amended and Restated Employee Stock Purchase Plan
Saks Incorporated

1. Purpose. The purpose of the Saks incorporated Employee Stock Purchase Plan is to provide a method whereby employees of Saks Incorporated and its subsidiaries have an opportunity to purchase shares of Common Stock of the Corporation. The Plan is intended to qualify as an Employee Stock Purchase Plan under Section 423 of the Internal Revenue Code of 1986, as amended, and all provisions of the Plan shall be constructed in a manner to effect that intent.
2. Definitions. As used in this Plan, the following words shall have the following meanings:
    
1. "Code" shall mean the Internal Revenue Code of 1986, as amended. Reference to a section of the Code shall include that section and any comparable section of any future legislation that amends, supplements, or supersedes that section.
   
   
2. "Common Stock" shall mean the Common Stock of the Corporation.
   
   
3. "Human Resources/Option Committee" shall mean the Human Resources/Option Committee of the Board of Directors, to which the administrative duties and responsibilities under the Plan are delegated.
    
   
4. "Corporation" shall mean Saks Incorporated, a Tennessee corporation.
    
   
5. "Employee" shall mean any individual who is employed by the Corporation or a subsidiary on a full-time or part-time basis and who is regularly scheduled to work more than 20 hours per week.
    
   
6. "Offering" shall mean any opportunity to purchase Common Stock granted to Participants, the terms and conditions of which have been established by the Human Resources/Option Committee pursuant to the Plan.
   
   
7. "Offering Commencement Date" shall mean the date on which any Offering commences.
   
   
8. "Offering Termination Date" shall mean the date on which any Offering ends.
   
   
9. "Option" shall mean any opportunity to purchase Common Stock granted to a Participant pursuant to an Offering.
   
   
10. "Participant" shall mean each Employee who becomes a participant as provided in Section 5.
    
    
11. "Plan" shall mean the Saks Incorporated Employee Stock Purchase Plan.
    
    
12. "Subsidiary" shall mean McRae's, Inc., McRae's of Alabama, Inc., and any present or future corporation which: (i) would be "subsidiary corporation" of the Company as that term is defined in Section 424 of the Code, and (ii) is designated as a participant in the Plan by the Board of Directors.
     
3. Administrative.
    
   1. Appointment. The Plan shall be administered by the Human Resources/Option Committee. The Human Resources/Option Committee may, from time to time, delegate non-discretionary administrative responsibilities under the Plan to Employees who shall continue to be eligible to participate in accordance with Section 4(a).
      
   2. Powers. The Human Resources/Option Committee shall determine: (i) the time or times when Options shall be granted; (ii) the number of shares subject to the Offering; and (iii) the limitations, restrictions, and conditions applicable to any Options.
      
   3. Interpretations. Subject to the express provisions of the Plan, the Human Resources/Option Committee may interpret the Plan, prescribe, amend, and rescind rules and regulations relating to it, determine the terms and conditions of the Options, and make all other determinations it deems necessary or advisable for the administration of the Plan.
      
   4. Determinations. The determinations of the Human Resources/Option Committee on all matters regarding the Plan shall be conclusive. No member of the Human Resources/Option Committee shall be liable for any action taken or determination made in good faith.
      
      
4. Eligibility.

 
1. Initial Eligibility. Each Employee as defined in Section 2(e) who shall have completed twelve (12) months of employment and is employed by the Corporation or a Subsidiary on the date his or her participation in the Plan is to become effective shall be eligible to participate in Offerings under the Plan that commence on or after such twelve (12) month period has concluded.
   
2. Restrictions on Participation. Notwithstanding any provisions of the Plan to the contrary, no Employee shall be granted an Option under the Plan:
   
1. if, immediately after the grant, such Employee would own stock, and/or hold outstanding Options to purchase stock, possessing 5% or more of the total combined voting power or value of all classes of stock of the Corporation (for purposes of this paragraph, the rules of Section 423 of the Code shall apply in determining stock ownership of any Employee); or
    
   
2. which permits the Employee's right to purchase stock under all employee stock purchase plans, within the meaning of Section 423 of the Code, to accrue at a rate that exceeds $25,000 in fair market value of the stock (determined at the time such Options are granted) for each year in which such Options are outstanding.
   
   
5. Commencement of Participation.
   
1. Participation. An eligible Employee may become a Participant by completing an authorization for payroll deductions on the form provided by the Corporation and delivering it to an authorized representative of the Corporation. Payroll deductions for a Participant shall commence on the applicable Offering Commencement Date and shall end on the applicable Offering Termination Date unless sooner terminated by the Participant. All such Participant contributions shall be credited to the Participant's account.
    
   
2. Participant Elections. Each Participant is required to sign a written participation form (hereinafter referred to as the "Participation Agreement") for each Offering. The terms of the Participation Agreement shall provided that the Participant elects to have payroll deductions credited to the Participant's account, subject to the limitations hereinafter described, that will in no event exceed Two Thousand Four Hundred and 00/100 Dollars ($2,400.00) during the initial Offering. The Human Resources/Option Committee retains the right to adjust this amount for subsequent offerings. Elections to participate hereunder shall be made no later than ten (10) days prior to an Offering Commencement Date. Contributions may be increased or decreased for subsequent Offerings.
    
   
6. Stock Options.
   
1. Number of Option Shares. On the initial Offering Commencement Date, each Participant shall be granted an Option to Purchase the number of shares of Common Stock equal to the number determined by dividing Two Thousand Four Hundred and 00/100 Dollars ($2,400.00) by 85% of thc fair market value of the Common Stock. The Human Resources/Option Committee retains the discretion to adjust this amount for subsequent offerings.

 
2. Option Price. The price to purchase Common Stock subject to the Option shall be an amount not less than the lower of:
    
1. 85% of the closing bid price per share of the Common Stock as listed on the New York Stock Exchange on the last business day preceding grant of such Option; or
    
2. 85% of the closing bid price per share of the Common Stock as listed on the New York Stock Exchange on the first business day preceding exercise thereof.
    
3. Maximum Shares Issuable Under the Plan. The maximum number of shares of Common Stock issuable under Plan pursuant to Options to buy shares of Common Stock is 1,450,000, subject to adjustments pursuant to Section 9. Shares of Common Stock issued pursuant to the Plan may be either authorized but unissued shares or shares held in the treasury of the Corporation. In the event that any Option under the Plan expires unexercised or is terminated without being exercised, in whole or in part, for any reason, the number of shares theretofore subject to such Option or the unexercised or terminated portion thereof, shall be added to the remaining number of shares of Common Stock available for grant as an Option under the Plan upon such terms and conditions as the Human Resources/Option Committee shall determine, which terms may be more or less favorable than those applicable to such former Option.
    
7. Exercise of Option.
    
1. Automatic Exercise. Unless a Participant gives written notice of withdrawal to the Corporation, the Participant's Option for the purchase of Common Stock with payroll deductions made during any Offering will be deemed to have been exercised automatically on the Offering Termination Date applicable to such Offering, for the purchase of the number of full shares of Common Stock that the accumulated payroll deductions credited to his or her account at that time will purchase at the applicable Option price (but not in excess of the number of shares for which Options have been granted to the Employee), and any excess in his account at that time will be returned to him. An Option may be exercised only by a Participant during his or her lifetime or by a designated beneficiary within ninety (90) days of the date of death.
    
   
2. Withdrawal From Account. A Participant who is not subject to Section 16 of the Securities Exchange Act may withdraw from the Plan, in whole but not in part, at any time prior to the Offering Termination Date applicable to any Offering by delivering written notice to the Corporation's authorized representative indicating such Participant's intent to withdraw. A Participant subject to Section 16 of the Securities Exchange Act may not voluntarily withdraw during an Offering. Upon withdrawal by a Participant, the Corporation will promptly refund the entire balance of a Participant's deductions accumulated during the year. A Participant who withdraws from the Plan may reenter for a subsequent Offering by filing a new authorization at least ten (10) days prior to an Offering Commencement Date.
    
   
3. Fractional Shares. Fractional shares will be issued under the Plan to the extent it is practicable.
    
   
4. Delivery of Stock. As soon as practicable after the Offering Termination Date of each Offering, the Corporation will purchase the shares issued upon exercise of the Option and place those shares in an account in the name of the Participant.
    
   
8. Transferability. No Option may be transferred, assigned, pledged or hypothecated (other than to the laws of descent and distribution), and no Option shall be subject to execution, attachment or similar process. Any attempted assignment, transfer, pledge, hypothecation or other disposition of an Option or levy of attachment or similar process upon the Option not specifically permitted herein shall be null and void and without effect.
    
   
9. Adjustment Provisions. The aggregate number of shares of Common Stock with respect to which Options may be granted, the aggregate number of shares of Common Stock subject to each outstanding Option, and the Option price per share of each such Option, may all be appropriately adjusted as the Human Resources/Option Committee may determine for any increase or decrease in the number of shares of issued Common Stock resulting from a subdivision or consolidation of shares, whether through reorganization, recapitalization, stock split, stock distribution, combination of shares, or the payment of a share dividend or other increase in the number of such shares outstanding effected without receipt of consideration by the Corporation. Adjustments under this Section 9 shall be made in the sole discretion of the Human Resources/Option Committee, and its decision shall be binding and conclusive.
    
   
10. Dissolution, Merger and Consolidation. Upon the dissolution or liquidation of the Corporation, or upon a merger or consolidation of the Corporation in which the Corporation is not the surviving corporation, each Option granted hereunder shall expire as of the effective date of such transaction; provided, however, that the Human Resources/Option Committee shall give at least thirty (30) days prior written notice of such event to each Participant during which time he or she shall have a right to exercise his or her wholly or partially unexercised Option and, subject to prior expiration pursuant to Section 12(a) or (b), each Option shall be exercisable after receipt of such written notice and prior to the effective date of such transaction.
    
    
11. Effective Date and Conditions Subsequent to Effective Date. The Plan shall become effective on the date of the approval of the Plan by the majority of the shareholders of the Corporation, and the Plan shall be null and void and of no effect if such condition is not fulfilled, and in such event each Option granted hereunder shall, notwithstanding any of the preceding provisions of the Plan be null and void and of no effect.
    
    
12. Termination of Employment. Notwithstanding anything contained herein to the contrary, each Option shall expire on the earlier of:
    
1. the expiration of ninety (90) days commencing with the death of the Participant;
   
   
2. the expiration of ninety (90) days commencing with the date that the employment of the Participant with the Corporation terminates for any reason; or
   
   
3. the Offering Termination Date.
   

Upon expiration of any Option prior to the applicable Offering Termination Date, any payroll deductions credited to the Participant under the Plan shall be promptly returned to the Participant or his designated beneficiary in the event of his death, without interest.
 

13. Miscellaneous.
    
1. Legal and Other Requirements. The obligations of the Corporation to sell and deliver Common Stock under the Plan shall be subject to all applicable laws, regulations, rules and approvals, if deemed necessary or appropriate by the Corporation. Certificates for shares of Common Stock issued hereunder may contain a legend as the Human Resources/Option Committee deems appropriate.
    
   
2. No obligation to Exercise Options. The granting of an Option shall impose no obligation upon a Participant to exercise such Option.
    
   
3. Termination and Amendment of Plan. The Human Resources/Option Committee, without further action on the part of the shareholders of the Corporation may from time to time alter, amend or suspend the Plan or any Option granted hereunder or may at any time terminate the Plan, except that, unless approved by the shareholders in accordance with Section 11 hereof, it may not: (i) change the total number of shares of Common Stock authorized to be issued under the Plan; or (ii) change the class of employees eligible to be granted Options under the Plan. No action taken by the Human Resources/Option Committee under this Section may materially and adversely affect any outstanding Option without the consent of the holder thereof.
    
   
4. Application of Funds. The proceeds received by the Corporation from the sale of Common Stock pursuant to Options will be used for general corporate purposes.
    
   
5. Right to Terminate Employment. Nothing in the Plan or any agreement entered into pursuant to the Plan shall confer upon any Employee or Participant the right to continue in the employment of the Corporation or affect any right which the Corporation may have to terminate the employment of such Employee or Participant.
    
   
6. Rights as a Shareholder. No Participant shall have any rights or privileges as a shareholder in Common Stock covered by an Option until such Option has been exercised.
    
   
7. Leaves of Absence and Disability. A Participant shall continue to be treated as an Employee for all purposes of the Plan during the first ninety (90) days of any leave of absence, whether such leave is with or without pay. Upon expiration of such ninety (90) day period, unless a Participant has resumed employment, his employment for purposes of the Plan shall be deemed to terminate on such date. During the first ninety (90) days of a leave of absence the Participant shall continue to have all rights otherwise provided pursuant to the Plan and the additional right to supplement the payroll deductions (if any) made during such period with out-of-pocket payments to the extent necessary to continue his Plan election in effect for the applicable Offering.
    
   
8. Fair Market Value. Whenever the fair market value of Common Stock is to be determined under the Plan as of a given date, such fair market value shall be determined as the closing bid price per share as listed on the New York Stock Exchange on the last business day preceding the valuation.
   
   
9. Notices. Every direction, revocation, or notice authorized or required by the Plan shall be deemed delivered to the Corporation: (A) on the date it is personally delivered to the Secretary of the Corporation at its principal executive offices; or (B) three business days after it is sent by registered or certified mail, postage prepaid, addressed to the Secretary at such offices; and shall be deemed delivered to a Participant: (A) on the date it is personally delivered to him or her, or (B) three (3) business days after it is sent by registered or certified mail, postage prepaid, addressed to him or her at the last address shown for him or her on the records of the Corporation.
    
   
10. Applicable Law. All questions pertaining to the validity, construction and administration of the Plan granted hereunder shall be determined in conformity with the laws of the State of Tennessee.
     
    
11. Limitations on Sale of Stock Purchased Under the Plan. The Plan is intended to provide Common Stock for long-term investment. The Corporation does not, however, intend to restrict or influence any Employee in the conduct of his or her own' affairs. An Employee may, therefore, sell stock purchased under the Plan at any time he or she chooses, provided, however, that because of certain federal income tax requirements each Employee will agree by entering the Plan to give the Corporation prompt notice of any such stock disposed of within two (2) years after the date of grant of the applicable Option showing the number of such shares disposed of, and an appropriate legend requiring such notice shall be placed on the certificate of Common Stock issued hereunder. The Employee assumes the risk of any market fluctuations in price of such stock.
    

Officers and directors should note that, pursuant to federal securities laws, certain restrictions apply to the number of shares they may sell, the manner of sale. and the timing of sales with respect to the resale of shares acquired under the Plan; therefore, officers and directors must consult with the office of the Senior Vice President of Investor Relations prior to any such sales.

EX-10

EXHIBIT 10.45

AMENDMENT NO. 1 TO AMENDED AND RESTATED EMPLOYMENT
AGREEMENT DATED MAY 31, 2001

        This amendment modifies the Amended and Restated Employment Agreement Dated May 31, 2001, between Saks Incorporated and R. Brad Martin ("Executive").

        Section 3(l) of the Agreement is deleted in its entirety. This amendment is effective as of February 2., 2002.

                                                                        SAKS INCORPORATED

                                                                        By:__________________
                                                                                James A. Coggin
                                                                                President

___________________________
R. Brad Martin
Executive

EX-10

EXHIBIT 10.64

EMPLOYMENT AGREEMENT

        This Employment Agreement ("Agreement") is entered into as of the 7th day of January 2002, by and between Saks Incorporated (the "Company"), a Tennessee corporation, and Stephen Sadove ("Executive").

        Company and Executive agree as follows:

        1. Employment. Commencing on January 7, 2002 (the "Start Date"), Company shall employ Executive as Vice Chairman of Company. Executive shall report to the Chairman and Chief Executive Officer of Company and be based in New York, New York.

        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 Chief Executive Officer and Board of Directors, except for service on boards or committees not significantly interfering with his duties hereunder, periods of vacation or sick leave, and the normal management of his personal affairs.

        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 $980,000 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 for a yearly cash bonus based upon his performance, in accordance with specific annual objectives set in advance by the Chief Executive Officer and the Human Resources Committee of the Board of Directors. Executive's standard bonus potential shall be 70% of Base Salary (for achievement of specific financial plans) with the potential of 140% of Base Salary for breakthrough results, as set in advance by the Human Resources Committee.

                (c) Option Grant. As an inducement to Executive to enter into this Agreement, Executive shall be granted a non-qualified option ("Option") to purchase 1,500,000 shares of Company common stock at an option price equal to the greater of $9.875 or the average of the closing price of the stock at the close of business during the first two weeks after the Start Date (the "Grant Date"), as reported in the Wall Street Journal. The Option shall be granted pursuant to the Company's 1994 Long Term Incentive Plan ("1994 Plan"), and shall be subject to the terms and conditions thereof. The Option shall be exercisable at the following times: to the extent of 20% on the 6 month anniversary of the Start Date, 20% on the first year anniversary date of the Start Date, 20% on the second year anniversary date of the Start Date, 20% on the third year anniversary date of the Start Date, and 20% on the fourth anniversa ry date of the Start Date. The Option may be exercised up to 7 years from the Grant Date, and any portion not exercised by that time shall expire. Upon termination of employment and membership on the Board of Directors, Executive shall have one year to exercise any options vested at the time of termination as long as the 7-year term has not expired.

                (d) Restricted Stock Grant. Company shall award Executive 125,000 shares of Company common stock on each of the first four anniversaries of the Start Date for a total of 500,000 shares, provided that Executive remains employed on those dates. All shares shall vest and be granted in the event of Executive's death while employed by Company.

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

                (f) Business Expenses, Vacation, Fringe Benefits. Executive shall be entitled to receive prompt reimbursement for all reasonable travel and entertainment expenses incurred in accordance with the Company's policies as in effect from time to time with respect to senior executives. Executive shall be entitled to four weeks of paid vacation per year. Executive shall be entitled to reimbursement for reasonable tax and financial planning services, and shall be provided transportation or a transportation allowance.

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

        5. Termination Without Cause or With Good Reason.. Company may terminate this Agreement and Executive's employment, without Cause, at any time upon fourteen (14) days' prior written notice (at which time this Agreement shall terminate except for Section 8, which shall continue in effect as set forth in Section 8). Executive may terminate this Agreement and his Employment for "Good Reason" in the event: (a) he is demoted from his position set forth in Section 1, (b) he is required to relocate from the New York, New York area, or (c) the Company experiences a Change in Control as defined below. In the event of such termination by Company without Cause, as defined below, or by Executive for Good Reason, Executive shall be entitled to receive as severance: (a) a cash payment of three times Base Salary then in effect plus three times an imputed bonus of 30% of Base Salary, (b) immediate vesting of all options with one year to exercise those optio ns, (c) immediate vesting of all restricted stock awards, and (d) continuation in Company's medical plans for three years. Such Severance shall be paid in one lump sum as soon as practicable.

        In addition, this Agreement shall terminate upon the death or disability of Executive, except as to: (a) Executive's estate's or legal representative's right to exercise any unexercised stock options pursuant to Company's stock option plan then in effect, (b) all 500,000 shares of common stock awarded under Section 3(d) above shall be awarded if those shares have not already been awarded, 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 benefit arrangement or plan maintained by Company. Executive shall be deemed to be disabled when he becomes entitled to receive disability benefits under Company's Long-Term Disability Plan.

        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 serious willful misconduct as, for example, the commission by Executive of a felony arising from specific conduct of Executive which reasonably relates to Executive's qualifications or ability (personal or professional) to perform Executive's duties or perpetration of a fraud against Company.

                (b) In the event that Executive's employment is terminated for any reason or no reason, 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 that are the property of Company or such subsidiary or affiliate.

        #9; 7. Change in Control. If Executive's employment is terminated by Executive for "Good Reason" after a Change in Control of Company, 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 the Severance payment set forth in Section 5 above , continuation in the Company's health and welfare plans for three years at no cost, and vesting in Company's Supplemental Savings Plan at the retirement rate. 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 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 securities initiated 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 by holders of 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 of any such period.

                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 Change in Control of Company has occurred for purposes of this Agreement.

        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 shall not provide any services, as employee, consultant or otherwise, to Federated Department Stores, Kohl's, The May Company, Dillard's, Marshall Fields, Belk Department Stores, Neiman Marcus or its affiliates, Barney's or Nordstrom's, or any of their successors; and 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.

                (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 his duties as an 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 8:

                                (i) the covenants contained in Section 8(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 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 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 9(a). Notices shall be deemed communicated as of the actual receipt or refusal of receipt.

        If to Executive:         Stephen Sadove
                                       12 East 49^th Street
                                       New York, NY 10017

        If to Company:        Office of the General Counsel
                                       12 East 49^th Street
                                       New York, NY 10017

                (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) 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.

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

                (f) Attorney's Fees after a Change in Control. 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's fees, incurred. Company shall reimburse Executive as the costs are incurred and without regard to the outcome of the action.

        10. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit Executive's continuing or future participation in any benefit, bonus, incentive or other plan or program from time to time provided by Company and for which Executive may qualify. Except as otherwise provided herein, amounts which are vested benefits or which Executive is otherwise entitled to receive under any plan or program of Company at or subsequent to the termination of Executive's employment shall be payable in accordance with such plan or program.

        11. Amendment; Waiver. This Agreement contains the entire agreement of the parties with respect to the subject matter hereof, and may be amended, modified or changed only by a written instrument signed by Executive and Company. No provision of this Agreement may be waived except by a writing executed and delivered by the party sought to be charged. Any such written waiver will be effective only with respect to the event or circumstance described therein.

        This Agreement is personal to Executive and shall not be assigned otherwise by will or the laws of descent and distribution. This Agreement shall inure to the benefit and enforceable by Executive's legal representatives. This Agreement shall inure to the benefit and be binding upon Company and its successors. Company shall require any successor to all or substantially all of the business and/or assets of Company, whether direct or indirect, by purchase, merger, consolidation, acquisition of stock, or otherwise, by an agreement in form and substance satisfactory to Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent as Company would be required to perform if no such succession had taken place.

        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

                                                                             ____________________
                                                                             Stephen Sadove
                                                                             Executive

EX-13

                    2001                  ANNUAL             REPORT

2	Financial Highlights
3	Letter to Our Shareholders
10	Saks Department Store Group
14	Saks Fifth Avenue Enterprises
20	Five-Year Financial Summary
21	Management's Discussion and Analysis
33	Consolidated Financial Statements
37	Notes to Consolidated Financial Statements
65	Report of Independent Accountants
65	Report of Management
66	Market Information
67	Directors and Certain Officers
68	Store Locations
70	Shareholder Information
71	Corporate Information

FINANCIAL HIGHLIGHTS

Saks Incorporated Financial Highlights

		Year Ended
		February 2,		February 3,		January 29,
(In Thousands, except per share amounts)		2002		2001		2000
Net sales	$	6,070,568	$	6,581,236	$	6,434,167
Income before certain items	$	23,868	$	132,710	$	239,050
Diluted earnings per common
share before certain items	$	0.17	$	0.93	$	1.64
Net income	$	322	$	75,216	$	189,643
Diluted earnings per common share	$	0.00	$	0.53	$	1.30
Diluted weighted average common shares		141,988		142,718		146,056
Total assets	$	4,595,521	$	5,050,611	$	5,098,952
Shareholders’ equity	$	2,271,437	$	2,293,829	$	2,208,343

Note: Certain items consist of those items that are considered to be non-recurring, infrequent or unusual in nature, such as integration costs, losses from long-lived assets, reorganization charges, store closings and gains (losses) from debt extinguishments as detailed in Note 13 to the consolidated financial statements.

2

LETTER TO OUR SHAREHOLDERS

2001 overview
to our shareholders

This past year was extremely challenging for our Company and our industry. The retail environment has been the most difficult in decades, affected by a general slowdown in the economy and compounded by the aftermath of the September 11th tragedy, particularly for our Saks Fifth Avenue business. The result was an operating income performance that declined from what we posted in 2000. This decline was caused by a sales shortfall and the gross margin impact of actions taken to clear inventory to appropriately position the Company to begin 2002. During the year, we took aggressive measures to control operating expenses, but they only partially offset the shortfall in revenues and decline in gross margin rate. We are extremely disappointed in these results and are committed to regain business momentum and resume our position as a value-creator in the retail industry.

Despite the disappointing business results, excellent progress was made against a number of important objectives during 2001. This has provided a foundation for a sense of enthusiasm and confidence entering 2002.

  

insight                                    focus                                     vision

3

LETTER TO OUR SHAREHOLDERS

Last year’s major accomplishments included:

A reorganized operating structure. A strengthened management team.

In early 2001, the Company was organized into two principal segments, Saks Department Store Group (SDSG) and Saks Fifth Avenue Enterprises (SFAE), each with its unique market position and value-creating strategies. Saks Support Group (SSG) was established as the central services organization that provides cost-efficient back office support to the two segments. In the first quarter of 2001, we began publicly reporting the operating performance of the two business segments, enabling the investment community to receive information on each business in order to measure performance.

George Jones joined the Company in March 2001 as President and Chief Executive Officer of SDSG, and Steve Sadove joined the Company as Vice Chairman in January 2002. Steve has taken responsibility for the Company’s strategic and operating plans, performance management, and the identification and cultivation of brand extensions and new business opportunities. Both George and Steve bring valuable and unique experiences and perspectives to the Company.

 

strategic

4

LETTER TO OUR SHAREHOLDERS

Enhanced productivity. Reduced costs.

During 2001, we improved efficiency through systems enhancements and infrastructure changes that effectively controlled operating expenses. Our cost-saving initiatives, combined with the benefit related to the disposition of underproductive assets, contributed to a year-over-year decline in selling, general, and administrative expenses of approximately $40 million. We achieved this reduction while enhancing customer service levels within our stores.

In spring 2001, we opened a new 180,000 square foot state-of-the-art distribution center in Steele, Alabama, which replaced three separate distribution facilities. It serves the Company’s Proffitt’s, McRae’s, and Parisian stores. In addition to cost savings, this new facility has made our distribution process more efficient, accelerating the flow of merchandise into our stores.

The reorganization of the Saks Direct business (which included the Folio and Bullock & Jones catalogs and saks.com) with that of the core Saks Fifth Avenue store business was completed in February 2002. We are now able to leverage the Saks Fifth Avenue brand, our store-based inventory, and our central organization through the use of direct mail and e-commerce selling. This provides a more cohesive, consistent customer experience across all channels while improving inventory productivity and lowering operating expenses.

  

innovative                               committed                           confident

5

LETTER TO OUR SHAREHOLDERS

A meaningfully improved asset base.

We have taken actions to increase returns on invested capital (ROIC).

During 2001, we carefully controlled capital expenditures. Net capital expenditures totaled approximately $190 million, after proceeds from asset sales (excluding the May Company transaction described below), a reduction of nearly $60 million from net capital spending in 2000. We opened new Saks Fifth Avenue stores in Birmingham, Alabama and Columbus, Ohio; new Parisian stores in Atlanta, Georgia and Huntsville, Alabama (replacement store); and a new Younkers store in Muskegon, Michigan. We also opened new Off 5th stores in Cincinnati, Ohio; Miami, Florida; and Atlanta, Georgia. We expect these new stores to generate financial returns consistent with our investment standards. Saks has invested more than $1.3 billion in capital in the business since the beginning of 1998. Our store base is in excellent condition; therefore, capital spending is planned at moderate levels for the foreseeable future.

In March 2001, we sold nine SDSG stores and related assets to The May Department Stores Company for approximately $308 million. The sale of these non-core stores occurred pursuant to a strategy of rationalizing our asset base in a fashion that creates a higher growth, higher margin department store business. During 2001, we closed underproductive Saks Fifth Avenue stores in Palm Springs, California; White Plains, New York; and Dearborn, Michigan and a Younkers store in Appleton, Wisconsin. In March 2002, we closed a Bergner’s store in Urbana, Illinois. In each case, the interests of our Company and our customers were best served by closing these units and focusing resources on nearby productive stores.

 

planning                             results                                   execution

6

LETTER TO OUR SHAREHOLDERS

A substantially strengthened balance sheet.

In 2001, we lowered long-term debt by approximately $445 million to $1.36 billion, in spite of difficult operating conditions. This represents a 25% reduction in debt and resulted in a total-debt-to-total-capitalization ratio of approximately 37.5% as of February 2, 2002. The debt reduction resulted from the sale of non-core assets and free cash flow generated from operations.

We secured a new five-year, $700 million revolving credit facility, which replaced an existing facility maturing in 2003. The fiscal year-end balance sheet reflected zero borrowings on this facility and approximately $100 million of cash on hand.

Throughout the course of the year, through open-market repurchases and an exchange offer, we also reduced the balance of our senior notes maturing in 2004 from $700 million to $167 million. As a result of these collective actions, our balance sheet is properly structured to support the execution of our operating and strategic plans.

Through conservative planning and careful execution, we successfully achieved our year-end inventory objectives with regard to both level and composition, ending the fiscal year with consolidated comparable store inventories down approximately 10% from last year’s levels.

  

opportunity

7

LETTER TO OUR SHAREHOLDERS

                          looking ahead

While our macroeconomic outlook for 2002 remains cautious, we expect to generate substantial improvement in the operations of each of our business segments.

As we begin the year, we are focused both on improving our financial performance and on executing the strategic positioning of each of our businesses.

• At SDSG, the Company’s traditional department stores are delivering on their promise to be “the best place to shop in your hometown.” Within SDSG, Parisian’s position is refined as a “special” department store with a higher mix of unique and better merchandise.
  
  
• At SFAE, our Saks Fifth Avenue stores offer “the most inviting luxury shopping experience.” Our Off 5th stores provide customers an opportunity to buy Saks Fifth Avenue merchandise for a “gem of a deal.”
  

Our value-creating focus is to increase the return on invested capital of the Company. Our three-year target for ROIC is to exceed 15%, starting from the depressed level of 10% in 2001. During 2001, we made substantial progress on the invested capital component of this equation, but the difficult operating environment led to a reduction in operating income, lowering ROIC from prior years.

8

LETTER TO OUR SHAREHOLDERS

Our future improvement in ROIC will be driven by:

• Comparable store sales growth--The implementation of focused strategies to gain market share at each of our businesses, combined with improving economic conditions, will fuel sustainable comparable store sales growth in the low-to-mid-single digits range. In addition, revenues will also grow from new square footage expansion averaging 1% to 2% per year.
  
  
• Expanded Operating Margins--Gross margin expansion attributable to executing our merchandising strategies, disciplined inventory management, and technology investments, along with incremental operating expense efficiencies, will drive improved operating margins.
  
  
• Reduced Levels of Capital Spending--As a result of the recent investments in the modernization of our store base at both businesses and the integration and upgrade of our central infrastructure, our future capital expenditures will be principally focused on enhancing comparable store sales, improving inventory turnover, and reducing operating expenses.
  

In spite of the extraordinary challenges faced in 2001, we managed the Company in a manner that strengthened our competitive position, significantly improved our balance sheet, and positioned our company for increasing profitability. As we enter a new year, we have the team and strategies in place to regain momentum and substantially improve our financial performance in 2002 and beyond. More detail on our strategies is provided on the following pages.

John Burden, David Hurd, Philip Miller, and Gerald Tsai, Jr. are retiring from our Board of Directors in June of this year. Each has made important contributions to Saks Incorporated, and we are grateful for their dedicated service.

We look forward to 2002 and restoring our position as a value-creation leader in our industry. Thank you for your support.

R. Brad Martin
Chairman and Chief Executive Officer
Stephen I. Sadove
Vice Chairman

This letter and the SDSG and SFAE information on pages 10 through 19 of this report contain “forward-looking” information within the definition of the Federal securities laws. For a discussion of risk factors, please refer to “Forward-Looking Information” contained in Management’s Discussion and Analysis appearing on page 32 of this annual report.

9

SAKS DEPARTMENT STORE GROUP

f o c u s

saks department store group

Saks Department Store Group, SDSG, is a branded department store business operating in the Southeast, Midwest, and Great Plains markets, trading under the nameplates of Parisian, Proffitt’s, McRae’s, Younkers, Herberger’s, Carson Pirie Scott, Bergner’s, and Boston Store.

SDSG holds the number one or number two department store market share in approximately 90% of our trade areas. We operate 243 stores in 24 states, with 26.6 million square feet of high quality, well-positioned real estate.

Our traditional department stores provide a distinctive shopping experience in each of our markets. We consistently offer a wide selection of unique and limited distribution merchandise as well as competitively priced national brands, all tailored to the lifestyle needs of our hometown customers. Our customers experience an innovative and convenient shopping environment with friendly, knowledgeable, and helpful staff when visiting our stores. The combination of our merchandise and service makes SDSG a favorite place to shop in each hometown we serve.

10

                “the best place to shop
                                       in your hometown”

SAKS DEPARTMENT STORE GROUP

  
friendly

Our focused merchandising strategy is to:

• Provide our customers authoritative assortments in key franchise businesses, including cosmetics, women’s shoes, women’s special sizes, women’s better sportswear, social occasion dressing, and gifts;
  
  
• Emphasize key items, presenting our customers with meaningful quantities and floor presentations of suggested “must have” selections; and
  
  
• Differentiate our offerings through exclusive merchandise from core vendors, assortments from unique and emerging suppliers, and our own proprietary brands, including our new exclusive Laura Ashley brand in women’s apparel and accessories.
  

We have revitalized the shopping experience by making our stores friendlier and easier to shop. Our customers experience:

• One-on-one personalized service in nine areas of our stores--cosmetics, shoes, women’s better sportswear, women’s special size sportswear, men’s tailored clothing, men’s better sportswear, intimate apparel, china, and furniture--where our customers expect a high level of personal service. These departments offer clienteling programs and dedicated wrapstands and are staffed by associates with extensive product training.
  
  
• Fast, friendly, and efficient service in the remaining departments of the stores. These areas feature innovative, centralized customer service centers and are staffed with friendly, knowledgeable sales associates delivering efficient transactions.
  

12

SAKS DEPARTMENT STORE GROUP

  
distinctive

Parisian is a “special” department store with a stylish store design, a superior level of personalized service, and a balanced assortment of better-priced brands and unique products.

Future new square footage growth for the traditional department stores will primarily occur in and around existing markets. Our 2002 traditional department store openings include: McRae’s in Jackson, Mississippi; Younkers in Eau Claire, Wisconsin (replacement store) and Lansing, Michigan; and Herberger’s in Rochester, Minnesota (replacement store). Parisian has the ability to grow beyond its natural geographic boundaries as evidenced by the planned new store opening of Rochester Hills, Michigan, scheduled to open in the fall of 2002.

13

SAKS FIFTH AVENUE ENTERPRISES

f o c u s

saks fifth avenue enterprises

Saks Fifth Avenue Enterprises consists of 61 Saks Fifth Avenue luxury department stores, operating in 24 states with 6.3 million square feet of space, and 52 Saks Off 5th stores, operating in 23 states with 1.4 million square feet.

Saks Fifth Avenue is the most powerful name in luxury retailing. As a major emporium for world-class luxury brands in the United States, Saks Fifth Avenue is an authority on “style.”

Our stores target consumers who wish to enjoy an inviting luxury shopping experience. We deliver on this proposition of inviting luxury with merchandise, marketing, and service strategies tailored to specific market opportunities and customer preferences.

Saks Fifth Avenue is the headquarters for women’s luxury apparel, offered in three distinct price ranges--Designer, Gold Range, and Bridge. Our core customers cross-shop each of these important categories.

14

“the most inviting
           luxury shopping experience”

SAKS FIFTH AVENUE ENTERPRISES

  
inviting

Our stores carry powerful assortments of both international and American Designer apparel. We offer a combination of merchandise from established core resources, comprising approximately 50% of Designer sales, with the balance of our assortment from emerging and/or exclusive resources. We are the market leader in the American Designer category.

In the late 1990s, we developed the “Gold Range” category to meet the demand for Designer-level quality and sensibility at “near Designer” price points. Positioned in price between Bridge and Designer product, Gold Range merchandise is a key point of differentiation for Saks. The entry price point at Saks Fifth Avenue is Bridge apparel, where our focus is on core vendors as well as introducing new, narrowly distributed suppliers. These Bridge selections complement our Designer and Gold Range merchandise offerings well. We are the American headquarters for Gold Range and Bridge product and the leading distributor in this country for many Gold Range and Bridge brands.

Important points of differentiation in our women’s assortment include:

• Salon Z--our women’s large size business. We are the preeminent retailer of large-size luxury apparel in the United States. This category has limited competition.
  
  
• Contemporary women’s apparel, which attracts a newer, younger customer to the Saks experience. This is one of our most rapidly growing businesses.
  
  
• Proprietary brands, which comprise approximately 6% of our revenues and include the Saks Fifth Avenue Collection, SFA Real Clothes, and 5/48.
  

16

SAKS FIFTH AVENUE ENTERPRISES

  
luxury

Saks’ style is clearly evident in the cosmetic and fragrance business. Seventy percent of our volume is generated from narrowly distributed brands, ensuring competitive differentiation. Saks Fifth Avenue has an unparalleled position within the cosmetic industry--we are the principal launch store for prestige fragrance and beauty lines in America. Our New York store is the single largest point of distribution for cosmetics in North America. No other U.S. retailer has an array of offerings or sales productivity comparable to that of the Saks Fifth Avenue New York store’s cosmetics department.

We are also the luxury leader in leather goods, including footwear and handbags, offering a dominant assortment, congruent with our apparel selections and balanced among Designer, Gold Range, and Bridge.

Saks Fifth Avenue is one of the leading purveyors of fine jewelry in the United States. Our selection of fine jewelry demonstrates our commitment to luxury. The recently renovated and expanded jewelry area in the New York flagship store is one of the largest fine jewelry stores in the country and is home to several prestigious vendor shops.

We have numerous other opportunities to extend our style authority. For example, we are growing the home and gift area to meet the increased demand for this product category from our core customers. Last fall, we completed Home Shop expansions in the New York flagship store, our Chicago store, and our Tyson’s Corner location in metropolitan Washington, D.C. Other stores slated for Home Shops in 2002 include Las Vegas, Houston, and Beverly Hills. An automated gift registry program will be piloted in the New York City flagship store in fall 2002, and we are intensifying our corporate gift programs. We are also prudently extending our brand. For example, in spring 2002 we

17

SAKS FIFTH AVENUE ENTERPRISES

  
attentive

launched Saks Fifth Avenue eyewear. These products are distributed in our stores as well as in upscale eyewear retail outlets across the country.

We do not believe that luxury shopping need be aloof or imposing. At Saks Fifth Avenue, our goal is to deliver an inviting, customer-focused shopping experience. This inviting atmosphere is reflected in:

• Well-trained, approachable, friendly, attentive staff, measured and compensated based upon customer satisfaction. We have enhanced training programs, increased our focus on product knowledge, and revised pay structures.
  
  
• Outstanding physical facilities that are comfortable, open, well lit, and convenient to shop. In the last five years, nearly 80% of the Saks Fifth Avenue store base has been newly constructed or renovated, consistent with this direction.
  
  
• Accommodating policies and practices that are as customer-friendly to return transactions as they are to sales transactions. This is a substantial competitive advantage for Saks Fifth Avenue versus certain Designer boutiques and other specialty stores.
  

Our marketing strategy and use of technology further support Saks Fifth Avenue’s inviting luxury positioning. Our inventory is fully integrated, allowing customers to select the same merchandise whether visiting stores, reviewing catalogs, or shopping on-line. Our sophisticated customer relationship management system, through advanced modeling and data warehousing, provides insight into detailed customer transaction data. Our advanced point-of-service clienteling system allows associates to

18

SAKS FIFTH AVENUE ENTERPRISES

  
prestige

have frequent one-on-one interactions with our best customers. Other technology innovations, such as size reporting and analysis and inventory allocation by store, are being enhanced within the next twelve months. These improvements will augment our ability to ensure the right product is in the right store, increasing both customer satisfaction and ROIC.

Our value creation focus is to improve returns on invested capital. Saks Fifth Avenue has received substantial capital investment in the recent past, some of which has not to date generated appropriate productivity. Our focus is to improve the productivity of the capital employed in the business through higher comparable store sales, continued pruning of unproductive capacity, improved inventory turnover, and higher gross margins.

Planned new Saks Fifth Avenue stores include: Las Vegas, Nevada in 2002 (replacement store); Richmond, Virginia in 2003; and Plano, Texas in 2005.

Saks Off 5th--Where Customers Find Saks Fifth Avenue Merchandise for a “Gem of a Deal”

Off 5th is the premier luxury off-price retailer in the United States. These stores are an integral part of the SFAE strategy with approximately 25% of their sales generated from Saks Fifth Avenue stores’ merchandise, permitting efficient liquidation of Saks’ clearance goods. Off 5th also distributes luxury brands purchased directly for the stores. These stores produce attractive economic returns due to high sales productivity and low operating and occupancy costs. We will open one new Off 5th store in Denver, Colorado this year.

19

SAKS INCORPORATED & SUBSIDIARIES FIVE-YEAR FINANCIAL SUMMARY

	February 2,			February 3,		January 29,		January 30,		January 31,
(In Thousands, except per share amounts)	2002			2001		2000		1999		1998
Consolidated Income Statement Data:
Net sales	$	6,070,568	$	6,581,236	$	6,434,167	$	5,963,813	$	5,515,675
Cost of sales		3,960,129		4,211,707		4,028,779		3,794,340		3,481,831
Gross margin		2,110,439		2,369,529		2,405,388		2,169,473		2,033,844
Selling, general and administrative expenses		1,389,287		1,433,357		1,359,386		1,332,275		1,203,909
Other operating expenses		582,623		580,853		535,670		498,733		444,276
Losses from long-lived assets		32,621		73,572		12,547		61,785		(134)
Integration charges		1,539		19,886		35,660		111,307		36,524
Year 2000 expenses		--		--		5,917		10,437		6,590
ESOP expenses		--		--		--		--		9,513
Operating Income		104,369		261,861		456,208		154,936		333,166
Interest expense		(131,039)		(149,995)		(138,968)		(110,971)		(113,685)
Other income (expense), net		1,083		3,733		140		22,201		2,330
Income before Income Taxes
and Extraordinary Items		(25,587)		115,599		317,380		66,166		221,811
Provision (benefit) for income taxes		(9,851)		40,383		118,476		41,181		(194,426)
Income before Extraordinary Items		(15,736)		75,216		198,904		24,985		416,237
Extraordinary gain (loss) on early
extinguishment of debt, net of taxes		16,058		--		(9,261)		(25,881)		(11,323)
Net Income	$	322	$	75,216	$	189,643	$	(896)	$	404,914
Basic earnings per common share:
Before extraordinary items	$	(0.11)	$	0.53	$	1.38	$	0.17	$	3.03
After extraordinary items	$	0.00	$	0.53	$	1.32	$	(0.01)	$	2.94
Diluted earnings per common share:
Before extraordinary items	$	(0.11)	$	0.53	$	1.36	$	0.17	$	2.86
After extraordinary items	$	0.00	$	0.53	$	1.30	$	(0.01)	$	2.79
Weighted average common shares:
Basic		141,988		141,656		144,174		142,856		137,588
Diluted		141,988		142,718		146,056		146,383		149,085
Consolidated Balance Sheet Data:
Working capital	$	983,151	$	1,085,956	$	1,110,976	$	887,875	$	1,096,359
Total assets	$	4,595,521	$	5,050,611	$	5,098,952	$	5,188,981	$	4,270,253
Long-term debt, less current portion	$	1,356,580	$	1,801,657	$	1,966,802	$	2,114,647	$	1,380,770
Shareholders’ equity	$	2,271,437	$	2,293,829	$	2,208,343	$	2,007,575	$	1,944,529

20

MANAGEMENT’S DISCUSSION AND ANALYSIS

Saks Incorporated (hereinafter the “Company”) is a national retailer currently operating through subsidiaries 356 luxury and traditional department stores. The Company operates the Saks Department Store Group (“SDSG”), which consists of 243 traditional department stores under the names of Parisian, Proffitt’s, McRae’s, Younkers, Herberger’s, Carson Pirie Scott, Bergner’s and Boston Store. The Company also operates Saks Fifth Avenue Enterprises (“SFAE”), which consists of 61 luxury Saks Fifth Avenue stores and 52 Saks Off 5th stores.

Since 1994, the Company has experienced significant growth principally through a series of acquisitions, the construction of new units and through the acquisition of select store locations. 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
(“Carson’s”)
Saks Fifth Avenue (“SFA”)	New York, NY	95	National	September 17, 1998	Pooling

The following table sets forth, for the periods indicated, selected items from the Company’s consolidated statements of income, expressed as percentages of net sales (numbers may not total due to rounding):

	February 2,	February 3,	January 29,
	2002 (“2001”)	2001 (“2000”)	2000 (“1999”)
Net sales	100.0%	100.0%	100.0%
Cost of sales	65.2	64.0	62.6
Gross margin	34.8	36.0	37.4
Selling, general and administrative expenses	22.9	21.8	21.1
Other operating expenses	9.6	8.8	8.3
Losses from long-lived assets	0.5	1.1	0.2
Integration charges	0.0	0.3	0.6
Year 2000 expenses	0.0	0.0	0.1
Operating income	1.7	4.0	7.1
Interest expense	(2.2)	(2.3)	(2.2)
Other income (expense), net	0.0	0.1	0.0
Income before income taxes and extraordinary items	(0.4)	1.8	4.9
Provision (benefit) for income taxes	(0.2)	0.6	1.8
Income before extraordinary items	(0.3)	1.1	3.1
Extraordinary gain (loss) on early extinguishment of debt, net of taxes	0.3	0.0	(0.1)
Net income	0.0%	1.1%	2.9%

21

MANAGEMENT’S DISCUSSION AND ANALYSIS

FISCAL YEAR ENDED FEBRUARY 2, 2002 COMPARED TO FISCAL YEAR ENDED FEBRUARY 3, 2001

Management’s Discussion of Operations

Operating income decreased to $104.4 million in 2001 from $261.9 million in 2000. The decrease in operating income of $157.5 million was attributable to a decrease in SDSG’s operating income of $54.5 million, a decrease in SFAE’s operating income of $138.5 million and charges associated with the reorganization of Saks Direct (SFAE’s catalog and e-commerce operations), partially offset by less integration costs and fewer charges from the impairment or disposition of stores.

The decrease in operating income at SDSG was due to a 2.1% decrease in comparable store sales and the corresponding reduction in gross margin and the effect of the sale or closure of underproductive stores. The decrease in operating income at SFAE resulted from the 7.8% decrease in comparable store sales and the corresponding reduction in gross margin. During 2001, both segments took aggressive actions to control operating expenses; however, these actions only partially offset the effect of the comparable store sales decline. Fiscal year 2001 included 52 weeks while fiscal year 2000 included 53 weeks, which is consistent with the retail calendar. The year-over-year effect of the incremental week on operating income was minimal.

The 2001 charges associated with the reorganization of Saks Direct, several store closings, the impairment of several stores and other expense reduction efforts aggregated $64.1 million. Charges primarily associated with the reorganization of the Saks Direct business consisted of goodwill, property and equipment, inventory write-downs and employee severance costs. Charges associated with store closings and store impairments were lower in 2001 principally due to charges of $50.9 million in 2000 related to nine SDSG stores sold to the May Department Stores Company.

Net Sales

Net sales decreased 7.8% in 2001 over 2000 primarily due to a comparable store sales decrease of 4.5%, consisting of a 2.1% decrease at SDSG and a 7.8% decrease at SFAE. The decline in comparable store sales was primarily attributable to the weakness in the luxury goods sector, the events surrounding September 11th and general recessionary economic conditions. Additionally, year-over-year sales were less due to the sale or closure of underproductive stores and the sales from the 53rd week in 2000 of $83.8 million, partially offset by sales generated from new store additions.

Gross Margin

Gross margin decreased $259.1 million to $2,110.4 million in 2001. The decrease was attributable to the negative comparable store sales, the sale or closure of underproductive stores and the 53rd week in 2000, partially offset by new store additions.

Gross margin as a percentage of net sales was 34.8% in 2001 compared to 36.0% in 2000. The decrease in gross margin percent in 2001 was primarily attributable to markdowns taken to clear inventory, principally at SFAE. These markdowns were principally due to the weakness in the luxury sector and the events surrounding September 11th and markdowns associated with the reorganization of Saks Direct and store closings (of $13.7 million).

Selling, General and Administrative Expenses

Selling, general and administrative expenses (“SG&A”) decreased $44.1 million to $1,389.3 million in 2001 due to the absence of expenses associated with the sale or closure of underproductive stores, decreased operating expenses for Saks Direct and the effect of the 53rd week in 2000. These decreases were partially offset by an increase in expenses associated with new store additions and $16.3 million in certain items related to the reorganization of Saks Direct and other expense reduction initiatives. Comparable store SG&A expenses remained relatively constant as reductions in media spending were offset by increased maintenance, insurance and other employee costs.

SG&A as a percentage of net sales increased to 22.9% in 2001 from 21.8% in 2000. The rate increase reflected the inability to reduce operating expenses commensurate with the comparable store sales decline at both SDSG and SFAE.

22

MANAGEMENT’S DISCUSSION AND ANALYSIS

Other Operating Expenses

Other operating expenses in 2001 were relatively constant with 2000 as increased depreciation and rental expenses associated with the remodel and expansion of comparable stores and increased infrastructure capital spending (principally information technology) were offset by the decreased depreciation, goodwill amortization and rent associated with disposed stores.

Other operating expenses as a percentage of net sales were 9.6% in 2001 compared to 8.8% in 2000. The increase was primarily due to (1) the inability to leverage increased depreciation and rental expenses during a period of comparable store sales decline and (2) the inability to reduce non-store rent and depreciation commensurate with the loss of sales associated with disposed stores.

Integration Charges

The Company incurred certain costs to integrate and combine the operations of previously acquired companies. The 2001 and 2000 charges were primarily comprised of severance benefits, relocation and systems conversions related to the consolidation of the McRae’s and Herberger’s operating divisions into Proffitt’s and Carson’s, respectively, and consolidation of three SDSG southern distribution centers.

Losses From Long-Lived Assets

Losses from long-lived assets in 2001 of $32.6 million were comprised of the non-cash write-off of goodwill, property and equipment related to Saks Direct totaling $22.6 million and the impairment or closure of underproductive stores of $10.0 million. Losses from long-lived assets in 2000 of $73.6 million were primarily comprised of the non-cash write-off of goodwill associated with the sale of nine SDSG stores to the May Department Stores Company and, to a lesser extent, impairments on abandoned software and underproductive stores.

Interest Expense

Interest expense declined to $131.0 million in 2001 from $150.0 million in 2000 and as a percentage of net sales decreased to 2.2% in 2001 from 2.3% in 2000. The decrease was due principally to lower average borrowing rates on floating rate debt and lower average debt levels.

Income Taxes

For 2001, the effective income tax rate differs from the federal statutory tax rate due to state income taxes and non-deductible goodwill amortization. In 2000, the effective income tax rate differs from the federal statutory tax rate due to state income taxes and nondeductible goodwill amortization, offset by the favorable effect of the disposal of a real estate investment ($4.1 million). The change in year-over-year effective income tax rates was due to the favorable effect of the real estate disposition in 2000.

Extraordinary Items

The extraordinary gain in 2001 related primarily to the repurchase of senior notes at a discount to the carrying value.

Net Income

Net income in 2001 decreased to $0.3 million from $75.2 million in 2000 primarily due to the decline in operating income, partially offset by lower interest expense and a gain on early extinguishment of debt.

23

MANAGEMENT’S DISCUSSION AND ANALYSIS

FISCAL YEAR ENDED FEBRUARY 3, 2001 COMPARED TO FISCAL YEAR ENDED JANUARY 29, 2000

Management’s Discussion of Operations

Operating income decreased to $261.9 million in 2000 from $456.2 million in 1999. The decline in operating income of $194.3 was attributable to a decline in operating income at SDSG of $139.6 million, a decline in operating income at SFAE of $28.7 million and increased losses from long-lived assets, principally resulting from store impairments and disposals.

The decrease in operating income at SDSG was due to a 1.8% decrease in comparable store sales and an increase in markdown activity to clear inventories. The decline in operating income at SFAE was due primarily to expenses associated with the launch of saks.com, the Company’s e-commerce web site, partially offset by the addition of operating income resulting from a 5.0% increase in comparable store sales. The contribution of the 53rd week in 2000 was not sufficient to offset the decline in operating income at both SDSG and SFAE.

The 2000 charges associated with the sale of nine SDSG stores to The May Department Stores Company, the consolidation of the McRae’s and Herberger’s operating divisions into Proffitt’s and Carson’s, respectively, and the closure or impairment of store locations aggregated $100.2 million.

Net Sales

Net sales increased 2.3% in 2000 over 1999 primarily due to sales resulting from the 53rd week, incremental sales generated from new store additions and a comparable store sales increase of 0.2%, offset partially by the loss of sales from closed stores. Comparable store sales decreased 1.8% at SDSG and increased 5.0% at SFAE.

Gross Margin

Gross margin decreased $35.9 million to $2,369.5 million in 2000 and as a percentage of net sales was 36.0% in 2000 compared to 37.4% in 1999. The decrease in gross margin percentage from 1999 to 2000 was primarily attributable to markdowns associated with weaker than anticipated sales and the markdowns taken to clear inventories at SDSG.

Selling, General and Administrative Expenses

SG&A increased $74.0 million to $1,433.3 million in 2000 and as a percentage of net sales was 21.8% in 2000 compared to 21.1% in 1999. The increase in 2000 from 1999 was primarily due to (1) the expenses associated with launching saks.com of $21.3 million without a corresponding increase in sales, (2) the inability to reduce operating expenses commensurate with the comparable store sales decline in SDSG during the first three quarters of the year and with the comparable store sales decline in SFAE during the fourth quarter of the year, partially offset by (3) an increase in finance charge income on proprietary credit cards as a result of term changes initiated in late 1999. Included in SG&A in 2000 were certain items totaling $6.7 million associated with the terminated proposal to spin-off SFAE and revisions to 1999 charges associated with store closings.

Other Operating Expenses

Other operating expenses as a percentage of net sales were 8.8% in 2000 compared to 8.3% in 1999. The increase was primarily due to (1) increased depreciation and rental expenses associated with the remodel and expansion of comparable stores without a corresponding increase in comparable store sales, (2) depreciation and rental expenses associated with new stores and (3) increased depreciation resulting from infrastructure capital spending (principally information technology systems).

24

MANAGEMENT’S DISCUSSION AND ANALYSIS

Integration Charges

The Company incurred certain costs to integrate and combine the operations of acquired companies. The 2000 charges were primarily comprised of severance benefits and systems conversions related to the consolidation of the McRae’s and Herberger’s operating divisions and three SDSG southern distribution centers. The 1999 charges were primarily comprised of systems conversion costs and severance benefits related to redundant systems and administrative operations associated with the SFA and Carson’s acquisitions.

Losses From Long-Lived Assets

Losses from long-lived assets in 2000 of $73.6 million were primarily comprised of the changes associated with the sale of nine SDSG stores and, to a lesser extent, impairments on abandoned software and underperforming stores. Losses from long-lived assets in 1999 of $12.5 million were principally comprised of the impairment of the carrying amounts of relocated or closed stores.

Year 2000 Expenses

Prior to January 1, 2000, the Company incurred costs related to required system upgrades, replacements and modifications to prepare for the year 2000. The Company experienced no significant system delays or interruptions on or after January 1, 2000.

Interest Expense

Interest expense increased to $150.0 million in 2000 from $139.0 million in 1999 and as a percentage of net sales increased to 2.3% in 2000 from 2.2% in 1999. The increase was due principally to higher average borrowing rates on floating rate debt and higher average debt levels.

Income Taxes

In 2000, the effective income tax rate differed from the federal statutory tax rate due to state income taxes and non-deductible goodwill amortization, offset by the favorable effect of the disposal of a real estate investment ($4.1 million). In 1999, the effective income tax rate differed from the statutory tax rates principally due to state income taxes and nondeductible goodwill amortization. The change in year-over-year effective tax rates was primarily attributable to the favorable effect of the real estate investment disposition.

Extraordinary Items

The extraordinary item in 1999 related to the prepayment of $235.8 million in SFA’s real estate mortgage debt, which resulted in an extraordinary loss from early extinguishment of debt. The loss was comprised of the write-off of unamortized deferred debt issuance costs.

Net Income

Net income in 2000 decreased to $75.2 million from $189.6 million in 1999, primarily due to the decline in operating income.

25

MANAGEMENT’S DISCUSSION AND ANALYSIS

Liquidity and Capital Resources

CASH FLOW

The primary needs for cash are to acquire or construct new stores, renovate and expand existing stores, to provide working capital for new and existing stores and to source debt. The Company anticipates that cash generated from operating activities, borrowings under its revolving credit agreement and maintaining a proprietary credit card securitization program will be sufficient to meet its financial commitments and provide opportunities for future growth.

Cash provided by operating activities was $374.0 million in 2001, $485.5 million in 2000 and $209.7 million in 1999. Cash provided by operating activities principally represents income before depreciation and amortization charges, losses from long-lived assets and changes in working capital. The decrease in 2001 from 2000 was related to a reduction in operating cash flow attributable to the year-over-year earnings decline and was partially offset by a reduction in invested working capital, principally through managing inventory levels down. The increase in 2000 from 1999 was related to a lower investment in working capital.

Cash provided by (used in) investing activities was $85.6 million in 2001, $(248.7) million in 2000 and $(407.8) million in 1999. Cash used in investing activities principally consists of construction of new stores and renovation and expansion of existing stores and investments in support areas (e.g., technology, distribution centers, e-commerce infrastructure). The change from “net cash used” in 2000 to “net cash provided” in 2001 was attributable to the $308.0 million of proceeds ($275.5 million after the repurchase of sold receivables) from the sale of nine SDSG stores in early 2001 and from a $55.0 million decrease in capital spending. While capital expenditures for new stores, remodels and expansions were relatively constant in 2001, the Company significantly decreased the capital expended for distribution centers, e-commerce and other non-store areas. The decrease in 2000 from 1999 was due to lower capital spending on new store openings, expansions and remodels.

Cash (used in) provided by financing activities was $(425.1) million in 2001, $(191.6) in 2000 and $184.9 in 1999. The change from 2000 to 2001 was attributable primarily to the use of the cash received from the sale of the nine SDSG stores to pay down debt. The change from 1999 to 2000 was due primarily to the use of increased operating cash flow and lower capital spending to pay down debt.

CASH BALANCES

At February 2, 2002 and February 3, 2001, the Company maintained cash and cash equivalent balances of $99.1 million and $64.7 million, respectively. These amounts consisted principally of invested cash and approximately $30 million of store operating cash.

CAPITAL STRUCTURE

The Company’s capital and financing structure is comprised of senior unsecured notes, a revolving credit agreement, the sale of beneficial interest in the Company’s proprietary credit card receivables, capital and operating leases and real estate mortgage financing. The contractual cash obligations at February 2, 2002 associated with this capital and financing structure are illustrated in the following table:

		Payments Due by Period (excluding interest)
												After
(Dollars in Millions)		2002		2003		2004	2005			2006		2006		Total
Senior unsecured notes	$	--	$	--	$	167	$	--	$	--	$	1,043	$	1,210
Revolving credit agreement		--		--		--		--		--		--		--
Capital leases		4		4		6		5		5		120		144
Operating leases		132		130		125		118		107		713		1,325
Real estate mortgages		1		1		6		--		--		--		8
Total contractual cash obligations	$	137	$	135	$	304	$	123	$	112	$	1,876	$	2,687

26

MANAGEMENT’S DISCUSSION AND ANALYSIS

The Company’s other principal commercial commitments are comprised of the guarantee of $20 million residual value of leased transportation equipment, short-term merchandise purchase commitments, short-term construction commitments, common area maintenance costs and contingent rent payments. Substantially all of the Company’s merchandise purchase commitments are cancelable several weeks prior to a date that precedes the vendor’s scheduled shipment date.

PROPRIETARY CREDIT CARDS RECEIVABLE SECURITIZATION

The Company’s proprietary credit cards are issued by National Bank of the Great Lakes (“NBGL”), a wholly owned subsidiary of the Company. Receivables generated from the sale of merchandise on these credit cards are sold by NBGL to another wholly owned subsidiary, Saks Credit Corporation (“SCC”). SCC transfers the receivables to a trust and sells certificates representing an undivided beneficial interest in the pool of receivables held in the trust to third-party investors. The certificates have maturity dates and represent an ownership in the cash generated by the credit card receivables. The Company retains an interest in the receivables held in the trust, which is subordinate to the sold certificates in its rights to the cash flows of the receivables held in the trust.

At February 2, 2002, the trust held credit card receivables aggregating $1,295.6 million, while certificates of ownership aggregating $1,147.7 million were sold to third-party investors. Prior to maturity of the certificates, the Company has access to the cash generated by the receivables net of allocations of cash to investors representing a portion of finance charge income. Upon maturity, the certificate owners receive a pro-rata portion of all cash generated by the pool of receivables until which time the ownership interest is satisfied, after which the Company receives cash generated to recover its residual ownership interest in the pool of receivables. During the period from July through November 2002, certificates sold to investors representing $713.5 million of the outstanding certificates at February 2, 2002 will mature. The Company anticipates that selling new certificates to investors will be sufficient to maintain funding of proprietary credit card receivables under terms similar to those currently in place.

CAPITAL NEEDS

The Company estimates capital expenditures for 2002 will approximate $150 to $175 million, primarily for the construction of new stores opening in 2002, initial construction work on stores expected to open in 2003, store expansions and renovations, enhancements to management information systems and regular maintenance capital expenditures.

The Company anticipates that working capital requirements related to new and existing stores and capital expenditures will be funded through cash provided by operations, the revolving credit agreement, and ongoing sales of receivables under the securitization programs. Maximum availability under the revolving credit agreement is $700 million. There is no debt rating trigger. During periods in which availability under the agreement exceeds $100 million, the Company is not subject to financial covenants. If and when availability under the agreement decreases to less than $100 million, the Company will be subject to a minimum fixed charge coverage ratio of 1 to 1. During 2001, weighted average borrowings and letters of credit issued under this credit agreement and its predecessor agreement were $131.8 million. The highest amount outstanding under the agreement during 2001 was $385.6 million. The Company expects to generate adequate cash flows from operating activities combined wit h borrowings under its revolving credit agreement in order to sustain its current levels of operations.

The most significant requirement for new or replacement financing in 2002 is the accounts receivable securitization program. During 2002, certificates representing $713.5 million in sold receivables (at February 2, 2002) and $891.7 million of maximum availability will mature. Management believes that the Company’s near term financial risk is minimal with respect to the maturing certificates, as customer payments on credit card account balances will serve to pay off the certificates. The Company will need to replace the maturing certificates with new certificates to fund receivables generated on sales following the maturity of the existing certificates. The Company anticipates that it will be successful in issuing new certificates in the public market and in the bank conduit market. The Company does expect that the portion of finance charge income retained by the certificate holders will increase over current levels. However, the Company does not believe the increase will s ignificantly affect cash flows or operating results.

27

MANAGEMENT’S DISCUSSION AND ANALYSIS

CRITICAL ACCOUNTING POLICIES

The Company’s critical accounting policies are discussed in the notes to the consolidated financial statements. Certain judgments and estimates utilized in implementing these accounting policies are likewise discussed in each of the notes to the consolidated financial statements. The following discussion aggregates the judgments and uncertainties affecting the application of these policies and the likelihood that materially different amounts would be reported under varying conditions and assumptions.

Revenue Recognition. Sales and the related gross margin are recorded at the time our customers provide a satisfactory form of payment and take ownership of the merchandise. There are minimal accounting judgments and uncertainties affecting the application of this policy. The Company estimates the amount of goods that will be returned for a refund and reduces sales and gross margin by that amount. However, given that approximately 15% of merchandise sold is later returned and that the vast majority of merchandise returns are effected within a matter of days of the selling transaction, the risk of the Company realizing a materially different amount for sales and gross margin than reported in the consolidated financial statements is minimal.

Cost of Sales and Inventory Valuation. The Company’s inventory is stated at the lower of LIFO cost or market using the retail method. Under the retail method, the valuation of inventories at cost and the resulting gross margins are determined by applying a calculated cost-to-retail ratio to the retail value of inventories. The cost of the inventory reflected on the consolidated balance sheet is decreased with a charge to cost of sales contemporaneous with the lowering of the retail value of the inventory on the sales floor through the use of markdowns. Hence, earnings are negatively impacted as the merchandise is being devalued with markdowns prior to the sale of the merchandise. The areas requiring significant management judgment include (1) setting the original retail value for the merchandise held for sale, (2) recognizing merchandise for which the customer’s perception of value has declined and appropriately marking the retail value of the merchandise down to the perceived value, and (3) estimating the shrinkage that has occurred through theft during the period between physical inventory counts. These judgments and estimates, coupled with the averaging processes within the retail method can, under certain circumstances, produce varying financial results. Factors that can lead to different financial results include (1) setting original retail values for merchandise held for sale at too high a level, (2) failure to identify a decline in perceived value of inventories and process the appropriate retail value markdowns, and (3) overly optimistic or overly conservative shrinkage estimates. The Company believes it has the appropriate merchandise valuation and pricing controls in place to minimize the risk that its inventory values would be materially under or overvalued.

Credit Card Income and Expenses. The carrying value of the Company’s retained interest in credit card receivables requires a substantial amount of management judgment and estimates. At the time credit card receivables are sold to third-party investors through the securitization program, generally accepted accounting principles require that the Company recognize a gain or loss equal to the excess of the estimated fair value of the consideration to be received from the individual interest sold over the cost of the receivables sold. As the receivables are collected, the estimated gains and losses are reconciled to the actual gains and losses. Given that the Company generates credit card receivables of approximately $3 billion per year and average outstanding sold receivables are generally $1.0 billion to $1.2 billion, a substantial majority of the annual estimated credit gains and losses have been reconciled to actual gains and los ses. Only that portion of the gains and losses attributable to the outstanding securitized portfolio at year end remains subject to estimating risk. At February 2, 2002, the net gain recognized within the “Retained Interest in Accounts Receivable” asset was $37.7 million.

28

MANAGEMENT’S DISCUSSION AND ANALYSIS

Determining the fair value of the consideration to be received from the individual interest sold includes estimates of the following amounts associated with the sold portfolio: (1) the gross finance charge income to be generated by the portfolio which requires estimates of payment rates, (2) the portion of the finance charge income to be retained by the third-party investors, (3) bad debts, (4) cost of servicing the portfolio and (5) assumed cash flow discount rates. The notes to the consolidated financial statements reflect the critical estimates and assumptions utilized during the two most recent fiscal years. Items that were considered in making judgments and preparing estimates and factors that can lead to variations in the consolidated financial results are as follows:

• Finance charge income is billed at a contractual rate monthly and warrants little judgment or estimates. The expected credit card customer payment rate is based on historical payment rates weighted to recent payment rate trends. To the extent credit card customers pay off their balances sooner than estimated, this net gain is reduced. Conversely, should the credit card customers pay off balances over a longer period of time, the net gain is increased.
  
  
• The portion of finance charge income to be retained by the third-party investors is estimated using the fixed interest rates in place and estimated floating interest rates over the estimated life of the portfolio. To the extent floating interest rates increase beyond the increase imbedded in the estimates, the net gain will be reduced. To the extent floating interest rates do not increase to the level imbedded in the estimates, the net gain will be increased.
  
  
• Bad debts expected from the sold portfolio are based on historical write-off rates, weighted to recent write-off trends and increased or decreased to reflect management’s outlook for trends to develop over the next 12 to 24 months. To the extent there are positive or negative factors on the credit card customers’ ability or intent to pay off the outstanding balance (e.g. unemployment rates, level of consumer debt, bankruptcy legislation), the actual bad debt to be realized could exceed or be less than the amount estimated. Bad debts in excess of those imbedded in the estimates reduce the net gain. Conversely, bad debts less than those imbedded increase the net gain.
  
  
• Delinquent accounts are written off automatically after the passage of seven months without receiving a monthly payment equal to 80% of the minimum contractual payment. Minimum monthly contractual payments range from 5% to 10%. Accounts are written off sooner in the event of customer bankruptcy, customer death or fraud.
  
  
• The cost of servicing the portfolio is estimated using our historical operating costs. This estimate is subject to minimal risk of deviation.
  
  
• The assumed cash flow discount rates are based on the weighted average cost of debt and are subject to typical interest rate volatility in the debt markets.
  

The most sensitive assumptions in calculating the gain on sold receivables are the credit card customers’ payment rate, the estimate for bad debts and the assumed cash flow discount rates.

Depreciation and Recoverability of Capital Assets. Approximately 57% of the Company’s assets at February 2, 2002 are represented by investments in Property and Equipment and Goodwill and Intangible Assets. Determining appropriate depreciable lives and reasonable assumptions for use in evaluating the carrying value of capital assets requires judgments and estimates.

• The Company utilizes the straight-line depreciation method and a variety of depreciable lives. Land is not depreciated. Buildings and improvements are depreciated over 20 to 40 years. Store fixtures are depreciated over 10 years.
  Equipment utilized in stores (e.g., escalators) and in support areas (e.g., distribution centers, technology) and fixtures in support areas are depreciated over 3 to 15 years. Leasehold improvements are amortized over the shorter of their estimated useful lives or their related lease terms, generally ranging from 10 to 20 years. Internally generated computer software is amortized over 3 to 10 years. Generally, no estimated salvage value at the end of the useful life of the assets is considered.

29

MANAGEMENT’S DISCUSSION AND ANALYSIS

• To the extent the Company remodels or otherwise replaces or disposes of property and equipment prior to the end of their assigned depreciable lives, the Company could realize a loss or gain on the disposition. To the extent assets continue to be used beyond their assigned depreciable lives, no depreciation expense is being realized. The Company reassesses the depreciable lives in an effort to reduce the risk of significant losses or gains at disposition and utilization of assets with no depreciation charges. The reassessment of depreciable lives involves utilizing historical remodel and disposition activity and forward-looking capital expenditure plans.
  
  
• Recoverability of the carrying value of store assets is assessed upon the occurrence of certain events (e.g., opening a new store near an existing store or announcing plans for a store closing) and absent certain events, annually. The recoverability assessment requires judgment and estimates for future store generated cash flows. The underlying estimates for cash flows include estimates for future sales, gross margin rates, inflation and store expense increases and decreases. During 2001, the Company recorded $7.3 million in impairment charges associated with stores in which the estimated cash flows would not recover the carrying value of the store assets. There are other stores in which current cash flows are not adequate to recover the carrying value of the store assets. However, the Company believes that estimated sales growth and gross margin improvement will enhance the cash flows of these stores such that the carrying value of the store assets will be recovered. Gener ally these stores were recently opened and require a two to five year period to develop the customer base to attain the required cash flows. To the extent management’s estimates for sales growth and gross margin improvement are not realized, future annual assessments could result in impairment charges.
  

Income Taxes. The majority of the Company’s deferred tax assets at February 2, 2002 consists of net operating loss carryforwards that will expire between 2005 and 2018. The Company believes that it will be profitable during the periods 2002 through 2018, allowing it to sufficiently utilize the benefit of the net operating loss carryforwards.

The Company is routinely under audit by federal, state or local authorities in the areas of income taxes and the remittance of sales and use taxes. These audits include questioning the timing and amount of deductions, the allocation of income among various tax jurisdictions and compliance with federal, state and local tax laws. In evaluating the exposure associated with various tax filing positions, the Company often accrues charges for probable exposures. Based on annual evaluations of tax positions, the Company believes it has appropriately accrued for probable exposures. To the extent the Company were to prevail in matters for which accruals have been established or be required to pay amounts in excess of reserves, the Company’s effective tax rate in a given financial statement period may be materially impacted. At February 2, 2002, two of the Company’s four open tax years were undergoing examination by the Internal Revenue Service.

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, which has occurred in recent years in SG&A expenses, 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, which has occurred in recent years, 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 fourth quarter 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 increases in working capital needs during the fall season have typically been financed with cash flow from operations, borrowings under the Company’s revolving credit agreement and cash provided from maintaining a proprietary credit card securitization program. Generally, more than 30% of the Company’s net sales and more than 50% of net income are generated during the fourth fiscal quarter.

30

MANAGEMENT’S DISCUSSION AND ANALYSIS

New Accounting Pronouncements

SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended by SFAS No. 138, became effective for the Company in the first quarter of 2001. Under SFAS 133, all derivative instruments are recognized in the balance sheet at fair value, and changes in fair value of the effective portion of cash flow hedges are included in other comprehensive income as a component of shareholders’ equity. Changes in the fair value of the non cash flow hedges and the ineffective portion of cash flow hedges are recognized immediately in earnings. The adoption of this standard had no material impact on the Company’s financial position or results of operations.

SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities – a Replacement of SFAS No. 125,” became effective for the Company in the first quarter of 2001. The standard introduced disclosures, which the Company adopted in 2000 and are presented in Note 3 of the consolidated financial statements.

In June 2001, the FASB issued SFAS No. 141, “Business Combinations,” which replaced APB Opinion No. 16 and disallowed the future use of the pooling-of-interests method of accounting for business combinations. This standard is effective for all business combinations occurring after June 30, 2001.

In June 2001, the FASB also issued SFAS No. 142, “Goodwill and Other Intangible Assets,” which superseded APB Opinion No. 17 and revised the financial accounting and reporting for goodwill and intangible assets. Among the revisions and guidance set forth in SFAS No. 142 are the discontinuation of the amortization of goodwill and certain intangible assets, periodic testing (at least annually) for the impairment of goodwill and intangible assets at the reporting unit level, and additional financial statement disclosures. This standard will be effective for the Company in the first quarter of 2002. The Company anticipates a one-time charge of approximately $46 million, before and after income taxes, in the first quarter of 2002 related to the goodwill of SFAE. This charge is reflective of the cumulative effect of adopting the accounting principle following sequential periods of poor operating income and reduced market values for luxury retailers. Additionally, annual amo rtization charges of goodwill of approximately $13 million will cease.

In October 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” which replaced SFAS No. 121 and replaced certain provisions of APB Opinion No. 30. This standard reemphasizes significant issues addressed by SFAS 121 related to the recognition and measurement of the impairment of long-lived assets, whether held and used or to be disposed of by sale. This standard also extends the provisions of APB 30 regarding the reporting of discontinued operations, separate from continuing operations, to include “a component of an entity” that has either been disposed or is held for sale. This standard will be effective for the Company in the first quarter of 2002. The Company is in the process of determining the impact that this standard will have on its consolidated financial statements. It is not expected that the standard will have a significant impact on the consolidated financial position or results from operations. How ever, the standard may affect the presentation of income and expenses associated with closed or disposed stores.

Related Party Transactions

During 2001, the Company engaged the services of a law firm and an energy management consulting firm, each of whose principals include family members of certain executive officers. Fees paid to these firms were at market rates and aggregated approximately $0.4 million in 2001. The Company leases one store location from a partnership in which one of the Company’s Directors serves as the 1.5% general partner. Rents associated with this store are approximately $0.7 million annually. The Company has also loaned amounts aggregating less than $2 million to certain executive officers as a component of the Company’s compensation programs. The Company does not believe these services, fees and loans are material to the consolidated financial position or results from operations.

31

MANAGEMENT’S DISCUSSION AND ANALYSIS

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,” “attempts,” “seeks” 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 that involve 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 proprietary credit card loyalty programs; appropriate inventory management; reduction of corporate overhead; effective operations of NBGL’s credit card operations; and changes in interest rates. For additional information regarding these and other ris k factors, please refer to Exhibit 99.1 of the Company’s Form 10-K for the year ended February 2, 2002 filed with the Securities and Exchange Commission, which may be accessed via EDGAR through the Internet at www.sec.gov.

The Company 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 the Company makes on related subjects in its reports with the Securities and Exchange Commission and in its press releases.

Quantitative and Qualitative Disclosures About Market Risk

The Company’s exposure to market risk primarily arises from changes in interest rates. The effects of changes in interest rates on earnings generally have been small relative to other factors that also affect earnings, such as sales and operating margins. 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. Although the Company maintains no derivative financial instruments at February 2, 2002, such instruments can be used as part of an overall risk management program in order to manage the costs and risks associated with various financial exposures. The Company does not enter into derivative instruments for trading purposes, as clearly defined in its risk management policies.

32

SAKS INCORPORATED & SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME

		Year Ended
		February 2,		February 3,		January 29,
(In Thousands, except per share amounts)		2002		2001		2000
Net Sales	$	6,070,568	$	6,581,236	$	6,434,167
Cost of sales		3,960,129		4,211,707		4,028,779
Gross margin		2,110,439		2,369,529		2,405,388
Selling, general and administrative expenses		1,389,287		1,433,357		1,359,386
Other operating expenses
Property and equipment rentals		200,932		196,813		187,829
Depreciation and amortization		219,773		214,099		178,775
Taxes other than income taxes		156,788		163,745		155,724
Store pre-opening costs		5,130		6,196		13,342
Losses from long-lived assets		32,621		73,572		12,547
Integration charges		1,539		19,886		35,660
Year 2000 expenses		--		--		5,917
Operating Income		104,369		261,861		456,208
Interest expense		(131,039)		(149,995)		(138,968)
Other income (expense), net		1,083		3,733		140
Income before Income Taxes and Extraordinary Items		(25,587)		115,599		317,380
Provision (benefit) for income taxes		(9,851)		40,383		118,476
Income before Extraordinary Items		(15,736)		75,216		198,904
Extraordinary gain (loss) on early extinguishment of debt, net of taxes		16,058		--		(9,261)
Net Income	$	322	$	75,216	$	189,643
Earnings per common share:
Basic earnings per common share before extraordinary items	$	(0.11)	$	0.53	$	1.38
Extraordinary gain (loss)		0.11		--		(0.06)
Basic earnings per common share	$	0.00	$	0.53	$	1.32
Diluted earnings per common share before extraordinary items	$	(0.11)	$	0.53	$	1.36
Extraordinary gain (loss)		0.11		--		(0.06)
Diluted earnings per common share	$	0.00	$	0.53	$	1.30
Weighted average common shares:
Basic		141,988		141,656		144,174
Diluted		141,988		142,718		146,056

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

33

SAKS INCORPORATED & SUBSIDIARIES CONSOLIDATED BALANCE SHEETS

		February 2,		February 3,
(In Thousands)		2002		2001
Assets
Current Assets
Cash and cash equivalents	$	99,102	$	64,660
Retained interest in accounts receivable		239,420		220,809
Merchandise inventories		1,295,878		1,522,203
Other current assets		74,960		69,378
Deferred income taxes, net		60,569		39,188
Total Current Assets		1,769,929		1,916,238
Property and Equipment, net of depreciation		2,246,818		2,390,850
Goodwill and Intangibles, net of amortization		360,580		511,333
Deferred Income Taxes, net		173,077		178,118
Other Assets		45,117		54,072
Total Assets	$	4,595,521	$	5,050,611
Liabilities and Shareholders’ Equity
Current Liabilities
Accounts payable	$	282,750	$	319,537
Accrued expenses		386,600		400,235
Accrued compensation and related items		65,083		59,975
Sales taxes payable		47,284		44,885
Current portion of long-term debt		5,061		5,650
Total Current Liabilities		786,778		830,282
Long-Term Debt		1,356,580		1,801,657
Other Long-Term Liabilities		180,726		124,843
Commitments and Contingencies
Shareholders’ Equity
Common stock		14,399		14,313
Additional paid-in capital		2,119,343		2,115,091
Accumulated other comprehensive loss		(28,904)		(1,852)
Retained earnings		166,599		166,277
Total Shareholders’ Equity		2,271,437		2,293,829
Total Liabilities and Shareholders’ Equity	$	4,595,521	$	5,050,611

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

34

SAKS INCORPORATED & SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(In Thousands)	Common Stock Shares	Common Stock Amount			Additional Paid-In Capital		Retained Earnings	Accumulated   Other          Comprehensive Income       (Loss)		Total        Shareholder's Equity
Balance at January 30, 1999	144,010	$	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	809		80		15,932						16,012
Income tax benefits related to
employee stock plans					4,942						4,942
Decrease in tax valuation allowance					16,000						16,000
Repurchase of common stock	(2,004)		(200)		(33,116)						(33,316)
Balance at January 29, 2000	142,815		14,281		2,103,001		91,061		--		2,208,343
Net income							75,216				75,216
Change in minimum pension liability									(1,852)		(1,852)
Comprehensive income											73,364
Issuance of common stock	1,715		172		17,296						17,468
Income tax expense related to
employee stock plans					(1,323)						(1,323)
Decrease in tax valuation allowance					15,405						15,405
Net activity under stock	644		64		5,518						5,582
compensation plans
Repurchase of common stock	(2,041)		(204)		(24,806)						(25,010)
Balance at February 3, 2001	143,133		14,313		2,115,091		166,277		(1,852)		2,293,829
Net income							322				322
Change in minimum pension liability									(27,052)		(27,052)
Comprehensive income (loss)											(26,730)
Issuance of common stock	524		52		3,329						3,381
Income tax expense related to
employee stock plans					(1,639)						(1,639)
Net activity under stock
compensation plans	792		80		6,102						6,182
Repurchase of common stock	(460)		(46)		(3,540)						(3,586)
Balance at February 2, 2002	143,989	$	14,399	$	2,119,343	$	166,599	$	(28,904)	$	2,271,437

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

35

SAKS INCORPORATED & SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS

		Year Ended
		February 2,		February 3,		January 29,
(In Thousands)		2002		2001		200
Operating Activities
Net income	$	322	$	75,216	$	189,643
Adjustments to reconcile net income to net cash
provided by operating activities:
Extraordinary (gain) loss on extinguishment of debt		(16,058)		--		7,310
Depreciation and amortization		219,773		214,099		178,775
Provision for employee stock compensation		6,182		5,582		7,736
Deferred income taxes		1,065		73,671		69,595
Losses from long-lived assets		32,621		73,572		12,547
Changes in operating assets and liabilities:
Retained interest in accounts receivable		(18,611)		4,491		(42,538)
Merchandise inventories		189,266		(29,428)		(101,848)
Other current assets		(26,811)		14,234		3,346
Accounts payable and accrued liabilities		(41,881)		48,063		(108,395)
Other operating assets and liabilities		28,104		5,952		(6,423)
Net Cash Provided by Operating Activities		373,972		485,452		209,748
Investing Activities
Purchases of property and equipment		(219,838)		(274,852)		(430,348)
Proceeds from sale of stores and property and equipment		305,441		26,107		22,514
Net Cash Provided by (Used in) Investing Activities		85,603		(248,745)		(407,834)
Financing Activities
Payments on long-term debt		(422,829)		(8,267)		(252,345)
Net borrowings (repayments) under revolving credit agreement		--		(159,000)		(449,000)
Proceeds from long-term debt		--		--		550,000
Change in cash held in escrow for debt redemption		--		--		363,753
Purchases and retirements of common stock		(3,586)		(25,010)		(33,316)
Proceeds from issuance of stock		1,282		670		5,802
Net Cash (Used in) Provided by Financing Activities		(425,133)		(191,607)		184,894
Increase (Decrease) in Cash and Cash Equivalents		34,442		45,100		(13,192)
Cash and Cash Equivalents at Beginning of Year		64,660		19,560		32,752
Cash and Cash Equivalents at End of Year	$	99,102	$	64,660	$	19,560

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.

36

SAKS INCORPORATED & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, except per share amounts)

Note 1. Organization

Saks Incorporated (hereinafter the “Company”) is a national retailer currently operating through subsidiaries luxury and traditional department stores. The Company operates the Saks Department Store Group (“SDSG”), which consists of stores operated under the following nameplates: Proffitt’s, McRae’s, Younkers, Parisian, Herberger’s, Carson Pirie Scott (“Carson’s”), Bergner’s and Boston Store. The Company also operates Saks Fifth Avenue Enterprises (“SFAE”), which consists of Saks Fifth Avenue stores and Saks Off 5th stores.

Note 2 . Summary of Significant Accounting Policies

GENERAL

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 and 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.

The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries. All inter-company accounts and transactions have been eliminated.

In order to maintain consistency and comparability between periods presented, certain amounts have been reclassified from the previously reported consolidated financial statements to conform to the presentation in the current period. These reclassifications have no effect on previously reported total assets, shareholders’ equity, net income or cash flows.

The Company‘s fiscal year ends on the Saturday closest to January 31. Fiscal year 2001 (“2001”) contained 52 weeks and ended on February 2, 2002. Fiscal year 2000 (“2000”) contained 53 weeks and ended on February 3, 2001. Fiscal year 1999 (“1999”) contained 52 weeks and ended on January 29, 2000.

NET SALES

Net sales include sales of merchandise (net of returns and exclusive of sales taxes), commissions from leased departments and shipping and handling revenues related to merchandise sold.

Revenues from shipping and handling included in net sales were $8,572 in 2001, $10,597 in 2000 and $10,348 in 1999. Commissions from leased departments were $40,988, $41,260 and $36,665 in 2001, 2000 and 1999, respectively. Leased department sales were $276,164 in 2001, $277,050 in 2000 and $244,806 in 1999 and were excluded from net sales.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents primarily consists of cash on hand in the stores, deposits with banks and investments with banks and financial institutions that have original maturities of three months or less. Cash equivalents are stated at cost, which approximates fair value. Restricted cash associated with the accounts receivable securitization program is included in “Retained Interest in Accounts Receivable.” This restricted cash is comprised of lockbox receipts of proprietary credit card payments and finance charge collections held in a trust.

RETAINED INTEREST IN ACCOUNTS RECEIVABLE

Receivables generated from the sale of merchandise using the Company’s proprietary credit cards are securitized through the sale of an undivided interest to third-party investors for a portion of the receivables portfolio. A gain or loss is recorded equal to the excess or deficiency of the estimated fair value of the consideration to be received over the cost of the receivables sold. The Company estimates fair value based on the present value of expected future cash flows determined using management‘s best estimates of portfolio yield, credit losses, payment rates and the weighted average cost of funding. The carrying value of the Company‘s retained interest approximates fair value, and the Company retains the servicing rights to all receivables sold.

37

SAKS INCORPORATED & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, except per share amounts)

MERCHANDISE INVENTORIES AND COST OF SALES

Merchandise inventories are valued by the retail method and are stated at the lower of cost (last-in, first-out [“LIFO”]) or market and include freight and certain buying and distribution costs. The Company also takes markdowns related to slow moving inventory, ensuring the appropriate inventory valuation. At February 2, 2002 and February 3, 2001, the LIFO value of inventories exceeded market value and, as a result, inventory was stated at the lower market amount.

Consignment merchandise on hand of $110,567 and $99,737 at February 2, 2002 and February 3, 2001, respectively, is not reflected in the consolidated balance sheets.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses are comprised principally of the costs related to employee compensation and benefits in the selling and administrative support areas, advertising, certain store and headquarters occupancy, operating and maintenance costs (exclusive of rent, depreciation, and property taxes), insurance programs, telecommunications, and other operating expenses not specifically categorized elsewhere in the consolidated statements of income. The Company receives allowances from merchandise vendors in conjunction with incentive compensation programs for employees who sell the vendors’ merchandise. These allowances are netted against the related compensation expense.

Direct response advertising relates primarily to the production and distribution of merchandise catalogs and is amortized over the estimated life of the catalog, which generally does not exceed eight weeks. Unamortized direct response advertising amounts included in other current assets in the consolidated balance sheets at February 2, 2002 and February 3, 2001 were $3,268 and $7,951, respectively. All other advertising and sales promotion costs are expensed in the period incurred.

Consistent with industry practice, the Company and certain of its merchandise vendors jointly produce and distribute print and television media. Gross expenditures for such advertising is reduced by the portion funded by the vendor, and the net advertising expense is included in selling, general and administrative expenses. Net advertising expenses were $195,765, $222,020 and $220,303 in 2001, 2000 and 1999, respectively.

STORE PRE-OPENING COSTS

Store pre-opening costs primarily consist of payroll and related media costs incurred in connection with new store openings and are expensed when incurred.

PROPERTY AND EQUIPMENT

Property and equipment are stated at historical cost less accumulated depreciation. Capital expenditures are reduced when the Company receives cash and allowances from merchandise vendors to fund the construction of vendor shops and cash from developers to fund building improvements. For financial reporting purposes, depreciation is computed principally using the straight-line method over the estimated useful lives of the assets. Buildings and improvements are depreciated over 20 to 40 years while fixtures and equipment are primarily depreciated over 3 to 15 years. Leasehold improvements are amortized over the shorter of their estimated useful lives or their related lease terms, generally ranging from 10 to 20 years. Costs incurred for the development of internal computer software are capitalized and amortized using the straight-line method over 3 to 10 years. Costs incurred in the discovery and post-implementation stages of obtaining internal computer software are expensed as incurred.

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 in accordance with SFAS No. 121, “Impairment of Long-lived Assets.” Write-downs associated with the evaluation and any gains or losses on the sale of assets recorded at the time of disposition are reflected in “Losses from Long-lived Assets.”

38

SAKS INCORPORATED & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, except per share amounts)

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 estimated useful lives of the various intangible assets ranging from 5 to 40 years. The Company recognized amortization expense of $13,084, $19,659, and $17,593 in 2001, 2000, and 1999, respectively. As of February 2, 2002 and February 3, 2001, the accumulated amortization of goodwill and intangible assets was $74,529 and $76,322, 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 expected future cash flows. In 2001 and 2000, the Company recorded charges of approximately $18,000 and $42,000, respectively, related to dispositions and impairments of goodwill and intangibles which are included in “Losses from Long-Lived Assets” in the consolidated statements of income. The 2001 charges primarily relate to the write-off of Saks Direct goodwill and intangible assets resulting from the reorganization of that business. The 2000 charges primarily relate to the write-down of goodwill associated with the sale of nine SDSG stores.

In the first quarter of 2002, the Company will adopt SFAS No. 142, “Goodwill and Other Intangible Assets,” which revised the financial accounting and reporting for goodwill and intangible assets. The Company will have two reporting units, SDSG and SFAE, for purposes of measuring recoverability of goodwill. The Company anticipates a one-time charge of approximately $46,000 related to the goodwill of SFAE and representing the cumulative effect of adopting the accounting standard.

DERIVATIVES

The Company uses financial derivatives only to manage its costs and risks in conjunction with specific business transactions.

Under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” all derivative instruments are recognized on the balance sheet at fair value, and changes in fair value of the effective portion of cash flow hedges are included in other comprehensive income as a component of shareholders’ equity. Changes in the fair value of the non cash flow hedges and the ineffective portion of cash-flow hedges are recognized immediately in earnings. This standard became effective in the first quarter of 2001, and the adoption of this standard had no material impact on the Company’s financial position or results of operations.

There were no derivative instruments held by the Company at February 2, 2002. However, during 2001, the Company entered into a commodity management agreement with Enron Energy Services that served to hedge certain of the Company’s exposures to energy price volatility. Upon Enron’s bankruptcy filing in the fourth quarter of 2001, the Company terminated the agreement.

At February 3, 2001, the Company maintained one interest rate swap agreement used to convert a portion of its fixed rate senior notes to variable rate debt. During 2001, the Company terminated this agreement in conjunction with the retirement of the underlying debt.

STOCK-BASED COMPENSATION 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 award on the measurement date. Pro forma disclosures of net income and earnings per share are presented in Note 10, 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.

39

SAKS INCORPORATED & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, except per share amounts)

EARNINGS PER SHARE

Basic earnings per share (“EPS”) have been computed based on the weighted average number of common shares outstanding.

			2001					2000					1999
				Per					Per					Per
		Income		Share					Share					Share
		(Loss)	Shares	Amount			Income	Shares	Amount			Income	Shares	Amount
Basic EPS –
Income (loss) before
extraordinary items	$	(15,736)	141,988	$	(0.11)	$	75,216	141,656	$	0.53	$	198,904	144,174	$	1.38
Effect of dilutive stock
options			--					1,062					1,882
Diluted EPS –
Income (loss) before
extraordinary items	$	(15,736)	141,988	$	(0.11)	$	75,216	142,718	$	0.53	$	198,904	146,056	$	1.36

The Company had 2,510 of dilutive shares for 2001 that were not included in the computation of EPS because the Company had an operating loss.

Additionally, the Company had 27,051, 14,910 and 9,181 options to purchase shares of common stock outstanding at 2001, 2000 and 1999, respectively, that were not included in the computation of diluted EPS because the exercise price of the options was greater than the market price of the common shares. At February 2, 2002, these options had exercise prices ranging from $9.21 to $48.78 per share. If the market price becomes greater than the exercise price, these options will be dilutive and the treasury stock method will be applied to determine the number of dilutive shares.

Note 3. Accounts Receivable Securitizations

The Company’s proprietary credit cards are issued by National Bank of the Great Lakes (“NBGL”), a wholly owned subsidiary. Receivables generated from the sale of merchandise on these credit cards are sold by NBGL to another wholly owned subsidiary, Saks Credit Corporation (“SCC”). SCC transfers the receivables to a trust and sells certificates representing an undivided beneficial interest in the pool of receivables held in the trust to third-party investors. While the certificates effectively represent an ownership in a stated amount of cash generated by the credit card receivables, the Company has access to the cash generated by the receivables, prior to maturity, after allocating cash to investors representing a portion of finance charge income. The certificates mature at the dates indicated in the following table subject to certain terms and conditions. The most significant terms and conditions include: a limitation on sold certificates (approximatel y 85% to 90% of the pool of receivables), a minimum net yield on the portfolio, a minimum customer payment rate and, for the variable certificate only, a minimum fixed charge ratio of 1 to 1 if and when availability under the Company’s revolving credit agreement decreases to less than $100 million. Noncompliance with the terms and conditions could result in acceleration of the maturity dates. Upon maturity, the certificate owners receive a pro-rata portion of all cash generated by the pool of receivables until which time the ownership interest is satisfied, after which the Company receives cash generated to recover its residual ownership interest. The Company’s and the certificate holders’ owned interest in the receivables at February 2, 2002 and February 3, 2001, are as follows:

40

SAKS INCORPORATED & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, except per share amounts)

		February 2,		February 3,
		2002		2001
Amount of receivables securitized	$	1,295,608	$	1,365,269
Amounts sold to third-party investors		(1,147,731)		(1,212,032)
Retained interest in amount of receivables securitized		147,877		153,237
Restricted cash associated with securitization		34,482		27,551
Fair value of retained interest in amounts sold to third-party investors		37,728		31,123
Receivables not securitized		19,333		8,898
Retained interest in accounts receivable	$	239,420	$	220,809

The Company has the ability to issue certificates of beneficial interest in fixed or variable denominations with fixed or variable implicit discount rates. At February 2, 2002, the Company had available the following funding sources:

	Amount
	Outstanding			Average
	February 2,			Outstanding	Maturity
Funding Capacity	2002			During 2001	Date
Fixed amount	$	355,675	$	355,675	July 2002
Fixed amount		180,000		180,000	August 2002
Fixed amount		41,000		41,000	September 2002
Fixed amount		434,250		434,250	July 2006
Variable amount up to $315,000		136,806		187,431	November 2002
	$	1,147,731	$	1,198,356

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.

Income, losses and expenses associated with the credit card receivables are included in selling, general and administrative expenses. For 2001, 2000 and 1999, these amounts are as follows:

		2001		2000		1999
Finance charge income and fees	$	268,005	$	269,812	$	246,914
Securitization gains		6,247		6,972		19,456
Finance charge income and fees retained by certificate holders		(52,020)		(77,119)		(65,156)
Bad debt expense:
Write-offs, net of recoveries, including fraud		(81,957)		(81,451)		(69,656)
Change in the allowance for bad debts		3,560		13,197		4,248
		(78,397)		(68,254)		(65,408)
Net credit card contribution before operating and marketing expenses,
overhead and other financing costs	$	143,835	$	131,411	$	135,806

Gains are recorded at the time of the sale equal to the excess of the fair value of the receivables sold over the cost of the receivables sold. Cash associated with the gains is realized as the underlying credit card receivables are paid down.

41

SAKS INCORPORATED & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, except per share amounts)

The Company’s assumptions in measuring the retained interests in accounts receivable as of and for the year ended February 2, 2002 and the sensitivity of the fair value to immediate 10% and 20% adverse changes in those assumptions are as follows:

		Fair Value		Fair Value
		Impact of		Impact of
		10% Adverse		20% Adverse
	Assumption	Change		Change
Weighted average interest rates applied to credit card balances	21.1%	$	(11.4)	$	(23.0)
Weighted average payment rate	14.4%	$	(7.3)	$	(13.6)
Credit losses expected from the February 2, 2002 principal
amount of receivables sold	3.4%	$	(4.2)	$	(8.5)
Weighted average cost of funding	4.2%	$	(2.0)	$	(3.9)

These sensitivities are hypothetical and should be used with caution. The effect of an adverse change in a particular assumption on the fair value of the retained interest is calculated without changing any other assumption. In reality, changes in one factor may result in changes in another, which might alter the reported sensitivities. Outstanding delinquencies associated with principal amounts of securitized receivables were $38,623 or 2.9% and $37,637 or 2.7% at February 2, 2002 and February 3, 2001, respectively.

The table below summarizes cash flow movements between the credit card trusts and the Company for 2001 and 2000.

		2001		2000
Net proceeds from new securitizations	$	434,250	$	137,053
Proceeds from collections reinvested in previous securitizations	$	3,064,844	$	3,185,769
Trust principal payments on previous securitizations	$	(498,552)	$	(93,000)
Interest received on retained interests	$	931	$	2,251
Interest paid to third-party interests in credit card related trusts	$	54,130	$	78,293

While the Company’s store locations are distributed across 39 states, there are concentrations of related credit card receivables in certain geographic areas as illustrated below:

	Gross
	Receivables
Illinois	16.8%
Alabama	11.3%
Mississippi	6.1%
Wisconsin	5.8%
Florida	5.8%
New York	5.3%
California	5.0%
Other states, individually less than 5%	43.9%
	100.0%

42

SAKS INCORPORATED & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, except per share amounts)

Note 4. Property and Equipment
A summary of property and equipment is as follows:
		February 2,		February 3,
		2002		2001
Land and land improvements	$	271,686	$	290,298
Buildings		997,353		1,020,455
Leasehold improvements		594,733		587,368
Fixtures and equipment		1,385,548		1,375,069
Construction in progress		34,565		38,083
		3,283,885		3,311,273
Accumulated depreciation		(1,037,067)		(922,403)
		2,246,818		2,388,870
Property held for sale, net of accumulated depreciation		--		1,980
	$	2,246,818	$	2,390,850

For 2001 and 2000, the Company recognized charges related to property and equipment of approximately $15,000 and $31,000, respectively, that are included in losses from long-lived assets in the accompanying consolidated statements of income. The 2001 charges primarily relate to the write-off of fixed assets associated with the reorganization of Saks Direct and impairment charges taken on underproductive or closed store locations. The 2000 charges relate to impairment charges on computer software and underproductive stores. These underproductive stores, at both SDSG and SFAE, had estimated future cash flows that were not in excess of their carrying values.

During March 2001, the Company completed the sale of nine SDSG stores to the May Department Stores Company for an aggregate purchase price of approximately $308,000. The transaction included the sale of real and personal property, along with certain merchandise inventory and customer accounts receivable. Based upon its most recent analyses at February 2, 2002, the Company believes that no additional impairment of property and equipment currently exists, other than that which has been reflected in the consolidated statements of income.

In the first quarter of 2002, the Company will adopt SFAS No. 144, “Accounting for the Impairment of Disposal of Long-Lived Assets,” which replaced SFAS No. 121, and replaced certain provisions of APB Opinion No. 30. This standard reemphasizes significant issues addressed by SFAS 121 related to the recognition and measurement of the impairment of long-lived assets, whether held and used or to be disposed of by sale. This standard also extends the provisions of APB 30 regarding the reporting of discontinued operations, separate from continuing operations, to include “a component of an entity” that has either been disposed or is held for sale. This standard will be effective for the Company in the first quarter of 2002. The Company is in the process of ascertaining the impact that this standard will have on its consolidated financial statements. It is not expected that the standard will have a significant impact on assets, shareholders’ equity or net inco me. However, the standard may impact the presentation of income and expenses associated with closed or disposed stores.

43

SAKS INCORPORATED & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, except per share amounts)

Note 5. Income Taxes
The components of income tax expense are as follows:
		2001		2000		1999
Current:
Federal	$	(2,672)	$	(34,871)	$	42,278
State		1,808		1,583		678
		(864)		(33,288)		42,956
Deferred:
Federal		7,289		73,833		61,035
State		(6,224)		(162)		8,560
		1,065		73,671		69,595
Total expense	$	201	$	40,383	$	112,551

The tax effect for extraordinary gains and losses on early extinguishment of debt was a provision of $10,052 for 2001 and a benefit of $5,925 for 1999.

Components of the net deferred tax asset or liability recognized in the consolidated balance sheets are as follows:

	February 2,		February 3,
	2002		2001
Current:
Deferred tax assets:
Accrued expenses	$	47,492	$	50,627
AMT credit		5,794		3,329
NOL carryforwards		32,999		32,999
Deferred tax liabilities:
Retained interest in accounts receivable		(21,804)		(18,959)
Inventory		(3,912)		(27,443)
Other		--		(1,365)
Net current deferred tax asset	$	60,569	$	39,188
Non-current:
Deferred tax assets:
Capital leases	$	23,076	$	20,696
Other long-term liabilities		73,998		33,609
NOL carryforwards		225,298		248,486
Deferred tax liabilities:
Property and equipment		(139,937)		(91,259)
Other assets		(9,358)		(33,414)
Net noncurrent deferred tax asset	$	173,077	$	178,118

44

SAKS INCORPORATED & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, except per share amounts)

At February 2, 2002, the Company had $622,503 and $1,010,460 of federal and state tax net operating loss carryforwards (“NOLs”), respectively. The carryforwards will expire between 2005 and 2018. The future utilization of the federal carry-forwards is restricted under federal income tax change-in-ownership rules. The Company believes it will be profitable during periods from 2002 through 2018 sufficiently to utilize the benefit of the NOLs, and it is more likely than not that the benefit of the net deferred tax assets will be realized.

A valuation allowance attributable to Carson‘s losses and tax basis differences was reduced by $15,405 for 2000 and $16,000 for 1999, 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 was credited directly to shareholders‘ equity given that the NOLs relate to Carson’s 1991 bankruptcy.

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:

		2001		2000		1999
Expected income taxes at 35%	$	183	$	40,460	$	105,768
State income taxes, net of federal benefit		(3,829)		2,848		6,100
Nondeductible merger related costs		--		(1,694)		(1,837)
Amortization of nondeductible goodwill		3,297		3,755		3,656
Other items, net (includes nontaxable gain in 2000)		550		(4,986)		(1,136)
Provision for income taxes	$	201	$	40,383	$	112,551

The Company made income tax payments, net of refunds received, of $319 and $4,691 during 2001 and 2000, respectively, and received net tax refunds of $14,007 in 1999.

Note 6. Long-Term Debt
A summary of long-term debt is as follows:
		February 2,		February 3,
		2002		2001
Notes 7.25%, maturing 2004	$	73,613	$	350,000
Notes 7.00%, maturing 2004		93,286		350,000
Notes 8.25%, maturing 2008		451,550		500,000
Notes 7.50%, maturing 2010		250,000		250,000
Notes 9.875%, maturing 2011		141,557		--
Notes 7.375%, maturing 2019		200,000		200,000
Revolving credit agreement		--		--
Real estate and mortgage notes		7,819		8,632
Capital lease obligations		143,816		148,675
		1,361,641		1,807,307
Current portion		(5,061)		(5,650)
	$	1,356,580	$	1,801,657

45

SAKS INCORPORATED & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, except per share amounts)

REVOLVING CREDIT AGREEMENT

During 2001, the Company replaced its $750,000 revolving credit agreement scheduled to mature in September 2003 with a new revolving credit agreement providing for borrowings and issuance of letters of credit up to $700,000 that will mature in November 2006. Borrowings under the new agreement are secured by substantially all of the Company’s merchandise inventories and the capital stock of most of the Company’s subsidiaries. Borrowings are limited to the lower of $700,000 or a prescribed percentage of eligible inventories. At February 2, 2002 the carrying amount of inventories securing the credit agreement was $1,202,206, and the prescribed percentage of eligible inventories exceeded the $700,000 credit limit by $117,456.

During periods in which availability under the agreement exceeds $100,000, the Company is not subject to financial covenants. If and when availability under the agreement decreases to less than $100,000, the Company will be subject to a minimum fixed charge coverage ratio of 1 to 1. There is no debt rating trigger. During 2001, weighted average borrowings and letters of credit issued under this credit agreement and its predecessor were $131,815. The highest amount outstanding under the agreement during 2001 was $385,648 in October 2001 and was principally related to the funding of seasonal working capital needs. Borrowings bear interest at LIBOR plus a percentage ranging from 2.00% to 3.00% or at a bank’s base rate plus a percentage ranging from .50% to 1.50%.

The Company routinely issues stand-by and documentary letters of credit for purposes of securing foreign sourced merchandise, certain equipment leases, certain insurance programs and other contingent liabilities. Outstanding letters of credit serve to reduce availability under the revolving line of credit. During 2001, the maximum amount of letters of credit outstanding at any time was approximately $71,000 (and $46,000 outstanding at February 2, 2002).

SENIOR NOTES

The Company had $1,210,006 of outstanding senior unsecured notes at February 2, 2002. There are no financial covenants associated with these notes, and there are no debt rating triggers. The notes restrict incurring secured debt to (1) the financing associated with proprietary credit card receivables and the $700,000 revolving credit agreement and (2) debt that could be placed on certain property and equipment acquired since 1998.

Certain of the proceeds from the sale of the nine SDSG store locations in March 2001 were used to repurchase $298,410 of senior notes during 2001. The senior notes were repurchased at a discount to the carrying value resulting in an extraordinary gain on extinguishment of debt of $14,417 (net of taxes). During 2001, the Company also exchanged $141,584 of cash and $141,557 of new 9.875% Notes due 2011 for $283,141 of the 2004 Notes. The Company realized a $2,022 (net of taxes) extraordinary gain on this early extinguishment of debt resulting from the termination of an interest rate swap agreement.

OTHER ITEMS

During 1999 and in connection with the 1998 acquisition of Saks Holdings, Inc., the Company completed a repurchase of $235,841 in real estate mortgage debt and reflected an after-tax extraordinary loss of $9,261 associated with the write-off of deferred financing costs.

At February 2, 2002, maturities of long-term debt for the next five years and thereafter are as follows:

Year	Maturities
2002	$	5,061
2003		5,310
2004		178,582
2005		5,087
2006		4,788
Thereafter		1,162,813
	$	1,361,641

46

SAKS INCORPORATED & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, except per share amounts)

The Company made interest payments of $130,053, $156,730 and $143,708, of which $4,757, $12,507 and $14,832 was capitalized during 2001, 2000 and 1999, respectively.

Note 7. Commitments and Contingencies

The Company leases certain property and equipment under various non-cancelable capital and operating leases. The leases provide for monthly fixed amount rentals or contingent rentals based upon sales in excess of stated amounts and normally require the Company to pay real estate taxes, insurance, common area maintenance costs and other 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 February 2, 2002, future minimum rental commitments under capital leases and non-cancelable operating leases consisted of the following:

		Operating		Capital
		Leases		Leases
2002	$	131,596	$	23,239
2003		129,710		23,041
2004		124,872		23,161
2005		117,835		19,585
2006		107,282		18,871
Thereafter		713,211		274,671
	$	1,324,506	$	382,568
Amounts representing interest				(238,752)
Capital lease obligations				143,816

Total rental expense for operating leases was $200,932, $196,813 and $187,829 during 2001, 2000 and 1999, respectively, including contingent rents of $24,722, $27,466 and $20,983, respectively, and common area maintenance costs of $25,815, $23,718 and $22,804, respectively.

The Company maintains two operating leases for transportation equipment that provide for a guaranteed residual value aggregating $20,000 upon expiration of the leases in 2004. Management believes that the risk of a material loss on these leases is remote.

The Company has no commitments that are tied to the value of Saks Incorporated’s common stock. The Company has one agreement related to providing security to support prior years’ workers’ compensation obligations, which could require posting a letter of credit for $22,000 upon a reduction in debt ratings.

The Company purchases merchandise under purchase commitments and enters contractual commitments with real estate developers and construction companies for new store construction and store remodeling in the normal course of business. Commitments for purchasing merchandise generally do not extend beyond six months and may be cancelable several weeks prior to the vendor shipping the merchandise. Contractual commitments for the construction and remodeling of stores are typical lump sum or cost plus construction contracts.

47

SAKS INCORPORATED & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, except per share amounts)

The Company is involved in several legal proceedings arising from its normal business activities, and reserves 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. The Company is routinely under audit by federal, state or local authorities in the areas of income taxes and the remittance of sales and use taxes. These audits include questioning the timing and amount of deductions and the allocation of income among various tax jurisdictions. In evaluating the exposure associated with various tax filing positions, the Company often accrues charges for probable exposures. Based on annual evaluations of tax positions, the Company believes it has appropriately accrued for probable exposures. To the extent the Company were to prevail in matters for which accruals have been established or be required to pay amounts in excess of reserves, the Company’s effective tax rate in a given financial statement period may be materially impacted. At February 2, 2002, two of the Company’s four open tax years were undergoing examination by the Internal Revenue Service.

Note 8. 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 2001, 2000 and 1999 were $9,800, $9,512 and $9,536, respectively. At February 2, 2002, total invested assets related to the employee savings plans was $466,919, of which approximately 3% was invested in the Company’s stock at the discretion of the participating employees.

DEFINED BENEFIT PLANS

The Company sponsors defined benefit pension plans for many employees of Carson‘s and SFAE. 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.

The components of net periodic pension expense are as follows:

		2001		2000		1999
Net periodic pension expense:
Service cost	$	12,992	$	12,476	$	11,584
Interest cost		22,424		20,895		19,318
Expected return on plan assets		(24,144)		(22,906)		(21,393)
Net amortization and deferral of prior service costs		(542)		(541)		293
Net pension expense	$	10,730	$	9,924	$	9,802

48

SAKS INCORPORATED & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, except per share amounts)

		February 2,	February 3,
		2002	2001
Change in benefit obligation:
Benefit obligation at beginning of year	$	291,040	$	271,298
Service cost		12,992		12,476
Interest cost		22,424		20,895
Plan amendment				79
Actuarial loss		26,852		9,255
Benefits paid		(21,129)		(22,963)
Benefit obligation at end of year	$	332,179	$	291,040
Change in plan assets:
Fair value of plan assets at beginning of year	$	267,339	$	255,283
Actual return on plan assets		(30,944)		18,368
Employer contributions		1,585		16,651
Benefits paid		(21,129)		(22,963)
Fair value of plan assets at end of year	$	216,851	$	267,339
Pension plans’ funding status:
Accumulated benefit obligation	$	(307,296)	$	(268,762)
Effect of projected salary increases		(24,883)		(22,278)
Projected benefit obligation		(332,179)		(291,040)
Fair value of plan assets		216,851		267,339
Funded status		(115,328)		(23,701)
Unrecognized actuarial (gain loss		69,584		(12,950)
Unrecognized prior service cost		1,829		1,944
Contributions subsequent to measure date		2,163		174
Accrued pension cost classified in other liabilities	$	(41,752)	$	(34,533)
Amounts recognized in the consolidated balance sheet:
Accrued benefit liability	$	(90,848)	$	(39,419)
Intangible asset		1,713		1,849
Additional minimum pension liability (reflected in shareholders’ equity, net of tax)		47,383		3,037
Net amount recognized	$	(41,752)	$	(34,533)
Assumptions:
Discount rate, at end of period		7.25%		8.00%
Expected long-term rate of return on assets, for periods ended
February 2, 2002 and February 3, 2001		9.50%		9.50%
Average assumed rate of compensation increase		4.00%		4.50%
Measurement date		11/1/01		11/1/00

49

SAKS INCORPORATED & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, except per share amounts)

RETIREE HEALTH CARE PLANS

The Company provides health care benefits for certain groups of employees who retired before 1997. The plans were contributory with the Company providing a frozen annual credit of varying amounts per year of service. The net annual expense and liabilities for the unfunded plans reflected in the Company‘s consolidated balance sheets are as follows:

		February 2,	February 3,
		2002	2001
Change in benefit obligation:
Benefit obligation at beginning of year	$	7,013	$	8,879
Interest cost		529		673
Actuarial (gain) loss		675		(2,166)
Benefits paid		(639)		(373)
Benefit obligation at end of year	$	7,578	$	7,013
Plan funding status:
Accumulated post-retirement benefit obligation	$	(7,578)	$	(7,013)
Fair value of plan assets		--		--
Funded status		(7,578)		(7,013)
Unrecognized actuarial gain		(5,566)		(6,762)
Contributions subsequent to measurement date		146		195
Accrued pension cost classified in other liabilities	$	(12,998)	$	(13,580)
Sensitivity analysis:
Effect of a 1.0% increase in health care cost trend assumption on
total service cost and interest cost components	$	27	$	40
Effect on benefit obligations	$	427	$	339
Effect of a 1.0% decrease in health care cost trend assumption on
total service cost and interest cost components	$	(25)	$	(36)
Effect on benefit obligation	$	(388)	$	(308)
Assumptions:
Discount rate		7.25%		8.00%
Pre-Medicare medical inflation		10.00%		6.00%
Post-Medicare medical inflation		10.00%		6.00%
Ultimate medical inflation		5.50%		5.25%
Measurement date		11/1/01		11/1/00

Note 9. Shareholders’ Equity

PREFERRED STOCK

The Company has 10,000 shares of Series A Cumulative Convertible Exchangeable Preferred Stock authorized and no shares issued and outstanding at February 2, 2002 or February 3, 2001.

COMMON STOCK

The Company has 500,000 shares of $.10 par value common shares authorized of which 143,989 and 143,133 shares were issued and outstanding at February 2, 2002 and February 3, 2001, respectively.

50

SAKS INCORPORATED & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, except per share amounts)

In 1999 and 2001, the Company authorized share repurchase programs, each of which allowed for repurchases of up to five million of the Company’s common shares. During 2001, 2000 and 1999, the Company repurchased 460, 2,041 and 2,004 shares under the program for an aggregate amount of $3,586, $25,010 and $33,316, respectively. There were 5,495 shares available for repurchase at February 2, 2002.

Each outstanding share of common stock has one preferred stock purchase right attached. The rights 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.

During 2000, the Company began presenting the unearned restricted stock grants issued under its stock compensation programs as a component of shareholders’ equity. The Company had previously presented the unearned restricted stock grants as a component of other long-term liabilities. Included in the 2000 issuance of common stock in the consolidated statement of changes in shareholders’ equity is approximately $11,685 related to this reclassification.

Note 10. Employee Stock Plans

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.

		2001				2000				1999
	As Reported		Pro Forma		As Reported		Pro Forma		As Reported		Pro Forma
Net income (loss)	$	322	$	(26,873)	$	75,216	$	55,805	$	189,643	$	177,343
Basic earnings (loss) per common share	$	0.00	$	(0.19)	$	0.53	$	0.39	$	1.32	$	1.23
Diluted earnings (loss) per common share	$	0.00	$	(0.19)	$	0.53	$	0.39	$	1.30	$	1.21

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 (4.85%, 6.17% and 5.84% for 2001, 2000 and 1999, respectively), (2) an expected term of seven years, (3) an expected volatility of 45.7%, 45.7% and 46.2% for 2001, 2000 and 1999, respectively, and (4) no expected dividend yield. The Black-Scholes option-pricing model does not include the inability to sell or transfer options, vesting requirements and a reduced exercise period upon termination of employment--all of which would reduce the fair value of the options.

The Company maintains stock option plans for the granting of options, stock appreciation rights and restricted shares to officers, employees and directors. At February 2, 2002 and February 3, 2001, the Company had available for grant 3,291 and 7,044 shares of common stock, respectively. Options granted generally vest over a four-year period after issue and have an exercise term of seven to ten years from the grant date. Restricted shares generally vest three to ten years after the grant date with accelerated vesting at the discretion of the Company‘s Board of Directors.

51

SAKS INCORPORATED & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, except per share amounts)

A summary of the stock option plans for 2001, 2000 and 1999 is presented below:

	2001			2000			1999
	Shares	Weighted Average  Exercise  Price		Shares	Weighted Average  Exercise  Price		Shares	Weighted Average  Exercise  Price
Outstanding at beginning of year	25,094	$	15.20	11,892	$	21.92	10,518		$	21.63
Granted	4,707		11.18	14,964		10.35	2,549			24.13
Exercised	(267)		8.75	(76)		7.54	(353)			16.30
Forfeited	(1,932)		15.24	(1,686)		19.69	(822)			27.54
Outstanding at end of year	27,602	$	14.57	25,094	$	15.20	11,892		$	21.92
Options exercisable at year end	14,303	$	16.94	7,780	$	20.42	5,191		$	18.94
Weighted average fair value of
options granted during the year	$6.11			$5.88			$13.60

The following table summarizes information about stock options outstanding at February 2, 2002

		Options Outstanding				Options Exercisable
			Weighted
		Number	Average	Weighted		Number	Weighted
		Outstanding at	Remaining	Average		Exercisable at	Average
		February 2,	Contractual	Exercise		February 2,	Exercise
Range of Exercise Prices		2002	Life (Years)	Price		2002	Price
$	5.64 to $8.45	333	3	$	6.09	265	$	5.87
$	8.46 to $12.69	18,769	8		10.58	7,099		10.65
$	12.70 to $18.69	1,281	6		15.71	984		16.01
$	18.70 to $28.05	4,326	6		21.27	3,620		21.09
$	28.06 to $42.09	2,829	6		30.59	2,271		30.85
$	42.10 to $63.15	64	5		47.45	64		47.45
		27,602		$	14.57	14,303	$	16.94

The Company also granted restricted stock awards of 900, 790 and 84 shares to certain employees in 2001, 2000 and 1999, respectively. The fair value of these awards on the dates of grants was $9,621, $8,877 and $1,891 for 2001, 2000 and 1999, respectively. During 2001, 2000 and 1999, compensation cost of $6,182, $5,582 and $7,736, respectively, has been recognized in connection with these awards. The Company has committed to make additional grants of stock aggregating up to 500,000 shares upon the Company’s share value attaining certain appreciated values (ranging from $17.57 to $29.30) prior to May 31, 2006.

STOCK PURCHASE PLAN

The stock purchase plan provides that an aggregate of 700 shares of the Company‘s common stock is available for purchase. Under the stock purchase 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 stock purchase plan, 123 ($0.9 million), 221 ($1.9 million) and 228 ($2.7 million) shares of the Company‘s common stock were purchased by employees in 2001, 2000 and 1999, respectively. At February 2, 2002, the stock purchase plan had no shares available for future offerings; however, in March 2002, the Board of Directors authorized 750 additional shares available for purchase, subject to shareholder approval.

52

SAKS INCORPORATED & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, except per share amounts)

Note 11. Fair Values of Financial Instruments

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 agreement, 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 February 2, 2002 and February 3, 2001 the fair value of these notes approximated the carrying value.

The Company had one interest rate swap agreement outstanding at February 3, 2001 which had a notional amount of $175,000 related to the July 1999 issuance of the 7.0% senior notes. The agreement swapped the fixed 7.0% coupon to a variable rate based on three month LIBOR and matured in 2004. During the first quarter of 2001, this agreement was terminated in conjunction with the retirement of the underlying debt.

The fair values of the Company‘s financial instruments other than the instruments considered short-term in nature at February 2, 2002 and February 3, 2001 were as follows:

	Carrying Amount		Estimated Fair Value
February 2, 2002
7.375% senior notes	$	200,000	$	136,000
8.25% senior notes	$	451,550	$	388,300
9.875% senior notes	$	141,557	$	127,400
7.25% senior notes	$	73,613	$	69,900
7.50% senior notes	$	250,000	$	197,500
7.00% senior notes	$	93,286	$	88,600
February 3, 2001
7.375% senior notes	$	200,000	$	130,000
8.25% senior notes	$	500,000	$	415,000
7.25% senior notes	$	350,000	$	301,000
7.50% senior notes	$	250,000	$	200,000
7.00% senior notes	$	350,000	$	301,000

The fair values of the long-term debt and interest rate swap agreement were estimated based on quotes obtained from financial institutions for those or similar instruments or on the basis of quoted market prices.

Note 12. Integration Charges

Integration charges incurred in 2001, 2000 and 1999 (before income taxes) were as follows:

		2001		2000		1999
Severance and related benefits	$	415	$	14,818	$	11,517
Conversion and consolidation of systems and administrative operations		1,124		9,987		27,412
Merger transaction costs, principally investment banking, legal
and other direct merger costs		--		--		981
Revisions to prior year estimates		--		(4,919)		(4,250)
	$	1,539	$	19,886	$	35,660

53

SAKS INCORPORATED & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, except per share amounts)

A reconciliation of the aforementioned charges to the amounts of integration costs remaining unpaid at the applicable balance sheet date is as follows:

		2001		2000
Amounts unpaid at beginning of year	$	5,153	$	13,576
Integration charges		1,539		19,886
Amounts paid		(2,335)		(21,250)
Amounts representing non-cash charges		(1,511)		(7,059)
Amounts unpaid at end of year, principally severance (to be paid through 2004)	$	2,846	$	5,153

Note 13. Segment Information
		Year Ended
		February 2,		February 3,		January 29,
		2002		2001			2000
Net Sales:
Saks Department Stores Group	$	3,621,819	$	3,909,268	$	3,928,926
Saks Fifth Avenue Enterprises		2,448,749		2,671,968		2,505,241
	$	6,070,568	$	6,581,236	$	6,434,167
Operating Income, before certain items:
Saks Department Stores Group	$	222,910	$	277,397	$		417,030
Saks Fifth Avenue Enterprises		(22,744)		115,730			144,455
Other		(31,691)		(31,081)			(36,998)
Certain items, net		(64,106)		(100,185)			(68,279)
	$	104,369	$	261,861	$		456,208
Depreciation and Amortization:
Saks Department Stores Group	$	117,919	$	117,881	$		99,042
Saks Fifth Avenue Enterprises		99,196		94,152			78,096
Other		2,658		2,066			1,637
	$	219,773	$	214,099	$		178,775
Total Assets:
Saks Department Stores Group	$	2,202,762	$	2,568,095	$	2,722,185
Saks Fifth Avenue Enterprises		1,852,648		2,018,990		1,933,172
Other		540,111		463,526			443,595
	$	4,595,521	$	5,050,611	$	5,098,952
Capital Expenditures:
Saks Department Stores Group	$	67,723	$	78,379	$		176,995
Saks Fifth Avenue Enterprises		87,503		99,775			172,974
Other		64,612		96,698			80,379
	$	219,838	$	274,852	$		430,348

54

SAKS INCORPORATED & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, except per share amounts)

“Operating Income” for the segments includes revenue, cost of sales, direct selling, general, and administrative expenses, other direct operating expenses for the respective segment and an allocation of certain operating expenses, including depreciation, shared by the two segments. “Other” consists of the assets, revenue and expenses associated with the corporate offices, certain accounting, finance, human resource, and information technology activities and other items managed on a company-wide basis. “Certain items” consist of those items that are considered to be non-recurring, infrequent or unusual and are not charged to the segments. During 2001, 2000 and 1999, certain items were comprised of the following:

		2001		2000		1999
Losses from long-lived assets	$	(32,621)	$	(73,572)	$	(12,547)
Integration charges		(1,539)		(19,886)		(35,660)
Reorganization charges		(20,049)		(7,652)		--
Charges associated with closed stores		(9,897)		925		(14,155)
Year 2000 expenses		--		--		(5,917)
Effect of Certain Items on Operating Income		(64,106)		(100,185)		(68,279)
Extraordinary gain (loss) on extinguishment of debt		26,110		--		(15,182)
Total Certain Items, before income taxes		(37,996)		(100,185)		(83,461)
Tax benefit from real estate investment		--		4,120		--
Tax effect of certain items		14,450		38,571		34,054
Total Certain Items, net of income taxes	$	(23,546)	$	(57,494)	$	(49,407)

55

SAKS INCORPORATED & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, except per share amounts)

Note 14. Quarterly Financial Information (Unaudited)

Summarized quarterly financial information, including sales and gross margin restatement data, is as follows:

		First		Second		Third		Fourth
		Quarter		Quarter		Quarter		Quarter
Fiscal year ended February 2, 2002
Total sales	$	1,464,350	$	1,270,708	$	1,423,551	$	1,911,959
Gross margin		546,561		422,418		498,237		643,223
Net income (loss)		26,498		(58,389)		(21,753)		53,966
Basic earnings (loss) per common share,
before extraordinary items	$	0.11	$	(0.44)	$	(0.17)	$	0.38
after extraordinary items	$	0.19	$	(0.41)	$	(0.15)	$	0.38
Diluted earnings (loss) per common share,
before extraordinary items	$	0.11	$	(0.44)	$	(0.17)	$	0.38
after extraordinary items	$	0.18	$	(0.41)	$	(0.15)	$	0.37
		First		Second		Third		Fourth
		Quarter		Quarter		Quarter		Quarter
Fiscal year ended February 3, 2001
Total sales	$	1,500,818	$	1,389,169	$	1,567,796	$	2,123,453
Gross margin		552,550		496,090		564,101		756,788
Net income (loss)		33,855		(5,787)		(8,149)		55,297
Basic earnings (loss) per common share,
before extraordinary items	$	0.24	$	(0.04)	$	(0.06)	$	0.39
after extraordinary items	$	0.24	$	(0.04)	$	(0.06)	$	0.39
Diluted earnings (loss) per common share,
before extraordinary items	$	0.24	$	(0.04)	$	(0.06)	$	0.39
after extraordinary items	$	0.24	$	(0.04)	$	(0.06)	$	0.39

Note 15. Condensed Consolidating Financial Information

The following tables present condensed consolidating financial information for 2001, 2000 and 1999 for: (1) Saks Incorporated; (2) on a combined basis, the guarantors of Saks Incorporated’s Senior Notes (which are all of the subsidiaries of Saks Incorporated except for NBGL, the subsidiaries associated with the Company’s proprietary credit card securitization program and other immaterial subsidiaries); and (3) on a combined basis, NBGL, the subsidiaries associated with the Company’s proprietary credit card securitization program, and other immaterial subsidiaries, which collectively represent the only subsidiaries of the Company that are not guarantors of the Senior Notes. The condensed consolidating financial statements presented as of and for the years ended February 2, 2002, February 3, 2001 and January 29, 2000 reflect the legal entity compositions at the respective dates. Separate financial statements of the guarantor subsidiaries are not presented because t he 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 agreement are allocated to Saks Incorporated and the guarantor subsidiaries under an intercompany revolving credit arrangement. There are also management and royalty fee arrangements among Saks Incorporated and the subsidiaries. At February 2, 2002, Saks Incorporated was the sole obligor for a majority of the Company’s long-term debt, owned one store location and maintained a small group of corporate employees.

56

SAKS INCORPORATED & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, except per share amounts)

CONDENSED CONSOLIDATING STATEMENTS OF INCOME FOR THE YEAR ENDED FEBRUARY 2, 2002

	Saks			Guarantor	Non-Guarantor
	Incorporated			Subsidiaries	Subsidiaries			Eliminations	Consolidated
Net Sales	$	16,185	$	6,043,677	$	10,706			$	6,070,568
Cost of sales		10,193		3,936,928		13,008				3,960,129
Gross Margin		5,992		2,106,749		(2,302)				2,110,439
Selling, general and administrative expenses		10,806		1,498,493		102,220	$	(222,232)		1,389,287
Other operating expenses		3,734		572,085		1,674				577,493
Store pre-opening costs				5,130						5,130
Integration costs				1,539						1,539
Losses from long-lived assets				32,621						32,621
Operating Income (Loss)		(8,548)		(3,119)		(106,196)		222,232		104,369
Other Income (Expense)
Finance charge income, net						222,232		(222,232)
Intercompany exchange fees				(42,826)		42,826
Intercompany servicer fees				49,407		(49,407)
Equity in earnings of subsidiaries		52,808		45,021				(97,829)
Interest expense		(105,772)		(22,127)		(3,140)				(131,039)
Other income (expense), net		(68)		1,151						1,083
Income (Loss) before Provision (Benefit)
for Income Taxes and Extraordinary Items		(61,580)		27,507		106,315		(97,829)		(25,587)
Provision (benefit) for income taxes		(45,844)		(6,480)		42,473				(9,851)
Income (loss) before extraordinary items		(15,736)		33,987		63,842		(97,829)		(15,736)
Extraordinary items, net of taxes		16,058								16,058
Net Income	$	322	$	33,987	$	63,842	$	(97,829)	$	322

57

SAKS INCORPORATED & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, except per share amounts)

CONDENSED CONSOLIDATING BALANCE SHEETS AS OF FEBRUARY 2, 2002

	Saks			Guarantor	Non-Guarantor
	Incorporated		Subsidiaries		Subsidiaries			Eliminations		Consolidated
Assets
Current Assets
Cash and cash equivalents	$	67,000	$	26,631	$	5,471			$	99,102
Retained interest in accounts receivable						239,420				239,420
Merchandise inventories		3,349		1,292,529						1,295,878
Intercompany borrowings				2,880		30,286	$	(33,166)
Other current assets				74,960						74,960
Deferred income taxes, net				75,283		(14,714)				60,569
Total Current Assets		70,349		1,472,283		260,463		(33,166)		1,769,929
Property and Equipment, net		7,804		2,239,014						2,246,818
Goodwill and Intangibles, net				360,580						360,580
Deferred Income Taxes, net				173,077						173,077
Other Assets		15,207		26,163		3,747				45,117
Investment in and Advances to Subsidiaries		3,417,119		166,107				(3,583,226)
Total Assets	$	3,510,479	$	4,437,224	$	264,210	$	(3,616,392)	$	4,595,521
Liabilities and Shareholders’ Equity
Current Liabilities
Accounts payable	$	1,005	$	281,745					$	282,750
Accrued expenses and other current liabilities		21,979		476,933	$	55				498,967
Intercompany borrowings		5,490		24,796		2,880	$	(33,166)
Current portion of long-term debt				5,061						5,061
Total Current Liabilities		28,474		788,535		2,935		(33,166)		786,778
Long-Term Debt		1,210,006		146,574						1,356,580
Other Long-Term Liabilities		562		180,164						180,726
Investment by and Advances from Parent				3,321,951		261,275		(3,583,226)
Shareholders’ Equity		2,271,437								2,271,437
Total Liabilities and
Shareholders’ Equity	$	3,510,479	$	4,437,224	$	264,210	$	(3,616,392)	$	4,595,521

58

SAKS INCORPORATED & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, except per share amounts)

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED FEBRUARY 2, 2002

	Saks		Guarantor		Non-Guarantor
	Incorporated		Subsidiaries		Subsidiaries		Eliminations		Consolidated
Operating Activities
Net income	$	322	$	33,987	$	63,842	$	(97,829)	$	322
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Equity in earnings of subsidiaries		(52,808)		(45,021)				97,829
Depreciation and amortization		1,035		218,043		695				219,773
Provision for employee stock compensation		6,182								6,182
Deferred income taxes				(55)		1,120				1,065
Extraordinary gain on extinguishment of debt		(16,058)								(16,058)
Losses from long-lived assets				32,621						32,621
Changes in operating assets and liabilities, net		(8,016)		155,383		(17,300)				130,067
Net Cash (Used in) Provided by
Operating Activities		(69,343)		394,958		48,357				373,972
Investing Activities
Purchases of property and equipment				(217,153)		(2,685)				(219,838)
Proceeds from sale of assets				305,441						305,441
Net Cash Provided by (Used in)
Investing Activities				88,288		(2,685)				85,603
Financing Activities
Intercompany borrowings		515,805		(447,792)		(68,013)
Payments on long-term debt		(417,158)		(5,671)						(422,829)
Proceeds from issuance of stock		1,282								1,282
Purchases and retirements of common stock		(3,586)								(3,586)
Net Cash Provided by (Used in)
Financing Activities		96,343		(453,463)		(68,013)				(425,133)
Increase (Decrease) in Cash and
Cash Equivalents		27,000		29,783		(22,341)				34,442
Cash and Cash Equivalents
at Beginning of Year		40,000		(3,152)		27,812				64,660
Cash and Cash Equivalents at End of Year	$	67,000	$	26,631	$	5,471			$	99,102

59

SAKS INCORPORATED & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, except per share amounts)

CONDENSED CONSOLIDATING STATEMENTS OF INCOME FOR THE YEAR ENDED FEBRUARY 3, 2001

		Saks		Guarantor	Non-Guarantor
		Incorporated		Subsidiaries	Subsidiaries		Eliminations		Consolidated
Net Sales	$	15,073	$	6,560,410	$	5,753			$	6,581,236
Cost of sales		9,845		4,190,606		11,256				4,211,707
Gross Margin		5,228		2,369,804		(5,503)				2,369,529
Selling, general and administrative expenses		11,841		1,524,483		96,698	$	(199,665)		1,433,357
Other operating expenses		3,632		568,736		2,289				574,657
Store pre-opening costs				6,196						6,196
Integration costs				19,886						19,886
Losses from long-lived assets				64,134		9,438				73,572
Operating Income (Loss)		(10,245)		186,369		(113,928)		199,665		261,861
Other Income (Expense)
Finance charge income, net						199,665		(199,665)
Intercompany exchange fees				(37,964)		37,964
Intercompany servicer fees				42,500		(42,500)
Equity in earnings of subsidiaries		174,959		17,797				(192,756)
Interest expense		(138,130)		(9,226)		(2,639)				(149,995)
Other income (expense), net				3,733						3,733
Income before Provision (Benefit)
for Income Taxes		26,584		203,209		78,562		(192,756)		115,599
Provision (benefit) for income taxes		(48,632)		62,958		26,057				40,383
Net Income	$	75,216	$	140,251	$	52,505	$	(192,756)	$	75,216

60

SAKS INCORPORATED & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, except per share amounts)

CONDENSED CONSOLIDATING BALANCE SHEETS AS OF FEBRUARY 3, 2001

	Saks		Guarantor		Non-Guarantor
	Incorporated			Subsidiaries	Subsidiaries			Eliminations		Consolidated
Assets
Current Assets
Cash and cash equivalents	$	40,000	$	(3,152)	$	27,812			$	64,660
Retained interest in accounts receivable						220,809				220,809
Merchandise inventories		3,356		1,512,982		5,865				1,522,203
Intercompany borrowings				30,272		48,100	$	(78,372)
Other current assets				95,875		(26,497)				69,378
Deferred income taxes, net				52,782		(13,594)				39,188
Total Current Assets		43,356		1,688,759		262,495		(78,372)		1,916,238
Property and Equipment, net		8,702		2,375,716		6,432				2,390,850
Goodwill and Intangibles, net				511,333						511,333
Deferred Income Taxes, net				178,118						178,118
Other Assets		17,782		32,763		3,527				54,072
Investment in and Advances to Subsidiaries		3,899,921		114,783				(4,014,704)
Total Assets	$	3,969,761	$	4,901,472	$	272,454	$	(4,093,076)	$	5,050,611
Liabilities and Shareholders’ Equity
Current Liabilities
Accounts payable	$	1,007	$	316,425	$	2,105			$	319,537
Accrued expenses and other current liabilities		22,296		479,021		3,778				505,095
Intercompany borrowings		2,029		46,071		30,272	$	(78,372)
Current portion of long-term debt				5,650						5,650
Total Current Liabilities		25,332		847,167		36,155		(78,372)		830,282
Long-Term Debt		1,650,000		151,657						1,801,657
Other Long-Term Liabilities		600		124,243						124,843
Investment by and Advances from Parent				3,778,405		236,299		(4,014,704)
Shareholders’ Equity		2,293,829								2,293,829
Total Liabilities and
Shareholders’ Equity	$	3,969,761	$	4,901,472	$	272,454	$	(4,093,076)	$	5,050,611

61

SAKS INCORPORATED & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, except per share amounts)

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED FEBRUARY 3, 2001

	Saks			Guarantor	Non-Guarantor
	Incorporated		Subsidiaries		Subsidiaries		Eliminations		Consolidated
Operating Activities
Net income	$	75,216	$	140,251	$	52,505	$	(192,756)	$	75,216
Adjustments to reconcile net income (loss)
to net cash (used in) provided by operating
activities:
Equity in earnings of subsidiaries		(174,959)		(17,797)				192,756
Depreciation and amortization		1,003		211,866		1,230				214,099
Provision for employee stock compensation		5,582								5,582
Deferred income taxes				65,117		8,554				73,671
Losses from long-lived assets				64,134		9,438				73,572
Changes in operating assets and liabilities, net		(31,381)		69,674		5,019				43,312
Net Cash (Used in) Provided by
Operating Activities		(124,539)		533,245		76,746				485,452
Investing Activities
Purchases of property and equipment				(258,476)		(16,376)				(274,852)
Proceeds from sale of assets				26,107						26,107
Net Cash Used in Investing Activities				(232,369)		(16,376)				(248,745)
Financing Activities
Intercompany borrowings		347,879		(292,712)		(55,167)
Payments on long-term debt				(8,267)						(8,267)
Net repayments under revolving credit
agreement		(159,000)								(159,000)
Proceeds from issuance of stock		670								670
Purchases and retirements of common stock		(25,010)								(25,010)
Net Cash Provided by (Used in)
Financing Activities		164,539		(300,979)		(55,167)				(191,607)
Increase (Decrease) in Cash and
Cash Equivalents		40,000		(103)		5,203				45,100
Cash and Cash Equivalents
at Beginning of Year		--		(3,049)		22,609				19,560
Cash and Cash Equivalents at End of Year	$	40,000	$	(3,152)	$	27,812			$	64,660

62

SAKS INCORPORATED & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, except per share amounts)

CONDENSED CONSOLIDATING STATEMENTS OF INCOME FOR THE YEAR ENDED JANUARY 29, 2000

		Saks		Guarantor	Non-Guarantor
		Incorporated		Subsidiaries	Subsidiaries			Eliminations	Consolidated
Net Sales			$	6,434,167					$	6,434,167
Cost of sales				4,028,779						4,028,779
Gross Margin				2,405,388						2,405,388
Selling, general and administrative expenses	$	9,752		1,458,589	$	92,259	$	(201,214)		1,359,386
Other operating expenses		1,605		561,851		(41,128)				522,328
Store pre-opening costs				13,342						13,342
Integration costs				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		(130,422)		(8,546)						(138,968)
Other income (expense), net				140						140
Income before Provision (Benefit) for
Income Taxes and Extraordinary 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	$	189,643	$	221,711	$	82,834	$	(304,545)	$	189,643

63

SAKS INCORPORATED & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, except per share amounts)

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED JANUARY 29, 2000

		Saks	Guarantor		Non-Guarantor
	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
Depreciation and amortization				164,835		13,940				178,775
Provision for employee deferred compensation		7,736								7,736
Deferred income taxes				72,707		(3,112)				69,595
Extraordinary loss on extinguishment of debt						7,310				7,310
Losses from long-lived assets				12,547						12,547
Changes in operating assets and liabilities, net		(15,873)		(177,730)		(62,255)				(255,858)
Net Cash (Used in) Provided by
Operating Activities		(97,458)		268,489		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
Intercompany borrowings		3,606		(245,054)	241,448
Proceeds from long-term borrowings		550,000								550,000
Payments on long-term debt				(16,504)	(235,841)					(252,345)
Net repayments under revolving
credit agreement		(449,000)								(449,000)
Change in cash placed in escrow
for debt redemption				363,753						363,753
Proceeds from issuance of stock		5,802								5,802
Purchases and retirements of common stock		(33,316)								(33,316)
Net Cash Provided by
Financing Activities		77,092		102,195		5,607				184,894
(Decrease) Increase in Cash and
Cash Equivalents		(20,366)		23,702		(16,528)				(13,192)
Cash and Cash Equivalents
at Beginning of Year		20,366		(26,751)		39,137				32,752
Cash and Cash Equivalents at End of Year	$	--	$	(3,049)	$	22,609			$	19,560

64

REPORTS

Report of Independent Accountants

To the Board of Directors and Shareholders of 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 at February 2, 2002 and February 3, 2001, and the results of their operations and their cash flows for each of the three years in the period ended February 2, 2002 in conformity with accounting principles generally accepted in the United States of America. 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 statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. A n 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.

PricewaterhouseCoopers LLP
Birmingham, Alabama
March 7, 2002

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.

R. Brad Martin
Chairman of the Board and
Executive Executive Officer
Douglas E. Coltharp
Vice President and Chief

  
65

MARKET INFORMATION

The Company’s common stock trades on the New York Stock Exchange under the Symbol SKS. As of March 15, 2002, there were approximately 2,500 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 2001 or 2000.

	Fiscal Year Ended
	February 2, 2002 Price Range				February 3, 2001 Price Range
Quarter		High		Low		High		Low
First	$	13.95	$	10.90	$	15.06	$	10.56
Second	$	13.20	$	9.60	$	12.56	$	10.00
Third	$	10.94	$	4.60	$	10.75	$	8.75
Fourth	$	10.38	$	6.59	$	14.23	$	7.63

66

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
Senior 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 Chief Executive
Officer of Federated Department
Stores and Allied Stores Corporation JAMES A. COGGIN
President and Chief Administrative
Officer of Saks Incorporated JULIUS W. ERVING
President of The Erving Group;
Executive Vice President of
RDV Sports/Orlando Magic MICHAEL 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 GEORGE L. JONES
President and Chief Executive
Officer of Saks Department
Store Group PHILIP B. MILLER
Retired Chairman of
Saks Fifth Avenue C. WARREN NEEL
Commissioner of Finance
and Administration for the
State of Tennessee STEPHEN I. SADOVE
Vice Chairman of
Saks Incorporated MARGUERITE W. SALLEE
President and Chief Executive
Officer of The Brown Schools CHRISTOPHER J. STADLER
Managing Partner of
Investcorp. S.A. GERALD TSAI, JR.
Private Investor

Certain Corporate Officers

R. BRAD MARTIN
Chairman of the Board and
Chief Executive Officer of
Saks Incorporated STEPHEN I. SADOVE
Vice Chairman of
Saks Incorporated JAMES A. COGGIN
President and Chief Administrative
Officer of Saks Incorporated R. THOMAS COAN
Executive Vice President
of Human Resources DOUGLAS E. COLTHARP
Executive Vice President and
Chief Financial Officer BRIAN J. MARTIN
Executive Vice President of
Law and General Counsel DONALD E. WRIGHT
Executive Vice President of
Finance and Chief
Account Officer

Business Unit and Store Officers

CHRISTINA JOHNSON
President and Chief Executive
Officer of Saks Fifth Avenue
Enterprises GEORGE L. JONES
President and Chief Executive
Officer of Saks Department
Store Group TONI E. BROWNING
President and Chief Executive
Officer of Proffit's/McRae's ANTHONY J. BUCCINA
President of Carson Pirie Scott & Co. 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 & Co. ROBERT P. GRUEN
President and Chief Executive
Officer of Parisian

67

STORE LOCATIONS

Saks Fifth Avenue Enterprises

SAKS FIFTH AVENUE STORES ALABAMA
Birmingham ARIZONA
Phoenix CALIFORNIA
Beverly Hills
Carmel
Costa Mesa
La Jolla
Mission Viejo
Palm Desert
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
Troy MINNESOTA
Minneapolis MISSOURI
St. Louis Kansas City NEVADA
Las Vegas NEW JERSEY
Hackensack Short Hills NEW YORK
Garden City
Huntington
New York City
Southampton OHIO
Beachwood
Cincinnati
Columbus OKLAHOMA
Tulsa OREGON
Portland PENNSYLVANIA
Bala Cynwyd
Pittsburgh SOUTH CAROLINA
Charleston
Hilton Head TEXAS
Austin
Dallas
Houston
Hurst
San Antonio VIRGINIA
McLean OFF 5TH STORES ARIZONA
Tempe
Tucson CALIFORNIA
Anaheim
Cabazon
Camarillo
Folsom
Milpitas
Ontario
Petaluma
San Diego COLORADO
Castle Rock CONNECTICUT
Clinton   FLORIDA
Ellenton
Miami
Naples
Orlando
Sunrise GEORGIA
Dawsonville
Lawrenceville HAWAII
Waipahu ILLINOIS
Gurnee
Schaumburg KANSAS
Olathe MARYLAND
Baltimore MASSACHUSETTS
Worcester
Wrentham MICHIGAN
Auburn Hills
Dearborn (2) MINNESOTA
Minneapolis NEVADA
Las Vegas NEW JERSEY
Elizabeth
Paramus   NEW YORK
Central Valley
Niagara Falls
Riverhead
Westbury NORTH CAROLINA
Concord
Morrisville OHIO
Aurora
Cincinnati PENNSYLVANIA
Grove City
Philadelphia SOUTH CAROLINA
Myrtle Beach TENNESSEE
Nashville (2) TEXAS
Grapevine
Katy
San Marcos
Stafford VIRGINIA
Leesburg
Woodbridge

68

STORE LOCATIONS

Saks Department Store Group

PARISIAN STORES ALABAMA
Birmingham (5)
Decatur
Dothan
Florence
Huntsville (2)
Mobile
Montgomery (2)
Tuscaloosa FLORIDA
Jacksonville
Orlando (2)
Pensacola
Tallahassee GEORGIA
Atlanta (7)
Columbus
Macon
Savannah INDIANA
Indianapolis (2) MICHIGAN
Livonia MISSISSIPPI
Tupelo OHIO
Cincinnati
Dayton SOUTH CAROLINA
Charleston
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
Oak Ridge VIRGINIA
Bristol WEST VIRGINIA
Morgantown
Parkerburg McRAE'S STORES ALABAMA
Birmingham (4)
Dothan
Gadsden
Hunstville
Mobile
Selma
Tuscaloosa FLORIDA
Mary Esther
Pensacola LOUISIANA
Baton Rouge
Monroe MISSISSIPPI
Biloxi
Columbus
Gautier
Greenville
Hattiesburg
Jackson (4)
Laurel
McComb
Meridian
Natchez
Tupelo
Vicksburg
  YOUNKER'S STORES ILLINOIS
Moline IOWA
Ames
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
Muskegon
Port Huron
Traverse City MINNESOTA
Austin
Duluth NEBRASKA
Grand Island
Lincoln
Omaha (3) SOUTH DAKOTA
Sioux Falls WISCONSIN
Appleton
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 (3)
Bloomingdale
Bourbonnais
Calumet City
Chicago (3)
Chicago Ridge
Dundee
Evergreen Park
Hammond
Joliet
Lincolnwood
Lombard (2)
Matteson
Mount Prospect
Naperville
Norridge
North Riverside
Orland Park
St. Charles
Schaumburg (2)
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

SHAREHOLDER INFORMATION

Sales Release Dates for 2002

Sales Period February 2002 March 2002 April 2002 May 2002 June 2002 July 2002 August 2002 September 2002 October 2002 November 2002 December 2002 January 2003	Release Date 3/7/02 4/11/02 5/9/02 6/6/02 7/11/02 8/8/02 9/5/02 10/10/02 11/7/02 12/5/02 1/9/03 2/6/03	Send certificates for transfer and address changes to: Receive and Deliver Department P.O. Box 11002 Church Street Station New York, New York 10286 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: www.saksincorporated.com.
Earnings Release Dates for 2002
Quarter First Second Third Fourth	Release Date 5/21/02 8/20/02 11/19/02 To be announced
Annual Meeting The Annual Meeting of Shareholders of Saks Incorporated will be held at 8:30 a.m. Central Time, Wednesday, June 19, 2002, at The Peninsula Chicago, 108 Superior at North Michigan Avenue, Chicago, Illinois 60611. Shareholders are cordially invited to attend. Inquiries Regarding Your Stock Holdings Registered shareholders (shares held by you in your name) should address communications to the Company’s Transfer Agent and Registrar: The Bank of New York (800) 524-4458 (telephone) shareowner-svcs@bankofny.com (e-mail) www.stockbny.com (web site) Address shareholder inquiries to: Shareholder Relations Department P.O. Box 11258 Church Street Station New York, New York 10286

70

CORPORATE INFORMATION

Corporate Headquarters:
750 Lakeshore Parkway
Birmingham, Alabama  35211
(205) 940-4048

Saks Fifth Avenue Enterprises
Headquarters:
12 East 49th Street
New York, New York  10017
(212) 940-4048

Saks Department Store Group
Headquarters:

PARISIAN
750 Lakeshore Parkway
Birmingham, Alabama  35211
(205) 940-4000

PROFITT'S AND McRAE'S
115 North Calderwood Street
Alcoa, Tennesee  37701
(865) 983-7000

YOUNKERS
701 Walnut Street
Des Moines, Iowa  50397
(515) 244-1112

CARSON PIRIE SCOTT, BOSTON STORE,
BERNER'S AND HERBERGER'S
311 West Wisconsin Avenue
Milwaukee, Wisconsin 53203
(414) 347-4141

Independent Accountants
PricewaterhouseCoopers LLP
Birmingham, Alabama

Copyright 2002 Saks Incorporated

EX-21

Exhibit 21.1
SUBSIDIARIES OF REGISTRANT
Saks Incorporated and Subsidiaries
As of March 11, 2002

Name of Subsidiary	Jurisdiction of Formation
1.  Café SFA -- Minneapolis, Inc.	California
2.  Carson Pirie Holdings, Inc.	Delaware
3.  Carson Pirie Scott Insurance Services, Inc.	Illinois
4.  CP Holdings Virginia, LLC	Virginia
5.  Herberger's Department Stores, LLC	Minnesota
6.  Jackson Leasing, LLC	Mississippi
7.  McRae's of Alabama, Inc.	Alabama
8.  McRae's Stores Partnership	Mississippi
9.  McRae's Stores Services, Inc.	Illinois
10.  McRae's, Inc.	Mississippi
11. McRIL, LLC	Virginia
12. Merchandise Credit, LLC	Virginia
13. National Bank of the Great Lakes	United States of America
14. New York City Saks, LLC	New York
15. NorthPark Fixtures, Inc.	Delaware
16. Parisian, Inc.	Alabama
17. Parisian Virginia, LLC	Virginia
18. PMIN General Partnership	Virginia
19. Saks & Company	New York
20. Saks Credit Corporation	Delaware
21. Saks Direct, Inc.	New York
22. Saks Distribution Centers, Inc.	Illinois
23. Saks Fifth Avenue Distribution Company	Delaware
24. Saks Fifth Avenue Food Corporation	California
25. Saks Fifth Avenue of Texas, Inc.	Delaware
26. Saks Fifth Avenue Texas, L.P.	Delaware
27. Saks Fifth Avenue, Inc.	Massachusetts
28. Saks Holdings, Inc.	Delaware
29. Saks Transitional Credit Corporation	Delaware
30. Saks Wholesalers, Inc.	Alabama
31. SCCA, LLC	Virginia
32. SCCA Store Holdings, Inc.	Delaware
33. SCIL, LLC	Virginia
34. SCIL Store Holdings, Inc.	Delaware
35. SFA Finance Company II	Delaware
36. SFA Holdings, Inc.	Delaware
37. SFA Realty, Inc.	Delaware
38. SFAILA, LLC	Virginia
39. Tex SFA, Inc.	New York
40. The Restaurant at Saks Fifth Avenue Corporation	New York

EX-23

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 7, 2002 relating to the financial statements, which appears in the 2001 Annual Report to Shareholders, which is incorporated in this Annual Report on 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
333-75120

Registration Statements on Form S-8
Registration Numbers
33-88390
333-00695
333-25213
333-66759
333-83161
333-83159
333-51244

/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP

Birmingham, Alabama
April 26, 2002

Consent of Independent Accountants

We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (File No. 33-88390) of Saks Incorporated and Subsidiaries of our report dated March 7, 2002 relating to the financial statements of Saks Incorporated Employee Stock Purchase Plan, which appears as Exhibit 99.2 in this Form 10-K.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP
Birmingham, Alabama
April 26, 2002

EX-99

Exhibit 99.1
Cautionary Statements Relating to Forward-Looking Information

The Company and its representatives may, from time to time, make written or verbal forward-looking statements. Those statements relate to developments, results, conditions, or other events the Company expects or anticipates will occur in the future. Without limiting the foregoing, those statements may relate to future revenues, earnings, store openings, market conditions, and the competitive environment. Forward-looking statements are based on management's then-current views and assumptions and, as a result, are subject to risks and uncertainties that could cause actual results to differ materially from those projected.

All forward-looking statements are qualified by the following statements which contain several of the important factors that could cause actual results to differ materially from those predicted by the forward-looking statements:

Competitive, Sales, and Gross Margin Pressures

Our retail business is highly competitive. Each of our operations competes for customers, employees, locations, products, services, and other important items necessary for the successful operation of their businesses with many other local, regional, direct, and national retailers. Those competitors, some of which have greater financial and other resources than those of the Company, include department stores, specialty apparel stores, designer boutiques, outlet stores, discount stores, general and mass merchandisers, mail-order and electronic commerce retailers, and other forms of retail commerce. Changes in the pricing and other practices of those competitors may affect our expected results by decreasing our sales or gross margin percentage.

Customer Trends

It is difficult to predict what merchandise consumers will want. A substantial part of our business is dependent on our ability to make the correct trend decisions for a wide variety of goods and services. Failure accurately to predict constantly changing consumer tastes, preferences, spending patterns, and other lifestyle decisions could adversely affect short-term results and long-term relationships with our customers.

Credit Operations

Sales of merchandise and services are facilitated by the credit card loan operations of the Company's national credit card bank. These credit card loan operations also generate additional revenue from fees related to extending credit. Our bank's ability to extend credit to our customers depends on many factors including compliance with federal and state banking and consumer protection laws, which may change from time to time. In addition, changes in credit card use, payment patterns, and default rates may result from a variety of economic, legal, social, and other factors that we cannot control or predict with certainty. Changes that adversely affect our ability to extend credit and collect payments could negatively affect our results and financial condition.

Global Economic and Political Conditions

Global economic and political factors that are beyond our control influence the Company's forecasts and directly affect performance. These factors include interest rates, rates of economic growth, fiscal and monetary policies of governments, inflation, deflation, consumer credit availability, consumer debt levels, tax rates and policy, unemployment trends, terrorist threats and activities, worldwide military and domestic disturbances and conflicts, and other matters that influence consumer confidence, spending, and tourism. Increasing volatility in financial markets may cause these factors to change with a greater degree of frequency and magnitude. Increases in interest rates may increase our financing costs.

Product Sourcing

The products we sell are sourced from a wide variety of domestic and international vendors. All of our vendors must comply with applicable laws and our required standards of conduct. Our ability to find qualified vendors and access products in a timely and efficient manner is a significant challenge which is typically even more difficult with respect to goods sourced outside of the United States. Trade restrictions, tariffs, currency exchange rates, transport capacity and costs, and other factors significant to this trade are beyond our control and could affect our business.

Advertising and Marketing Programs

The Company spends a meaningful amount on advertising and marketing. Our business depends on high customer traffic in our stores and effective marketing. We have many initiatives in this area, and we often change our advertising and marketing programs. If our advertising and marketing efforts are not effective, this could negatively affect our results.

Inventory Control

The Company's merchants focus on inventory levels and balance these levels with plans and trends. Excess inventories could result in significant markdowns, which could adversely affect our results.

Cost Containment

The Company's performance depends on appropriate management of its expense structure, including its selling, general, and administrative costs. The Company is continuously focused on reducing expenses as a percent of sales. This is a difficult task. The Company's failure to meet its expense budget or to appropriately reduce expenses during a weak sales season could adversely affect our results.

Other Factors

Other factors that could cause actual results to differ materially from those predicted include: weather, changes in the availability or cost of capital, the availability of suitable new store locations on acceptable terms, shifts in the seasonality of shopping patterns, labor strikes or other work interruptions, the effects of excess retail capacity in our markets, material acquisitions or dispositions, the success or failure of significant new business ventures, or adverse results in material litigation.

The foregoing list of important factors is not exclusive, and the Company does not undertake to revise any forward-looking statement to reflect events or circumstances that occur after the date those statements are made.

EX-99

EXHIBIT 99.2

Saks Incorporated Employee Stock
Purchase Plan
Financial Statements
December 31, 2001 and 2000

Saks Incorporated Employee Stock Purchase Plan
Table of Contents

	Pages
Report of Independent Accountants	1
Financial Statements:
Statements of Net Assets Available for Plan Benefits
December 31, 2001 and 2000	2
Statements of Changes in Net Assets Available for Plan Benefits
For the Year Ended December 31, 2001, the Eleven Month Period Ended
December 31, 2000, and the Year Ended January 31, 2000	3
Notes to Financial Statements	4 - 5

Report of Independent Accountants

To the Board of Directors of Saks Incorporated

In our opinion, the accompanying statements of net assets available for plan benefits and the related statements of changes in net assets available for plan benefits, present fairly, in all material respects, the net assets available for plan benefits of Saks Incorporated Employee Stock Purchase Plan at December 31, 2001 and 2000, and the related changes in net assets available for plan benefits for the year ended December 31, 2001, the eleven month period ended December 31, 2000 and the year ended January 31, 2000, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Plan's management; our responsibility is to express an opinion on these statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, 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.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP
Birmingham, Alabama March 7, 2002

1

Saks Incorporated Employee Stock Purchase Plan
Statements of Net Assets Available for Plan Benefits
December 31, 2001 and 2000

		2001		2000
ASSETS
Cash held by Saks Incorporated	$	-	$	-
		-		-
LIABILITIES
Due to terminated employees	$	-	$	-
		-		-
Net assets available for plan benefits	$	-	$	-

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

2

Saks Incorporated Employee Stock Purchase Plan
Statements of Changes in Net Assets Available for Plan Benefits
For the Year Ended December 31, 2001, the Eleven Month Period Ended December 31,
2000, and the Year Ended January 31, 2000

				Eleven
	Year Ended		Months Ended			Year Ended
	December 31,		December 31,			January 31,
		2001		2000		2000
Additions:
Participant contributions	$	978,255	$	1,880,383	$	2,686,882
Deductions:
Purchase of common stock		978,255		1,880,383		2,686,882
Net change		-		-		-
Net assets available for plan benefits:
Beginning of year		-		-		-
End of year	$	-	$	-	$	-

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

3

Saks Incorporated Employee Stock Purchase Plan
Notes to Financial Statements
For the Year Ended December 31, 2001, the Eleven Month Period Ended December 31,
2000, and the Year Ended January 31, 2000

1.	Summary of Significant Accounting Policies and Description of the Plan The following description of the Saks Incorporated Employee Stock Purchase Plan (the "Plan") is provided for general information only. Participants should refer to the Plan agreement for a more complete description of the Plan's provisions.
	General - The Plan provides employees of Saks Incorporated and Subsidiaries (the "Company") an opportunity to purchase shares of common stock of the Company at a 15% discount to market value. The Plan is intended to qualify as an employee stock purchase plan under Section 423 of the Internal Revenue Code of 1986, as amended, and is therefore not subject to Federal and state income taxes.
	During 2000, the Company changed the Plan's year end from January 31 to December 31. Therefore, the year ended December 31, 2000 contains 11 months, compared to 12 months in the current and prior year.
	The total number of shares reserved for issuance under the Plan is 700,000. The number of shares of common stock to be issued under the Plan and the period for which the option to purchase shares will remain outstanding (the "Option Period") are based on an annual determination by the Compensation Committee of the Company's Board of Directors. Option periods currently end on December 31 of each year. The price at which the stock may be purchased is 85% of the lesser of the closing price per share as listed on the New York Stock Exchange on the last business day preceding (i) the grant of the option, or (ii) the exercise of the option. The Plan purchased 123,206 shares at an exercise price of $7.94, 221,221 shares at an exercise price of $8.50, and 227,822 shares at an exercise price of $11.79 for the year ended December 31, 2001, the eleven month period ended December 31, 2000, and the year ended January 31, 2000, respectively. Currently, the Plan has no shares available for future offerings.
	Contributions - Eligible employees may elect annually to make after-tax contributions to the Plan through payroll deductions. Contributions are subject to limitations to be set annually by the Compensation Committee of the Company's Board of Directors. Each participant's account is credited with the participant's contributions. Participants are fully vested in their contributions. The contribution limitation was $2,400 for the year ended December 31, 2001, the eleven month period ended December 31, 2000 and the year ended January 31, 2000.
	Distribution of Stock - As soon as practicable after the purchase of stock by the Plan for its participants, the Company will deliver to each participant certificates representing the shares purchased on their account.

4

Saks Incorporated Employee Stock Purchase Plan
Notes to Financial Statements
For the Year Ended December 31, 2001, the Eleven Month Period Ended December 31,
2000, and the Year Ended January 31, 2000

	Administrative Expenses - The Company pays for all administrative expenses of the Plan.
	Income Taxes - Participants are not taxed upon receipt or exercise of options, but rather upon disposition of shares purchased under the Plan.
	Basis of Accounting - The financial statements have been prepared on the accrual basis of accounting.
2.	Plan Termination Although it has not expressed any intent to do so, the Company has the right under the Plan document to alter, suspend, amend or terminate the Plan. In the event of plan termination, the participants' rights to acquire stock would continue until the end of the current Option Period, at which time shares and cash due to terminated employees would be distributed and no further contributions would be accepted.
3.	Subsequent Event In March of 2002, the Board of Directors authorized 750,000 additional shares available for purchase under the Plan, subject to shareholder approval.

5