THIRD AMENDMENT AND WAIVER TO CREDIT AGREEMENT

Exhibit 10.1

THIRD AMENDMENT AND WAIVER TO

CREDIT AGREEMENT

This Third Amendment and Waiver to Credit Agreement (the “Third Amendment and Waiver”) is made as of the 22^nd day of September, 2006 by and among

SAKS INCORPORATED, a corporation organized under the laws of the State of Tennessee, having a place of business at 750 Lakeshore Parkway, Birmingham, Alabama 35211;

the LENDERS party hereto; and

BANK OF AMERICA, N.A., as successor in interest to Fleet Retail Group, LLC (f/k/a Fleet Retail Group, Inc.), as Agent for the Lenders, a national banking association, having a place of business at 40 Broad Street, Boston, Massachusetts 02109; and

CITICORP NORTH AMERICA, INC., as Syndication Agent; and

WACHOVIA BANK, NATIONAL ASSOCIATION, JPMORGAN CHASE BANK, N.A. and GENERAL ELECTRIC CAPITAL CORPORATION, as Co-Documentation Agents

in consideration of the mutual covenants herein contained and benefits to be derived herefrom.

WITNESSETH

WHEREAS, the Borrower, the Agent, the Syndication Agent, the Co-Documentation Agents and the Lenders have entered into an Amended and Restated Credit Agreement dated as of November 26, 2003 (as amended and in effect, the “Credit Agreement”); and

WHEREAS, Fleet Retail Group, LLC (f/k/a Fleet Retail Group, Inc.) (the “Existing Agent”) has contemporaneously herewith assigned all of its right, title, and interest as a Lender under the Credit Agreement and each of the other Loan Documents to Bank of America, N.A., and the Existing Agent desires to resign as Agent hereunder and the Lenders desire to appoint Bank of America, N.A. as successor Agent; and

WHEREAS, the Borrower has advised the Agent, the Lenders, the Syndication Agent, and the Co-Documentation Agents that the Borrower intends to sell its equity interests (the “Parisian Transferred Equity”) in Parisian Stores, Inc. (f/k/a McRae’s of Alabama, Inc.), Parisian Wholesalers, Inc. (f/k/a Saks Wholesalers, Inc.) and Parisian Alabama, Inc. (together with Parisian Stores, Inc. and Parisian Wholesalers, Inc., the “Parisian Transferred Companies”) to Belk, Inc.; and

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WHEREAS, the Borrower has requested that the Agent release its Lien on the Collateral owned by the Parisian Transferred Companies and release the Parisian Transferred Companies from their respective obligations under the Credit Agreement and the other Loan Documents; and

WHEREAS, the sale of the Parisian Transferred Equity without the consent of the Majority Lenders would violate Section 7.8 of the Credit Agreement, resulting in an Event of Default under Section 9.1(c) of the Credit Agreement; and

WHEREAS, the Borrower, the Agent, the Lenders, the Syndication Agent and the Co-Documentation Agents have agreed to amend certain provisions of the Credit Agreement as set forth herein in order to, among other things, permit the sale of the Parisian Transferred Equity; and

WHEREAS, the Borrower has requested that the Agent and the Majority Lenders waive, and the Agent and the Majority Lenders are willing to waive, on the terms and conditions set forth herein, the Events of Default which have arisen by virtue of (i) the Borrower’s failure to give the Agent not less than thirty (30) days prior notice to the change of name of McRae’s Stores Services, Inc. to Club Libby Lu, Inc., (ii) the Borrower’s failure to give the Agent not less than thirty (30) days prior notice to the change of name of McRae’s of Alabama, Inc. to Parisian Stores, Inc., (iii) the Borrower’s failure to give the Agent not less than thirty (30) days prior notice to the change of name of Saks Wholesalers, Inc. to Parisian Wholesalers, Inc., in each case as required under Section 5.3(f) of the Credit Agreement and (iv) the Borrower’s failure to cause Parisian Alabama, Inc. to promptly execute a joinder to the Guaranty and Security Agreement as required under Section 7.24(c) of the Credit Agreement.

NOW THEREFORE, it is hereby agreed as follows:

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“Parisian Sale” means the sale of the Parisian Transferred Equity to Belk, Inc. pursuant to, and in accordance with, the terms of a certain Stock Purchase Agreement dated as of August 1, 2006 (with such amendments, modifications or waivers to which the Agent has consented (such consent not to be unreasonably withheld or delayed and being required only to the extent such amendments, modifications or waivers are materially adverse to the Lenders (as reasonably determined by the Agent))).

“Parisian Transferred Equity” means the outstanding equity interests of the Borrower in Parisian Stores, Inc., Parisian Wholesalers, Inc. and Parisian Alabama, Inc.

“Parisian Transferred Companies” means Parisian Stores, Inc., Parisian Wholesalers, Inc. and Parisian Alabama, Inc.

“Stated Termination Date” means September 22, 2011.

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which have been sold pursuant to the Parisian Sale, and all obligations of the Parisian Transferred Companies under the Credit Agreement and the other Loan Documents (including, without limitation, pursuant to the Subsidiary Guaranty), shall be automatically and unconditionally released and discharged without any further action of the Agent or the Lenders. The Agent hereby agrees to execute and to deliver to the Borrower promptly upon the Borrower’s request, such agreements, documents and instruments as may be reasonably requested by the Borrower, and prepared at the Borrower’s sole expense, including, without limitation, UCC termination statements and UCC statements of amendment, to evidence the release of the Agent’s Liens on the assets of the Parisian Transferred Companies which have been sold pursuant to the Parisian Sale and the release of the Parisian Transferred Companies of all obligations under the Credit Agreement and the other Loan Documents (including, without limitation, pursuant to the Subsidiary Guaranty).

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IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment and Waiver to be executed and their seals to be hereto affixed as the date first above written.

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