STAGE STORES INC
EXHIBIT 10
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<DESCRIPTION>EXHIBIT 10
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<title>Exhibit 10</title>



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<h1><font size="4">Exhibit 10</font></h1>

<p class=MsoNormal align=center style='margin-top:12.0pt;text-align:center'><b>SEVERANCE AGREEMENT - RELEASE OF ALL CLAIMS</b></p>

<p class=MsoNormal style='margin-top:12.0pt;text-align:justify;text-indent:
.5in'>This Severance Agreement-Release of All
Claims (hereinafter the &quot;Agreement&quot;) is made between Vivian McDonald
(hereinafter &quot;Ms.&nbsp;McDonald&quot;), an individual, on behalf of herself and her
heirs and representatives, and Stage Stores, Inc., including its officers,
directors, members, employees, affiliates, agents, subsidiaries, attorneys,
benefit plan and plan administrators, joint ventures, successors and/or assigns
(hereinafter collectively referred to as &quot;Stage&quot;).&nbsp; Ms.&nbsp;McDonald and Stage
are collectively referred to in this Agreement as the &quot;Parties&quot;.</p>

<p class=MsoNormal style='margin-top:12.0pt;text-align:justify;text-indent:
.5in'>In consideration of the covenants and
agreements set forth in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Ms.&nbsp;McDonald and Stage, intending to be legally bound, agree as follows:</p>

<p class=MsoNormal style='margin-top:12.0pt;text-align:justify;text-indent:
.5in'><b>1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Employment Agreement</u></b>.&nbsp; Ms.&nbsp;McDonald and Stage are parties to an
Employment Agreement dated January 30, 2002 (the &quot;Employment Agreement&quot;).&nbsp;
Terms not otherwise defined in this Agreement shall have the definitions given
to them in the Employment Agreement.</p>

<p class=MsoNormal style='margin-top:12.0pt;text-align:justify;text-indent:
.5in'><b>2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Nature of Release</u></b>.&nbsp; This Agreement terminates the Employment Agreement
and resolves all past, pending, threatened, or possible claims, if any there be,
arising under any state or federal law by Ms.&nbsp;McDonald, her heirs and
assigns and any derivative claims against Stage, its parent, subsidiaries,
related companies, or any Stage related entity or its current and/or former
officers, directors, members, attorneys, agents and employees, arising out of
the Employment Agreement, any other agreement to which Ms.&nbsp;McDonald and
Stage are parties, or any other terms or conditions of Ms.&nbsp;McDonald's
employment with Stage.</p>

<p class=MsoNormal style='margin-top:12.0pt;text-align:justify;text-indent:
.5in'><b>3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Employment</u></b>.&nbsp; Ms.&nbsp;McDonald acknowledges that her employment
with Stage is terminated effective September 4, 2004 (the &quot;Effective Date&quot;).&nbsp;
The execution of this Agreement by Ms.&nbsp;McDonald shall evidence
Ms.&nbsp;McDonald's resignation from her capacities as Executive Vice
President, General Merchandise Manager of Stage as of the Effective Date.</p>

<p class=MsoNormal style='margin-top:12.0pt;text-align:justify;text-indent:
.5in'><b>4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Confidentiality</u></b>.&nbsp; Ms.&nbsp;McDonald agrees that the terms of this
Agreement shall be maintained in confidence in all circumstances and that only
Ms.&nbsp;McDonald, her immediate family and her chosen accountant and/or legal
representative to the extent necessary to perform services, shall be apprised
by her of the terms and conditions of this Agreement except as it is necessary
in the enforcement of this Agreement.&nbsp; Notwithstanding the foregoing,
Ms.&nbsp;McDonald acknowledges that this Agreement, as a material contract,
will be filed as an exhibit to Stage's next periodic report filed with the
Securities and Exchange Commission.</p>

<p class=MsoNormal style='margin-top:12.0pt;text-align:justify;text-indent:
.5in'><b>5.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Non-Admission</u></b>.&nbsp; The Parties acknowledge that this Agreement
evidences the mutual termination of an employment relationship and is not an
admission of any wrongdoing or liability on the part of Stage or
Ms.&nbsp;McDonald.</p>

<p class=MsoNormal style='margin-top:12.0pt;text-align:justify;text-indent:
.5in'><b>6.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Texas</u><u> Contract</u></b>.&nbsp; The Parties agree that this Agreement constitutes a
contract to be governed by the laws of the State of Texas without regard to the
laws of any other location.&nbsp; The Parties agree that they shall be subject to Texas jurisdiction for any action to enforce this Agreement or to remedy any breach of this
Agreement.</p>

<p class=MsoNormal style='margin-top:12.0pt;text-align:justify;text-indent:
.5in'><b>7.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Health Insurance</u></b>.&nbsp; Ms.&nbsp;McDonald's coverage under Stage's medical
and dental insurance plans will end at 12:01 a.m. local time on
September&nbsp;5, 2005.&nbsp; Ms.&nbsp;McDonald will become eligible for COBRA
continuation coverage beginning at 12:01 a.m. local time on September&nbsp;5,
2005.&nbsp; If Ms.&nbsp;McDonald elects COBRA continuation coverage, the total cost
of such COBRA continuation coverage shall be Ms.&nbsp;McDonald's
responsibility.</p>

<p class=MsoNormal style='margin-top:12.0pt;text-align:justify;text-indent:
.5in'><b>8.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Life Insurance</u></b>.&nbsp; Ms.&nbsp;McDonald's life insurance coverage through
Stage will end at 12:01 a.m. local time on September&nbsp;5, 2005.&nbsp; Conversion
options are available and will be made known to her through the insurance
carrier.</p>

<p class=MsoNormal style='margin-top:12.0pt;text-align:justify;text-indent:
.5in'><b>9.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Severance Payments</u></b>.&nbsp; Exclusive of any other consideration or benefit to
Ms.&nbsp;McDonald enumerated in this Agreement, in consideration of the
agreements made herein and as set forth in Sections 4.3.1 and 4.3.2 of the
Employment Agreement, Stage agrees to pay Ms.&nbsp;McDonald the following
amounts, in each case less applicable payroll taxes, withholding and other
deductions, which may be required to be withheld under any provision of applicable
laws, agreements or as otherwise requested by Ms.&nbsp;McDonald:</p>

<p class=MsoNormal style='margin-top:12.0pt;margin-right:0in;margin-bottom:
0in;margin-left:1.0in;margin-bottom:.0001pt;text-align:justify;text-indent:
-.5in'>(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;$13,269.23, as Base Salary
earned and unpaid through the Effective Date, which shall be paid to
Ms.&nbsp;McDonald within thirty (30) days of the Effective Date,</p>

<p class=MsoNormal style='margin-top:12.0pt;margin-right:0in;margin-bottom:
0in;margin-left:1.0in;margin-bottom:.0001pt;text-align:justify;text-indent:
-.5in'>(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;$517,500.00, representing
one&nbsp;(1) times the aggregate of (x)&nbsp;the Base Salary plus (y)&nbsp;the
Incentive Compensation at the Target Rate as of the Effective Date, which shall
be paid to Ms.&nbsp;McDonald in regular installments commencing from the
Effective Date in accordance with Stage's general payroll practices, </p>

<p class=MsoNormal style='margin-top:12.0pt;margin-right:0in;margin-bottom:
0in;margin-left:1.0in;margin-bottom:.0001pt;text-align:justify;text-indent:
-.5in'>(c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Any Incentive Compensation
for Stage's current fiscal year, pro-rated through the Effective Date, to
which Stage's Board of Directors determines Ms. McDonald is entitled, which
shall be paid to Ms.&nbsp;McDonald in a lump sum on or before April 1, 2005,
and</p>

<p class=MsoNormal style='margin-top:12.0pt;margin-right:0in;margin-bottom:
0in;margin-left:1.0in;margin-bottom:.0001pt;text-align:justify;text-indent:
-.5in'>(d)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A maximum aggregate of
$15,000 for outplacement services for a period of twelve (12) months from the
Effective Date, which shall be paid directly to the entity providing
outplacement services to Ms.&nbsp;McDonald within ten (10) days of Stage's
receipt of an invoice or statement from such entity.</p>

<p class=MsoNormal style='margin-top:12.0pt;text-align:justify;text-indent:
.5in'><b>10.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Arbitration</u></b>.&nbsp; Should any dispute arise relating to the meaning,
interpretation, or application of this Agreement, the dispute shall be settled
in Harris County, Texas, in accordance with the employment dispute arbitration
rules of the American Arbitration Association, and each party shall bear their
own costs and attorney's fees.</p>

<p class=MsoNormal style='margin-top:12.0pt;text-align:justify;text-indent:
.5in'><b>11.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Return of Property</u></b>.&nbsp; Ms.&nbsp;McDonald shall deliver to Stage at 10201 Main Street, Houston, Texas&nbsp; 77025, Attention:&nbsp; Chief Executive Officer, on or before
the Effective Date, any and all property of Stage, including but not limited to
keys, computers, credit cards, company car, documents (including Confidential
Information as defined herein) and/or any other company property in
Ms.&nbsp;McDonald's possession or control.</p>

<p class=MsoNormal style='margin-top:12.0pt;text-align:justify;text-indent:
.5in'><b>12.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Attorney Fees</u></b>.&nbsp; The Parties agree that all attorney fees, costs and
income tax liability, if any, related to this Agreement, are to be paid by the
respective party.</p>

<p class=MsoNormal style='margin-top:12.0pt;text-align:justify;text-indent:
.5in'><b>13.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>No Disparagement</u></b>.&nbsp; Ms.&nbsp;McDonald and Stage agree not to engage in
any disruptive or disparaging activities, directly and/or indirectly,
concerning each other.&nbsp; This includes, but is not limited to, disparaging
comments, correspondence or conversations with any and all persons; provided, however,
this clause shall not prevent either party from testifying truthfully if
compelled to do so by subpoena, court order, or other legal process, after
providing written notice to the other party.</p>

<p class=MsoNormal style='margin-top:12.0pt;text-align:justify;text-indent:
.5in'><b>14.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Confidential
Information</u></b>.&nbsp; Ms.&nbsp;McDonald
acknowledges that the information, observations and data obtained by her while
employed by Stage concerning the business affairs of Stage (&quot;Confidential
Information&quot;) are the property of Stage.&nbsp; Ms.&nbsp;McDonald shall not disclose
to any unauthorized person, or use for Ms.&nbsp;McDonald's own purposes, any
Confidential Information without the prior written consent of Stage's Board of
Directors, unless and to the extent that the aforementioned matters become
generally known to, and available for use by, the public other than as a result
of Ms.&nbsp;McDonald's acts or omissions.&nbsp; Ms.&nbsp;McDonald shall deliver to
Stage at 10201 Main Street, Houston, Texas&nbsp; 77025, Attention:&nbsp; Chief Executive
Officer, on the Effective Date, or at any other time Stage may request, all
memoranda, notes, plans, records, reports, computer tapes, printouts and
software and other documents and data (including any and all copies thereof)
relating to or containing any portion of the Confidential Information, or
relating to the business of Stage which she may then possess or have under her
control.</p>

<p class=MsoNormal style='margin-top:12.0pt;text-align:justify;text-indent:
.5in'><b>15.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Non-Compete</u></b>.&nbsp; Ms.&nbsp;McDonald agrees that, for a period of one
year from the Effective Date, she will not directly or indirectly either for
herself or for any other person or entity (whether as an officer, director,
employee, owner, stockholder, consultant, agent, advisor, general partner,
limited partner or otherwise), individually or as part of a group, own,
operate, manage, control, participate in, consult with, render services for, or
in any manner engage in any business competing with any part of the business
presently engaged in by Stage within any geographical area in which Stage
engages or has proposed to engage in such business (or solicit any person to
engage in any of the foregoing activities).&nbsp; For purposes of the foregoing, a
business shall be deemed to be competing with the business of Stage if such
business (a)&nbsp;operates apparel stores in small markets (<i>i.e.</i>, with
populations of less than 50,000), and (b)&nbsp;operates a significant number of
its apparel stores (25% or more of its total apparel stores) in 10,000&#8209;30,000
square foot formats, and (c)&nbsp;has sales in excess of $10 million per annum,
and (d) operates an apparel store within 25 miles of a store operated by
Stage.&nbsp; Nothing herein shall prohibit Ms.&nbsp;McDonald from being a passive
owner of not more than five (5%), in the aggregate, of the outstanding stock of
any class of securities of a corporation which is publicly traded and which
competes in the business of Stage so long as Ms.&nbsp;McDonald has no direct or
indirect participation in the management or directorship of such corporation.&nbsp;
Ms.&nbsp;McDonald acknowledges that the foregoing restriction is reasonable in
all respects and that no less restrictive provision in terms of duration
prohibited activities or geographic area adequately protects Stage's assets and
other legitimate business interests.</p>

<p class=MsoNormal style='margin-top:12.0pt;text-align:justify;text-indent:
.5in'><b>16.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Non-Solicitation</u></b>.&nbsp; Ms.&nbsp;McDonald agrees that, for a period of one
year from the Effective Date, she shall not directly or indirectly, on her own
behalf or for any other person or entity, induce or attempt to induce any
employee of Stage to leave the employ of Stage, hire any person who is an
employee of Stage as of or immediately prior to the time of such hiring, or
induce or attempt to induce any manufacturers' representative, customer,
supplier, licensee, agent or any other person or entity having a business
relationship with Stage to cease doing business with or reduce the volume of
its business with Stage.</p>

<p class=MsoNormal style='margin-top:12.0pt;text-align:justify;text-indent:
.5in'><b>17.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Damages</u></b>.&nbsp; Because of the difficulty of measuring economic
losses to Stage as a result of any breach of this Agreement by
Ms.&nbsp;McDonald, and because of the immediate and irreparable damage that
could be caused to Stage by such a breach for which it would have no other
remedy, Ms.&nbsp;McDonald agrees that Stage may enforce the provisions of this
Agreement by injunctions and restraining orders against Ms.&nbsp;McDonald for
such a breach, in addition to any other available relief at law or equity.&nbsp;
Also, should Ms.&nbsp;McDonald breach this Agreement, any amounts paid by Stage
to Ms.&nbsp;McDonald under Section 9 before the breach occurred must be
refunded to Stage by Ms.&nbsp;McDonald within thirty (30) days of the breach.&nbsp;
In any action to enforce this Agreement, the prevailing party shall be entitled
to recover its costs and a reasonable attorney's fee.</p>

<p class=MsoNormal style='margin-top:12.0pt;text-align:justify;text-indent:
.5in'><b>18.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Mutual Release</u></b>.&nbsp; As a material inducement to enter into this
Agreement, Ms.&nbsp;McDonald hereby unconditionally releases and forever
discharges Stage and each of its owners, predecessors, successors, assigns,
agents, directors, officers, employees, representatives, attorneys,
accountants, divisions, subsidiaries, affiliates, and all persons acting by,
through, under or in concert with any of them for any and all charges,
complaints, claims, liabilities, obligations, promises, agreement, controversies,
damages, actions, causes of action, suits, rights, demands, cost, losses, debts
and expenses (including attorneys' fees and costs actually incurred) of any
nature whatsoever, known or unknown, suspected or unsuspected, including but
not limited to rights under Title VII of the Civil Rights Act of 1964, as
amended, the Age Discrimination and Employment Act of 1967 (&quot;ADEA&quot;) and other
federal, state or local laws prohibiting discrimination, breach of contract or
public policy, wrongful or retaliatory discharge, defamation, personal or
business injury claims growing out of any legal restrictions on Stage's right
to terminate its employees that Ms.&nbsp;McDonald now has, or holds or claims
to have owned or held or which Ms.&nbsp;McDonald would at any time heretofore
have had, owned or held against Stage or any Stage related entity.&nbsp;
Ms.&nbsp;McDonald and Stage hereby expressly waive the benefit of any statute
or rule of law which, if applied to this Agreement, would otherwise exclude
from its binding effect any claims not now known by Ms.&nbsp;McDonald or Stage
to exist. </p>

<p class=MsoNormal style='margin-top:12.0pt;text-align:justify;text-indent:
.5in'>To comply with the Older Worker's Benefit
Protection Act of 1990 (the &quot;Act&quot;), Stage has advised Ms.&nbsp;McDonald of the
legal requirements of this Act and fully incorporates the legal requirements of
the Act by reference into this Agreement as follows:</p>

<p class=MsoNormal style='margin-top:12.0pt;margin-right:0in;margin-bottom:
0in;margin-left:1.0in;margin-bottom:.0001pt;text-align:justify;text-indent:
-.5in'>a.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; This Agreement is written
in layman's terms, and Ms.&nbsp;McDonald represents that she understands and
comprehends its terms;</p>

<p class=MsoNormal style='margin-top:12.0pt;margin-right:0in;margin-bottom:
0in;margin-left:1.0in;margin-bottom:.0001pt;text-align:justify;text-indent:
-.5in'>b.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Ms.&nbsp;McDonald has been
advised of her rights to consult an attorney to review this Agreement and have
the benefit of an attorney through&nbsp;<br>
&nbsp;&nbsp;&nbsp; the settlement process;</p>

<p class=MsoNormal style='margin-top:12.0pt;margin-right:0in;margin-bottom:
0in;margin-left:1.0in;margin-bottom:.0001pt;text-align:justify;text-indent:
-.5in'>c.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Ms.&nbsp;McDonald does not
waive any rights or claims that may arise after the date this Agreement is
executed;</p>

<p class=MsoNormal style='margin-top:12.0pt;margin-right:0in;margin-bottom:
0in;margin-left:1.0in;margin-bottom:.0001pt;text-align:justify;text-indent:
-.5in'>d.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Ms.&nbsp;McDonald affirms
that she is receiving consideration beyond anything of value to which she is
already entitled; and</p>

<p class=MsoNormal style='margin-top:12.0pt;margin-right:0in;margin-bottom:
0in;margin-left:1.0in;margin-bottom:.0001pt;text-align:justify;text-indent:
-.5in'>e.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Ms.&nbsp;McDonald has been
given a reasonable period of time to consider this Agreement.</p>

<p class=MsoNormal style='margin-top:12.0pt;text-align:justify;text-indent:
.5in'><b>19.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Consideration Period,
Limited Revocation And Effective Date</u></b>.&nbsp; The parties agree that Ms.&nbsp;McDonald was provided at least twenty-one&nbsp;(21)
calendar days during which to consider whether to sign this Severance Agreement-Release
of All Claims.&nbsp; The signed Agreement must be delivered to Stage Stores, Inc., 10201 Main Street, Houston, Texas&nbsp; 77025, Attention: Chief Executive Officer, no later than
5:00 p.m. C.S.T., on August&nbsp;23, 2004.&nbsp; In any event, Ms.&nbsp;McDonald
will have seven&nbsp;(7) calendar days from the date she signs and delivers a
copy of the Agreement to Stage Stores, Inc., 10201 Main Street, Houston, Texas&nbsp;
77025, Attention: Chief Executive Officer, during which Ms.&nbsp;McDonald may
revoke the Agreement by delivering a signed and dated notice of revocation to
Stage Stores, Inc., 10201 Main Street, Houston, Texas&nbsp; 77025, Attention: Chief
Executive Officer.&nbsp; This Agreement becomes effective and enforceable when the
seven&nbsp;(7) day revocation period has expired if Ms.&nbsp;McDonald has not
delivered a written revocation to Stage Stores, Inc., 10201 Main Street, Houston, Texas&nbsp; 77025, Attention: Chief Executive Officer, before that time.</p>

<p class=MsoNormal style='margin-top:12.0pt;text-align:justify;text-indent:
.5in'><b>20.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Payment Of Other
Compensation</u></b>.&nbsp; Ms.&nbsp;McDonald
acknowledges that except as set forth in Section&nbsp;9, all compensation
normally due her at the time of her termination will be paid by Stage within 14
calendar days from the date of her termination.&nbsp; Except as set forth in
Section&nbsp;9, any other benefits to which Ms.&nbsp;McDonald may be entitled
shall be distributed in accordance with the terms of the individual plan
documents.</p>

<p class=MsoNormal style='margin-top:12.0pt;text-align:justify;text-indent:
.5in'><b>21.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Stock Options</u></b>.&nbsp; The Parties acknowledge that pursuant to the terms
and conditions of a Stock Option Agreement dated August&nbsp;24, 2001,
Ms.&nbsp;McDonald was issued options for 150,000&nbsp;shares of the Company's
common stock in three groupings with per share exercise prices of $13.75,
$15.00 and $16.25, respectively (the &quot;Options&quot;).&nbsp; The Parties also acknowledge
that the right to exercise the Options vests over four years from
August&nbsp;24, 2001, with 25% of each grouping vesting at the end of each of
the first four years following the date of grant, and expire sixty (60) days
after the Effective Date.&nbsp; </p>

<p class=MsoNormal style='margin-top:12.0pt;margin-right:0in;margin-bottom:
0in;margin-left:1.0in;margin-bottom:.0001pt;text-align:justify;text-indent:
-.5in'>(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Ms.&nbsp;McDonald agrees
and acknowledges that as of the Effective Date the following Options will have
vested, are exercisable, and will remain exercisable until November&nbsp;4,
2004, at which time they shall expire:</p>

<p class=MsoNormal style='margin-top:12.0pt;margin-right:0in;margin-bottom:
0in;margin-left:1.0in;margin-bottom:.0001pt;text-align:justify'>12,500 Options @ $13.75/share</p>

<p class=MsoNormal style='margin-top:12.0pt;margin-right:0in;margin-bottom:
0in;margin-left:1.0in;margin-bottom:.0001pt;text-align:justify'>12,500 Options @ $15.00/share</p>

<p class=MsoNormal style='margin-top:12.0pt;margin-right:0in;margin-bottom:
0in;margin-left:1.0in;margin-bottom:.0001pt;text-align:justify'>12,500 Options @ $16.25/share</p>

<p class=MsoNormal style='margin-top:12.0pt;margin-right:0in;margin-bottom:
0in;margin-left:1.0in;margin-bottom:.0001pt;text-align:justify;text-indent:
-.5in'>(b)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Ms.&nbsp;McDonald agrees
and acknowledges that as of the Effective Date, the following options have not
become vested and shall be forfeited as of the Effective Date:</p>

<p class=MsoNormal style='margin-top:12.0pt;margin-right:0in;margin-bottom:
0in;margin-left:1.0in;margin-bottom:.0001pt;text-align:justify'>12,500 Options @ $13.75/share</p>

<p class=MsoNormal style='margin-top:12.0pt;margin-right:0in;margin-bottom:
0in;margin-left:1.0in;margin-bottom:.0001pt;text-align:justify'>12,500 Options @ $15.00/share</p>

<p class=MsoNormal style='margin-top:12.0pt;margin-right:0in;margin-bottom:
0in;margin-left:1.0in;margin-bottom:.0001pt;text-align:justify'>12,500 Options @ $16.25/share</p>

<p class=MsoNormal style='margin-top:12.0pt;text-align:justify;text-indent:
.5in'><b>22.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Exchange Act Compliance</u></b>.&nbsp; Ms.&nbsp;McDonald acknowledges (a)&nbsp;that as an
officer of Stage she has received a copy of the Company's Insider Trading and
Reporting Policy (as of January&nbsp;21, 2004) (the &quot;Policy&quot;) and that she is a
Section&nbsp;16(a) Reporting Person as identified on Exhibit&nbsp;A to the
Policy, (b)&nbsp;that pursuant to Section&nbsp;16(b) of the Securities Exchange
Act of 1934, as amended (&quot;Section 16(b)&quot;), directors, officers and principal
shareholders must disgorge profits received in the event they purchase and
sell, or sell and purchase, Stage's common stock or other equity securities
within a six month period (any transaction executed within six months of an
opposite transaction) (&quot;short-swing profits&quot;), (c)&nbsp;that the exercise of a
stock option and the sale of the stock acquired does not trigger liability for
short-swing profits; however, the sale of the stock acquired from the exercise
of a stock option by a former officer or director of Stage will be matched
against all purchases of Stage stock within six months prior to the date of
sale of the stock acquired from exercise of the stock option and is therefore
reportable under Section 16(a) on Form 4; and Section&nbsp;16(b) remains
applicable to former officers and directors for a period of six months after
they cease to be in those positions, (d)&nbsp;it is becoming common practice
for shareholders of public companies and their counsel to monitor transactions
reported to the SEC by directors, officers and principal shareholders of those
public companies in an effort to cause the disgorgement of profits made by
those persons, (e)&nbsp;in addition to the disgorgement of profits, those
shareholders also seek the reimbursement of their attorneys fees related to
their investigation of Section 16(b) violations even if a lawsuit is not filed
to recover the profits, and (f)&nbsp;directors and officers may also be subject
to SEC or court imposed civil penalties of up to $100,000.&nbsp; Therefore,
Ms.&nbsp;McDonald acknowledges and agrees as follows:</p>

<ul>
  <li>Transactions by her after the Effective Date that
     occur within six months of an opposite transaction that occurred before
     the Effective Date must be reported by her on a Form 4 report, the
     preparation and electronic filing with the SEC of which she agrees to be
     solely responsible,</li>
  <li>Transactions by her after the
Effective Date that do not occur within six months of an opposite transaction
that occurred before the Effective Date do not have to be reported on a
Form&nbsp;4 report,</li>
  <li>She need not file a Form&nbsp;4
report solely to indicate her resignation, and</li>
  <li>She will indemnify Stage against,
and immediately reimburse Stage for, any losses, including attorney's fees,
Stage may incur as a result of any violation by her of Section 16(b).</li>
</ul>

<p class=MsoNormal style='margin-top:12.0pt;text-align:justify;text-indent:
.5in'><b>23.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Terms of This Agreement
are Severable</u></b>.&nbsp; If any provision
of this Agreement is held invalid, the invalidity shall not affect other
provisions or applications of this Agreement which can be given effect without
the invalid provision or applications; and to this end the provisions of this
Agreement are declared to be severable.</p>

<p class=MsoNormal style='margin-top:12.0pt;text-align:justify;text-indent:
.5in'><b>24.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <u>Entire Agreement</u></b>.&nbsp; The Parties agree that this Agreement contains the
entire agreement between them and supersedes all prior and/or contemporaneous
written or oral agreements between them.&nbsp; The Parties also agree and acknowledge
that no other promises or agreements have been offered before this Agreement
(other than what is described herein) and that no other promise or agreement
between the Parties will be binding unless it is in writing and signed by the
Parties.</p>

<p class=MsoNormal style='margin-top:12.0pt;text-align:justify;text-indent:
.5in'>25.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; MS.&nbsp;MCDONALD
ACKNOWLEDGES THAT SHE HAS CAREFULLY READ THIS AGREEMENT, KNOWS AND UNDERSTANDS
ITS CONTENT AND MEANING, AND HAS NOT BEEN COERCED OR THREATENED INTO SIGNING
IT.&nbsp; MS.&nbsp;MCDONALD IS HEREBY ADVISED TO CONSULT WITH AN ATTORNEY OF
MS.&nbsp;MCDONALD'S CHOOSING REGARDING THE EFFECT OF THIS AGREEMENT PRIOR TO
SIGNING IT.</p>

<br clear=all
style='page-break-before:always'>




<p class=MsoNormal style='margin-top:12.0pt;text-align:justify;text-indent:
.5in'>The Parties enter into this Agreement
voluntarily and with full knowledge of its contents.</p>

<p class=MsoNormal style='margin-top:12.0pt;text-align:justify;text-indent:
.5in'>Signed this 25<sup>th</sup> day of August,
2004.</p>

<p class=MsoNormal align=center style='margin-top:12.0pt;text-align:center'>READ THIS AGREEMENT CAREFULLY BEFORE SIGNING</p>

<p class=MsoNormal style='margin-top:.5in;margin-right:0in;margin-bottom:0in;
margin-left:3.5in;margin-bottom:.0001pt;text-align:justify'><u>/s/ Vivian McDonald&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </u></p>

<p class=MsoNormal style='margin-left:3.5in;text-align:justify'>Vivian McDonald</p>

<p class=MsoNormal style='margin-top:24.0pt;margin-right:0in;margin-bottom:
0in;margin-left:3.5in;margin-bottom:.0001pt;text-align:justify'>Stage Stores, Inc.</p>

<p class=MsoNormal style='margin-top:.5in;margin-right:0in;margin-bottom:0in;
margin-left:3.5in;margin-bottom:.0001pt;text-align:justify'>By: <u>/s/ James R. Scarborough&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </u></p>

<p class=MsoNormal style='margin-left:3.5in;text-align:justify'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Name: James Scarborough</p>

<p class=MsoNormal style='margin-left:3.5in;text-align:justify'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Title: President and CEO</p>

<br clear=all
style='page-break-before:always'>


<p class=MsoNormal align=center style='margin-top:12.0pt;text-align:center'>ACKNOWLEDGMENTS</p>



<p class=MsoNormal style='text-align:justify'>STATE
OF TEXAS&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; )</p>



<p class=MsoNormal style='text-align:justify'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; ss:</p>

<p class=MsoNormal style='text-align:justify'>COUNTY OF HARRIS&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; )</p>

<p class=MsoNormal style='margin-top:12.0pt;text-align:justify;text-indent:
.5in'>On this 25<sup>th</sup> day of August,
2004, before me, a Notary Public, personally appeared Vivian McDonald, to me
known to be the person who executed the foregoing Severance Agreement
Agreement-Release of All Claims, and acknowledged that she executed it as her
free and voluntary act and deed.</p>

<p class=MsoNormal style='margin-top:12.0pt;text-align:justify'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Given under my hand and seal the day
and year last above written.</p>

<p class=MsoNormal style='margin-top:30.0pt;margin-right:0in;margin-bottom:
0in;margin-left:3.5in;margin-bottom:.0001pt;text-align:justify'><u>/s/ Melinda Jo Perry&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </u></p>

<p class=MsoNormal align=center style='margin-left:3.5in;text-align:center'>Notary Public</p>

<p class=MsoNormal style='margin-top:12.0pt;text-align:justify'>My Commission Expires:&nbsp; August 01, 2005</p>

<p class=MsoNormal style='margin-top:42.0pt;text-align:justify'>STATE OF TEXAS&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; )</p>

<p class=MsoNormal style='text-align:justify'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; ss:</p>

<p class=MsoNormal style='text-align:justify'>COUNTY OF HARRIS&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; )</p>



<p class=MsoNormal style='text-align:justify'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; On
this 25<sup>th</sup> day of August, 2004, before me, a Notary Public,
personally appeared James Scarborough, to me known to be the identical person
who executed the foregoing Severance Agreement Agreement-Release of All Claims
as the authorized representative of Stage Stores, Inc. and acknowledged to me
that he executed the same as his free and voluntary act and deed and as the
free and voluntary act and deed of such corporation, for the uses and purposes
therein set forth.</p>

<p class=MsoNormal style='margin-top:12.0pt;text-align:justify'>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Given under my hand and seal the day
and year last above written.</p>

<p class=MsoNormal style='margin-top:30.0pt;margin-right:0in;margin-bottom:
0in;margin-left:3.5in;margin-bottom:.0001pt;text-align:justify'><u>/s/ Melinda Jo Perry&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </u></p>

<p class=MsoNormal align=center style='margin-left:3.5in;text-align:center'>Notary Public</p>

<p class=MsoNormal style='margin-top:12.0pt;text-align:justify'>My Commission Expires:&nbsp; August 01, 2005</p>





<p class=MsoNormal style='margin-top:24.0pt;text-align:justify'>31150-005/547382_1</p>



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