<PAGE>   1
                                                                   Exhibit 10.50


                              EMPLOYMENT AGREEMENT


                       Entered into as of August 27, 1999


                                     between


                       FEDERATED CORPORATE SERVICES, INC.


                                       and



                               JAMES M. ZIMMERMAN

<PAGE>   2

                              EMPLOYMENT AGREEMENT
                              --------------------

                  THIS AGREEMENT, made in the City of Cincinnati and State of
Ohio, as of the 27th day of August, 1999 (the "Agreement Effective Date"),
between Federated Corporate Services, Inc., a Delaware corporation (hereinafter
called the "Employer"), and James M. Zimmerman of Cincinnati, Ohio (hereinafter
called the "Employee").

                                    RECITALS
                                    --------

                  Employer and Employee are parties to an Employment Agreement
dated as of March 10, 1997.

                  Employer and Employee are desirous of entering into a new
employment agreement with a term commencing on May 1, 1999.

                  IT IS AGREED by and between the parties hereto as follows:

                                    ARTICLE I
                                    ---------

                                   EMPLOYMENT
                                   ----------

                  1.1 TERM AND DUTIES. The Employer agrees to and does employ
the Employee to perform the duties of Chairman of the Board ("Chairman") and
Chief Executive Officer of Federated Department Stores, Inc. ("Federated") in
accordance with the terms of this Agreement. The period (the "Term") of such
employment shall begin on May 1, 1999 and shall end on the later of April 30,
2003 or such later date as agreed by the Employer and Employee. The duties of
the Employee shall be those commensurate with the office of Chairman of the
Board and Chief Executive Officer of Federated. In such capacity he shall have
general charge of the business and affairs of Federated. Neither the Employee's
title nor any of his functions shall be changed without his consent. While it is
understood that the right to elect directors and officers of Federated is by law
vested in the stockholders and directors of Federated, it is nevertheless
mutually contemplated, subject to such rights, that the Employee shall, at all
times



                                       1
<PAGE>   3

during his employment, be Chairman of the Board and Chief Executive Officer of
Federated and shall be a member of the Board of Directors of Federated.

                  1.2 COMPENSATION. In consideration of Employee's services
during the Term, the Employer agrees to (a) pay the Employee an annual salary in
the amount of One Million Two Hundred Fifty Thousand Dollars ($1,250,000) ("Base
Salary"), (b) permit the Employee to participate in Federated's annual and
long-term bonus programs as set forth on Exhibit A and (c) grant the Employee
stock options as set forth on Exhibit A. Nothing in this Agreement shall
preclude or in any way affect the grant by the Employer or the receipt by the
Employee of increases in such salary or any such bonuses or other forms of
additional compensation, including additional equity or equity-based awards, any
such salary and/or bonus increases and additional compensation, contingent or
otherwise, to be determined solely in the discretion of the Board of Directors
of the Employer or persons to whom such authority is delegated by such Board of
Directors. The Employee's salary shall never be reduced during the Term without
the Employee's consent.

                  1.3 PAYMENT SCHEDULE. The Base Salary specified in Section
1.2(a) hereof shall be payable as current salary, in installments not less
frequently than monthly, and at the same rate for any fraction of a month
unexpired at the end of the Term.

                  1.4 EXPENSES. During the Term the Employee shall be allowed
reasonable traveling expenses and shall be furnished office space, assistance
and accommodations suitable to the character of his position with Federated and
adequate for the performance of his duties hereunder.

                  1.5 BENEFITS. The Employee and/or the Employee's family, as
the case may be, shall be eligible for participation in and shall receive all
benefits under savings and retirement programs, welfare benefit plans, fringe
benefit programs and perquisites provided by the Employer and its affiliates
(including, for example, without limitation, medical, prescription, dental,
disability, salary continuance, executive life, group life, accidental death and
travel accident insurance plans and programs, use of an automobile, financial
counseling, and suitable



                                       2
<PAGE>   4

business and country club memberships), at least as favorable as the most
favorable of such plans and programs provided to key executives of Federated in
effect from time to time.

                  1.6 TERMINATION IN CASE OF DISABILITY. The Employee shall not
be in breach of this Agreement if he shall fail to perform his duties hereunder
because of physical or mental disability. If for a continuous period of 12
months during the Term the Employee fails to render services to the Employer
because of the Employee's physical or mental disability, the Board or its
delegate may end the Term prior to its stated termination date. If there should
be any dispute between the parties as to the Employee's physical or mental
disability at any time, such question shall be settled by the opinion of an
impartial reputable physician agreed upon for the purpose by the parties or
their representatives, or failing agreement within 10 days of a written request
therefor by either party to the other, then one designated by the then president
of the local Academy of Medicine. The written opinion of such physician as to
the matter in dispute shall be final and binding on the parties.

                  1.7 TERMINATION OF SERVICES. If, prior to the end of the Term,
(a) the Employer shall terminate the Employee's employment other than for Cause,
or (b) the Executive shall terminate his employment for Good Reason, then the
Employer shall immediately thereupon pay the Employee in a lump sum in cash (a)
the full amount of salary that would be payable to the Employee under Section
1.2 and (b) the aggregate of the target level annual bonus for which the
Employee is eligible under the Employer's 1992 Incentive Bonus Plan as set forth
in Exhibit A for each year remaining in the Term following such termination.
Employee shall be credited with vesting and benefit service through the
remainder of the Term.

                  1.8 TERMINATION FOR CAUSE. The Employer may terminate the
employment of the Employee and this Agreement and all of its obligations
hereunder, except for obligations accrued but unpaid to the effective date of
termination, for Cause upon notice given pursuant to this Section. As used in
this Agreement, the term "Cause" shall mean (a) the willful breach of duty by
the Employee in the course of his employment, (b) the Employee's habitual
neglect of his duties, (c) a material willful breach by the Employee of his
duties under this Agreement which



                                       3
<PAGE>   5

breach is not cured by the Employee within ten (10) days of receipt of written
notice thereof from the Employer to the Employee, or (d) the Employee's final
conviction of a felony, which conviction is nonappealable or for which the
period of filing an appeal has expired. "Cause" shall not include (a) bad
judgment or negligence of the Employee (other than his habitual neglect of
duty), or (b) any act or omission believed by the Employee in good faith to have
been in or not opposed to the interests of the Employer (without intent of
gaining therefrom directly or indirectly a profit to which he was not legally
entitled) and reasonably believed by the Employee not to have been improper or
unlawful, or (c) any act or omission in respect of which a determination could
properly have been made by the Board of Directors of Federated that the Employee
met the applicable standard of conduct prescribed for indemnification or
reimbursement under the bylaws of Federated or the laws of Delaware, in each
case in effect at the time of such act or omission, or (d) an act or omission
with respect to which notice of termination is given more than twelve months
after the earliest date on which any non-employee director of Federated who was
not a party to such act or omission knew or should have known of such act or
omission.


                  1.9 The term "Good Reason" means:

                      A. The assignment to the Employee of any duties materially
inconsistent with the Employee's position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities as contemplated
in Article I of this Agreement, or any other action by the Employer which
results in a material diminution in such position, authority, duties or
responsibilities, excluding for this purpose an action not taken in bad faith
and which is remedied by the Employer within ten (10) days after receipt of
written notice thereof given by the Employee, provided that repeated instances
of such action shall be evidence of the bad faith of the Employer;

                  B. any material failure by the Employer to comply with any of
the provisions of this Agreement, other than a failure not occurring in bad
faith and which is remedied by the Employer within ten (10) days after receipt
of written notice thereof given by the Employee, provided that repeated failures
shall be evidence of the bad faith of the Employer;



                                       4
<PAGE>   6

                  C. failure of the Employee to be elected or reelected Chairman
and Chief Executive Officer of the Federated or to be elected or reelected to
membership on the Federated's Board of Directors; or

                  D. any purported termination by the Employer of the Employee's
employment otherwise than as expressly permitted by this Agreement.

                  1.10 LOCATION OF EMPLOYMENT. Employer shall not require
Employee to be based in any office or location other than within the Cincinnati,
Ohio Standard Metropolitan Statistical Area without his agreement, except for
travel reasonably required in the performance of the Employee's
responsibilities.

                                   ARTICLE II
                                OTHER PROVISIONS
                                ----------------

                  2.1 PERFORMANCE OF DUTIES. The Employee agrees that during the
Term (a) he will faithfully and in conformity with the directions of the Board
of Directors of Federated, perform the duties of his employment hereunder, and
that he will devote to the performance of said duties all such time and
attention as they shall reasonably require, taking, however, from time to time
(as the Employer agrees that he may) reasonable vacations; and (b) he will not,
without the express consent of the Board of Directors of Federated, or persons
to whom such authority is delegated by such Board of Directors become actively
associated with or engaged in any competing business (as hereinafter defined)
while he is employed by Employer or within one (1) year of the first to occur of
(i) the expiration of the Term or (ii) the termination of his employment by the
Employer for Cause or by the Employee other than for Good Reason prior to or at
the end of the Term, and he will do nothing inconsistent with his duties to the
Employer.
                  Notwithstanding the foregoing, the aforesaid one (1) year
period shall be shortened to whatever shorter period, if any, is adopted at any
time subsequent to the date hereof by the Compensation Committee of the Board of
Directors of Federated as the standard period



                                       5
<PAGE>   7

during which such non-compete provisions in the Employer's standard employment
agreements shall apply.

                  In the event that (i) the Employee is advised at any time by
the Employer in writing that his services will no longer be required during the
Term or (ii) the employment of the Employee is terminated by the Employee for
Good Reason, Employee shall be free to become actively engaged with another
business regardless of whether it is a competing business.
                  Employee agrees that he will not disclose to anyone outside of
the Employer, or use in other than the Employer's business, confidential
information relating to the Employer's business, in any way obtained by him
while employed by the Employer, unless authorized by the Employer in writing. It
is understood that violation of this provision would cause irreparable harm to
the Employer and that Employer may seek to enjoin any such violation or to take
any other applicable action. The Employee also agrees that he will not engage in
any activity which would violate the Conflict of Interest or Business Ethics
Statement signed from time to time by the Employee.
                  As used in this Section 2.1 a "competing business" shall be
any business which:

                  A. at the time of determination, is substantially similar to
the whole or a substantial part of the business at the end of the period of
active employment, conducted by Employer, or any of its subsidiaries, or
subsidiaries of subsidiaries, or affiliates, or divisions, or substantially
similar to some substantial part of said business; and
                  B. at the time of determination, is operating a store or
stores which, during its or their fiscal year preceding the determination, in
the aggregate had aggregate net sales, including sales in leased and licensed
departments, in excess of $10,000,000, which store or stores is or are located
in a city or within a radius of twenty-five (25) miles from the outer limits of
a city where Employer, or any of its subsidiaries, or subsidiaries of
subsidiaries, or affiliates, or divisions is operating a store or stores which,
during its or their fiscal year preceding the determination, in the aggregate
had aggregate nets sales, including sales in leased and licensed departments, in
excess of $10,000,000; and



                                       6
<PAGE>   8

                  C. had aggregate net sales at all its locations, including
sales in leased and licensed departments and sales by its divisions,
subsidiaries and affiliates, during its fiscal year preceding that in which the
Employee made such an investment therein, or first rendered personal services
thereto, following his termination of service, in excess of $25,000,000.

                                   ARTICLE III
                                  MISCELLANEOUS
                                  -------------

                  3.1 ASSIGNMENT. This Agreement shall not be assignable by the
Employer without the written consent of the Employee. The Employee may not
assign, pledge, or encumber his interest in this Agreement, or any part thereof,
without the written consent of the Employer.
                  3.2 GOVERNING LAW. This Agreement has been executed on behalf
of the Employer by an officer of the Employer located in the City of Cincinnati,
Ohio. This Agreement and all questions arising in connection herewith shall be
governed by the internal substantive laws of the State of Ohio. The Employer and
the Employee each consent to the jurisdiction of, and agree that any controversy
between them arising out of this Agreement shall be brought in, the United
States District Court for the Southern District of Ohio, Western Division; the
Court of Common Pleas for Hamilton County, Ohio; or such other court venued
within Hamilton County, Ohio as may have subject matter jurisdiction over the
controversy.
                  3.3 SEVERABILITY. If any portion of this Agreement is held to
be invalid or unenforceable, such holding shall not affect any other portion of
this Agreement.
                  3.4 ENTIRE AGREEMENT. This Agreement comprises the entire
agreement between the parties hereto and as of the date hereof, supersedes,
cancels and annuls any and all prior agreements between the parties hereto. This
Agreement may not be modified, renewed or extended orally, but only by a written
instrument referring to this Agreement and executed by the parties hereto.



                                       7
<PAGE>   9

                  3.5 GENDER AND NUMBER. Words in the masculine herein may be
interpreted as feminine or neuter, and words in the singular as plural, and vice
versa, where the sense requires.
                  3.6 NOTICES. Any notice or consent required or permitted to be
given under this Agreement shall be in writing and shall be effective when given
by personal delivery or five business days after being sent by certified US
mail, return receipt requested, to the Secretary of Federated Department Stores,
Inc. at its principal place of business in the City of Cincinnati or to the
Employee at his last known address as shown on the records of the Employer.
                  3.7 WITHHOLDING TAXES. The Employer may withhold from any
amounts payable under this Agreement all federal, state, city or other taxes as
shall be required pursuant to any law or governmental regulation or ruling.
                  3.8 WAIVER AND RELEASE. In consideration of the Employer's
entering into this Agreement, and the receipt of other good and valuable
consideration, the sufficiency of which is expressly acknowledged, the Employee,
for himself and his successors, assigns, heirs, executors and administrators,
hereby waives and releases and forever discharges the Employer and its
affiliates and their officers, directors, agents, employees, shareholders,
successors and assigns from all claims, demands, damages, actions and causes of
action whatsoever which he now has on account of any matter, whether known or
unknown to him and whether or not previously disclosed to the Employee or the
Employer, that relates to or arises out of (a) any existing or former employment
agreement (written or oral) entered into between the Employee and the Employer
or any of its affiliates (or any amendment or supplement to any such agreement),
(b) any agreement providing for a payment or payments or extension of the
employment relationship triggered by a merger or sale or other disposition of
the stock or assets or restructuring of the Employer or any affiliate of the
Employer, or (c) any applicable severance plan.
                  3.9 ENFORCEMENT OF AGREEMENT. If the Employee incurs legal or
other fees and expenses in an effort to establish entitlement to benefits under
this Agreement, regardless of whether the Employee ultimately prevails, the
Employer shall reimburse him for such fees and




                                       8
<PAGE>   10

expenses, unless a court of competent jurisdiction determines that the Employee
made such effort in bad faith.

                  Reimbursement of fees and expenses described in the preceding
paragraph shall be made monthly during the course of any action upon the written
submission of a request for reimbursement together with proof that the fees and
expenses were incurred

                  3.10 MISCELLANEOUS. Except as specifically provided herein,
all accounts payable pursuant to this Agreement shall be paid without reduction
regardless of any amounts of salary, compensation or other amounts which may be
paid or payable to Employee from any source or which Employee could have
obtained upon seeking other employment; provided that the Company shall be
permitted to make all payments pursuant to this Agreement net of any legally
required tax withholdings. Employee shall not be required to seek other
employment, and there shall be no offset to amounts due hereunder as a result of
any salary, compensation or other amounts Employee may be paid from other
sources.
                  IN WITNESS WHEREOF, the parties hereto have hereunto and to a
duplicate hereof set their signatures as of August 27, 1999.

                                         FEDERATED CORPORATE SERVICES, INC.

                                         By:   /s/  DENNIS J. BRODERICK
                                               ---------------------------------
                                               Dennis J. Broderick
                                         Title: President



                                         JAMES M. ZIMMERMAN


                                               /s/  JAMES M. ZIMMERMAN
                                               ---------------------------------



                                       9
<PAGE>   11

                                    EXHIBIT A

                                       to
                              EMPLOYMENT AGREEMENT

                   Entered into as of August 27, 1999 between

                       FEDERATED CORPORATE SERVICES, INC.

                                       And

                               JAMES M. ZIMMERMAN

(All capitalized terms used in this Exhibit are defined as set forth in
Agreement)

ANNUAL BONUS:              In respect of fiscal 1999, the annual bonus payable
                           (if any) under the terms of the 1992 Incentive Bonus
                           Plan (as such may be amended from time to time) of
                           Federated Department Stores, Inc. (Federated) will be
                           based on performance goals established for the senior
                           executives of the Employer on an annual basis by the
                           Board of Directors of Federated or a Committee
                           thereof, with the amount of bonus equal to a sliding
                           percent of Employee's annual base salary in effect as
                           of the last day of the performance period based on
                           performance against the targeted annual goals, as
                           follows:

                           PERFORMANCE AGAINST TARGET        PAYOUT AS PERCENT
                                                             OF ANNUAL SALARY
                     (a)   CORPORATE EBIT $
                           Below 95% of Target                     0.0%
                           95% of Target                          24.0%
                           Target                                 50.0%
                           110% of Target                         90.0%

                     (b)   CORPORATE SALES $
                           Below Target                            0.0%
                           Target                                 10.0%
                           101% of Target                         34.0%



                                       1
<PAGE>   12


                           PERFORMANCE AGAINST TARGET        PAYOUT AS PERCENT
                                                             OF ANNUAL SALARY
                     (c)   CORPORATE ROGI  %
                           Below Target                            0.0%
                           Target                                 10.0%
                           1.0 ppt. above Target                  34.0%

                           For each year during the Term beginning with and
                           including fiscal 2000, the annual bonus payable (if
                           any) under the terms of the 1992 Incentive Bonus Plan
                           (as such may be amended from time to time) of
                           Federated Department Stores, Inc. (Federated) will be
                           based on performance goals established for the senior
                           executives of the employer on an annual basis by the
                           Board of Directors of Federated or a Committee
                           thereof, with the amount of bonus equal to a sliding
                           percent of Employee's annual base salary in effect as
                           of the last day of the performance period based on
                           performance against the targeted annual goals, as
                           follows:

                           PERFORMANCE AGAINST TARGET        PAYOUT AS PERCENT
                                                             OF ANNUAL SALARY
                     (a)   CORPORATE EBIT $
                           Below 95% of Target                     0.0%
                           95% of Target                          34.0%
                           Target                                 70.0%
                           110% of Target                        126.0%

                     (b)   CORPORATE SALES $
                           Below Target                            0.0%
                           Target                                 15.0%
                           101% of Target                         51.0%

                     (c)   CORPORATE ROGI  %
                           Below Target                            0.0%
                           Target                                 15.0%
                           1.0 ppt. above Target                  51.0%

                           The percent of base salary payable as the annual
                           bonus is the aggregate of the above designated payout
                           based on performance achieved under each of the
                           performance components described



                                       2
<PAGE>   13

                           in (a), (b) and (c), above, except that if Corporate
                           EBIT $ falls below 95% of Target, no bonus is payable
                           for any component of the annual bonus plan, and
                           failure to achieve the annual EBIT percent to target
                           reduces the bonus otherwise payable in respect only
                           of the above corporate EBIT $ performance component
                           per the approved applicable executive compensation
                           plan description.

                           Any annual bonus payable hereunder shall be paid in
                           the fiscal year following the annual performance
                           period in respect of which the bonus is payable in
                           accordance with Federated's 1992 Incentive Bonus Plan
                           (as such may be amended from time to time).

                           By operation of Federated's Supplementary Executive
                           Retirement Plan, annual bonuses paid to Employee
                           under Federated's 1992 Incentive Bonus Plan are
                           included as eligible compensation under Federated's
                           Pension Plan.

LONG TERM PLAN:            For the 1997 - 1999 three year performance period,
                           the bonus payable (if any) under the terms of
                           Federated's 1992 Incentive Bonus Plan (as such may be
                           amended from time to time) will be based on
                           performance goals established for the senior
                           executives of Federated in respect of each such
                           three-year performance period by the Board of
                           Directors of Federated or a Committee thereof, with
                           the amount of bonus equal to a sliding percent of
                           Employee's annual base salary (prorated on an annual
                           basis for any change in Employee's base salary
                           occurring at any time during any such three-year
                           period and determined for any such year in the
                           three-year period based on the annual base salary in
                           effect as of the last day of the fiscal year) based
                           on performance against the targeted three-year goals,
                           as follows:

                           PERFORMANCE AGAINST TARGET        PAYOUT AS PERCENT
                                                             OF ANNUAL SALARY
                     (a)   CORPORATE EBIT $
                           Below 95% of Target                     0.0%
                           95 % of Target                         14.0%
                           Target                                 30.0%
                           110% of Target                         42.0%
                           120% of Target                         54.0%



                                       3
<PAGE>   14

                     (b)   PERFORMANCE VS PEERS RANKING
                           #1 Ranking                             36%
                           #2 Ranking                             31%
                           #3 Ranking                             25%
                           #4 Ranking                             20%
                           #5 Ranking                             10%
                           #6 Ranking                              0%


                           The percent of base salary payable as the long term
                           bonus in respect of the 1997-1999 performance period
                           is the aggregate of the above designated payout based
                           on performance achieved in respect of the performance
                           components described in (a) and (b), above, except
                           that if the three year Corporate EBIT $ falls below
                           95% of Target, no bonus is payable for any component
                           of the long-term bonus, and failure to achieve the
                           EBIT percent to target in year three reduces the
                           bonus otherwise payable in respect only of the above
                           corporate EBIT $ performance component per the
                           approved applicable executive compensation plan
                           description.


                           For each three year performance period beginning with
                           and including the 1998 - 2000 performance period, the
                           bonus payable (if any) under the terms of Federated's
                           1992 Incentive Bonus Plan (as such may be amended
                           from time to time) will be based on performance goals
                           established for the senior executives of Federated in
                           respect of each such three-year performance period by
                           the Board of Directors of Federated or a Committee
                           thereof, with the amount of bonus equal to a sliding
                           percent of Employee's annual base salary (prorated on
                           an annual basis for any change in Employee's base
                           salary occurring at any time during any such
                           three-year period and determined for any such year in
                           the three-year period based on the annual base salary
                           in effect as of the last day of the fiscal year)
                           based on performance against the targeted three-year
                           goals, as follows:



                                       4
<PAGE>   15

                           PERFORMANCE AGAINST TARGET        PAYOUT AS PERCENT
                                                             OF ANNUAL SALARY
                     (a)   CORPORATE EBIT $
                           Below 95% of Target                     0.0%
                           95% of  Target                         24.0%
                           Target                                 34.0%
                           110% of Target                         75.0%

                           PERFORMANCE AGAINST TARGET        PAYOUT AS PERCENT
                                                             OF ANNUAL SALARY
                     (b)   CORPORATE AVG. ROGI  %
                           Below Target                            0.0%
                           Target                                 16.0%
                           1.0 ppt. above target                  37.0%

                           The percent of base salary payable as the long-term
                           bonus in respect of each three year performance
                           period beginning and including the 1998-2000
                           performance period is the aggregate of the above
                           designated payout based on performance achieved in
                           respect of the performance components described in
                           (a) and (b) above, except that if the three year
                           Corporate EBIT $ falls below 95% of Target, no bonus
                           is payable for any component of the long-term bonus,
                           and failure to achieve the EBIT percent to target in
                           year three reduces the bonus otherwise payable in
                           respect only of the above corporate EBIT $
                           performance component per the approved applicable
                           executive compensation description.

                           Illustratively, in respect of the fiscal 1997 - 1999
                           performance period, assuming achievement of the 1997
                           -1999 goal at the 50% target level (i.e., Corporate
                           EBIT $ achieved at target and #4 ranking versus
                           peers), the long-term incentive payout in 2000 in
                           respect of such three-year period would be $625,000
                           (50% (30% payout re corporate EBIT $ + 20% payout re
                           peer performance) x $1,250,000 (the base salary in
                           effect at the end of 1997 fiscal year).

                           Employee shall be entitled to a pro rata portion of a
                           long-term bonus, if any is payable under the terms of
                           Federated's 1992 Incentive Bonus Plan (as such may be
                           amended from time to time), for any three-year
                           performance period commencing on or after fiscal 1997



                                       5
<PAGE>   16

                           but which performance period has not ended as of the
                           end of Term. The pro rata payment is based on the
                           length of Employee's service of employment within
                           such three-year performance period. Illustratively,
                           if the performance period covers the 1999-2001 fiscal
                           years and the employment terminates on the last day
                           of the 2000 fiscal year, Employee would have been
                           employed for sixty-seven percent (67%) of the
                           performance period and would be eligible for sixty-
                           seven percent (67%) of any long-term bonus payable as
                           provided above if and when any bonus is paid in
                           respect of that period under the terms of Federated's
                           1992 Incentive Plan (as may be amended) based upon
                           the performance goals established for the senior
                           executives of the Employer for that period by the
                           Board of Directors of Federated or a Committee
                           thereof.

                           Any long-term bonus payable hereunder shall be paid
                           in the fiscal year following the three-year
                           performance period in respect of which the bonus is
                           payable in accordance with Federated's 1992 Incentive
                           Bonus Plan. Any long-term bonus payable for any
                           three-year performance period beginning with and
                           including the 1998 - 2000 performance period will be
                           paid 50% in cash and 50% in deferred stock credits in
                           accordance with the approved applicable executive
                           compensation plan description, subject, as provided
                           in such plan, to Executive's election to allocate a
                           portion or all of any cash payout to deferred stock
                           credits. Any amounts deferred, including the required
                           50% deferral and any optional deferral above 50%,
                           will include a 20% premium, also to be paid in
                           deferred stock credits.



STOCK OPTIONS:             Federated shall grant, to Employee, effective August
                           27, 1999 (the "Grant Date"), options for 450,000
                           shares, with vesting of 112,500 shares on May 1, 2000
                           (the "Option Vesting Date"), 112,500 shares on the
                           first anniversary of the Option Vesting Date, 112,500
                           shares on the second anniversary of the Option
                           Vesting Date, and 112,500 shares on the third
                           anniversary of the Option Vesting Date, except that
                           100%



                                       6
<PAGE>   17

                           vesting shall occur immediately upon the effective
                           date of the termination of the employment of Employee
                           (a) by Employer other than for Cause, (b) by Employee
                           for Good Reason or (c) by Employer and Employee by
                           mutual consent; the options will be issued at one
                           hundred percent of the closing market price of
                           Federated's common stock on the New York Stock
                           Exchange as listed in THE WALL STREET JOURNAL on the
                           trading day immediately preceding the Grant Date; the
                           term of the grant shall expire ten years from the
                           Grant Date; any options that are unvested as of the
                           time Employee discontinues his employment with
                           Employer shall continue to vest in accordance with
                           the vesting schedule described above unless the
                           Employee's employment is terminated for cause (as
                           defined in the Non-Qualified Stock Option Agreement),
                           except that if the Employee at any time prior to the
                           third anniversary of the Option Vesting Date renders
                           personal services to The May Department Stores
                           Company, Dillard's, Inc., Saks, Inc., or Nordstrom,
                           Inc., the grant of options, and all rights of the
                           Employee with regard to any vested but unexercised
                           options and any unvested options, shall terminate on
                           the commencement of such engagement; the grant is
                           subject to the terms of the attached form of
                           Non-Qualified Stock Option Agreement with Federated.


RESTRICTED STOCK AWARD:    Federated shall grant to Employee, effective August
                           27, 1999 (the "Grant Date"), 100,000 restricted
                           shares of Federated's Common Stock, with restrictions
                           as to 25,000 shares lapsing on May 1, 2000 (the
                           "Lapse Date") and as to 25,000 shares on each of the
                           first, second and third anniversaries of the Lapse
                           Date, except that 100% lapsing shall occur
                           immediately upon the effective date of the
                           termination of the employment of Employee (a) by
                           Employer other than for Cause, (b) the Employee for
                           Good Reason or (c) by Employer and Employee by mutual
                           consent; the restrictions on any shares that have not
                           lapsed as of the time the Employee discontinues his
                           employment with Employer shall continue to lapse in
                           accordance with the lapsing schedule described above
                           unless the Employee's employment is terminated for
                           cause (as defined in the Restricted Stock Agreement),
                           except that if Employee at any time prior to the
                           third anniversary of the Lapse Date renders personal
                           services to The May Department Stores Company,
                           Dillard's, Inc., Saks, Inc., or Nordstrom's, Inc.,
                           all shares of



                                       7
<PAGE>   18

                           restricted stock on which the restrictions have not
                           lapsed shall be forfeited on the commencement of such
                           engagement; the grant is subject to the terms of the
                           attached form of Restricted Stock Agreement.


JAMES M. ZIMMERMAN                                FEDERATED CORPORTE
                                                  SERVICES, INC.

/s/  James M. Zimmerman                           /s/  Dennis J. Broderick
----------------------------------                ------------------------------
                                                  DENNIS J. BRODERICK
                                                  PRESIDENT



                                       8