Exhibit 10.6

 

MERCHANT SERVICES AGREEMENT

 

DATED AS OF JULY 10, 2000

 

BY AND BETWEEN

 

HURLEY STATE BANK,

 

ASSOCIATES FIRST CAPITAL CORPORATION

 

ZALE DELAWARE, INC.,

 

And

 

ZALE PUERTO RICO, INC.

 

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TABLE OF CONTENTS

 

ARTICLE I -

DEFINITIONS

1

 

 

 

1.1

Definitions

1

 

 

 

1.2

Construction

10

 

 

 

ARTICLE II -

CLIENT RELATIONSHIP TEAM AND PROGRAM COMMITTEE

10

 

 

 

2.1

General

10

 

 

 

2.2

Client Relationship Team

10

 

 

 

2.3

Operational Oversight; Meetings, Voting and Records

12

 

 

 

2.4

Program Committee

12

 

 

 

2.5

Dispute Resolution

13

 

 

 

ARTICLE III -

ISSUANCE OF ACCOUNTS AND ACCEPTANCE OF CARDS

13

 

 

 

3.1

Maintenance of Accounts of JNB

13

 

 

 

3.2

Procedures for Opening Accounts

14

 

 

 

3.3

Honoring of Cards

18

 

 

 

3.4

Acceptance of Cards by Bank

19

 

 

 

3.5

Operating Regulations

20

 

 

 

3.6

Completion of Sales Slips

20

 

 

 

3.7

Authorization

21

 

 

 

3.8

Settlement of Card Transactions

23

 

 

 

3.9

Cardholder Credits and Payments

24

 

 

 

3.10

Billing Inquiries and Cardholder Disputes

25

 

 

 

3.11

Chargeback Rights and Procedures

26

 

 

 

3.12

Representations and Warranties

27

 

 

 

3.13

Reports; Audit Rights

28

 

 

 

3.14

Conversion; Bank Performance

29

 

 

 

3.15

Internet Support

31

 

 

 

3.16

Second Look Program

31

 

 

 

3.17

Insurance

32

 

 

 

3.18

Zale Acquisitions; Unauthorized Goods and Services

33

 

 

 

3.19

Inactive Accounts

34

 

 

 

3.20

Monthly Cardholder Statements - Inserts and Messages

34

 

 

 

3.21

Access to Products and Services; Enhancements

36

 

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3.22

Sales Tax Credits

36

 

 

 

ARTICLE IV -

FEES AND CERTAIN OTHER PAYMENTS

37

 

 

 

4.1

Fees and Certain Other Payments

37

 

 

 

ARTICLE V -

MISCELLANEOUS

39

 

 

 

5.1

Indemnification

39

 

 

 

5.2

Card Program Promotion; Advertising and Service Marks

41

 

 

 

5.3

Books and Records

43

 

 

 

5.4

Term and Termination

44

 

 

 

5.5

Termination-Related Obligations: Sunset Management

48

 

 

 

5.6

Status of the Parties

49

 

 

 

5.7

Force Majeure

49

 

 

 

5.8

Confidentiality

49

 

 

 

5.9

Access to Cardholder List

51

 

 

 

5.10

Arbitration

51

 

 

 

5.11

Financial Information

53

 

 

 

5.12

Assignability; Successors and Assigns

53

 

 

 

5.13

Agreement not to Sell

53

 

 

 

5.14

Cooperation

54

 

 

 

5.15

Amendment

54

 

 

 

5.16

Severability

54

 

 

 

5.17

Entire Agreement

54

 

 

 

5.18

Governing Law

54

 

 

 

5.19

Applicable Law or Regulation

54

 

 

 

5.20

Waivers

54

 

 

 

5.21

Notices

54

 

 

 

5.22

No Third-Party Rights

55

 

 

 

5.23

Captions

55

 

 

 

5.24

Counterparts

56

 

 

 

5.25

Consent to Jurisdiction

56

 

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MERCHANT SERVICES AGREEMENT

 

This MERCHANT SERVICES AGREEMENT (“Agreement”) is made as of July 10, 2000 by
and between HURLEY STATE BANK, a banking corporation organized and existing
under the laws of the State of South Dakota (“Bank”), ZALE DELAWARE, INC., a
corporation organized and existing under the laws of the State of Delaware (“Z
Del”), and ZALE PUERTO RICO, INC., a corporation organized and existing under
the laws of Puerto Rico (“Zale Puerto Rico”); Z Del and Zale Puerto Rico are
hereinafter sometimes collectively referred to as “Zale”).

 

W I T N E S S E T H:

 

WHEREAS, each of Z Del and Zale Puerto Rico is in the business of offering
certain goods and services for sale at retail sties, through catalogs, over the
internet, and by other means and desires to offer its consumers the convenience
of using Bank-issued credit cards branded with an appropriate Zale Mark in
payment therefor, and

 

WHEREAS, in furtherance thereof, Zale and Bank have agreed that Bank shall, in
accordance with the terms and conditions set forth herein, (a) Issue private
label credit cards branded with appropriate Zale Marks to approved customers to
be used by such customers for the purchase of goods and services offered by Zale
in the ordinary course of business, and (b) service the accounts pursuant to
which such cards are issued and that are established from time to time pursuant
to this Agreement or that have been acquired by Bank through its merger with
Jewelers National Bank, a national banking association (“JNB”);

 

NOW, THEREFORE, in consideration of the foregoing premises and mutual covenants
hereinafter set forth and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, Bank, Z Del and Zale hereby
agree as follows:

 

ARTICLE I -DEFINITIONS

 

1.1                               Definitions. As used herein, the following
terms shall have the following respective meanings:

 

“Account” means a Card account, including any Card accounts acquired by Bank
through its merger with JNB. An Account may have more than one Card issued to
Cardholders with respect to such Account. All Accounts are, and are deemed to
be, the property of Bank.

 

“Acquired Business” has the meaning given such term in Section 3.18(a) hereof.

 

“Accountholder” means the Cardholder in whose name an Account is established and
who is responsible for payment of sums due under such Account.

 

“Add-on Sale” means a Card Sale other than an Initial Sale.

 

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“Adjusting Party” has the meaning given such term in Section 3.2(c) hereof.

 

“AFCC” shall Mean Associates First Capital Corporation, a corporation organized
and existing under the laws of the State of Delaware and the parent company of
Bank.

 

“Affiliate” shall have the meaning assigned to such term in Rule 12b-2 of the
Securities Exchange Act of 1934.

 

“Applicable Law” means all provisions of statutes, rules, regulations and orders
of any Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality or any court, in each case, whether of
the United States or Puerto Rico, applicable to a Person, and ail orders and
decrees of arbitrators in proceedings or actions in which the Person in question
is a party.

 

“Application” means Bank’s credit application, containing substantially the same
customer data fields as the form attached hereto as Exhibit A, as the same may
be modified-from time to time in accordance with this Agreement, which must be
completed by a consumer who wishes to open an Account and submitted to Bank for
review.

 

“Approved Sales Channels” means Stores, catalogues, advertisements and other
promotional materials, mail, telephone, Zale internet sites and any other manner
of sale approved by the Client Relationship Team.

 

“Arbitration Notice” has the meaning given such term in Section 5.10 hereof.

 

“Associates Securitization Facility” means any securitization facility to which
Bank and/or any of its Affiliates are party (and any contract, agreement or
other document establishing or evidencing such facility) that includes any of
the receivables originated under an Account.

 

“Authorization” means permission from Bank to make a Card Sale.

 

“Authorization Center” means a facility designated by Bank as a facility at
which Card Sales are authorized and Applications are decisioned.

 

“Authorized Goods and Services” means (a) jewelry, watches, china, porcelain,
ceramics, sliver, crystal, gift items, and other items typically offered for
sale by Jewelry and/or fine gift stores; (b) insurance products and services;
(c) gift cards, gift certificates, stored value cards and extended warranty
services with respect to any of the foregoing; and (d) other products and
services incidental or related to any of the foregoing offered by Zale in the
ordinary course of business, through Approved Sales Channels, whether now
existing or hereafter created.

 

“Average Merchant Fee”, with respect to any Decrease Period, shall mean the
average amount, expressed as a percentage of Net Card Sales, of Merchant Fees
actually paid by Zale

 

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hereunder for the most recent fiscal year of Zale ended immediately prior to
such Decrease Period.

 

“Bank indemnified Persons” has the meaning given to such term in
Section 5.1(a) of this Agreement.

 

“Bank’s Account issuance Criteria” has the meaning given to such term in
Section 3.2(a) of this Agreement.

 

“Business Day” means Mondays through Fridays except days when Bank is authorized
to be closed for business by South Dakota, Delaware, Illinois, Tennessee, Texas,
Utah or federal law.

 

“CEO” has the meaning given to such term in Section 2.5(b) of this Agreement.

 

“Card” means a credit card either (a) issued by JNB in respect of an Account
acquired by Bank through its merger with JNB, or (b) issued by Bank and
evidencing an Account, in either case on which shall appear a Zale Mark
designated by Zale or such other design or designs as may be mutually acceptable
to Zale and Bank.

 

“Card Program” means the credit card program established pursuant to this
Agreement, under which Accounts will be established and/or maintained and Cards
will be issued to Credit Applicants meeting Bank’s Account issuance Criteria,
all upon the terms and conditions set forth herein.

 

“Card Sale” means the amount of any sale of Authorized Goods and Services, net
of any portion paid in cash or by other means, that Zale makes to a Cardholder
that is charged to an Account in accordance with the terms and conditions of
this Agreement, including initial Sales and Add-on Sales.

 

“Card Transactions” means Card Sales and Credits.

 

“Cardholder” means any consumer to whom a Card has been issued and/or any
consumer who has actual, implied or apparent authority to use a Card.

 

“Chargeback” means the refusal of Bank to pay Zale for a Card Sale for the
reasons specifically set forth in Section 3.11, hereof;

 

“Chargeback Report” has the meaning given to such term in Section 3.11 of this
Agreement.

 

“Client Relationship Team” has the meaning given to such term in
Section 2.2(a) of this Agreement

 

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“Confidential information” has the meaning given to such term in
Section 5.8(a) of this Agreement.

 

“Conversion” means the date following execution and delivery of this Agreement
on which Zale’s existing private label credit card program provided by JNB and
the systems and programs utilized in connection therewith have been converted to
the Card Program hereunder and the systems and programs utilized by Bank in
connection with this Agreement in such a manner as could be reasonably expected
to enable Bank to perform its obligations hereunder.

 

“Conversion Date” means the earlier of (a) the date on which Conversion has been
substantially completed or (b) July 31, 2001.

 

“Conversion Plan” has the meaning given such term in Section 2.2(b)(1) hereof.

 

“Credit” means a non-cash refund issued by Zale to a Cardholder (including
without limitation pursuant to a return) on an Account of all or a portion of
the amount of a Card Sale.

 

“Credit Applicant” means a consumer who submits an Application to Bank.

 

“Credit Card Agreement” means, with respect to an Account, the agreement between
Bank and an Accountholder governing such Account, as such agreement may be
amended, modified or otherwise changed from time to time in accordance with the
provisions hereof.

 

“Credit Plan” means a plan pursuant to which an Accountholder agrees to repay
amounts due from such Accountholder to Bank under an Account. A Credit Plan may
be a: Regular Revolving Credit Plan or a Special Credit Plan.

 

“Credit Slip” means evidence of a Credit in electronic or paper form. .

 

“Decrease Period” has the meaning given to such term in
Section 5.4(b)(v) hereof.

 

“Designated Third Party” has the meaning given to such term in Section 5.4(f) of
this Agreement.

 

“Dispute” has the meaning given to such term in Section 2.4(a) of this
Agreement.

 

“Effective Date” means the Effective Time, as defined in the Merger Agreement,
which shall be the date on which the provisions of this Agreement become
effective; provided, however that if the Merger does not occur, this Agreement
shall terminate and not become effective unless the parties hereto otherwise
mutually agree.

 

“Electronic Location” means a Zale location at which there is an Electronic
Terminal.

 

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“Electronic Terminal” means an electronic terminal or computer capable of
communicating by means of an on-line or dial-up electronic link (whether routed
through Bank’s facilities or otherwise) with an Authorization Center to obtain
Authorizations and decisions with respect to Applications.

 

“Fair Market Value” has the meaning given to such term in Section 5.4(f) of this
Agreement.

 

“Federal Funds Rate” means, for any day, the rate per annum (rounded upwards, if
necessary, to the nearest 0.01%) equal to the weighted average of the rates on
overnight federal funds transactions with member banks of the Federal Reserve
System arranged by federal funds brokers on such day, as published by the
Federal Reserve Bank of New York on the Business Day next succeeding such day.

 

“Floor Unit” means $1000 United States dollars or such larger amount as may be
determined from time to time by Bank, at or above which Authorization must be
obtained by Zale to make a Card Sale when Zale’s ability to secure electronic
Authorization of such Card Sale is not available.

 

“Furnishing Party” shall have the meaning given to such term in
Section 5.8(a) hereof.

 

“Indemnified Party” shall mean a Bank indemnified Person or a Zale indemnified
Person, as the case may be.

 

“Indemnifying Part” shall mean a party required to indemnify an indemnified
Party as provided in Section 5.1 hereof.

 

“Initial Sale” means the first Card Sale to a Cardholder occurring within thirty
(30) days following the date on which such Cardholder’s Application is approved.

 

“Initial Term” has the meaning given to such term in Section 5.4(a), of this
Agreement

 

“In-Store Payments” has the meaning given to such term in Section 3.9(b) hereof.

 

“Insurance Agreement” has the meaning given to such term in Section 3.17 hereof.

 

“Material Change” means any change, event, condition or occurrence, other than
one required by Applicable Law, which could reasonably be expected to (a) cause
a material decrease in any or all of the following: (i) the number of
Applications, (ii) the use of Cards by Cardholders or (iii) Card Sales; or
(b) have a material adverse effect on the Card Program; or (c) require material
changes to or otherwise materially affect Zale’s existing Store procedures,
operations, hardware (including without limitation Electronic Terminals) or
software.

 

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“Merchant Fee” has the meaning given to such term in Section 4.1(a) hereof.

 

“Merchant Fee Differential” means, with respect to any Decrease Period, an
amount equal to the product of (a) the Average Merchant Fee with respect to such
Decrease Period and (b) the difference between the Minimum Volume Amount and Net
Card Sales with respect to such Decrease Period.

 

“Merger” means the merger of JNB with and into Bank as contemplated by the
Merger Agreement.

 

“Merger Agreement” shall mean that certain Agreement and Plan of Merger, dated
of even date herewith, among Zale Delaware, inc., Jewelers National Bank and
Bank.

 

“Minimum Volume Amount” means Net Card Sales of $750,000,000.00, subject to
adjustment from time to time as provided in Section 3.2(c) hereof; provided
however, that for purposes of this definition only, Net Card Sales shall include
the net amount of credit sales of any division or subsidiary of Zale which is
sold, conveyed, disposed of, divested or otherwise transferred by Zale which
would have been Net Card Sales if such division or subsidiary were still a
division or subsidiary of Zale, provided that such subsidiary or division so
sold, conveyed, disposed of, divested or otherwise transferred (a) is willing to
continue its credit operations with Bank pursuant to terms and conditions no
less favorable to Bank than those contained herein (regardless of whether Bank
actually agrees to such continuation) and (b) could reasonably be expected to
fulfill its obligations thereunder for the term remaining under this Agreement
(excluding any extension thereof).

 

“Negative Significant Shift” shall mean the-occurrence, determined on a
consistent basis, as to any division of Zale, of any of the following:

 

(i)                                the occurrence, during any calendar quarter,
of any one of the following:

 

(A)                              a ten percent (10%) or greater increase in
fifty percent (50%) or more of the vintage FICO band “over 60 days delinquent”
buckets. For purposes of this measurement, FICO bands will be in twenty (20)
point increments and Accounts which do not require immediate minimum payments
(deferred payments) will be excluded;

 

(B)                                a portfolio quarterly net loss rate 10%
greater than the net loss rate for the same quarter in the prior calendar year.
For purposes of this measure the net loss rate calculation will be based upon
the net losses for the respective period as a percentage of the average
receivables for the same quarter in the prior calendar year;

 

(C)                                the portfolio 60+ delinquency rate increases
by 10% or greater compared to the 60+ rate for the same quarter in the prior
calendar year; or

 

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(D)                               an increase of 10% or more in the value of
portfolio bankruptcy filings on Accounts not previously written off which are
received in any quarter as a percent of average receivables when compared to the
prior quarter or the average of the prior four quarters; or

 

(ii)                             the occurrence of any one of the following in
two (2) consecutive calendar quarters or the occurrence of both of the following
in the same calendar quarter:

 

(A)                              the average FICO score of approved Accounts in
any quarter declines by 1.1% or greater compared to the average FICO score for
the same quarter in the prior calendar year ; or

 

(B)                                the average portfolio update FICO score of
Accounts eligible to make purchases in any quarter declines by 1.1% or greater
compared to the average portfolio update FICO score for the same quarter in the
prior calendar year.

 

“Net Card Sales,” with respect to a given period, means (a) the total amount of
Card Sales (including without limitation Card Sales under any Second Look
Program provided by Bank to Zale) reported to Bank by Zale during such period in
accordance with the provisions hereof minus (b) the total amount of Credits
reported to Bank by Zale during such period in accordance with the provisions
hereof.

 

“Non-Adjusting Party” has the meaning given such term in Section 3.2(c) hereof.

 

“Non-Adjusting Party” has the meaning given such term in Section 5.2(b) hereof.

 

“Operating Regulations” means the operating procedures reasonably agreed to by
the Client Relationship Team on or prior to the Effective Date, which Operating
Regulations shall apply to the Card Program during the term hereof and shall
contain provisions dealing with, among others, those matters listed in Exhibit B
attached hereto, as the same may be modified from time to time in accordance
with the provisions of this Agreement, and which Operating Regulations, upon
their adoption by the Client Relationship Team, shell be deemed to be
incorporated herein by reference as fully as though set forth herein in their
entirety.

 

“Performance Standard” means those standards set forth on Exhibit C hereto, as
the same may be adjusted from time to time pursuant to Section 3.2(c) hereof,
which are the standards which shall govern Bank’s performance of certain
obligations hereunder and which are incorporated into and hereby made a part of
this Agreement as fully as though set forth herein in their entirety.

 

“Person” means any individual, sole proprietorship, partnership, limited
liability company, joint venture, joint stock company, trust, unincorporated
organization, association, corporation, institution, entity, party or government
(whether national, federal, state, county, city,

 

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municipal, or otherwise, including, without limitation, any instrumentality,
division, agency, body or department thereof).

 

“Positive Significant Shift” shall mean the occurrence, determined as to any
division of Zale, of any of the following:

 

(i)                                the occurrence, during any calendar quarter,
of any one of the following:

 

(A)                              a ten percent (10%) or greater decrease in
fifty percent (50%) or more of the vintage FICO band “over 60 days delinquent”
buckets. For purposes of this measurement, FICO bands will be in twenty (20)
point increments and Accounts which do not require immediate minimum payments
(deferred payments) will be excluded;

 

(B)                                a portfolio quarterly net loss rate 10% less
than the net loss rate for the same quarter in the prior calendar year. For
purposes of this measure the net loss rate calculation will be based upon the
net losses for the respective period as a percentage of the average receivables
for the same quarter in the prior calendar year;

 

(C)                                the portfolio 60+ delinquency rate decreases
by 10% or greater compared to the 60+ rate for the same quarter in the prior
calendar year, or

 

(D)                               a decrease of 10% or more in the value of
portfolio bankruptcy filings on Accounts not previously written off which are
received in any quarter as a percent of average receivables when compared to the
prior quarter or the average of the prior four quarters; or

 

(ii)                             the occurrence of any one of the following in
two (2) consecutive calendar quarters or the occurrence of both of the following
in the same calendar quarter:

 

(A)                              the average FICO score of approved Accounts in
any quarter increases by 1.1% or greater compared to the average FICO score for
the same quarter in the prior calendar year; or

 

(B)                                the average portfolio update FICO score of
Accounts eligible to make purchased in any quarter increases by 1.1% or greater
compared to the average portfolio update FICO score for the same quarter in the
prior calendar year.

 

“Program Committee” means the Program Committee consisting of representatives of
both Bank and Zale established pursuant to Section 2.4 hereof and having the
responsibilities set forth in Section 2.4(a) hereof.

 

“Promotional Materials” has the meaning given to such term in
Section 5.2(b) hereof.

 

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“Proposing Party” has the meaning given such term in Section 5.2(b) hereof.

 

“Receiving Party” has the meaning given such term in Section 5.8(a) hereof.

 

“Regular Revolving Credit Plan” means all Card Plans other than Special Credit
Plans.

 

“Repeated and Material Breach” means multiple breaches of the Performance
Standards and/or Bank’s payment obligations hereunder which, when considered in
the aggregate, could reasonably be expected to have a materiel adverse effect on
the Card Program or on Zale’s retail sales, business, customer service,
financial condition or prospects.

 

“Required Disclosures” means forms of credit disclosures and disclosure
documents provided by Bank and required by Applicable Law, which are to be used
in connection with advertising, marketing and promoting the Card Program,
accepting Applications and making Card Sales.

 

“Sales Data” means the electronic data relating to and arising out of Card
Transactions.

 

“Sales Slip” means evidence of a Card Sale in electronic or paper form.

 

“Second Look Notice” has the meaning given such term in Section 3.16 of this
Agreement

 

“Second Look Program” has the meaning given such term in Section 3.16 of this
Agreement.

 

“Settlement” means the payment by Bank, from time to time as provided herein, to
Zale of the amount of Net Card Sales effected by Zale.

 

“Settlement Account” means a deposit account at a financial institution
designated by Zale from time to time as a Settlement Account for purposes of
this Agreement.

 

“Shift” shall mean a Negative Significant Shift or Positive Significant Shift,
as the context may require.

 

“Special Credit Plan” means a Credit Plan under which interest or payment is
either waived, modified or deferred for a period of time after the Card Sale.
Payments may or may not be required during the interest deferral, modification
or waiver period, and a minimum purchase amount may be required. Special Credit
Plans include without limitation those described in Schedule 1.1A of this
Agreement

 

“Store” means a retail store in the United States or Puerto Rico owned or leased
and operated by Zale.

 

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“Subsequent Term” has the meaning given to such term in Section 5.4(a) hereof.

 

“Tribunal” has the meaning given to such term in Section 5.10 of this Agreement.

 

“Unauthorized Goods and Services” has the meaning given to such term in
Section 3.18(b) hereof.

 

“Zale indemnified Persons” has the meaning given to such term in
Section 5.1(b) of this Agreement.

 

“Zale Mark” means any name, logo, trademark, service mark or other proprietary
designation of Zale (including any division of Zale) selected for use by Zale
from time to time in connection with the Card Program. The Zale Marks in effect
on the date hereof are set forth in Schedule 1.1B hereof.

 

1.2                                 Construction. Unless the context otherwise
clearly indicates, words used in the singular include the plural and words used
in the plural include the singular.

 

ARTICLE II -CLIENT RELATIONSHIP TEAM AND PROGRAM COMMITTEE

 

2.1                                 General.  Bank is the sole owner of the
Accounts and is solely responsible for management, in a manner consistent with
the provisions of this Agreement, of the Accounts and the Card Program. Zale and
Bank shall at all times use reasonable efforts and cooperate in good faith to
resolve disputes that arise from time to time in connection with the operation
of the Card Program under this Agreement.

 

2.2                                 Client Relationship Team.

 

(a)                                  Structure. The ongoing operations of the
Card Program will be subject to the continuing review of a Client Relationship
Team (the “Client Relationship Team”). The Client Relationship Team will consist
of dedicated representatives of both Zale and Bank.  Zale and Bank shall
establish the number of representatives to be appointed by each of them to the
Client Relationship Team from time to time. The initial members of the Client
Relationship Team shall be those Persons or positions listed on Schedule
2.2(a) hereto. Each of Zale and the Bank shall be entitled to remove one or more
of its representatives and appoint substitute representatives at any time and
from time to time during the term hereof upon written notice to the other party
or parties hereto.

 

(b)                                 General Responsibility. The Client
Relationship Team shall be the principal management interface between Zale and
Bank with respect to the day-to-day operations of the Card Program. The Client
Relationship Team shall cooperate and work together to facilitate Conversion, to
expeditiously resolve problems which arise from time to time with respect to the
implementation and ongoing operations of the Card Program and to facilitate the
exchange of information to foster the successful operation of the Card Program
in a manner reasonably consistent with the business interests of both Zale and
Bank. Responsibilities of the Client Relationship Team shall include, without
limitation, approving annual business plans and goals

 

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for operating performance, monitoring actual results against milestones and
expectations, dealing with day-to-day operational issues and matters that arise
in connection with the Card Program, reviewing and approving Material Changes in
the Card Program proposed by the Bank, identifying market trends and analyzing
the implications thereof for the Card Program and sponsoring Card Program
improvement opportunities. Bank agrees that, at Zale’s request, it shall provide
to one of Bank’s members of the Client Relationship Team online access to the
Bank’s Accountholder records and that, to the full extent permitted by
Applicable Law, such member shall, upon reasonable request by a Zale designated
member of the Client Relationship Team, disclose any or all of such
Accountholder records to such designated Zale member or members for reasons of
account dispute resolution, issues regarding credits and chargebacks and similar
purposes. Bank agrees that it will not make any Material Change without giving
the Client Relationship Team prior notice of such change in such a manner as to
allow such Client Relationship Testing an opportunity to discuss such proposed
Material Change and the likely implications of such Material Change and securing
the approval of the Client Relationship Team. Without limiting the generality of
any of the foregoing, in addition to the responsibilities provided herein, the
Client Relationship Team will serve as the forum in which Zale and the Bank
shall at the appropriate time, or from time to time, as the case may be:

 

(i)                                     develop a plan (the “Conversion Plan”)
for Conversion, which Conversion Plan shall contain such milestones and other
details as shall be determined by the Client Relationship Team; discuss
appropriate measures to implement the Conversion Plan; and monitor Bank’s
progress in implementing the Conversion Plan;

 

(ii)                                  on or prior to the Effective Date, develop
Operating Regulations for purposes of the Card Program;

 

(iii)                               review and approve Account acquisition and
Cardholder development plans proposed by Bank and/or Zale and any marketing
plans and related implementation schedules developed by Zale;

 

(iv)                              review and approve any proposal concerning
special inserts, messages or letters to be included in Account statements to the
extent such proposal is required to be approved by the Client Relationship Team
as provided herein;

 

(v)                                 discuss and approve any proposals for new
Card products;

 

(vi)                              discuss and approve any Material Changes
proposed by Bank;

 

(vii)                           discuss issues related to processing and
servicing the Accounts, the Cardholders and the Stores;

 

(viii)                        discuss and recommend actions to achieve
improvement in the effectiveness and efficiency of Card Program operations;

 

(ix)                                discuss plans for major systems changes
affecting the Card Program and recommend action as needed;

 

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(x)                                   manage priorities and approve the
implementation of any systems interface between Zale and Bank or designees of
either Party;

 

(xi)                                determine Card specifications including
size, type of plastic, encoding and magnetic stripe;

 

(xii)                             discuss and develop proposals for new Credit
Plans and other proposals and programs to maximize Card Sales;

 

(xiii)                          discuss such other marketing and operational
matters in respect of the Card Program as are deemed appropriate by the Client
Relationship Team or the parties hereto; and

 

(xiv)                         discuss unsatisfactory performance relative to the
Card Program and develop plans and proposals to address such unsatisfactory
performance.

 

2.3                                 Operational Oversight; Meetings, Voting and
Records.

 

(a)                                  The Client Relationship Team members shall
interface regularly as may be necessary or appropriate and shall work closely on
all operational matters pertaining to the Card Program. In furtherance thereof,
at Zale’s sale election, members of the Client Relationship Team may be located
at either or both of Zale’s and Bank’s facilities. All costs and expenses
associated with the provision of offices and administrative and secretarial
support for such members shall be borne by the party incurring such costs or
expenses.

 

(b)                                 Each of Zale and Bank shall be entitled to
one vote with respect to all matters to be voted upon by the Client Relationship
Team, regardless of the number of members of each party on the Client
Relationship Team. Any one of the representatives of Zale and of Bank may cast
the vote allocated to Zale or Bank, as the case may be, in the manner determined
by such representatives. Any matter requiring approval of the Client
Relationship Team shall require the affirmative vote of both Zale and Bank.

 

2.4                                 Program Committee.

 

(a)                                  For the purpose of periodically reviewing
the Card Program and resolving any claim, controversy or dispute between Bank
and Zale arising out of, relating to, or in connection with this Agreement or
the agreements and transactions contemplated hereby, including the
interpretation, validity, termination or breath hereof and any deadlock of the
Client Relationship Team (any such claim, controversy or dispute, a “Dispute”),
Bank and Zale each hereby agree to establish and maintain a Program Committee
(the “Program Committee”). The Program Committee will consist of an equal number
of senior management representatives of both Zale and Bank. The Program
Committee shall establish the number of representatives to be appointed to the
Program Committee from time to time; provided, however, that each of Bank and
Zale shall always have an equal number of representatives. The initial number of
such representatives for each of Zale and Bank will be three (3), and the
initial members of the Program Committee shall be those Persons listed on
Schedule 2.4 hereto. Each of Zale and Bank shall be entitled to remove one or
more of its representatives and appoint substitute representatives at any time
and from time to time during the term hereof upon written notice to the other
party or parties hereto.

 

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(b)                                 The Program Committee shall meet (in person
or by telephone or video conference) at such times and places as may be decided
by the members of the Program Committee; provided, however, that the Program
Committee shall meet (i) unless otherwise agreed by the parties hereto, at least
quarterly to discuss the status of the Card Program; (ii) within five (5) days
after either party hereto notifies the other of a Dispute; and (iii) as often as
may be reasonably necessary to gather information with respect to the matter
which is the subject of the Dispute and which is appropriate and germane to its
resolution. The Program Committee will discuss each such Dispute and negotiate
in good faith in an effort to resolve such Dispute as promptly and efficiently
as reasonably possible. The members of the Program Committee shall appoint an
acting chairman and adopt such other rules to facilitate the conduct of meetings
as are agreed upon from time to time. Each of Zale and Bank shall be entitled to
one vote with respect to all matters to be voted upon by the Program Committee.
Any one of the representatives of Zale and of Bank may cast the vote allocated
to Zale or Bank, as the case may be, in the manner determined by such
representatives. The presence of a representative of both Zale and Bank who is
authorized to vote shall constitute a quorum for meetings of the Program
Committee. Any matter requiring approval of the Program Committee shall require
the affirmative vote of both Zale and Bank. The Program Committee shall keep a
written record of its proceedings, which record will be reviewed and approved by
one representative of each of Zale and Bank designated by the respective parties
for such purpose.

 

2.5          Dispute Resolution.

 

(a)           Any Dispute that cannot be resolved by the Program Committee shall
be resolved in accordance with the procedures set forth below in this
Section 2.5. Each party covenants to the other party that it shall not resort to
judicial remedies with respect to a Dispute except for relief in aid of
arbitration and except as allowed pursuant to the provisions of this
Section 2.5. A party hereto that violates the covenants set forth in this
Section 2.5 hereof shall pay all of the reasonable legal costs and expenses
incurred by the other party or parties hereto in connection with the enforcement
thereof.

 

(b)           If the Program Committee is unable to resolve any Dispute referred
to it within fifteen (15) days of the date such Dispute was referred to it, such
Dispute shall immediately be referred to the Chief Execution Officer (“CEO”) of
Bank’s parent corporation and the CEO of Z Del’s parent corporation or their
respective designees for their review and resolution. If such Dispute cannot be
resolved by such officers within seven (7) days from the date such Dispute was
first referred to them, the parties, or either of them, may initiate Arbitration
according to the provisions of Section 5.10 hereof.

 

ARTICLE III -ISSUANCE OF ACCOUNTS AND ACCEPTANCE OF CARDS

 

3.1          Maintenance of Accounts of JNB. Bank hereby agrees, as of the
Effective Date, to accept (i) all accountholders and cardholders of JNB as of
the Effective Date as Accountholders and Cardholders hereunder, (ii) the cards
held by such Accountholders as Cards for all purposes hereof and (iii) all
Accounts of such accountholders as Accounts hereunder. Bank agrees to pay Zale
for all Card Sales made to such Cardholders in accordance with the terms and
conditions hereof.

 

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3.2           Procedures for Opening Accounts.

 

(a)           Bank’s Account Issuance Criteria.  Subject to the terms and
conditions of this Agreement Bank shall receive Applications for Accounts and
approve or decline such Applications solely in accordance with Bank’s Account
issuance criteria (“Bank’s Account Issuance Criteria”) and the Performance
Standards. Bank’s Account Issuance Criteria as of the date of this Agreement are
attached hereto as Schedule 3.2(a) and are incorporated herein as fully as
though set forth herein. Bank hereby agrees that it shall not change or modify
Bank’s Account issuance Criteria prior to the Conversion Data without Zale’s
prior written approval. Thereafter, Bank may make changes to Bank’s Account
issuance Criteria from time to time as Bank reasonably deems necessary, and such
changes will not require the approval of the Client Relationship Team or Zale;
provided, however, that Bank shall give Zale at least thirty (30) days notice of
any such change which is a material change. Bank shall decision each Application
in accordance with the terms hereof (including the Performance Standards) and,
if such , Application is approved, promptly issue a Card to such Accountholder.

 

(b)                                 Adjustments to Credit Card Agreements. Bank
may, in its sole but reasonable discretion, make changes to the terms and
conditions of the Credit Card Agreements from time to time, and such changes
shall not require the approval of the Client Relationship Team or Zale.

 

(c)                                  Adjustments to Performance Standards and
Minimum Volume Amount.  Beginning twelve (12) months from the Conversion Date,
upon the occurrence of any Negative Significant Shift, (i) the Credit Granting
Criteria Standards portion of the Performance Standards applicable to the Zale
division affected thereby may be adjusted by Bank, as provided herein, based on
any such Shift (other than any such Shift caused by Bank’s action), and (ii) the
Minimum Volume Amount may be adjusted by Zale, as provided herein, based on any
such Shift (other than any such Shift caused by Zale’s action).

 

Once a Negative Significant Shift has occurred, Bank will provide reasonable
documentation supporting such Negative Significant Shift to Zale, and (A) Bank
may propose an adjustment, applicable only to the Zale division or divisions as
to which such Shift has occurred and proportionate to such Shift, to any
Performance Standard affected by such Shift and which is reasonably required to
ensure that Bank maintains its same net position, relative to Bank’s exposure
for liquidated damages, as it maintained prior to the occurrence of such Shift
(provided, however, that in all cases, the amount of liquidated damages provided
for violation of any such Performance Standard shall remain the same); and
(B) Zale may propose changes to the Minimum Volume Amount reasonably required to
insure that Zale maintains its same net position relative to its exposure for
termination by Bank pursuant to Section 5.4(b)(v) hereof as it maintained prior
to the occurrence of the Negative Significant Shift. The party proposing an
adjustment pursuant to clause (A) or (B) above is herein referred to as the
“Adjusting Party”, and the other party hereto is herein referred to as the
Non-Adjusting Party.  If the Non-Adjusting Party agrees with the proposed
adjustments, such adjustments will become effective at the beginning of the
quarter immediately following the quarter in which a Shift occurred. If the
Non-Adjusting Party does not agree with the changes proposed by the Adjusting
Party, the Adjusting Party and the Non-Adjusting Party shall attempt in good
faith to reach agreement on what adjustments, if any, are required to reflect
the occurrence of such Shift. Notwithstanding anything to the contrary herein,
if the Adjusting Party and the Non-Adjusting Party are unable to

 

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agree on such changes within fourteen (14) days of the Adjusting Party’s
proposal, the parties shall submit the dispute directly to arbitration pursuant
to Section 5.10 hereof or such other dispute resolution process as the parties
may mutually agree. During the period a proposed adjustment by Bank is in
arbitration, any liquidated damages payable by Bank for Bank’s breaches of those
Performance Standards which are the subject of the arbitration or other process
will be suspended; provided, however, that liquidated damages applicable to a
breach of those Performance Standards established through arbitration will be
applied retroactively to the date such Performance Standards were suspended.
During the period a proposed adjustment by Zale is in arbitration, the Minimum
Volume Amount as it existed at the time of the proposed adjustment shall remain
in effect; provided, however, that Bank’s right to terminate for Zale’s failure
to meet the Minimum Volume Amount shall be suspended, and Zale shall not be
obligated to pay any Merchant Fee Differential to avoid a termination by Bank
pursuant to Section 5.4(b)(v) hereof; provided, however, that the Minimum Volume
Amount established through arbitration shall apply retroactively and Zale shall
have a minimum of thirty (30) days following determination of such Minimum
Volume Amount to pay any Merchant Fee Differential required to avoid termination
of this Agreement by Bank pursuant to Section 5.4(b)(v) hereof. Bank and Zale
agree that the Performance Standards or the Minimum Volume Amount, as the case
may be, which were adjusted as a result of the foregoing provisions of this
Section 3.2(c) will be further adjusted, in the manner provided above, upon the
earlier to occur of the following: (1) in the case of adjustments to the
Performance Standards by Bank, at the time Bank returns to its original net
position relative to liquidated damages for breach of the applicable Performance
Standard; or (2) in the case of any adjustment to the Minimum Volume Amount by
Zale, in the event Zale returns to its original net position relative to
possible termination by Bank of this Agreement pursuant to
Section 5.4(b)(v) hereof; or (3) in the case of an adjustment by either Bank or
Zale, the event which was the basis of an adjustment has shifted back to its
prior performance level for a period of two (2) consecutive quarters and no
other condition for adjustment exists under the definition of Negative
Significant Shift.

 

(d)                                 Discussion of Quarterly Results. Once a
Negative Significant Shift has occurred, Bank agrees to review with the Client
Relationship Team at least quarterly the results of measures of those criteria
which caused such Negative Significant Shift until such criteria have again
shifted back to their prior performance levels.

 

(e)                                  Limitation on Bank’s Right to Make Changes.
Notwithstanding any other provision hereof to the contrary, in the event Bank
changes the Account issuance Criteria or the terms and conditions of the Credit
Card Agreement and such change could reasonably be expected to require
modifications to Zale’s existing Store procedures, operations, hardware or
software, Bank and Zale shall negotiate in good faith regarding implementation
of such modifications, including without limitation the method, timing, expense
and who bears the cost of such modifications.

 

(f)                                    Terms and Conditions to Remain
Competitive.  Notwithstanding any other provision hereof to the contrary, Bank
agrees that during the term of this Agreement the Account terms and conditions
hereunder will not competitively disadvantage Zale as to those terms and
conditions offered by a majority of other similarly situated specialty jewelry
retailers and department stares offering Authorized Goods and Services.

 

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(g)                                 Applications with Accompanying Sale.
Applications transmitted to Bank in the manner specified in the Operating
Regulations in conjunction with a sale of Authorized Goods and Services will be
reviewed by Bank in accordance with Bank’s Account Issuance Criteria, and Bank
will advise Zale in accordance with this Agreement, including the Performance
Standards, whether such Application has been approved or denied. In connection
with Applications submitted under this Section 3.2(b) Zale shall be responsible
for the following:

 

(i)                                     Insuring that all information required
on the Application has been provided to Bank in accordance with the Operating
Regulations and is as provided to Zale by the Credit Applicant;

 

(ii)                                  Obtaining a photo identification (such as,
by way of example and not limitation driver’s license or passport) of the Credit
Applicant in accordance with the Operating Regulations;

 

(iii)                               Upon either approval or denial of an
Application, storing such Application in a manner deemed appropriate by Zale
(including without limitation by imaging) and, only as may be reasonably
requested by Bank from time to time, forwarding a copy of a requested original
Application to Bank within fourteen (14) days following such request and, no
more frequently than once every January, beginning in January, 2002, forwarding
to Bank copies of all Applications submitted to Zale and approved by Bank during
the calendar year immediately preceding the calendar year then most recently
ended (e.g., copies of such Applications submitted and approved during calendar
year 2000 would be forwarded to Bank in January, 2002);

 

(iv)                              Entering the Card Sale into the Electronic
Terminal or other means by which information is being transmitted to Bank and
recording, electronically or otherwise, any approval code provided by Bank to
Zale at the time of such Card Sale; and

 

(v)                                 Providing to each Credit Applicant a copy of
the Credit Card Agreement and any other Required Disclosures Bank has provided
to Zale and instructed Zale to provide to Credit Applicant at the time of
application.

 

(h)                                 Processing of Applications. In order to
expedite processing of Applications for Accounts and minimize sales clerk time
required in connection with each Application, to the extent Electronic Terminals
are available, all Applications for Accounts and responses to such Applications
shall be effected electronically, utilizing Store registers, by both Zale and
Bank, in a manner reasonably consistent with the manner in which Zale processed
applications for accounts under its credit program with JNB or as may be
otherwise agreed by Zale and Bank.

 

(i)                                     Internet Applications. Customers of Zale
who wish to apply for an Account may, at Zale’s election, do so via an internet
link between any Zale e-commerce website and any Bank internet website, when
such internet link becomes operative as provided in Section 3.15 hereof. Bank
shall cooperate with Zale in implementing the process for internet Applications,
which process shall be as “user-friendly” as reasonably possible. Bank shall be
responsible for all

 

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Required Disclosures to be made to Credit Applicants over the internet to the
extent Bank or its agent or representative is hosting the website on which
internet Applications are received. With respect to any Applications or
Authorizations received via the internet in connection with Special Credit
Plans, Zale shall be responsible for providing a copy of any Required
Disclosures Bank has provided to Zale with respect to such Special Credit Plan.
Bank hereby licenses Zale the right to use Bank’s logo on any Zale internet site
for purposes of promoting the Card Program, which use shall be subject to Bank’s
reasonable approval. All Applications received by Bank via the internet will be
processed only if all of the information requested on the website Application
form has been completed; provided, however, that Bank will design such website
to properly prompt Credit Applicants to supply such information and to fill in
missing information. The Client Relationship Team shall, in a timely manner,
establish Performance Standards for the processing of internet Applications and
conduct of the Card Program via the internet.

 

(j)                                     Failure to Adhere to Procedures. Failure
of Zale to adhere to the above described procedures for Applications may result
in a Chargeback to the extent specifically provided in Section 3.11 hereof but
only to the extent that Bank (i) has paid Zale for Authorized Goods and Services
charged to such Account and (ii) has suffered financial loss because of Zale’s
failure to observe such procedures.

 

(k)                                  Cost of Applications; Certain Required
Disclosures. At its sole cost and expense Bank agrees to provide Zale, from time
to time at such location or locations as may be specified by Zale, a sufficient
number of copies of Required Disclosures (other than those contained in the
Credit Card Agreement or in advertisements, for which printing costs shall be
for the account of Zale but production of text shall be Bank’s responsibility)
as may be required by Zale hereunder. Arrangements for and the cost of printing
Applications, Credit Card Agreements and Sales Slips shall be Zale’s
responsibility; or provided, however, that any and all costs and expenses
incurred by Zale as a result of changes to any then existing form of the
foregoing requested by Bank or required by Applicable Law, including without
limitation additional costs resulting from the destruction of any existing
copies of such form, shall be for the sole account of Bank, and Bank shall
reimburse Zale upon demand for any such costs and expenses. Bank shall be
responsible, at its sole cost and expense, for production of Cards, Card
carriers, billing statements and remittance envelopes, provided, however, that
any such costs and expenses resulting solely from a change required by Zale
shall be for Zale’s account, and Zale shall reimburse Bank upon demand for any
such costs and expenses. In addition to copies of the Credit Card Agreements
provided by Zale to Credit Applicants at the time of application, Bank agrees to
provide Accountholders, in the Card carrier envelope provided by Bank to such
Accountholders, upon issuance of each Card, a copy of Bank’s Credit Card
Agreement. Bank shall include in the Credit Card Agreement any Required
Disclosures regarding those Special Credit Plans identified in Schedule 1.1B
hereto and other Special Credit Plans hereafter adopted which Bank and Zale
reasonably agree, at the time of any printing of the Credit Card Agreement, to
include.  Other than any such Required Disclosures which Bank advises Zale
(i) to distribute to Cardholders at the time of submission or approver of an
Application, (ii) to include in advertisements or (iii) to distribute or
disclose in connection with promotions, Bank shall be fully responsible, at
Bank’s sole cost and expense, for providing and hereby covenants to provide
Cardholders with all Required Disclosures. Bank and Zale shall reasonably
cooperate and coordinate with respect to production of materials required to be
produced by each of them hereunder.

 

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3.3           Honoring of Cards.

 

(a)           Provisions Regarding Honoring Cards. Subject to the terms and
conditions of this Agreement, beginning on the Effective Date, Zale agrees to
accept Cards for payment of Authorized Goods and Services in those instances
when a Cardholder wishes to charge the purchase of Authorized Goods and Services
to his or her Account.  Zale shall not attempt to discourage use of a Card by a
Cardholder (except in accordance with this Agreement). Zale shall accept Cards
bearing the Zale Mark for a particular division at all of such division’s Stores
for the purchase of Authorized Goods and Services; provided, however, that
except as otherwise contemplated hereby, the Sales Data resulting from each such
acceptance of a Card shall be in United States dollars. If any facility or
service is operated on Zale premises under a franchise, lease or license from
Zale and such franchisee, lessee or licensee (which is not a party to a merchant
services agreement with Bank) agrees with Zale to accept Cards, Card
Transactions effected at such facility or service will be subject to the terms
and conditions of this Agreement and shall be handled through Zale as if Zale
had effected such Card Transactions at a Store, and the goods and services so
sold shall be deemed to be Authorized Goods and Services for all purposes of
this Agreement.  Payments due as a result of any such Credit Sale shall be
deemed to be made by Zale for purposes hereof and shall be included in any
Settlement made by Bank to Zale hereunder. Zale shall be obligated to pay its
franchisee, lessee or licensee with respect to such Card Transactions.

 

(b)                                 Commencement of Card Acceptance; Exclusivity
of Card Program.  Acceptance of Applications by Bank, authorization by Bank of
Card Sales and acceptance of Cards by Zale will commence on the Effective Date
or as soon thereafter as agreed to by Zale and Bank and will continue until the
termination of this Agreement in accordance with the provisions hereof. During
the term of this Agreement, except as otherwise contemplated hereby, neither
Zale nor any other party on behalf of Zale will enter into any arrangement or
agreement with a third party provider under which Zale issues, sponsors,
participates in or accepts another private label credit card or private label
credit account or license the use, in connection with any such arrangement or
agreement, of any Zale Mark utilized by Zale and Bank on any Card; nor, except
to the extent otherwise contemplated hereby, shall Zale or any other party on
behalf of Zale enter into any arrangement or agreement with a third party
provider under which Zale issues, sponsors or participates in the marketing of
any cobranded credit card or credit account. Notwithstanding the foregoing,
nothing contained in this Agreement will be construed to prohibit Zale from:
(i) entering into a Second Look Program, provided, however, that Bank shall have
a right of first refusal as set forth in Section 3.16 to provide such program;
or (ii) accepting any major general purpose credit or debit card (including by
way of example and not by way of NOVUS, American Express, MasterCard, Discover
or Visa) as a means of payment by customers for purchases of Authorized Goods
and Services. Zale agrees that Bank shall have the right to review and approve
or decline each Application submitted by a Credit Applicant before such credit
application is provided to any other Person.

 

(c)                                  Currencies other than United States
Dollars. Bank will advise Zale promptly upon development by Bank of the
capability to accept Sales Data in currencies other than United States dollars.
In the event the Commonwealth of Puerto Rico proposes to adopt an official
currency other than the United States dollar or an official currency other than
the United States dollar is generally accepted in commercial transactions in
Puerto Rico, or, if Zale, in good faith

 

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reasonably determines that its inability to offer Card Transactions, whether in
the United States or Puerto Rico, in a particular official currency other than
the United States dollar places Zale at a material competitive disadvantage,
Zale may so notify Bank and, in such event, shall advise Bank of the official
currency in which Zale wishes to make Card Transactions available, and Bank
shall have an option, exercisable by delivery of written notice to Zale within
thirty (30) days following such written request, of proceeding with the
development and implementation of Card Transactions in such currency. In the
event such capability is developed and implemented by Bank within a commercially
reasonable period of lime following exercise of such option (and notwithstanding
anything contained in Section 3.3(a) above to the contrary), Card Transactions
may be effected in such other currency upon terms and conditions to be mutually
determined by Bank and Zale, which terms and conditions shall be as consistent
as reasonably possible with the terms and conditions of this Agreement if
(i) Bank falls to exercise such option or falls to develop and implement such
capability within such commercially reasonable period of time following request
(or such longer period as Zale may agree), or otherwise advises Zale in writing
that it will not be able to develop and implement such capability within such
commercially reasonable period of time, or (ii) Bank and Zale are unable to
agree upon terms and conditions applicable to Card Transactions in such other
currency within such commercially reasonable period of time, Zale shall have the
right, without further notice to the Bank, to solicit bids from such other
Persons as it may determine and to enter into agreements and arrangements with
such other Persons to effect and process card transactions, utilizing another
card program with a credit provider other than Bank, in such other currency.
Bank agrees to cooperate with Zale and such other Persons in good faith to
develop and to implement any such capability to be provided by Bank hereunder
and ensure that such capability is integrated, to the extent reasonably
necessary to the overall efficient and effective operation of Zale’s credit
business, into the Card Program, upon terms and conditions mutually agreeable to
Bank, Zale and such other Person.

 

3.4                            Acceptance of Cards by Bank. Bank shall accept
each Card or Account number  presented by a Cardholder as the method of payment
for Authorized Goods and Services and shall pay Zale for such Authorized Goods
and Services charged pursuant thereto so long as the following conditions are
met with respect to a specific Card Sale, and Zale, with respect to such Card
Sale, complies in all material respects with the material procedures set forth
herein and in the Operating Regulations relating to acceptance of Cards:

 

(a)                                  The Card or a valid Account number is
provided to Zale;

 

(b)                                 The Card or a valid Account number is used
as payment for Authorized Goods and Services purchased by a Cardholder;

 

(c)                                  Such Card Sale does not involve a cash
advance to a Cardholder or payment of cash to a Cardholder;

 

(d)                                 Zale has followed in all material respects
the procedures for completion of a Sales Slip with respect to such Card Sale as
set forth in Section 3.6 of this Agreement; and

 

(e)                                  Zale has obtained Authorization for such
Card Sale if required pursuant to Section 3.7 of this Agreement.

 

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3.5                            Operating Regulations. From time to time during
the term hereof and subject to the provisions set forth below, upon notice to
Zale at least thirty (30) days prior to implementation of any Material Change,
Bank may make changes to the Operating Regulations. All Material Changes to the
Operating Regulations shall be submitted to the Client Relationship Team in
writing for review and must be approved by the Client Relationship Team. Any
deadlock or dispute of the Client Relationship Team shall be resolved in
accordance with · Article 11 hereof. In the event of any conflict or
inconsistency between the terms of this Agreement and those of the Operating
Regulations, the provisions of this Agreement shall govern. Bank covenants and
agrees to deliver to one or more of Zale’s representatives on the Client
Relationship Team revised copies of the Operating Regulations promptly after
making any change thereto; provided, however, that Zale will not be obligated to
comply with any change(s) made to the Operating Regulations unless such updated
copy including such change(s) has been so delivered and, in respect to changes
which are not Material Changes but which require action- by Zale, until a
reasonable period of time (considering those changes or adjustments, if any,
which must be made by Zale as a result of such change in the Operating
Regulations) has expired following such delivery.

 

3.6                            Completion of Sales Slips.

 

(a)                             General Requirements. Zale shall prepare a Sales
Slip for use in connection with Card Sales. Each Sales Slip must be legible and
fully completed with the information required under this Section 3.6, as
applicable.

 

(b)                            Mail/Telephone/Internet Orders. For each Card
Sale effected by mall, telephone or internet, Zale shall record the following
information on the Sales Slip prepared with respect to such Card Sale:

 

(i)                                     The date of such Card Sale;

 

(ii)                                  The name and location (city and state) of
the Accountholder to whom the bill for the Card Sale will be sent, unless
otherwise provided to Bank, (e.g. batch reports, etc.);

 

(iii)                               A brief description of the Authorized Goods
and Services purchased in such Card Sale;

 

(iv)                              The total amount of the Card Sale, including
tax;

 

(v)                                 The Cardholder’s Account number;

 

(vi)                              The Authorization number (if any) provided by
Bank to Zale;

 

(vii)                           The Credit Plan code (if any) provided by Bank
to Zale;

 

(viii)                        Zale’s Bank-assigned Merchant number;

 

(ix)                                The shipping address (if applicable); and

 

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(x)                                   The shipping date (if applicable).

 

(c)                             Store Sales. For Card Sales in Stores, each
Sales Slip must be legible and fully completed with the same information
required for Card Sales by mail, telephone and internet (specified in
Section 3.6(b) of this Agreement), other than the name and location of the
Accountholder to whom the bill for the Card Sale will be sent and the shipping
address and shipping date. A Sales Slip must be signed by a Cardholder for each
Store Card Sale at the time such Card Sale is made and in the presence of an
authorized representative or employee of Zale. For Card Sales to the Person
representing himself to be the Person named on the Card, when the Card is
physically presented to a Zale representative or employee, such representative
or employee shall check to determine whether, in such representative’s or
employee’s judgment, the signature on the Sales Slip is reasonably similar to
the signore, if any, appearing on the signature panel of the Card. After
completion of the Card Sale, Zale shall provide a legible and completed copy of
the Sales Slip to the Cardholder.

 

(d)                            Signature.  For each Card Sale in a Store, if
Zale fails to obtain the signature of a Cardholder on a Sales Slip, and for each
sale over the internet, by mail or telephone, if Zale ships the products charged
in the Card Sale to an address other than the address of the Accountholder and
falls to obtain the signature of a Cardholder or a member of the Cardholder’s
household (including without limitation any domestic employee) accepting
delivery, and, in any such case, such Cardholder has not authorized the Card
Sale or denies the validity of the Card Sale and such Cardholder falls to make
payment for the Card Sale as provided in the Account terms and conditions, the
Card Sale shall be subject to Chargeback to the extent provided in Section 3.11
of this Agreement. Electronic signatures which comply with Applicable Law shall
be deemed to be Signatures for all purposes of this Section 3.6(d).

 

3.7                            Authorization. (a) Bank agrees at all times
during the term hereof, at its sole cost and expense, to maintain primary and
back-up Authorization capacity sufficient to enable Bank to perform its
obligations hereunder (including but not limited to adequate staffing), with
such back-up Authorization capacity served by a power source totally separate
from that utilized by the primary Authorization capacity such that if power were
unavailable to the primary Authorization capacity, power would likely be
available to the back-up capacity. Bank further agrees at all times to maintain
one toll-free telephone number accessible from all Stores and available for use
by Zale personnel in connection with Authorization and inquiries by Store
personnel and regional managers and adequate to meet the Performance Standards.
In accordance with the terms of this Section 3.7, Zale must obtain Authorization
for each proposed Card Sale other than Card Sales which are subject to the Floor
Limit as provided below. Card Sales which occur at any time when those means of
electronic Authorization specified in clause (b)(i) below are unavailable to
Zale for any reason shall be subject to the Floor Limit and so long as such Card
Sales are within the Floor Limit, shall be deemed to have received
Authorization. Bank hereby agrees, at Zale’s request from time to time during
the term hereof, to review the Floor Limit and to approve increases in the Floor
Limit to the extent such increases are necessary or appropriate to cause Zale to
remain competitive with other Bank clients selling goods and services
substantially the same as Authorized Goods and Services. Bank shall authorize
all Card Sales with respect to an Account up to a maximum amount equal to the
approved amount for such Card Sale communicated to the Store by Bank and such
amount and an additional amount not exceeding ten percent (10%) of such amount
shall be deemed to be approved for purposes

 

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hereof). In order to expedite Authorization and minimize sales clerk time
required in connection with each Card Sale, to the extent Electronic Terminals
are available, all requests for Authorization and responses to such requests
shall be effected electronically, utilizing Store registers, by both Zale and
Bank, in a manner reasonably consistent with the manner in which Zale secured
authorizations of charge sales under its credit program with JNB or as may be
otherwise agreed by Zale and Bank. For purposes of this Agreement, the purchase
of one or more items of Authorized Goods and Services made by a Cardholder at
one Store and at one time will be deemed to constitute a single Card Sale.

 

(b)                            Obtaining Authorization.

 

(i)                                Electronic Locations. To obtain Authorization
for Card Sales made at Electronic Locations (including without limitation
internet sales), Zale shall utilize an Electronic Terminal; provided, however,
that if such Electronic Terminal is not properly functioning at the time of a
Card Sale, to the extent a Card Sale exceeds the Floor Limit, the provisions
applicable to non-Electronic Locations as set forth below shall apply. Bank has
examined the Electronic Terminals Zale currently uses, and such Electronic
Terminals are acceptable to Bank. After the date hereof, Electronic Terminals in
Stores shall be substantially similar to those used by Zale on the date hereof
or shall be of a type customarily used by retailers or of such other type as
shall be reasonably acceptable to Bank. Zale agrees to adequately maintain its
Electronic Terminals. At an Electronic Location, if a referral code is displayed
on an Electronic Terminal, Zale shall follow Operating Regulations pertaining to
procedures related to such referral code; provided, however, that in the event
the Card Sale ultimately approved, such approval shall be communicated to Zale
electronically.

 

(ii)                             Non-Electronic Authorization. To obtain
Authorization at non-Electronic Locations or at Electronic Locations when Bank’s
capability to provide electronic Authorization or Zale’s capability to obtain
electronic Authorization is not operational and a Card Sale exceeds the Floor
Unit, Zale shall contact Bank in accordance with the Operating Regulations. Bank
will make commercially reasonable efforts to create backup capacity for
Authorization when Electronic Terminals are not available (including without
limitation via facsimile). If the Authorization Center approves the Card Sale by
telephone, facsimile or other approved means, Zale shall record on the Sales
Slip any Authorization code or number provided to Zale by Bank with respect to
such Card Sale.

 

(c)                             Right of Chargeback. Bank agrees to respond to
requests for Authorization by Zale hereunder in accordance with the Performance
Standards. If Authorization is required hereunder for any Card Sale and Zale
fails to obtain such Authorization, Bank may process a Chargeback for such Card
Sale to the extent provided in Section 3.11 of this Agreement. If Authorization
is required and Zale obtains such Authorization, but the amount of the Card Sale
exceeds by more than-ten percent (10%) the authorized amount, Bank may process a
Chargeback to the extent provided in Section 3.11 of this Agreement.
Notwithstanding any provision hereof to the contrary, in no event shall any Card
Sale be subject to Chargeback solely as a result of the fact that those means of
Authorization specified in Section 3.7(b)(i) were unavailable (for any reason
other than one attributable solely to Zale’s negligence or willful misconduct),
such Card Sale was subject to and within the Floor Limit and no Authorization
was secured.

 

22

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(d)                            Cancellation of Account/Authorization. In
connection with Card Transactions by catalogue, telephone or mail in which an
Account is opened at the time of such transaction but a copy of the Credit Card
Agreement is not delivered by Zale or Bank to the Credit Applicant at the time
the Credit Applicant makes a purchase of Authorized Goods and Services, the
Credit Applicant shall have the option, but only to the extent required by
Applicable Law, to decline the terms and conditions of the Credit Card Agreement
and close the Account upon receipt of a copy of such Credit Card Agreement.
However, in the event such Credit Applicant so elects with respect to any such
transaction, unless Bank can legally do so under Applicable Law, no sale will be
posted to nor billed through such Credit Applicant’s Account. Bank shall notify
Zale of any such event as promptly as reasonably possible and in any event
within ten (10) Business Days of the date on which Bank learned that such Credit
Applicant had so elected. Zale will be responsible for making alternate payment
arrangements with the Credit Applicant with respect to such transaction, and
Bank shall fully cooperate with Zale in Zale’s attempt to make such alternate
arrangements.

 

3.8                            Settlement of Card Transactions.

 

(a)                             Remittance of Sales Data by Zale. From time to
time at such intervals as shall be determined by Zale (but not more frequently
than daily nor lees frequently than weekly) during the term hereof, Zale shall
forward previously unreported Sales Data to Bank. All such Sales Data shall be
in the form and format set forth in the Operating Regulations, or in such other
form and format as Zale and Bank may agree. In the event all or a portion of
such Sales Data is not forwarded by Zale to Bank or such data is forwarded but
is unreadable as a result of an act or omission of Zale, Bank shall not be
required to process the portion of the Sales Data containing the missing or
unreadable data, but shall inform Zale or its designated agent of the missing or
unreadable Sales Data within one (1) Business Day of Bank’s receipt of such
Sales Data. Zale shall be responsible for retrieving and resubmitting the
missing or unreadable portion of the Sales Data and, when Zale has done so, Bank
shall process such Sales Data. Zale shall be responsible for the loss, damage or
destruction of Sales Data until such Sales Data is received by Bank or by Bank’s
designated processor or other agent, unless such loss, damage or destruction is
caused by an act or omission of Bank or Bank’s designated processor or other
agent.

 

(b)                            Obligation to Reimburse Zale for Sales Data.
Subject to Bank’s right of Chargeback to the extent specifically provided for in
Section 3.11 hereof, Bank shall reimburse Zale in accordance with the provisions
of clause (c) below for all Card Sales included in Sales Data forwarded by Zale
to Bank in accordance with the terms hereof. On each Business Day during the
term of this Agreement, Bank will pay Zale an amount equal to the total amount
of Net Card Sales, if any, submitted to and received by Bank in accordance with
the terms hereof with respect to which Settlement is then due, together with the
amount of any Merchant Fee adjustment for any Credits as provided in Section 3.9
hereof. Bank will not be required to reimburse Zale for any Card Sale not
submitted to Bank within thirty (30) days of the date of such Card Sale unless
Bank bills customer for such Card Sale.

 

(c)                             Method and Timing of Settlement.  For Sales Data
electronically forwarded to Bank as provided herein by 1:00 p.m. prevailing
Central time on a Business Day as provided in Section 3.8(a) above, Bank will
initiate a wire transfer in the amount of the Settlement due Zale no later than
2:00 p.m. prevailing Central time on the immediately following Business Day to a

 

23

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Settlement Account in accordance with Zale’s instructions. With respect to such
Sales Data received by Bank after 1:00 p.m. prevailing Central time on a
Business Day, Bank will initiate a wire transfer in the amount of the Settlement
due Zale to such Settlement Account and in accordance with such instructions by
2:00 p.m. prevailing Central time on the second Business Day immediately
following the data on which Bank received such Sales Data. Any amounts that are
not wired by Bank in accordance with the schedule set forth in this
Section 3.8(c) shall bear interest at the Federal Funds Rate until paid in full,
and any such accrued interest shall be payable on demand. Bank will not accept
Sales Data in paper form (hard copy) unless all reasonable electronic means of
transmitting such data are unavailable. Under no circumstances shall Bank debit
(and Bank is not authorized to debit) any Settlement Account in the event the
amount of Net Card Sales due to Zale with respect to such Business Day is a
negative amount, but rather Bank shall offset the amount due Bank against the
amount of future Settlements until any such amount due Bank has been satisfied.
Bank may, at its option, offset against any amount wired to a Settlement Account
hereunder an amount equal to any then due and unpaid Merchant Fees and Credits,
provided that Bank provides written notice to Zale of such offset at the time
thereof. Zale authorizes Bank and its designated agents and representatives to
initiate credit (but not debit) entries to the Settlement Account as provided
herein. Neither Bank nor Zale shall be liable for any delays in receipt of funds
or errors in account entries caused by third parties not specifically engaged by
Bank or Zale, as the case may be, to perform its obligations hereunder. Zale
shall not close a Settlement Account without providing Bank at least five
(5) Business Days prior written notice of such closure and, if such Settlement
Account is the sole Settlement Account then maintained by Zale, substitution of
another account. Zale shall be solely liable for all fees and costs associated
with each Settlement Account; provided, however, that Bank shall be solely
liable and responsible for any and all fees and costs associated with the credit
of any amount to a Settlement Account.

 

(d)                            Wire Transfer of Settlement Amounts. All wire
transfers of funds required under Section 3.8(c) above shall be sent, at Bank’s
sole cost and expense. In the event Zale is not receiving such funds on the same
day the wires are initiated by Bank. Bank and Zale agree to cooperate to
implement new or revised procedures to facilitate the receipt of such funds by
Zale on the same day the wire transfers are initiated.

 

3.9                            Cardholder Credits and Payments.

 

(a)                             Unless specifically required by Applicable Law,
Zale shall not give cash refunds to any Cardholder in connection with a Card
Sale but rather shall issue an appropriate Credit with respect to such Card
Sale. For each Credit issued by Zale, Zale shall prepare and deliver to the
Cardholders Credit Site which Zale shall complete in accordance with the
Operating Regulations. Zale shall submit Sales Data evidencing each Credit to
Bank promptly with other Sales Data submitted to Bank hereunder (and in any
event within seven (7) days after such Credit is issued) in order that the
appropriate Credit may be entered on the Cardholder’s Account.

 

(b)                            Zale shall accept payments (“In-Store Payments”),
on an Account made by a Cardholder or any other Person acting on behalf of a
Cardholder only in accordance with the applicable provisions of the Operating
Regulations. Zale shall advise Bank, in reasonable detail (including without
limitation the name and Account number of the Cardholder making such payment and
the amount thereof) and by electronic transmission, of any payments so received

 

24

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within one (1) Business Day of receipt thereof, and Bank may offset the amount
of such in-Store Payment from any Settlement amount due Zale on the Business Day
next following Bank’s receipt of such notice from Zale, and Zale shall retain
such In-Store Payment. Bank hereby constitutes and appoints Zale and its
officers and employees as Bank’s attorneys-in-fact for purposes of negotiating
any and all instruments received in connection with any such In-Store Payment
and hereby authorizes Zale and its officers and employees to take such action or
actions as Zale or any such officer or employee may deem necessary or
appropriate in connection with the negotiation and/or collection of any such
In-Store Payment. To the extent any check or other instrument is tendered as an
In-Store Payment and is not honored and Bank has offset the amount thereof as
provided herein, Bank shall pay or credit Zale the amount of such dishonored
check or other instrument in accordance with the provisions of the Operating
Regulations.

 

3.10                     Billing Inquiries and Cardholder Disputes.

 

(a)                             Bank agrees at all times during the term of this
Agreement to maintain at all times  sufficient number of toll-free telephone
lines accessible by Customers for billing and other Account-related inquiries to
enable Bank to respond to such inquiries on a timely basis in compliance with
the Performance Standards. Such lines shall be answered by an interactive voice
response system capable of providing basic account information. Bank also agrees
to maintain at all times during the term of this Agreement a toll number with a
human response system accessible by customers for bang and other Account-related
inquiries, if at any time during the term of this Agreement, the Client
Relationship Team determines that the lack of a toll-free human response system
in respect of Cardholder inquiries is adversely affecting the Card Program, Card
Sales or Zale’s reputation generally, Bank shall, at Bank’s cost and expanse,
implement a toll-free human response back-up to such interactive voice response
system. If Zale is responsible for investigating and resolving a billing inquiry
or billing error notice of a Cardholder as hereinafter provided, Bank will
notify Zale promptly in accordance with Applicable Law of such inquiry or
notice, specifying in suitable detail the nature of such inquiry or notice. To
the extent any inquiry or notice relates to an alleged act or omission by Zale,
Zale agrees to investigate and make a good faith effort to resolve such billing
inquiry or dispute referred to it by Bank or received directly by Zale from a
Cardholder. Promptly, but in no event later than thirty (30) clays from the date
Bank sends a billing inquiry or dispute to Zale, Zale shall notify Bank in
writing of its response to such inquiry or dispute, any resolution thereof
agreed upon by Zale and the Cardholder, or any action Zale proposes to take to
resolve such billing inquiry or dispute. Zale shall provide Bank with such
information as Bank may reasonably request in connection therewith. To the
extent any inquiry or notice relates to an alleged act or omission by Bank,
including inquiries or notices related to late fees, interest and other finance
charges, Bank shall be fully responsible for resolving such inquiry or depute
and shall do so in a manner which does not reflect unfavorably on Zale and which
complies with the Performance Standards.

 

(b)                            In connection with the collection of Accounts and
the resolution of Cardholder inquires and disputes, Bank shall Utilize a
designated unit of trained collection and customer service personnel who will
interact with Cardholders in a professional and helpful manner and in accordance
with the Performance Standards. All collection efforts shall be conducted in
conformance with the provisions of the Federal Fair Debt Collection Practices
Act and other Applicable Law. In the event Zale advises Bank of its receipt of a
significant increase in the

 

25

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number of complaints from Cardholders relating to Bank’s customer service or
collection practices, Bank will review with Zale the nature of such complaints
and Bank will remedy any non-compliance with the aforementioned criteria.

 

(c)                             Bank will promptly notify Zale of (i) the filing
of (A) any class action lawsuit involving the Card Program or (B) any lawsuit in
which Bank is sued by or on behalf of a Cardholder and which lawsuit, when
considered in light of all other lawsuits brought by Cardholders and then
pending, would be material; (ii) each material lawsuit in which Bank is sued by
or on behalf of a Cardholder and Bank is found by a court of competent
jurisdiction to have violated Applicable Law; and (iii) the institution of any
governmental investigation with respect to the Card Program generally or Bank
practices utilized in connection with the Card Program generally, unless and
except to the extent Bank is legally prohibited from disclosing same; provided,
however, that Bank’s notification obligation under clause (ii) shall not extend
to individual customer complaints that are not otherwise material.

 

3.11                     Chargeback Rights and Procedures.

 

(a)                             Chargeback Rights. To the extent (and only to
the extent) specified in Schedule 3.11(a) hereto, Bank may process a Chargeback
to Zale for the amount of a Card Sale or an Account balance, or the disputed
portion thereof, as applicable, but only if and to the extent Bank has suffered
financial loss or expense as a result thereof; provided, however, in no event
will Bank have the right to process such Chargeback more than twelve (12) months
after the Card Sale (plus the period of any Special Credit Plan, applicable to
such Card Sale, that provides for deferral of principal payments). Except to the
extent required by Applicable Law, Bank shall not process any Chargeback to Zale
based upon a merchandise or billing dispute by an Accountholder without first
giving Zale notice of such dispute and at least thirty (30) days following such
notice to resolve such dispute. Bank shall advise Zale electronically at least
monthly in such format as shall be reasonably approved by Bank and Zale
(specifying in reasonable detail the name and Account number of the Cardholder
with respect to which such Chargeback is being processed, the amount of such
Chargeback, the reasons for such Chargeback and whether Bank has previously paid
Zale for the Card Sale which is the subject of such Chargeback) of all
Chargebacks effected by Bank during the immediately preceding month (the
“Chargeback Report”). If Bank processes a Chargeback and the disputed amount is
subsequently paid to Bank by the Cardholder, Bank will promptly, and in any
event within three (3) Business Days of Bank’s receipt of such payment,
reimburse Zale for the amount paid by Cardholder. Zale shall have the right to
collect any amount from Cardholder; to the extent Bank has processed a
Chargeback to Zale as provided herein, and Bank hereby assigns to Zale all of
Bank’s right, title and interest in, to and under all such amounts which are the
subject of a Chargeback hereunder and constitutes and appoints Zale its
attorney-in-fact for purposes of collecting each and every such amount, which
payments and credits shall be for the benefit of Zale. Amounts charged back to
Zale by Bank shall not include any Bank-imposed fees or finance charges and
shall be increased or reduced, as the case may be, by any amount previously
charged or credited Zale, as the case may be, as Merchant Fees or other fees in
respect of any amount included in a Chargeback. If Bank has previously paid Zale
the amount which was the subject of the Chargeback, Zale shall repay Bank such
amount previously paid. All credits and charges since the end of the period
covered by the last Chargeback Report shall be reflected in each

 

26

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Chargeback Report (except that the first Chargeback Report shall reflect
Chargebacks since the Effective Date).

 

(b)                            Method of Recourse. Bank is not required to pay
Zale for any Card Sale which is the subject of a Chargeback that Bank is
permitted to make as provided herein. If Bank has already paid Zale for such
Card Sale, Zale shall pay Bank within fifteen (15) Business Days after receipt
of each Chargeback Report the full amount of Chargebacks due Bank reflected in
such Chargeback Report unless Zale disputes Bank’s right to make such
Chargeback. Any amount not paid by Zale when due hereunder shall bear interest
at the Federal Funds Rate until paid. If Zale disputes a Chargeback, Zale shall
so notify Bank of such Dispute and Bank and Zale shall attempt to resolve such
Dispute. In the event Zale and Bank are unable to resolve such Dispute promptly,
such Dispute shall be submitted to the Program Committee for resolution in
accordance with the provisions of Section 2.4 hereof. Chargebacks shall not be
subject to offset against Settlement amounts due Zale hereunder.

 

3.12                     Representations and Warranties.

 

(a)                             By Zale.  Zale hereby represents and warrants to
Bank as follows:

 

(i)                                     Each of Z Del and Zale Puerto Rico is
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation.

 

(ii)                                  Each of Z Del and Zale Puerto Rico has all
power, authority, licenses and permits necessary to execute, deliver, and
perform its obligations under this Agreement.

 

(iii)                               This Agreement constitutes the legal, valid
and binding obligation of each of Z Del and Zale Puerto Rico, enforceable
against it in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium, or other laws affecting creditors’
rights generally and subject to general principles of equity, regardless of
whether considered in a proceeding at law or in equity.

 

(iv)                              Except as set forth in Schedule
3.12(a) hereto, the execution, delivery and performance of this Agreement by
each of Z Del and Zale Puerto Rico do not require any filing or registration
with, or the consent or approval of any governmental body, agency, authority, or
any other Person which has not been made or obtained or which will not be
obtained or made prior to closing.

 

(v)                                 Except to the extent set forth in Schedule
3.12(a) hereto, the execution, delivery and performance of this Agreement by
each of Z Del and Zale Puerto Rico do not result in the breach of, or constitute
a default under, any indenture, mortgage, deed of trust, loan, agreement, or
other instrument to which Z Del or Zale Puerto Rico is a party or by which Z Del
or Zale Puerto Rico or any of their respective assets or properties are bound.

 

(vi)                              Each Card Sale included in the Sales Data sent
to Bank by Zale hereunder will reflect a bona fide sale by Zale of Authorized
Goods and Services, in

 

27

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accordance with the terms of this Agreement, and not previously submitted by
Zale to Bank.

 

(vii)                           The credit issuance criteria set forth in
Schedule 3.2(a) hereof are the credit issuance criteria utilized by JNB on the
date hereof and immediately prior to the Merger and are substantially the same
such criteria utilized by JNB for at least eighteen (18) months immediately
prior to such Merger.

 

(viii)                        Assuming that each Card Sale hereunder were a sale
for cash rather than a Card Sale, such Card Sale would have complied in all
material respects with Applicable Law.

 

(ix)                                The Performance Standards are reasonably
consistent with those standards pursuant to which JNB is currently performing,
and has performed for the twelve (12) month period immediately preceding the
date hereof, under its private label credit card program for Zale.

 

(b)                            By Bank.  Bank hereby represents and warrants to
Zale as follows:

 

(i)                                     Bank is duly organized, validly existing
and in good standing as a state bank under the laws of the State of South
Dakota.

 

(ii)                                  Bank has all necessary power, authority,
licenses and permits necessary to execute, deliver and perform its obligations
under this Agreement.

 

(iii)                               This Agreement constitutes the legal, valid
and binding obligation of Bank, enforceable against Bank in accordance with its
terms.

 

(iv)                              The execution, delivery and performance of
this Agreement by Bank do not require any filing or registration with, or the
consent or approval of, any governmental body, agency, authority, or any other
Person which has not been made or obtained.

 

(v)                                 The execution, delivery and performance of
this Agreement by Bank do not conflict with or result in the breach of, or
constitute a default under any indenture, mortgage, deed of trust, loan,
agreement, or other instrument to which Bank is a party or by which Bank or any
of its assets or properties are bound.

 

(vi)                              All Required Disclosures provided by Bank to
Zale for distribution to Cardholders and all Required Disclosures provided by
Bank to Accountholders will comply in all respects with Applicable Law.

 

3.13                     Reports; Audit Rights.

 

(a)                             Reports.  Bank shall supply Zale, at Bank’s sole
cost and expense, with (1) those periodic report(s) regarding the Card Program
which are described in Schedule 3.13(a) hereto, . (ii) those reports regarding
the sale of insurance products and services specified in the Insurance Agreement
and (iii) those reports which shall be reasonably requested by Zale within
ninety (90)

 

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days following the date of Conversion, which reports, in each case, shall be in
forms reasonably determined by Zale and Bank.  Bank shall also supply Zale with
such additional information from time to time as Zale may reasonably request and
with any additional report requested by Zale provided that, if any such
additional report is not produced by Bank in its normal course of business
(i.e., requires special programming), Zale and Bank shall agree upon the cost
for such report (which cost shall not exceed Bank’s reasonable cost of producing
such report), and such cost shall be paid by Zale.

 

(b)                            Bank’s Internal Audit; Zale’s Audit Rights.  Bank
agrees, upon Zale’s request from time to time but no more frequently than once
during any consecutive twelve (12)-month period, to deliver to Zale a
certification of an officer of Bank (i) as to the date on which the last
internal controls audit of Bank was conducted and (ii) whether such audit
revealed any default by Bank hereunder (and, if so, a reasonable description of
such default) or contained any information which would suggest that Bank is not
fully capable of performing its obligations hereunder and, if so, reasonable
details regarding such information.  At all reasonable times during the term of
this Agreement and upon reasonable notice, Zale shall have the right, at its
sole cost and expense, to review and audit Bank’s books and records (other than
Bank’s internal financial records) and operations related to the Card Program
and Bank’s performance hereunder, and Bank agrees to give Zale full access at
all such reasonable times to such books and records and to all of Bank’s
operational facilities at which functions related to this Agreement are
performed and otherwise to reasonably cooperate with ate in connection with any
such audit; provided, however, that so long as Bank is not in default hereunder,
Zale shall not have the right to audit Bank more than once during any twelve
(12) consecutive month period.

 

3.14                     Conversion; Bank Performance.

 

(a)                             Conversion.  Bank shall, at its sole cost and
expense (including without limitation the cost associated with such interface of
Zale’s hardware and software with Bank’s hardware and software as may be
necessary to enable Bank to provide the Card Program in accordance with the
terms of this Agreement), cause Conversion to occur in accordance with the
schedule, milestones and other provisions contained in the Conversion Plan. 
Zale agrees to reasonably cooperate with Bank in effecting the occurrence of
such Conversion.  In the event Conversion occurs prior to February 1, 2001, Bank
shall pay Zale an early-Conversion payment as follows:

 

Date of Conversion

 

Amount of  Early Conversion Payment

 

 

 

 

 

Before August 1, 2000

 

$

5,500,000

 

 

 

 

 

 

Between August 1, and August 31, 2000.

 

$

5,006,394

 

 

 

 

 

 

Between September 1 and September 30, 2000

 

$

4,416,815

 

 

 

 

 

 

Between October 1 and October 31, 2000

 

$

3,885,445

 

 

 

 

 

 

Between November 1 and November 30, 2000

 

$

3,179,533

 

 

 

 

 

 

Between December 1 and December 31, 2000

 

$

1,637,970

 

 

 

 

 

 

Between January 1 and January 31, 2001

 

$

596,828

 

 

29

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(b)           Agreement to Maintain Performance Standards.  At all times during
the term of this Agreement, Bank shall perform its services hereunder and
conduct the Card Program in a first class manner in accordance with this
Agreement, Applicable Law and generally accepted industry practices applicable
from time to time.  Without limiting the generality of the foregoing, Bank
shall, upon Conversion, in addition to the other requirements applicable upon
Conversion, have the capability, to the same extent available under the card
program provided by JNB to Zale prior to execution of this Agreement, to provide
(i) transmission of Applications and other credit information between Banks and
Stores by facsimile and (ii) credit services to Cardholders in Spanish,
including without limitation, Applications, Required Disclosures, customer
service, Account statements, collection letters, and interactive voice response
on customer Account information lines.  Bank shall at all times during the term
hereof maintain up-to-date industry standard or better hardware and software,
including without limitation, fraud protection software and other industry
standard fraud protection devices.  During the period beginning on the Effective
Date and continuing throughout the term of this Agreement, unless a later date
than the Effective Date is specified in the Performance Standards as the date by
which Bank must comply with a particular Performance Standard (in which case,
Bank shall meet such Performance Standard on such later date), Bank shall comply
fully with all Performance Standards and shall be fully liable for any failure
to comply with such Performance Standards; provided, however, that prior to
Conversion Bank shall not be liable for liquidated damages resulting from any
failure to comply with such Performance Standards solely to the extent such
failure to comply is directly caused by the acts or omissions of ADS Alliance
Data Systems, Inc., as provider of services to Zale under that certain Credit
Services Processing Agreement dated May 5, 1998 among ADS Alliance Data
Systems, Inc., Z Del and Jewelers Financial Services.

 

(c)           Failure to Meet Performance Standards.  In the event that Bank
fails to meet any Performance Standard, Bank shall report in reasonable detail
to the Client Relationship Team promptly (and in any event within ten (10) days)
following the date of any such failure the extent to which Bank failed to
achieve such Performance Standard and the reasons for Bank’s failure to meet
such Performance Standard, and shall propose a plan for taking such action as
Bank deems appropriate and as may be approved by Zale (such approval not to be
unreasonably withheld or delayed) to meet such Performance Standard.  Zale and
Bank acknowledge that Zale will be damaged by Bank’s failure to meet any
Performance Standard and that such damages would be difficult to quantify. 
Therefore, the parties agree that, subject to the terms of this Section 3.14 and
in addition to any other rights which Zale may have pursuant to this Agreement,
Applicable Law or otherwise, Bank shall pay Zale liquidated damages for such
failure to achieve a Performance Standard as provided in the Performance
Standards. Notwithstanding the foregoing, in the event of any significant
upgrade to Bank’s operational systems related to the Card Program, which upgrade
has been approved in advance by the Client Relationship Team and which could
reasonably be expected to adversely affect Bank’s performance during the
implementation of such upgrade, the liquidated damages provided for under this
Section 3.14 shall not apply with respect to Bank’s failure to meet particular
Performance Standards impacted by such upgrade (but only with respect to such
particular Performance Standards) during a period approved by the Client
Relationship Team when such upgrade is being implemented.  Any such

 

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upgrade shall be effected by Bank with as little disruption to the Card Program
as reasonably possible, in a first class manner and as effectively and
efficiently as reasonably possible pursuant to a schedule approved in advance by
the Client Relationship Team.

 

(d)           Maintenance of Operations Systems. Bank shall, its sole cost and
expense, at all times during the term of this Agreement keep its operations
systems in first class condition and updated in conformity with then current
industry standards at no additional cost to Zale.

 

(g)           Backup Capability.  Bank covenants at all times during the term of
this Agreement to maintain disaster recovery backup and failover capability
adequate to enable Bank to perform under its then existing disaster recovery
plan.  On the date hereof Bank’s disaster recovery plan is in the form attached
hereto as Schedule 3.14(g).  Bank represents and warrants to Zale that Bank
currently has in place all such backup and capability.  Bank shall continually
review such disaster recovery, backup and failover capability during the term
hereof, in light of new technological developments, with a view toward
implementing any changes that may be appropriate to provide backup records and
services in the event of a systems failure or other disaster which threatens the
records maintained with respect to the Card Program and the services provided by
Bank hereunder.  To the extent Zale requests copies of any disaster recovery
test results reasonably available to Bank, Bank shall promptly supply such test
results to Zale.

 

3.15        Internet Support.  Bank and Zale agree to cooperate and use
commercially reasonable efforts to establish “apply and buy” capability for Zale
internet sites and to provide Cardholders with on-line Account services such as,
by way of example only and not by way of limitation, availability of Account
information, as soon as reasonably possible following the Conversion Date, but
in any event no later than one hundred eighty (180) days following the
Conversion Date.  Bank shall also use commercially reasonable efforts to provide
in a timely manner on-line Account billing and payment services.  Such
capability shall conform to generally accepted banking industry standards, shall
be as “user-friendly’ as reasonably possible and shall be competitive with
similar sites offered by other credit card providers.

 

3.16        Second Look Program.  Bank will use its good faith efforts to
develop and present to Zale, no later than two hundred seventy (270) days after
the Conversion Date, a credit program (the “Second Look Program”) for all Credit
Applicants whose Applications are reviewed by Bank and declined; provided that
this provision shall not be deemed to create any obligation on the part of Bank
or Zale to develop and implement such a program.  If (i) Bank notifies Zale that
Bank is unable to develop a Second Look Program, (ii) Bank fails to develop or
present a proposal for a Second Look Program to Zale within such two hundred
seventy (270) day-period, or (iii) Zale and Bank attempt to negotiate the terms
and conditions of such a Second Look Program but are unable to do so within
thirty (30) days of such presentation by Bank to Zale, then in any such event
Zale shall be free after Conversion to negotiate and enter into a Second Look
Program with any other Person.  Zale also shall be free to negotiate a proposal
for a Second Look Program with any other Person at any time prior to entering
into a Second Look Program with Bank, provided, however, that if Zale proposes
to enter into a Second Look Program with a Person other than Bank prior to the
occurrence of any of the events described in the foregoing clauses (i) through
(iii), Zale shall notify (the “Second Look Notice”) Bank in writing of the
material terms of such proposal, and Bank shall have a right for a period of
five (5) 

 

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Business Days from receipt of such Second Look Notice to agree to enter into the
Second Look Program with Zale upon the same terms and conditions as those set
forth in the Second Look Notice.  Bank shall notify Zale within such five
(5)-day period whether it desires to enter into the Second Look Program with
Zale upon the terms and conditions set forth in the Second Look Notice.  In the
event Bank notifies Zale that it elects not to enter into such Second Look
Program, or in the event Bank fails to so notify Zale within such five (5)-day
period (in which case Bank shall be deemed to have elected not to enter into the
Second Look Program with Zale), Zale shall be free to enter into the Second Look
Program with another Person upon terms and conditions no less favorable to Zale
than those specified in the Second Look Notice.  In the event Bank notifies Zale
that Bank desires to enter into a Second Look Program upon terms and conditions
no less favorable to Zale than those set forth in the Second Look Notice, Bank
and Zale shall negotiate in good faith the terms of a definitive agreement
evidencing such Second Look Program.  In the event Zale and Bank are unable to
negotiate a definitive agreement within thirty (30) days from Zale’s receipt of
Bank’s notice that Bank wishes to provide the Second Look Program, Zale shall be
free to enter into an agreement evidencing a Second Look Program with another
Person upon terms and conditions no less favorable to Zale than those contained
in the Second Look Notice.  If Zale does not enter into such an agreement within
one hundred twenty (120) days after the expiration of such thirty (30) day
period, Zale shall not thereafter enter into a Second Look Program without again
complying with the provisions of this Section 3.16.

 

3.17        Insurance.  Zale or an Affiliate of Zale, at its option, may provide
Cardholders an opportunity to purchase various insurance related products and
services offered by Zale or such Affiliate.  Such products and services which
are offered by Zale or a Zale Affiliate on the date hereof are listed on
Schedule 3.17 hereto.  All such products and services shall be deemed to be
Authorized Goods and Services hereunder and may be charged by Cardholders on
their Cards.  Any sale by Zale or a Zale Affiliate of such products and services
which are charged by a Cardholder on such Cardholder’s Card shall, for all
purposes hereof, be deemed to be a Card Sale; provided, however, that
notwithstanding the foregoing, Merchant Fees shall not be applicable to any Card
Sale to the extent the amount due from an Accountholder as a result of such Card
Sale arises out of any purchase of such insurance related products and
services.  All insurance products and services sold pursuant to Card Sales
hereunder shall be subject to the terms and conditions of an agreement (the
“Insurance Agreement”) which Bank agrees to negotiate in good faith prior to the
Effective Date with Zale and/or the Zale Affiliate which will offer such
products and services, which agreement shall contain reasonable terms and
conditions (including without limitation a provision for payment to Bank of a
fee equal to $0.25 per month per Account billed for insurance products and/or
services).  To the extent Bank pays Zale or such Affiliate for such products
and/or services and the amount of the charge for such products and/or services
and such amount is subsequently written off by Bank in accordance with Bank’s
policies regarding the Card Program, Zale or such Affiliate shall repay Bank
such amount as provided in the Insurance Agreement.  Bank shall, at the request
of the Zale Affiliate selling such insurance products and services, include in
the Application form a means reasonably acceptable to Zale for a Credit
Applicant to elect to purchase such insurance-related products and services. 
Bank shall not, without Zale’s prior written approval (which approval may be
withheld in Zale’s sole discretion) offer insurance or insurance-related
products of any Person other than a Zale Affiliate.  Bank shall cooperate with
Zale or any Zale Affiliate, as the case may be, in offering the insurance
related products and services as contemplated by this Section 3.17 and shall

 

32

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provide Zale, at Zale’s request and to the full extent permitted by Applicable
Law, such information regarding and access to Accountholders as Zale or any Zale
Affiliate may reasonably request in connection with the marketing and servicing
of such products and the marketing of such services.  If and to the extent that
all or any portion of an insurance premium is billed to an Accountholder by Bank
and is subsequently written off by Bank in accordance with Bank’s policies
regarding the Card Program, the Zale Affiliate offering such products and
services shall be entitled to invoice and pursue its rights and remedies
directly against such Cardholder as provided in the insurance Agreement.

 

3.18        Zale Acquisitions; Unauthorized Goods and Services.

 

(a)           in the event that, during the term of this Agreement, Zale
acquires a business (an “Acquired Business”), the following provisions shall
apply:

 

(i)            if such business already has an existing private label Credit
card program and such program remains in effect following the closing of Zale’s
purchase of such Acquired Business, notwithstanding any other provision hereof
to the contrary, the credit card program of the Acquired Business shall not
initially be covered by this Agreement. Upon termination or expiration of such
existing private label agreement, if Zale does not wish to continue to have such
existing private label credit card program continued by the then current
provider of such program, Zale shall so notify Bank prior to such termination or
expiration. If such Acquired Business offers Authorized Goods and Services
reasonably consistent with those offered by Zale on the date hereof, Bank shall
have an option, exercisable upon delivery of written notice to Zale within
thirty (30) days of Bank’s receipt of Zale’s notice, to become the provider of
such credit card program upon terms and conditions no less favorable to such
Acquired Business than those contained in this Agreement.  If such Acquired
Business offers Authorized Goods and Services which are not reasonably
consistent with those offered by Zale on the date hereof, Zale and Bank shall
negotiate in good faith in an attempt to reach agreement on the terms and
conditions upon which Bank would provide such program. In the event Bank does
not exercise its option to provide such program or in the event Zale and Bank
are unable to agree upon such terms and conditions within thirty (30) days
following Bank’s receipt of Zale’s notice, as the case may be, Zale may enter
into an agreement for a private label credit card program with a Person other
than Bank.

 

(ii)           If such Acquired Business does not have a private label credit
card program which will remain in effect following the closing of such purchase
and such Acquired Business offers Authorized Goods and Services reasonably
consistent with those offered by Zale on the date hereof, Zale may elect, upon
written notice to Bank within thirty (30) days following the acquisition of such
Acquired Business, to have such Acquired Business covered by the provisions of
this Agreement, and, in the event Zale so elects, Bank and Zale shall cooperate
to cause the addition of such Acquired Business to this Agreement as efficiently
and effectively as reasonably possible. If Zale does not elect within such
thirty (30)-day period to have such Acquired Business covered by this Agreement
or if the

 

33

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Acquired Business offers Authorized Goods and Services which are not reasonably
consistent with those offered by Zale on the date of this Agreement and Zale
wishes to have a private label credit card business for such Acquired Business,
Zale shall so notify Bank, and Bank and Zale shall negotiate in good faith in an
attempt to reach agreement on the terms and conditions upon which Bank would
provide such program. In the event Zale and Bank are unable to agree upon such
terms and conditions within thirty (30) days following Zale’s notice to Bank,
Zale may enter into an agreement for such program with a Person other than Bank.

 

(iii)          In the event that an Acquired Business has an existing private
label credit card program which will remain in effect following the closing of
Zale’s purchase of such Acquired Business and such Acquired Business offers
Authorized Goods and Services reasonably consistent with those offered by Zale
on the data hereof, and Zale desires to use the Zale Marks (existing as of the
date hereof) in connection with such private label credit card program, the
parties hereto hereby agree to use their best efforts to cooperate and negotiate
in good faith in an attempt to reach a mutual agreement to facilitate the
separate use by Zale of the Zale Marks in connection with such private label
credit card program until expiration (excluding any renewals) or other
termination of such private label credit card program.

 

(b)           In the event that, during the term of this Agreement, Zale offers
goods and services for sale other than Authorized Goods and Services (such goods
and services being “Unauthorized Goods and Service”) and decides to have a
separate private label credit card program for such Unauthorized Goods and
Services, Zale shall so advise Bank, and Zale and Bank shall negotiate in good
faith, for a period of thirty (30) days following Zale’s notice to Bank (during
which period Zale agrees to negotiate exclusively with Bank), in an attempt to
reach agreement on the terms and conditions upon which such program would be
provided by Bank. In the event Zale and Bank are unable to agree upon such terms
and conditions within such thirty (30) day period, notwithstanding any other
provision hereof to the contrary, Zale may enter into an agreement for such
program with a Person other than Bank.

 

3.19        Inactive Accounts.  Bank agrees not to purge any Account because of
lack of debit or credit activity other than any such Account which has not had
any debit or credit activity for a period of at least thirty-six (36)
consecutive months.

 

3.20        Monthly Cardholder  Statements - Inserts and Messages.

 

(a)           Zale shall have the right to provide up to the maximum number of
statement inserts that may reasonably be accommodated and one payment remittance
envelope with bangtail advertisement per month for inclusion in monthly
statements mailed to Cardholders by Bank. Zale will be solely responsible for
the cost of making the materials, delivering the materials to a location
reasonably designated by Bank, and, to the extent the inclusion of any insert
increases the postage for mailing such statements over the amount Bank would
otherwise have to pay if such inserts were not included, within thirty (30) days
following receipt of an invoice from Bank for such increased cost, Zale shall
pay such increased postage cost. Statement

 

34

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inserts and bangtail payment envelopes shall be subject to reasonable size,
materials, and weight specifications of Bank.  Zale agrees that such inserter
and/or bangtails will not (1) reference Bank without Bank’s prior written
approval except in respect to the Card Program; or (ii) advertise or promote
credit products or credit services offered by Bank or its Affiliates other than
the Card Program and insurance products and services offered by Zale or any Zale
Affiliate. Zale’s right to include statement inserts in monthly statements shall
be subject to Bank’s need to use available insertion space for legal notices to
Cardholders. Bank shall not be entitled to share in any profits, fees or
commissions resulting from the inclusion of such inserts which relate to those
types of products or services offered by Zale or any Zale Affiliate as part of
its regular product offering from time to time (including without limitation any
such co-branded products or services); nor, subject to Section 3.20(c) hereof,
shall Bank be entitled to share in any proceeds resulting from the sale of any
other product or service (whether offered by Zale or a Zale Affiliate as a part
of its regular product offering).

 

(b)           To the extent Zale does not utilize the maximum amount of inserts
that may be reasonably accommodated in Account statements or a bangtail
advertisement on any included remittance envelope, Bank shall have the right, at
Bank’s sole cost and expense, to place inserts in such statements or use such
bangtail to promote secured and unsecured consumer financial products and
services of Bank or any Affiliate of Bank; provided, however, that Bank shall
not use such inserts or bangtail to promote any product or service of Bank or
any Affiliate of Bank that is also offered by Zale or any Affiliate of Zale
(including without limitation any insurance or insurance-related product or
service). Bank agrees that, in any event, such inserts will not: (i) reference
Zale or any Zale product or service without Zale’s prior written approval in
each instance (which approval can be withheld in Zale’s sole discretion); or
(ii) advertise or promote products which compete with Authorized Goods or
Services offered by Zale or its Affiliates:

 

(c)           Either Bank or Zale may propose to the other party hereto an
opportunity for utilizing an insert or inserts for the purpose, of marketing
goods or services of a third party unrelated to either Zale or Bank (which shall
be goods or services which do not compete with those offered by either Bank or
Zale or any Affiliate of Bank or Zale). In the event Bank and Zale agree to
utilize such insert or inserts for such purpose, Bank and Zale shall share
equally any profits resulting from the sale of such products or services so
sold.

 

(d)           in addition to the foregoing rights described in this
Section 3.20, Zale shall have the right to request that messages, coupons and/or
advertisements be printed on the monthly statements mailed to all Cardholders,
or specific Cardholders or groups of Cardholders based on selected Account data,
geographic location, or Bank’s Cardholder Account Number, as determined by Zale,
and Bank shall place on such statements such messages, coupons and/or
advertisements as may be requested from time to time by Zale. Bank shall not be
entitled to share in any Zale profits resulting from such advertisements or in
any fees or commissions paid by vendors procured by Zale whose products or
services are sold to Cardholders as a result of such messages, coupons or
advertisements. Until Conversion, Bank shall not be obligated to comply with the
provisions of this Section 3.20(d) solely to the extent that the functions
described in this Section 3.20(d) continue to be performed by ADS Alliance Data
Systems, Inc.

 

(e)           Bank shall not place any messages, coupons, advertisements or
other information on statements for the purpose of soliciting sales of products
or services of Bank or any other

 

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Person without Zale’s prior written consent, provided that Bank shall be
entitled to place information on the statements concerning the administration or
collection of Accounts without the prior written consent of Zale.

 

3.21        Access to Products and Services; Enhancements.

 

(a)           Bank hereby agrees that it shall provide Zale access, upon
commercially reasonable terms and conditions (including without limitation
pricing), to new products and services related to the private label credit card
business which are offered by Bank after the date hereof; provided, however,
that Bank shall have no obligation to offer any such products and services to
Zale to the extent such products and services (i) were developed by Bank at the
specific request and expense of another private label credit card customer of
Bank; and (ii) such product or service is not available in the credit card
industry generally to retailers of Authorized Goods and Services; and (iii) such
product or service is subject to an exclusivity agreement between such customer
and Bank, as the case may be.  In the event Bank develops new products and/or
services which could reasonably be expected, if implemented with respect to the
Card Program or the services provided by Bank hereunder, to improve the Card
Program or such services, Bank shall so advise Zale promptly following
introduction of such products and/or services by Bank and shall advise Zale of
the details of same, including without limitation a reasonably detailed
description of such products and/or services and the price and other material
terms and conditions upon which such products and/or services are offered to
Zale. If Zale is interested in purchasing such product or service, Zale shall so
advise Bank, and Bank shall provide such products and/or services to Zale upon
the terms and conditions contained in Bank’s notice. Bank shall reasonably
cooperate with Zale to implement such product and/or service with respect to the
Card Program as promptly and efficiently as reasonably possible thereafter.
Notwithstanding anything to the contrary contained in this Section 3.21(a), Bank
will at a minimum make available to Zale such products and/or services as are
offered by a majority of Zale’s competitors which are major national specialty
retailers engaged in the retail sale of fine jewelry and watches and which issue
private label credit cards.

 

(b)           Zale may, from time to time, request improvements or enhancements
(including without limitation systems and operations improvements or
enhancements) in connection with the Card Program, and Bank agrees to use
commercially reasonable efforts to assist Zale in developing specifications for
the scope of such system improvements or enhancements, including but not limited
to the estimated cost of development of such improvements or enhancements and
the cost of providing such improvements or enhancements to Zale; provided,
however, that any improvements or enhancements required pursuant to Section 3.14
hereof shall be provided by Bank at no cost or expense to Zale. Bank agrees to
provide all such system improvements or enhancements an the terms and conditions
to which Zale and Bank may mutually agree. The parties agree to cooperate with
respect to the development and implementation of any such system improvements or
enhancements in a timely manner.

 

3.22        Sales Tax Credits.  Any sales tax credit resulting from a Credit,
Chargeback or charge-off of an Account or receivable by Bank or for any other
reason shall be for the sole account of Zale and, to the extent Bank receives
the benefit of any such credit, Bank shall promptly pay or credit Zale the
amount of any such sales tax credit. Bank agrees to cooperate with Zale in
claiming and securing any such benefit. Without limiting the generality of the

 

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foregoing, Bank shall provide Zale information on a monthly basis regarding
Credits, Chargebacks and charge-offs, which information shall include, at a
minimum, the amount of the Credit, Chargeback or charge-off, the customer name
and the customer address.  Zale, at its discretion, may then calculate and
prepare refund claims for the sales taxes paid with respect to the original
credit transaction.  At Zale’s request, Bank will promptly sign, and Zale will
file, such refund claims. To the extent that a taxing jurisdiction disputes or
denies any refund claim, Zale will have the authority to negotiate with the
taxing jurisdiction on behalf of Bank, and Bank hereby appoints Z Del and Zale
Puerto Rico, and each of them, its attorney-in-fact for all such purposes. Zale
will bear the costs of any such negotiations and shall reimburse Bank for any
and all reasonable costs and expenses incurred by Bank in performing Bank’s
obligations under this Section 3.22.

 

ARTICLE IV -FEES AND CERTAIN OTHER PAYMENTS

 

4.1          Fees and Certain Other Payments.

 

(a)           For each Card Sale made by Zale, Bank shall charge (except that
Bank shall pay with respect to any Merchant Fee which is shown in Schedule
4.1(a) as being a negative amount) and Zale (or Bank, as the case may be) agrees
to pay a fee in the amount set forth in Schedule 4.1(a) hereto (the “Merchant
Fee”), which Merchant Fee will be subject to adjustment as provided herein.  If
Bank has previously charged or credited Zale Merchant Fees or other fees in
respect of any Credit, Bank or Zale, as the case may be, shall reimburse the
other the amount of such fees.  Bank shall not change or adjust the Merchant Fee
for Revolving Credit Plans or Special Credit Plans of less than 91 days duration
during the eighteen (18)-month period immediately following the Effective Date
or change or adjust the Merchant Fee for any other Special Credit Plan during
the twelve (12)-month period immediately following the Effective Date, following
which time the Merchant Fee may be adjusted to the extent specifically provided
herein.  No decreases shall be made during the first twenty-four (24) months
following the Effective Date.  The Merchant Fee due from Zale hereunder will be
calculated in accordance with Section 4.1(b) below.  Bank shall provide Zale
with notice of any proposed change to any Merchant Fee hereunder at least thirty
(30) days prior to the proposed implementation of any such change.

 

(i)            Merchant Fee Adjustments Due to Prime Rate Changes.  In addition
to Merchant Fee changes provided for in Section 3.2(c) hereof and clause
(ii) below, the Merchant Fees applicable to Special Credit Plans, as outlined
above, are subject to change based on changes to the Prime Rate as follows: 
(A) For every twenty-five (25) basis point (0.25%) increase or decrease in the
Prime Rate above or below 8.75%, the Merchant Fee applicable to 90 Days Same as
Cash and 90 Day Deferred Program Card Sales will be increased by four (4) basis
points (0.04%) (in the case of a Prime Rate increase) or reduced by four
(4) basis points (0.04%) (in the case of a Prime Rate decrease); (B) For every
twenty-five (25) basis point (0.25%) increase or decrease in the Prime Rate
above or below 8.75%, the Merchant Fee applicable to 12 Month Interest Free Card
Sales will be increased by sixteen (16) basis points (0.16%) (in the case of a
Prime Rate increase) or reduced by sixteen (16) basis points (0.16%) (in the
case of a Prime

 

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Rate decrease); and (C) For every twenty-five basis point (0.25%) increase or
decrease in the Prime Rate above or below 8.75%; the Merchant Fee applicable to
18 Month Interest Free Card Sales will be increased by twenty-four basis points
(0.24%) (in the case of a Prime Rate increase) or reduced by twenty-four basis
points (0.24%) (in the case of a Prime Rate decrease); provided, however, that
any decrease in the Prime Rate below 7.5% will not be a basis for a decrease to
the Merchant Fees applicable to any Special Credit Plan.

 

(ii)           Other Merchant Fee Adjustments.  In addition to changes to the
Merchant Fees provided for in clause (i) above, Bank may increase (based upon
the occurrence of a Negative Significant Shift) or decrease (based upon the
occurrence of a Positive Significant Shift) the Merchant Fee applicable to any
Credit Plan of any Zale division as to which such Shift occurred, up to an
aggregate of fifty (50) basis points (0.5%) for all such increases for all such
Merchant Fees, during any calendar year.  To the extent Bank has previously
increased any such Merchant Fee or Fees pursuant to this clause (ii) , upon the
occurrence of any subsequent Positive Significant Shift, Bank shall decrease
such Merchant Fee or Fees by the amount by which such Merchant Fee or Fees were
previously increased; provided, however, that Bank shall not be required to
decrease the Merchant Fee or Fees by an aggregate of more than 50 basis points
(0.5%) in any calendar year in which a Positive Significant Shift occurred.

 

(b)           Zale shall pay Bank (and to the extent Bank owes Zale a Merchant
Fee, Bank shall pay Zale) a Merchant Fee calculated based upon the Sales Data
remitted to Bank by Zale pursuant to Section 3.8(a) hereof.  Neither Bank nor
Zale shall be entitled to any Merchant Fee with respect to any sales of
insurance products or services pursuant to Section 3.17 hereof or sales of
products or services via inserts pursuant to Section 3.20.

 

(c)           Pursuant to Section 3.8(a) hereof, Bank may, at its option, offset
against any Settlement amount wired to a Settlement Account an amount equal to
any then due and unpaid Merchant Fees, provided that Bank provides prompt
written notice to Zale of such offset.  Bank shall add to each Settlement amount
any Merchant Fees payable by Bank to Zale in respect of any Card Sales or
Credits included in such Settlement.  Under no circumstances shall Bank debit
(and Bank is not authorized to debit) any Settlement Account in the event any
Settlement amount due Zale with respect to such Business Day is a negative
amount, but rather Bank shall be entitled to offset any such remaining amount
against any amount wired to a Settlement Account on the next succeeding Business
Day.  Bank shall have no right to offset any Chargeback against any Settlement
amount due Zale hereunder.

 

(d)           Upon the closing of the transactions contemplated by the
Receivables Purchase Agreement, Bank will pay Zale a one-time lump sum payment
in the amount of $41,800,000 in immediately available Federal funds by wire
transfer to an account of Zale designated in writing by Zale.  Such sum shall be
fully earned by Zale upon its execution hereof and shall not be subject to
rebate or repayment for any reason whatsoever except as specifically set forth
in this Section 4.1(d).  If this Agreement is terminated by Bank pursuant to
Section 5.4(b)(iii) hereof, because of a material breach by

 

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Zale which has not been cured by Zale during the applicable grace period, on or
prior to any of the anniversary dates of this Agreement indicated in the table
below, Zale shall be obligated to repay (without interest thereon and within
ninety (90) days following such termination) the corresponding percentage of
such sum as follows:

 

Anniversary of Date of Agreement

 

% of Sum to Be Repaid by Zale

 

First

 

85

%

Second

 

70

%

Third

 

55

%

Fourth

 

40

%

Fifth

 

25

%

 

Upon the fifth anniversary of the date of this Agreement, Bank shall no longer
have any right to rebate or repayment with respect to such sum or any percentage
thereof.

 

ARTICLE V -MISCELLANEOUS

 

5.1          Indemnification.

 

(a)           Indemnification by Zale.  Zale shall be liable to and shall
indemnify, defend and hold harmless Bank and its officers, employees and
directors (collectively, “Bank Indemnified Persons”) from any losses, damages,
claims or complaints (including reasonable outside attorney’s fees and
disbursements) incurred by any Bank Indemnified Person arising out of:

 

(i)            Any claim, complaint or setoff made by or on behalf of a
Cardholder with respect to Card Sales or Credits submitted by Zale pursuant to
this Agreement that resulted from Zale’s acts or omissions;

 

(ii)           Any wrongful acts or omissions by Zale in connection with the
furnishing of any Authorized Goods and Services purchased by Cardholders
pursuant to this Agreement;

 

(iii)          Death or injury to any Person or the loss, destruction or damage
to any property arising out of the furnishing by Zale of any Authorized Goods
and Services purchased with the Card;

 

(iv)          Any claim or complaint of a third party in connection with the use
of any Zale Mark on the Card or in advertising, marketing, promoting or
administering the Card Program, but only to the extent such use was approved by
Zale;

 

(v)           Any breach by Zale of any representation, warranty or obligation
under this Agreement;

 

(vi)          The misfeasance, malfeasance or fraudulent acts of any employee,
agent or representative of Zale;

 

(vii)         The negligence or willful misconduct of Zale.

 

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(b)           Indemnification by Bank.  Bank shall be liable to and shall
indemnify, defend and hold harmless Zale and its officers, employees and
directors (collectively, “Zale Indemnified Persons”) from any losses, damages,
claims or complaints (including reasonable outside attorney’s fees and
disbursements) incurred by any Zale Indemnified Person arising out of:

 

(i)            Any claim or complaint by or on behalf of a Cardholder with
respect to any acts or omissions by Bank or its employees, agents or
representatives in connection with such Cardholder’s Account that resulted from
Bank’s acts or omissions;

 

(ii)           Any claim or complaint arising out of Zale’s reasonable
compliance with the Operating Regulations or any failure of the Required
Disclosures to comply in any respect with Applicable Law;

 

(iii)          Any claim or complaint by a Cardholder, any governmental agency
or any other third party with respect to a violation of Applicable Law by Bank
or its employees, agents or representatives or wrongful acts or omissions by
Bank in connection with the furnishing of any product or service by Bank to any
Cardholder;

 

(iv)          Any claim or complaint of a third party in connection with the use
of any Bank Mark on any Card or in advertising, marketing, promoting or
administering the Card Program;

 

(v)           Any breach by Bank of any representation, warranty or obligation
under this Agreement;

 

(vi)          Any claim or complaint arising out of a failure of Bank’s systems
or operations relating to the Card Program;

 

(vii)         The negligence or willful misconduct (including, without
limitation, the misfeasance, malfeasance or fraudulent acts of any employee,
agent or representative of Bank) of Bank.

 

(c)           Notice of Claim.  If any claim is made or any suit or action is
commenced against an Indemnified Party in respect of which indemnification may
be sought under this Section 5.1, such Indemnified Party shall promptly give the
Indemnifying Party written notice thereof and the Indemnifying Party will be
entitled to assume the defense thereof and to take over and control the
settlement thereof (with counsel reasonably satisfactory to the Indemnified
Party) at the Indemnifying Party’s cost and expense by giving written notice of
its intention to do so to the Indemnified Party within thirty (30) days after
receipt by the Indemnifying Party of notice of the claim, suit or action.  If
the Indemnifying Party assumes the defense of any claim, suit or action, it
shall not settle such claim, suit or action unless the Indemnified Party
consents to such settlement, which consent shall not be unreasonably
conditioned, withheld or delayed unless the Indemnified Party is not being
unconditionally released from all liabilities in respect of such indemnified
claim.  Notwithstanding the assumption by the Indemnifying Party of

 

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the defense of any claim, suit or action, the Indemnified Party will be
permitted to join in the defense thereof and to employ counsel at its own cost
and expense.  If the Indemnifying Party fails to notify the Indemnified Party of
its desire to assume the defense of any claim, suit or action or notifies the
Indemnified Party that it will not assume the defense thereof, then the
Indemnified Party may assume the defense thereof, at the Indemnifying Party’s
cost and expense.  Any compromise of, or any final judgment entered on or in,
any claim, suit or action which the Indemnifying Party declines to defend in
accordance with this Agreement, will be deemed to have been consented to by, and
will be binding upon, the Indemnifying Party as fully as if the Indemnifying
Party had assumed the defense thereof and a final judgment or decree had been
entered in such suit or proceeding, or with regard to such claim, by a court of
competent jurisdiction for the amount of such settlement, compromise, judgment
or decree.  In any case, the Indemnifying Party and the Indemnified Party shall
cooperate (at no cost to the Indemnified Party) in the settlement or defense of
any such claim, suit or action.

 

(d)           Payment of Indemnified Amounts.  The Indemnified Party shall
notify the Indemnifying Party of any amounts due and owing by the Indemnifying
Party under this Section 5.1 and the Indemnifying Party shall pay such amounts
to the Indemnified Party within thirty (30) days after receipt of such notice.

 

(e)           Survival.  Except for this Section 5.1 and Sections 5.4(c),
5.4(g), 5.5, 5.7 and 5.8, 5.10, 5.13, 5.18 and any other provision which
pursuant to its terms shall survive termination of this Agreement, no other
terms of this Agreement will survive the termination of this Agreement

 

5.2          Card Program Promotion; Advertising and Service Marks.

 

(a)           Limited License.  Subject to Zale’s prior review and approval of
such use and to Zale’s reasonable specifications, Zale hereby authorizes Bank,
for purposes of this Agreement, to use Zale Marks on the Cards and in
advertising, marketing, promoting and administering the Card Program.  Bank
hereby authorizes Zale, for purposes of this Agreement, to use any of Bank’s
name, logos, trademarks, service marks, or other proprietary designations on the
Cards and in advertising, marketing, promoting and administering the Card
Program, subject to Bank’s prior review and approval of such use and to Bank’s
reasonable specifications.

 

(b)           Promotion of the Card Program.  Bank and Zale agree to cooperate
in the development of advertising, marketing, and promotional materials (in any
media form), as well as operating forms and other materials which promote the
Card and any Card related programs (collectively or individually, the
“Promotional Materials”).  Zale and Bank shall promote, participate in and
support the Card Program throughout the term of this Agreement.  Zale shall
provide support for the Card Program at its Stores in a manner reasonably
consistent with the support provided by Zale as of the date hereof in connection
with the JNB credit card program.  Zale shall encourage customers to apply for
Cards and shall encourage Cardholders to use Cards for purchases of Authorized
Goods and Services.  Zale shall prominently display at each of its Stores
advertising and promotional materials relating to the Card Program, including
without limitation, “take-one”

 

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Applications.  Zale shall only use or display promotional materials relating to
the Card Program in accordance with the Operating Regulations.

 

(i)            Each of Zale and Bank (the “Proposing Party”) acknowledges and
agrees that it will present all Promotional Materials to the other party hereto
(the “Non-Proposing  Party”) for such Non-Proposing Party’s review and, except
to the extent provided in clause (ii) of this Section 5.2(b) below, written
approval, in accordance with the provisions of this Section 5.2(b)(i).  The
Proposing Party will deliver Promotional Materials to the Non-Proposing Party at
least four (4) Business Days prior to the last date upon which preliminary
changes can be made to such materials.  The Non-Proposing Party will review such
Promotional Materials promptly and shall respond to the Proposing Party within
two (2) Business Days following the Non-Proposing Party’s receipt of such
materials.  The Proposing Party will allow itself sufficient time to make
changes as required by the Non-Proposing Party including time to provide the
Non-Proposing Party with the revised Promotional Materials for the Non-
Proposing Party’s review and written approval before such materials are
utilized.  In the event the Non-Proposing Party does not approve the Promotional
Materials submitted by the Proposing Party, the Non-Proposing Party shall
specify in reasonable detail the basis for such non-approval and shall cooperate
in good faith with the Proposing Party to resolve any objection to the proposed
Promotional Materials as promptly as reasonably possible with the objective of
permitting the Proposing Party to utilize the Promotional Materials within a
time frame reasonably proposed by the Proposing Party.

 

(ii)           Promptly following execution and delivery of this Agreement, Bank
shall develop and submit to Zale forms of Required Disclosures (including
without limitation Required Disclosures regarding the Special Credit Plans
described in Schedule 1.1B) for use by Zale in connection with advertisements
and other Promotional Material, together with such instructions, based upon
Bank’s reasonable interpretation of Applicable Law, for use of such Required
Disclosures.  Zale shall provide Bank a copy of any such proposed use of the
forms of Required Disclosures in any Promotional Material prior to such use and,
provided such Required Disclosures are used by Zale in accordance with such
instructions, Zale’s use of the Required Disclosures in such Promotional
Material shall be deemed to have been approved by Bank.

 

(iii)          The Proposing Party will deliver Promotional Materials in
substantially the form and/or format media as they are intended to be utilized. 
Non-printed Promotional Materials shall be accompanied by a written transcript.

 

(iv)          Notwithstanding anything else to the contrary herein, (1) the
Proposing Party will be solely responsible for, and will indemnify the
Non-Proposing Party (subject to Section 5.1(a)) against, any claim and expense
incurred by the Non-Proposing Party as a result of the Proposing Party’s use of
materials not approved or deemed approved by the Non-Proposing Party in
accordance with the terms of this Section  5.2; and (2) the Non-Proposing Party
will have the option to

 

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terminate this Agreement upon reasonable notice if the Proposing Party’s
persistent failure to comply with the terms of this Section 5.2 places the
Non-Proposing Party at material risk.

 

(c)           Cardholder Solicitation.  Bank will share customer and
customer-related information with Zale and its Affiliates to the full extent
allowed by Applicable Law.  Without limiting the generality of the foregoing,
Bank shall provide to Zale such information as may be necessary to support the
use by Zale of the Harte Hanks Communications, Inc. database to the same extent
Zale and/or its Affiliates are utilizing such database in connection with their
respective businesses on the date of this Agreement.  Bank shall take all such
actions as are commercially reasonable and not in violation of Applicable Law to
enable it to provide customer and customer-related information to Zale.  Any and
all customer information collected by Zale shall be and remain the property of
Zale. Bank and Zale shall agree upon plans for solicitation of Zale’s customers
to establish Accounts.  Bank shall not distribute its Cardholder list or any
portion thereof to any third party (other than a third party performing services
for Bank pursuant to this Agreement and only to the extent such third party
requires such information to perform such services).  Zale may use Cardholder
names and addresses to conduct promotional programs for Authorized Goods and
Services during the term of this Agreement.  Cardholder information may be used
by Bank or its Affiliates only for the purposes and objectives set forth in this
Agreement and in exercise of its rights hereunder (including without limitation
marketing by Bank or its Affiliates of its secured and unsecured consumer
financial products and services to the extent permitted herein).  In any event
Bank shall not use any Cardholder information in any manner that is injurious to
Zale’s retail business.

 

(d)           Use of Promotional Materials.  Notwithstanding anything to the
contrary herein, Zale and Bank each acknowledges and agrees that wherever the
approval of the other party is required, it will not use, publish or distribute
(in any media form) Promotional Materials without the prior written approval of
such other party, which prior written approval shall not be unreasonably
conditioned, withheld or delayed.

 

(e)           Marketing or Survey Fund.  On the Effective Date and annually on
each anniversary of the Effective Date Bank shall pay Zale the sum of $100,000
to be used by Zale, in its sole discretion, for promotion of the Card Program or
for customer satisfaction surveys to be conducted by Zale or an entity
designated by Zale.

 

5.3          Books and Records.  Zale shall retain an original copy of each
Sales Slip and Credit Slip for one hundred and eighty (180) days following the
date of the Card Sale and a microfilm or other copy (including without
limitation electronic imaging) thereof for a total of seven (7) years (or such
lesser period as may be required by Applicable Law).  Upon Bank’s reasonable
request to a Zale designated member of the Client Relationship Team, Zale will
send to Bank within fourteen (14) days of such request a copy of any Sales Slip
or Credit Slip retained by Zale, provided that such requested Credit Slip or
Sales Slip relates to a Card Transaction occurring within the two (2) year
period prior to Bank’s request To the extent Bank requests a Sales Slip or
Credit Slip related to a Card Transaction which occurred more than two (2) years
prior to Bank’s request, to the extent Zale has retained such Sales Slip or
Credit Slip, Zale will

 

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use commercially reasonable efforts to locate and send to Bank such Sales Slip
or Credit Slip as promptly as reasonably practicable.

 

5.4          Term and Termination.

 

(a)           Term.  This Agreement will become effective on the Effective
Date.  Subject to earlier termination as provided herein, this Agreement
(I) will remain in effect for a period of ten (10) years from the Effective Date
(“Initial Term”), and (ii) thereafter will continue for additional five (5) year
periods (“Subsequent Term(s)”) unless either party provides written notice of
termination at least twelve (12) months prior to the end of the Initial Term or
any Subsequent Term.  The termination of this Agreement will not affect the
rights and obligations of the parties with respect to transactions and
occurrences prior to the effective date of termination, except as otherwise
provided herein.

 

(b)           Termination.  This Agreement may be terminated prior to the
expiration date of the Initial Term or any Subsequent Term as follows:

 

(i)            by Bank or Zale immediately upon notice to the other party in the
event such other party (a) elects to wind up or dissolve its operations or is
wound up and dissolved for reasons of insolvency, (b) makes an assignment for
the benefit of creditors, (c) files a voluntary petition in bankruptcy or for
reorganization or is adjudicated as bankrupt or insolvent, or (d) has a
liquidator or trustee appointed over its affairs and such appointment shall not
have been terminated and discharged within thirty (30) days thereof;

 

(ii)           by Bank or Zale upon sixty (60) days prior written notice to the
other party in the event that such other party becomes insolvent or repeatedly
fails to pay its debts as they become due and such condition shall not have been
cured prior to the expiration of such sixty (60) day notice period;

 

(iii)          by Bank or Zale upon not less than thirty (30) days notice to the
other party in the event such other party materially breaches its obligations
hereunder and fails to cure such breach within thirty (30) days following
receipt of written notice thereof or, if such breach is a breach of an
obligation other than an obligation to pay any amount hereunder and such breach
is not capable of being cured within such thirty (30)-day period, such party
fails to implement procedures to cure such breach within such thirty (30)-day
period and thereafter diligently pursue such cure;

 

(iv)          by Zale, upon occurrence of a Repeated and Material Breach by
Bank;

 

(v)           by Bank upon not less than one hundred eighty (180) days prior
written notice to Zale in the event the aggregate amount of Net Card Sales of
Zale during any twelve (12) consecutive month period (the “Decrease Period”)
decrease below the Minimum Volume Amount; provided, however, that Bank has first
given Zale notice of its intent to terminate pursuant to this Section 5.4(b)(v),
and Zale has not advised Bank, by delivery of written notice to Bank within
thirty (30)

 

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days of such notice, that Zale will pay Bank the Merchant Fee Differential with
respect to such Decrease Period;

 

(vi)          by Zale, upon three (3) months prior written notice, if Bank is
found to have violated Applicable Law with respect to the Card Program by a
court of competent jurisdiction or if a governmental or regulatory investigation
has determined that the operation of the Card Program or Bank practices utilized
in connection with the Card Program violated Applicable Law, which violation
would, in either case, in Zale’s good faith reasonable judgment, have a material
adverse effect on the Card Program or Zale’s reputation;

 

(vii)         by Zale, upon thirty (30) days prior written notice to Bank, upon
the occurrence of an event of default or a material breach of any provision by
Bank or AFCC or any of their respective Affiliates that is not cured during any
applicable grace period under an Associates Securitization Facility which event
of default or material breach results in the right of a third party to remove
Bank, AFCC or any of their respective Affiliates as servicer of receivables
under such Associates Securitization Facility (Bank hereby agrees to advise Zale
in writing within ten (10) days following the occurrence of any such event or
breach); or

 

(viii)        by either party, within sixty (60) days following payment by Bank,
within any consecutive twenty-four (24)-month period, of $10,000,000 or more In
liquidated damages for Bank’s failure to achieve Performance Standards hereunder
and failure of Bank and Zale, within thirty (30) days following the terminating
party’s notice to the other party hereto, to agree upon appropriate amendments
to such Performance Standards.

 

Notwithstanding any other provision hereof to the contrary, in the event the
Merger Agreement is terminated in accordance with the provisions thereof prior
to the Merger, this Agreement shall terminate concurrently with termination of
the Merger Agreement, and, without prejudice to any rights which either party
hereto may have against the other party hereto in respect of any breach of the
Merger Agreement, neither party hereto shall have any continuing obligations to
the other party hereunder.  The foregoing sentence shall survive any termination
of this Agreement.

 

(c)           Amounts Due Upon Termination.  Upon termination of this Agreement,
all amounts payable by Zale to Bank or by Bank to Zale shall be automatically
due and payable in full in accordance with this Agreement without demand or
notice of any kind.

 

(d)           Purchase Option Following Termination or Expiration—Zale.  Upon
termination or expiration of this Agreement for any reason other than pursuant
to Section 5.4(b)(v) hereof, Zale will have the right, but not the obligation
(subject to clause (e) below), to purchase from Bank, its successors and
assigns, and Bank shall be obligated to sell to Zale, all of the then
outstanding Card receivables and Accounts, for an aggregate purchase price
determined in accordance with Section 5.4(f) below, free and clear of any and
all liens, claims, charges and encumbrances (i) in the event of a termination by
Zale, by delivering notice of its intent to exercise the purchase right set
forth in this Section 5.4(d) concurrently with any notice of termination Zale is
required to deliver to Bank

 

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under this Section 5.4 or (ii) upon any termination of this Agreement by Bank or
any expiration of this Agreement, by delivering notice to Bank within sixty (60)
days following such termination or expiration.  Following such election, Bank
shall, as promptly as commercially reasonable, and in any event not later than
three hundred sixty-five (365) days after receipt of such notice, on a Business
Day reasonably agreed to by Zale, transfer and assign such Card receivables and
Accounts to Zale or its designee, free and clear of any and all liens, claims,
charges and encumbrances, and, in connection therewith, agrees to execute such
agreements, documents, instruments of transfer, lien releases and financing
statements, all upon such terms and conditions as are reasonable and customary
for such transactions, and take such other action, as Zale may reasonably
request, to effect or evidence such transfer.  Concurrently with such purchase,
and as a condition thereto, Zale shall pay Bank the full amount of the purchase
price therefor in immediately available funds, in United States dollars, to such
account maintained with a bank as Bank shall reasonably designate in writing. 
The parties hereto further agree that, unless otherwise agreed to in writing by
both parties hereto, the closing of any of the transactions contemplated by this
Section 5.4(d) shall not occur during the period from October 1 through
December 31 of any year, but, to the extent it would otherwise have occurred
during such period, they shall occur instead on January 15 of the immediately
following year.

 

(e)           Purchase Option Following Termination-Bank.  Upon (i) termination
of this Agreement by Bank (and not by Zale) as a result of any of the events
described in Section 5.4(b)(i), (ii), (iii) or (v) fail or ft and for a period
of thirty (30) days following the expiration of the sixty (60) day period during
which Zale may exercise its purchase right pursuant to Section 5.4(d)(ii), or
(ii) upon termination of this Agreement by Zale pursuant to Section 5.4(a) or
upon expiration of this Agreement (other than expiration caused by Bank’s having
given notice of termination pursuant to Section 5.4(a) hereof), and for a period
of thirty (30) days following the sixty (60) day period during which Zale may
exercise its purchase right pursuant to Section 5.4(d)(ii), Bank will have the
right, but not the obligation (subject to clause (d) above), upon at least
thirty (30) days prior written notice to Zale, to sell to Zale, its successors
and assigns, and Zale shall be obligated to purchase from Bank, all of the then
outstanding Card receivables and Accounts, for an aggregate purchase price
determined in accordance with Section 5.4(f) below, free and clear of any and
all liens, claims, charges and encumbrances.  Following such election, Bank
shall as promptly as commercially reasonable, and in any event not later than
three hundred sixty-five days (365) days after delivery of such notice to Zale,
on a Business Day reasonably acceptable to Zale, transfer and assign such Card
receivables and Accounts to Zale or its designee, free and clear of any and all
liens, claims, charges and encumbrances, and, in connection therewith, agrees to
execute such agreements, documents, instruments of transfer, and financing
statements, all upon such terms and conditions as are reasonable and customary
for such transactions, and take such other action as Zale may reasonably
request, to effect or evidence such transfer.  Concurrently with such purchase,
and as a condition thereto, Zale shall pay Bank the full amount of the purchase
price therefor in immediately available funds, in United States dollars, to such
account maintained with a bank as Bank shall reasonably designate in writing. 
The parties hereto further agree that, unless otherwise agreed to in writing by
both parties hereto, the closing of any of the transactions contemplated by this
Section 5.4(e),

 

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shall not occur during the period from October 1 through December 31 of any
year, but, to the extent it would otherwise have occurred during such period,
they shall occur instead on January 15 of the immediately following year.

 

(f)            Purchase Price.  Any purchase and sale of the outstanding
Accounts and Card receivables pursuant to Section 5.4(d) or (e) above shall be
at a purchase price to be agreed upon by Bank and Zale; provided, however, that
if Bank and Zale cannot so agree upon a purchase price for such outstanding
Accounts and Card receivables within ten (10) days following notice of such
purchase and sale, the purchase price shall be the value to Bank, as determined
using a discounted cash flow methodology, of the outstanding Card receivables on
a going concern basis (the “Fair Market Value”) on the date of transfer arrived
at by a neutral, independent’ public accounting firm which is one of the five
(5) largest recognized public accounting firms in the United States, which does
not represent any of the parties hereto, and which is qualified to provide
Valuation services similar to those to be provided hereunder (the “Designated
Third Party”), the identity of which Designated Third Party shall be agreed upon
by Bank and Zale.  Bank and Zale agree to provide the Designated Third Party
access reasonably necessary to assist in such valuation.  Such information shall
be deemed confidential, provided that Zale may share such valuation with a bona
fide prospective purchaser of all or any portion of such outstanding Accounts
and/or Card receivables, and, provided further, that such prospective purchaser
first executes a reasonable confidentiality agreement provided by Bank.  The
expense of such valuation by the Designated Third Party shall be shared equally
by Bank and Zale.

 

(g)           Cardholder List.  Bank covenants and agrees that, following the
closing of any purchase and sale of the outstanding Accounts and Card
receivables pursuant to Section 5.4(d) or (e) above, the use by Bank or its
Affiliates of the names and addresses of Cardholders who have opened Accounts at
Stores and any other Cardholder information for any purpose including, without
limitation, any solicitation of such Cardholders by Bank or its Affiliates or
any third party or the disclosure or sale of such Cardholder information to
third parties, is prohibited and is subject to the confidentiality provisions of
Section 5.8 of this Agreement; provided, however, that Bank shall be entitled to
use such information in connection with products and services offered by Bank or
one of its Affiliates to the extent such Cardholder is an existing customer for
products and/or services of Bank other than those offered in connection with the
Card Program.  In the event that neither party exercises its right to effect a
purchase and sale of the outstanding Accounts and Card receivables pursuant to
Section 5.4(d) or (e) above, (i) Zale shall be prohibited from using a Person’s
status as a Cardholder as a criterion in connection with any solicitation
directed to such Cardholders that relates primarily to credit cards or credit
products offered by Zale and (ii) Bank agrees not to disclose, sell or otherwise
provide any of such Cardholder information, under any circumstances, to any
party which directly or indirectly operates in the retail jewelry industry or
which otherwise competes with Zale or any Affiliate of Zale.

 

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5.5          Termination-related Obligations: Sunset Management.

 

(a)           Upon expiration or any termination of this Agreement, Zale will
promptly submit to Bank all Sales Data for Card Transactions which have occurred
up to the date of termination.  Bank will cooperate with Zale and provide Zale
with reasonable assistance to assure the orderly transfer of Zale’s Sales Data,
all books and records relating to the Card Program (other than Bank’s internal
financial books and records related solely to Bank’s profits and losses in
connection with the Card Program) and all Account and other data relating to the
Card Program to Zale or to a new third party provider designated by Zale and
shall use its commercially reasonable efforts to minimize any disruption or
interruption of the services provided by Bank hereunder.  Bank’s
termination-related obligations will include allowing Zale, its agents,
contractors and consultants reasonable access to all systems and data then being
used by Bank to provide the services provided by it under this Agreement and
access to responsible Bank personnel engaged in the performance of this
Agreement.  Zale’s access for termination- related services is subject to
reasonable protections for security, audits, and third party contracts.

 

(b)           Regardless of whether this Agreement is terminated by Zale or
Bank, or if it otherwise expires in accordance with its terms without renewal,
the parties hereto agree to continue to comply with the terms and conditions of
this Agreement (including without limitation the financial terms of this
Agreement), and Bank agrees to continue to provide all of the services to be
provided by Bank hereunder in connection with the Card Program, pursuant to the
terms and conditions of this Agreement (including without limitation the
Performance Standards), until the earlier of (i) the date on which Zale secures
and converts to such services elsewhere and (ii) three hundred sixty-five (365)
days following such termination or expiration.  Notwithstanding any other
provision hereof to the contrary, in no event may Bank cease to provide all or
any portion of such services between October 1 of one year and February 1 of the
next year unless Zale agrees or directs in writing.  In no event will Bank have
the right, upon such termination or expiration, to prevent Zale from moving
books and records or any other data related to the Card Program to another
facility or provider when it chooses to do so, subject to the provisions of this
Section 5.5.

 

(c)           Upon Zale’s termination of this Agreement, the parties shall
endeavor, in good faith, to close any transaction contemplated by Sections
5.4(d) or (e) and to complete transition as promptly as commercially reasonable
and in any event not later than three hundred sixty-five (365) days (excluding
any period from October 1 of one year and February 1 of the next year unless
Zale agrees or directs in writing) following termination or earlier notice
thereof, and Bank shall continue to provide service hereunder upon the terms and
conditions of this Agreement.  Upon termination of this Agreement, without
prejudice to the rights and remedies available to either party as a result of
the breach hereof by the other, each party shall pay its own costs and expenses
associated with Zale’s moving to a new service provider.

 

(d)           Upon termination by Bank (and not by Zale) pursuant to
Section 5.4(b)(i), (ii) or (iii) hereof, or upon expiration of this Agreement,
Zale will pay Bank for transitional services rendered after expiration or
termination of the Agreement at commercially reasonable rates and as may be
mutually agreed by the parties hereto and

 

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will reimburse Bank for reasonable out-of- pocket expenses for which Zale has
given prior written approval.  Zale will also pay all transfer and similar
charges owed to third parties in connection with the legal, physical or
electronic transfer of Sales Data, books and records and Account or other data.

 

(e)           During the last ninety (90) days prior to any termination or
expiration of this Agreement, (i) Bank will not transfer any Bank member of the
Client Relationship Team to other assignments without prior written approval of
Zale, which approval shall not be unreasonably withheld if Bank demonstrates to
Zale that such transfer would not be detrimental to Zale or the Card Program,
and (ii) Bank will use commercially reasonable efforts to support Zale’s
transition of the Card Program to another provider.

 

(f)            In the event of the closing of any transaction contemplated by
Section 5(d) or (e) hereof, the parties hereto agree to enter into an interim
servicing agreement, consistent with the provisions of this Section 5.5 upon
such terms and conditions, including interim servicing and compensation, as are
commercially reasonable and as may be mutually agreed upon by the parties
hereto.

 

5.6          Status of the Parties.  In performing their responsibilities
pursuant to this Agreement, Bank and Zale are in the position of independent
contractors.  This Agreement is not intended to create, nor does it create and
shall not be construed to create, a relationship of partner or joint venturer or
an association for profit between Bank and Zale.  Further, notwithstanding
anything to the contrary contained in this Agreement, any third party designated
by any party to this Agreement to perform obligations or functions of such party
under this Agreement, including without limitation, obtaining Authorization or
performing data capture, remittance or Settlement functions, will be subject to
the approval of the other parties to this Agreement (which approval shall not be
unreasonably conditioned, withheld or delayed) and will be deemed to be the
agent of the designating party for all such purposes and not the agent of any
other party hereto, and such designating party shall be fully liable for the
fees and actions of any such third party with respect to the performance of such
functions.

 

5.7          Force Majeure.  Neither party to this Agreement will be liable to
the other by reason of any failure in performance of this Agreement in
accordance with its terms if such failure arises out of causes beyond the
control and without the fault or negligence of such party; provided, however,
that Bank shall not be excused from any failure of its obligations to have and
implement backup capacity, failover plans or disaster recovery procedures in the
event of a force majeure.  Such causes may include, but are not limited to acts
of God or of the public enemy, acts of civil or military authority, fires, riots
or war.  In the event of any force majeure occurrence, the disabled party shall
use its best efforts to meet its obligations as set forth in this Agreement. 
The disabled party shall promptly and in writing advise the other party if it is
unable to perform due to a force majeure event, the expected duration of such
inability to perform, and of any developments (or changes therein) that appear
likely to affect the ability of that party to perform any of its obligations
hereunder in whole or in part.

 

5.8          Confidentiality.  (a) In performing its obligations under this
Agreement, each party may have access to and receive certain confidential or
proprietary information about the other party.  All information, in any form,
supplied to one party hereto (the “Receiving Party”)

 

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by, or at the direction of, the other party (the “Furnishing Party”) relating
to, without limitation, either party’s marketing philosophy and objectives,
competitive advantages and disadvantages, Cardholder and customer names and
addresses, financial results, technological development, Store locations, sales
volume(s), merchandise mix, business relationships and methods of transacting
business, customers and dealers, operational and data processing capabilities,
systems software and hardware and the documentation thereof or other information
of the business or affairs of each party, its parent, or its affiliated and
subsidiary companies which that party reasonably considers confidential and/or
proprietary and any other information relating to the transactions contemplated
by this Agreement, the Merger Agreement or the Receivables Purchase Agreement,
including any copies, excerpts, summaries, analyses or notes of the foregoing
generated by the Receiving Party (collectively, the “Confidential 
Information”), will be treated as confidential as provided herein.  For purposes
hereof, “Confidential Information” shall not include (i) information that is
publicly available at the time it was provided by the Furnishing Party or which
subsequently becomes publicly available other than as a result of a breach of
the provisions of this Section 5.8; (ii) information obtained from a third party
unaffiliated with the Furnishing Party (provided such party was not bound by
confidentiality agreements with the Furnishing Party); (iii) information
Independently developed by the Receiving Party without reference to the
Confidential Information; or (iv) information in the possession of the Receiving
Party prior to its disclosure by the Furnishing Party to the Receiving Party. 
The Receiving Party acknowledges that-Confidential Information includes, without
limitation, information which is stored in printed or electromagnetic forms and
furnished to it by the Furnishing Party or at the direction of the Furnishing
Party.

 

(b)           All Confidential Information (i) shall remain the property of the
Furnishing Party, (ii) shall be treated as confidential by the Receiving Party,
taking such action as shall be necessary or desirable to preserve and protect
the confidentiality of the information and in any event using means not less
than those used to protect its own confidential information; and (iii) shall not
be disclosed to any third party other than the Receiving Party and its
directors, officers, employees (with respect to Zale, such of its directors,
officers, or employees of any of its operating divisions/subsidiaries which
accept or may consider accepting the Card, and, with regard to Bank, such of its
directors, officers, employees of Bank, or its Affiliates which are involved in
the development of the Card Program) who are engaged in the implementation of
policies, programs or procedures with regard to the acceptance of the Card by
Zale or the financial advisors, accountants or attorneys of either of Bank or
Zale (each an “Authorized Person”) without the Furnishing Party’s prior written
consent.  If any party to this Agreement should disclose Confidential
Information to any third party other than an Authorized Person, such party shall
promptly notify the other parties to this Agreement and shall require said third
party to agree to the confidentiality provisions set forth in this Section 5.8.

 

(c)           In the event that the Receiving Party or any Authorized Person
becomes legally Compelled (including without limitation, by law, rule,
regulation, stock exchange or governmental regulator or administrative or
similar agency as part of a judicial or administrative proceeding (including
without limitation, by deposition, interrogatory, request for information or
documents, subpoenas, civil or criminal investigative demand or otherwise)) to
disclose any of the information, the Receiving Party shall provide the

 

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Furnishing Party with immediate written notice of such requirement so that the
Furnishing Party may seek a protective order or other appropriate remedy or
waive compliance with the provisions of this Section 5.8.

 

(d)           The terms of this Section 5.8 will survive the termination of this
Agreement and will continue for a period of three (3) years thereafter.

 

5.9          Access to Cardholder List.  Zale may request from Bank, and Bank
shall provide promptly, and in any event within ten (10) Business Days of such
request, the names and addresses of Cardholders who have opened Accounts at
Stores.  The provision of such names and addresses more frequently than once per
calendar month will be upon the agreement of the parties.  Zale use of such
Cardholder information obtained from Bank shall be limited to the sale and sales
promotion of Authorized Goods and Services and goods and services pursuant to
inserts to the extent contemplated by Section 3.20 hereof.  Except as
specifically provided herein, during the term of this Agreement any other use of
such Cardholder information by Zale including, without limitation, the
disclosure or sale of such Information to third parties, is prohibited and is
subject to the confidentiality provisions of Section 5.8 of this Agreement,
provided that such prohibition does not apply to any information concerning such
Cardholders.  that Zale has otherwise obtained or compiled (including
information obtained or compiled by third parties).  In accordance with
Applicable Law, Bank shall provide a procedure for Cardholders to “opt out” with
respect to the provision of information related to any such Cardholder by Bank
to Company, and otherwise use reasonable efforts to be able to disclose such
information to Zale.

 

5.10        Arbitration.  If the parties hereto are unable to resolve any
Dispute, such Dispute shall be submitted to arbitration in accordance with the
procedures hereof.  The arbitration shall be initiated by a party’s delivering
to the other parties hereto a notice of Intention to arbitrate (the “Arbitration
Notice).  The arbitration shall be held in Dallas County, Texas and shall be
conducted in accordance with the Commercial Arbitration Rules of the American
Arbitration Association in effect at the time the arbitration is instituted and
as provided herein.  In the event of any inconsistency between such Rules and
this Agreement, this Agreement shall control.  Unless the parties agree to a
single arbitrator; the arbitration shall be conducted before three
(3) independent and impartial arbitrators, none of whom shall be affiliated with
either party hereto.  Within ten (10) days of the date of the Arbitration Notice
each party shall notify the other of its choice of an arbitrator.  Each party
shall have the right, for a period of ten (10) days following its receipt of
notice of a proposed arbitrator from the other party, to investigate the
arbitrator so chosen to verify his or her impartiality.  Thereafter, the two
(2) arbitrators so chosen shall choose the third arbitrator who shall be the
chairman of the panel of the three arbitrators.  All arbitrators, prior to their
service, shall disclose all actual or perceived conflicts of interest involving
the subject matter of the Dispute or with the parties.  In the event the parties
agree to a single arbitrator, the selection of the arbitrator shall be made by
mutual consent.  The three (3) arbitrators (or the single arbitrator, if the
parties so choose, in either case, the “Tribunal”) selected shall hear and
decide the arbitration case.  The arbitration shall be governed by the Federal
Arbitration Act (9 U.S.C. §§ 1-16) to the exclusion of any provision of state
law inconsistent therewith and which would produce a different result, and the
parties hereto hereby agree to be-bound by the decision of the arbitrators and
that judgment thereon may be entered by any court having jurisdiction thereof. 
The Tribunal shall determine the fact-based claims of the

 

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parties and render its final decision in accordance with the substantive laws of
the State of Texas, exclusive of its conflict of law rules.  The limitations on
any actions will be determined under Texas law.  The Tribunal may, in the course
of proceedings, order any provisional remedy or conservatory measure, including,
but not limited to attachment, preliminary injunction or the deposit of
specified security, which it considers to be necessary, just and suitable under
the circumstances.  The failure of a party to comply with such an interim order,
after due notice and opportunity to cure such non-compliance; may be treated by
the Tribunal as a default, and all or some of the claims or defenses of the
defaulting party may be stricken and partial or final decision entered against
such party, or the Tribunal may award such lesser sanctions as it deems
appropriate.  A request for interim or provisional relief to a Court shall not
be deemed incompatible with the parties’ agreement to arbitrate or as a waiver
of such agreement.  Within thirty (30) days after the Tribunal has been
appointed, a preliminary hearing among the Tribunal and counsel for each party
shall be held for the purpose of developing a plan for the management of the
arbitration, all of which shall then be memorialized in an appropriate order. 
The Tribunal shall actively manage the proceedings as it deems best so as to
make such proceedings expeditious, economical and less burdensome and
adversarial than litigation.  The Tribunal shall permit and facilitate such
discovery as it shall determine appropriate and as the circumstances warrant,
taking Into account the needs of the parties and the desirability of making
discovery expeditious and cost effective.  Such discovery may include
pre-hearing depositions, particularly depositions of witnesses who will not
appear personally before the Tribunal to testify, if there is a substantial
demonstrated need therefor.  Papers, documents and written communications shall
be served by the parties directly upon each other and the Tribunal.  All papers,
documents, briefs, written communication, testimony and transactions, as well as
any and all Tribunal decisions, shall be confidential and not disclosed to
anyone other than the Tribunal, the parties or the parties’ attorneys and expert
witnesses (where applicable to their testimony) except that upon written consent
of the parties, such information shall be disclosed to additional third parties,
and except that such Information may be disclosed to the extent required by
applicable law or pursuant to the rules of any foreign or domestic stock
exchange on which shares of either party hereto are listed.  All third parties
shall agree in writing to keep such information confidential.  The Tribunal may
limit the issues so as to focus on the core of the dispute, limit the time
allotted to each party for presentation of its case and exclude testimony and
other evidence that it deems irrelevant, cumulative or inadmissible. 
Notwithstanding the parties’ agreement regarding arbitration venue above, upon
motion of either party, the Tribunal may temporarily relocate a hearing to a
place designated by the Tribunal as may be necessary to hear the testimony of
particular witnesses not subject to subpoena at the designated hearing site. 
The purpose of such temporary relocation is to permit a hearing at a place where
such witnesses can be compelled to attend.  With the consent of both parties,
the testimony may be recorded before a single member of the Tribunal.  There
shall be a stenographic transcript of the proceedings, the cost of which shall,
be borne equally by the parties pending the final decision of the Tribunal.  The
Tribunal is empowered to award only compensatory damages as such may be limited
by the terms of this Agreement.  Any compensatory damages awarded by the
Tribunal in respect of failure to meet Performance Standards shall be reduced by
the amount of any liquidated damages previously paid by Bank hereunder because
of violation of such Performance Standard by Bank.  Each party hereby
irrevocably Waives any damages in excess of compensatory damages including a
waiver of any punitive or multiple damages.  The Tribunal may, in its
discretion, grant pre-decision interest and, if so, such interest shall be at
commercial rates during the relevant period.  The

 

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Tribunal may award all or a part of a party’s reasonable attorneys’ fees and
costs of arbitration, taking into account the final result of arbitration, the
conduct of the parties and their counsel in the course of the arbitration and
other relevant factors.  The Tribunal shall, in a final decision, assess the
amount of the costs of the proceedings.  Prior to rendering its final decision,
the Tribunal shall submit to the parties an unsigned draft of the proposed
decision and each party, within five (5) Business Days after -receipt of such
draft decision, may serve on the other party and file with the Tribunal a
written statement outlining any alleged errors of fact, law, computation or
otherwise.  Within five (5) Business Days after receipt of such statement, the
Tribunal shall render its final decision. Any arbitration decision shall conform
as closely as reasonably possible to the order or judgment which would be
rendered by a court of the State of Texas.  Any arbitration decision shall state
the reasoning on which it is based, although such reasons shall not be used as a
basis of appeal or other judicial proceeding.  To the extent permitted by
Applicable Law, any decision by the Tribunal shall not be res judicata or have
any binding effect in any unrelated litigation or arbitration where any party to
this Agreement may also be a party

 

5.11        Financial Information.  To the extent such statements are not
publicly available, each party shall provide to the other party, during the term
hereof, promptly following preparation thereof, (a) annual audited financial
statements prepared by its independent accounting firm and (b) unaudited
quarterly financial statements.  For purposes hereof, such financial statements
may be the financial statements of AFCC or Zale Corporation, as the case may be.

 

5.12        Assignability; Successors and Assigns.  This Agreement and any of
the rights, interests and obligations of either of the parties hereunder may be
assigned to a parent, subsidiary, or Affiliate of either party, provided that
any such assignee shall have as of the date of assignment a financial net worth
equal to or greater than the assigning party as of the Effective Date and
provided that any such assignment shall not release the assigning party of its
duties and obligations hereunder.  In the event that either party or its parent
is acquired by an unaffiliated third party, whether by merger, acquisition of
stock or acquisition of all or substantially all of the assets of either party
or its parent, this Agreement and any of the rights, interests and obligations
of either of the parties hereunder may be assigned to such third party, provided
that such third party shall have as of the date of assignment a financial net
worth (on a combined basis with such party or its parent) equal to or greater
than such party as of the Effective Date at the time of such assignment.  This
Agreement may not otherwise be assigned (whether by operation of law or
otherwise) without the prior written consent of the non-assigning party.  The
rights and obligations of the parties hereto will inure to the benefit of and
will be binding upon the successors and permitted assigns of each of them.

 

5.13        Agreement not to Sell.  Except in connection with an assignment
permitted pursuant to the provisions of Section 5.12 hereof, Bank agrees that it
will not sell, transfer, grant a security interest, lien, claim, charge or
encumbrance in or on, or otherwise dispose of, any Account, or, except pursuant
to an Associates Receivables Securitization Facility or other secured financing
of Bank or an Affiliate of Bank (in which event such sale, transfer or grant
shall be subject to the options of Zale hereunder), any receivable under an
Account, during the term of this Agreement or for any period thereafter when
Zale has a right or an obligation to purchase the Accounts and/or receivables as
provided herein.  Notwithstanding the foregoing,

 

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Bank may sell any Accounts which have been written off and closed by Bank in
accordance with Bank’s standard operating procedures.

 

5.14        Cooperation.  Each party hereto agrees to cooperate with and provide
all reasonable assistance to the other party in connection with any litigation
or government or regulatory investigation, whether now existing or hereafter
initiated in connection with Zale’s credit card operations and Card Program.

 

5.15        Amendment.  Except as otherwise provided herein, neither this
Agreement nor any of its provisions will be amended or modified except in
writing executed by a duly authorized officer of each party.

 

5.16        Severability.  If any provision, or portion thereof, of this
Agreement is held invalid, illegal, void or unenforceable by reason of any
rule or law, administrative order, judicial decision or public policy, all other
provisions of this Agreement will nevertheless remain in full force and in
effect.

 

5.17        Entire Agreement.  This Agreement, including the Operating
Regulations, Performance Standards and any other schedules, exhibits and
documents referenced herein, constitutes the entire agreement between the
parties in connection with the Card Program and supersedes all prior agreements,
supplements, negotiations and communications on such subject matter.

 

5.18        Governing Law.  This Agreement will be governed by and construed in
accordance with the laws of the State of Texas.

 

5.19        Applicable Law or Regulation.  It is expressly understood that
changes in the performance of either party’s obligations under this Agreement
necessitated by a change in interpretation of any applicable federal or state
statute or regulation will not constitute a breach of this Agreement.

 

5.20        Waivers.  Neither party will be deemed to have waived any of its
rights, powers or remedies under this Agreement unless such waiver is approved
In writing by the waiving party.

 

5.21        Notices.  Whenever notice or demand under this Agreement is given to
or made upon either party by the other party, such notice or demand must be
given in writing, either (i) by depositing it in the United States mail
addressed to such party at its address as set forth below, with postage thereon
prepaid, and any notice or demand so mailed will be deemed to have been given at
the time when it was mailed, or (ii) by courier, telecopier (with accompanying
delivery via overnight mail), or similar method, and such notice or demand will
be deemed to have been given when the writing or other form of notice or demand
is either personally delivered to the party, or telecopied or delivered to the
address set -forth below.  Notwithstanding the foregoing, notice of intent to
terminate this Agreement and notice of default must be sent by certified or
registered mail, postage prepaid, return receipt requested.

 

 

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if to Bank:

 

Hurley State Bank

 

 

1503 East 10th Street

 

 

Sioux Falls, South Dakota 57103

 

 

Fax No: (605)336-5781

 

 

Attn: Senior Vice President

 

 

 

With copies to:

 

Associates First Capital Corporation

 

 

250 East Carpenter Freeway

 

 

Irving, Texas 75062

 

 

Fax No: (972) 652-5798

 

 

Attn:. General Counsel

 

 

 

 

 

Associates Commerce Solutions, Inc.

 

 

Four Parkway North

 

 

Deerfield, Illinois 60015

 

 

Fax No: (847) 597-3279

 

 

Attn: General Counsel

 

 

 

If to Company:

 

Zale Delaware, Inc.

 

 

901 West Walnut Hill Lane

 

 

Irving, Texas 75038

 

 

Fax No: (972) 580-5335

 

 

Attn: Chief Operating Officer

 

 

 

With copies to:

 

Zale Delaware, Inc.

 

 

901 West Walnut Hill Lane

 

 

Irving, Texas 75038

 

 

Fax No: (972) 580-4934

 

 

Attn: General Counsel

 

 

 

 

 

John Beane, Esq.

 

 

Troutman Sanders LLP

 

 

600 Peachtree Street N.E.

 

 

Suite 4500

 

 

Atlanta, Georgia 30308

 

 

Fax No: (404) 885-3900

 

EITHER PARTY HERETO MAY CHANGE THE ADDRESS TO WHICH NOTICE MUST BE SENT BY
GIVING WRITTEN NOTICE OF SUCH CHANGE TO THE OTHER PARTY HERETO IN THE MANNER
PROVIDED HEREIN.

 

5.22        No Third-Party Rights.  Nothing in this Agreement shall create or be
deemed to create any third-party beneficiary rights in any person not party to
this Agreement.

 

5.23        Captions.  The captions used in this Agreement have been inserted
for convenience of reference only and will not be deemed to limit or define the
text of this Agreement.

 

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5.24        Counterparts.  This Agreement may be executed in separate
counterparts, each of which will constitute an original but all of which will
constitute one and the same Agreement.

 

5.25        Consent to Jurisdiction.  The parties hereto irrevocably submit to
the exclusive jurisdiction of (a) the courts of the State of Texas and (b) the
federal court sitting in the Northern District of Texas for the purposes of any
suit, action or ‘other proceeding arising out of this Agreement or any
transaction contemplated hereby. The parties hereto agree to commence any
action, suit or proceeding relating hereto either in the federal court sitting
in the Northern District of Texas or, if such suit, action or other proceeding
may not be brought in such court for jurisdictional reasons, in the courts of
the State of Texas.  The parties hereto further agree that service of any
process, summons, notice or document by United States certified mail, postage
prepaid, to such party’s address set forth above shall be effective service of
process for any action, suit or proceeding in the State of Texas with respect to
any matters to which it has submitted to jurisdiction in this Section 5.25.  The
parties hereto irrevocably and unconditionally waive any objection to the laying
of venue of any action, suit or proceeding arising out of this Agreement or the
transactions contemplated hereby in (i) the courts of the State of Texas or
(ii) the federal court sitting in the Northern District of Texas, and hereby
further irrevocably and unconditionally waive and agree not to plead or claim in
any such court that any such action, suit or proceeding brought in any such
court has been brought in an inconvenient forum.

 

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first written above.

 

ZALE DELAWARE, INC.

 

HURLEY STATE BANK

 

 

 

By:

/s/ Alan P. Shor

 

By:

/s/ William E. Johnson

Name: Alan P. Shor

 

Name: William E. Johnson

Title: Executive Vice President and Chief Operating Officer

 

Title: Senior Vice President

 

 

 

 

 

ZALE PUERTO RICO, INC.

 

 

 

 

 

By:

/s/ Alan P. Shor

=

 

 

Name: Alan P. Shor

 

 

Title: Executive Vice President and Chief Operating Officer

 

 

 

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GUARANTY OF OBLIGATIONS OF HURLEY STATE BANK

 

In consideration of the execution and delivery by Zale of the foregoing Merchant
Services Agreement, the undersigned, parent company of the Bank, hereby
guarantees absolutely and unconditionally to Zale the due and punctual
performance, when and as due, of (i) all obligations of Bank arising under or
pursuant to the foregoing Merchant Services Agreement; (iii) the accuracy of
Bank’s representations and warranties set forth herein, and (iii) the punctual
payment of all sums now or hereafter owed by Bank under the foregoing
Agreement.  The liability of the undersigned under this Guaranty shall be
unlimited and unconditional, and this Guaranty shall be a continuing guarantee. 
Zale may proceed directly against the undersigned without proceeding against or
otherwise exercising any remedy with respect to Bank.  The undersigned
represents and warrants that it is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware; that it
has all necessary power, authority, licenses and permits necessary to execute,
deliver and perform its obligations under this Guaranty, that the execution,
delivery and performance of this Guaranty by the undersigned do not require any
filing or registration with, or the consent or approval of, any governmental
body, agency, authority, or any other Person which has not been made or
obtained; that this Guaranty has been duly authorized, executed and delivered by
the undersigned and constitutes the legal, valid and binding obligation of the
undersigned, enforceable in accordance with its terms, except to the extent the
same may be limited by applicable bankruptcy, insolvency, moratorium, fraudulent
conveyance and other laws governing the rights of creditors generally and except
as limited by applicable principles of equity; and that the execution, delivery
and performance of this Guaranty by the undersigned do not conflict with or
result in the breach of, or constitute a default under any indenture, mortgage,
deed of trust, loan, agreement, or other instrument to which the undersigned is
party or by which its assets or properties are bound.

 

IN WITNESS WHEREOF, the undersigned has hereunto set its hand through its duly
authorized representative this 10th day of July, 2000.

 

 

 

ASSOCIATES FIRST CAPITAL CORPORATION

 

 

 

By:

/s/ Joseph N. Scarpinato

 

Name:

Joseph N. Scarpinato

 

Title:

Senior Executive Vice President

 

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