EXHIBIT 10.31

 

Confidential Treatment Requested.

 

Certain material (indicated by asterisks) has been omitted from this document
and filed separately with the Securities and Exchange Commission pursuant to a
request for confidential treatment.

 

SERVICING AGREEMENT

 

between

 

THE NEIMAN MARCUS GROUP, INC.

 

and

 

HSBC BANK NEVADA, N.A.

 

Dated as of July 7, 2005

 

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TABLE OF CONTENTS

 

 

Page

ARTICLE I

 

DEFINITIONS AND INTERPRETATION

 

 

 

Section 1.01.

Defined Terms

1

Section 1.02.

Certain Interpretive Matters

3

 

 

 

ARTICLE II

 

SERVICING

 

 

 

 

Section 2.01.

Appointment

3

Section 2.02.

Servicer Compensation

3

Section 2.03.

Services

4

Section 2.04.

Service Level Standards

5

Section 2.05.

Use of Subservicers

5

Section 2.06.

Disaster Recovery

5

Section 2.07.

Inventory

6

Section 2.08.

Securitization

6

 

 

 

ARTICLE III

 

REPRESENTATIONS AND WARRANTIES

 

 

 

 

Section 3.01.

Representations and Warranties of Servicer

6

Section 3.02.

Representations and Warranties of Bank

8

 

 

 

ARTICLE IV

 

ADDITIONAL COVENANTS

 

 

 

 

Section 4.01.

Further Assurances

9

Section 4.02.

Modifications

9

Section 4.03.

Correction of Errors

9

Section 4.04.

Changes in Law

9

Section 4.05.

Cooperation

9

Section 4.06.

Facilities and Equipment

9

Section 4.07.

Insurance

10

Section 4.08.

Customer Information

10

 

 

 

ARTICLE V

 

DEFAULT; REMEDIES

 

 

 

 

Section 5.01.

Servicer Default

10

Section 5.02.

Remedies

11

 

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Section 5.03.

Non-Starred SLAs

12

 

 

ARTICLE VI

 

TERM

 

 

 

Section 6.01.

Term of Agreement

12

Section 6.02.

Servicer Termination Events

12

Section 6.03.

Termination by Bank

13

Section 6.04.

Effect of Termination

13

 

 

ARTICLE VII

 

INDEMNIFICATION

 

 

 

Section 7.01.

Indemnification

13

Section 7.02.

Procedure for Indemnification

14

Section 7.03.

Notice and Additional Rights and Limitations.

15

Section 7.04.

Limits on Indemnification

15

 

 

ARTICLE VIII

 

MISCELLANEOUS

 

 

 

Section 8.01.

Confidentiality

15

Section 8.02.

Access Rights

18

Section 8.03.

No Waiver; Remedies; Amendment

18

Section 8.04.

Independent Contractor

18

Section 8.05.

No Joint Venture

18

Section 8.06.

Payment Terms

18

Section 8.07.

Entire Agreement

19

Section 8.08.

No Set-Off

19

Section 8.09.

Notices

19

Section 8.10.

Severability

20

Section 8.11.

Headings

20

Section 8.12.

Survival

20

Section 8.13.

Costs and Expenses

20

Section 8.14.

Drafting

20

Section 8.15.

Counterparts

20

Section 8.16.

Assignment; Successors

20

Section 8.17.

Governing Law

21

Section 8.18.

Waiver of Jury Trial and Venue

21

 

 

SCHEDULES

 

 

 

Schedule 1.01(a)

Services

 

Schedule 2.03(e)

Monthly Reports

 

Schedule 2.04(a)

Service Level Standards

 

Schedule 5.02

Remedies

 

Schedule 7.04

Indemnity Matters

 

 

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SERVICING AGREEMENT

 

This Servicing Agreement (as amended from time to time, this “Agreement”), dated
as of July 7, 2005, is between The Neiman Marcus Group, Inc., a Delaware
corporation (“Servicer”), and HSBC Bank Nevada, N.A., a national credit card
bank (“Bank”).

 

WHEREAS, Servicer and certain of its subsidiaries (together, “Sellers”) have
entered into a Purchase, Sale and Servicing Transfer Agreement with Bank and
HSBC Finance Corporation, a Delaware corporation (“Bank Parent”), dated as of
July 7, 2005 (as amended from time to time, the “Purchase Agreement”), pursuant
to which Sellers will sell, and Bank will purchase, specified assets related to
Sellers’ consumer private label credit card business;

 

WHEREAS, Servicer and certain of its subsidiaries (together, the “NMG
Companies”) are entering into a Program Agreement, dated as of June 8, 2005 (as
amended from time to time, the “Program Agreement”), with Bank and Household
Corporation, a Delaware corporation (“Primary Servicer”, and together with Bank,
the “Household Companies”) which shall govern the operation of such credit card
business and the rendering of marketing and other services by the parties
thereto; and

 

WHEREAS, Bank wishes to retain Servicer to provide, and Servicer wishes to
provide, certain servicing and administration activities relating to the
Accounts and the Program, all pursuant to the terms and conditions set forth
herein.

 

NOW, THEREFORE, in consideration of the mutual agreements set forth herein and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the Parties hereby agree as follows:

 

ARTICLE I

 

DEFINITIONS AND INTERPRETATION

 

Section 1.01. Defined Terms. Wherever used in this Agreement, unless the context
otherwise requires, the following terms shall have the meanings set forth below.
Capitalized terms used but not defined in this Agreement shall have the meanings
given them in the Program Agreement.

 

“Agreement”: As defined in the preamble hereof.

 

“Bank”: As defined in the preamble hereof.

 

“Bank Parent”: As defined in the recitals hereof.

 

“Credit Card Production Services”: The Services set forth in paragraph 2 of
Section I of Schedule 1.01(a).

 

“Confidential Information”: As defined in Section 8.01(a)(i) hereof.

 

“Damages”: As defined in Section 7.01(a) hereof.

 

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“Data Processing Services”: The Services set forth in paragraph 4 of Section I
of Schedule 1.01(a).

 

“Deductible Amount”: As defined in Schedule 7.04.

 

“Disclosing Party”: As defined in Section 8.01(a)(iv) hereof.

 

“Documentation Services”: The Services set forth in paragraph 1 of Section I of
Schedule 1.01(a).

 

“Household Companies”: As defined in the recitals hereof.

 

“Initial Penalty Amount”: As defined in Schedule 5.02.

 

“Late Stage Collection Services”: The Services set forth in paragraph 3 of
Section I of Schedule 1.01(a).

 

“NMG Companies”: As defined in the recitals hereof.

 

“Non-Starred SLAs”: Any SLA on Schedule 2.04(a) that is not a Starred SLA.

 

“Other Services”: The Services set forth in Section II of Schedule 1.01(a).

 

“Party”: When used in the singular, either Servicer or Bank or, when used in the
plural, both Servicer and Bank.

 

“Primary Servicer”: As defined in the recitals hereof.

 

“Program Agreement”: As defined in the recitals hereof.

 

“Purchase Agreement”: As defined in the recitals hereof.

 

“Receiving Party”: As defined in Section 8.01(a)(iv) hereof.

 

“Regulatory Failure”: As defined in Section 5.01(b) hereof.

 

“Regulatory SLA”: As defined in Section 5.01(b) hereof.

 

“Securitization Documents”: As defined in the Purchase Agreement.

 

“Sellers”: As defined in the recitals hereof.

 

“Servicer”: As defined in the preamble hereof.

 

“Servicer Default”: As defined in Section 5.01 hereof.

 

“Servicer Event of Default”: The occurrence of any one of the events listed in
Section 6.02.

 

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“Services”: As defined in Section 2.02(a) hereof.

 

“Significant Failure”: As defined in Section 5.01(a) hereof.

 

“SLA”: Each individual performance standard set forth on Schedule 2.04(a).

 

“Solvent”: When used with respect to any Person, that (a) the present fair
salable value of such Person’s assets exceed the total amount of its
liabilities, (b) such Person is able to pay its debts as they become due and
(c) such Person does not have unreasonably small capital to carry on its
business as theretofore operated and all business in which such Person is about
to engage.

 

“Starred SLA”: On Schedule 2.04(a), SLA number 1 of Section A, SLA number 1 of
Section B, SLA number 6 of Section C and SLA numbers 2 and 6 of Section D.

 

“Subsequent Failure”: As defined in Section 5.02(b) hereof.

 

“Subsequent Penalty Amount”: As defined in Schedule 5.02.

 

“Term”: As defined in Section 6.01 hereof.

 

“Transaction Document”: The Purchase Agreement, the Program Agreement and this
Agreement and the agreements, instruments, schedules and other documents to be
delivered pursuant thereto and hereto.

 

Section 1.02. Certain Interpretive Matters. As used herein: (a) all references
to the plural number shall include the singular number (and vice versa); (b) all
references to “herein,” “hereunder,” “hereof” or like words shall refer to this
Agreement as a whole and not to any particular section, subsection or clause
contained in this Agreement; (c) all references to “include,” “includes” or
“including” shall be deemed to be followed by the words “without limitation”;
(d) all references to “$” or “dollars” shall be deemed references to United
States dollars; and (e) all references to a particular agreement, instrument or
document shall include all renewals, extensions, modifications, amendments and
restatements of such agreement, instrument, or document.

 

ARTICLE II

 

SERVICING

 

Section 2.01. Appointment. Subject to the terms and conditions of this
Agreement, Bank hereby appoints Servicer as of the Effective Date as the
servicer of the Accounts (excluding Non-Store Accounts associated with Dual-Line
Credit Cards) and Cardholder Indebtedness and Servicer hereby accepts such
appointment.

 

Section 2.02. Servicer Compensation. As compensation for provision of the
Services hereunder, Servicer shall receive payment of the payment calculated by
reference to the Servicing Fee Percentage as set forth in Schedule 9.1(a)(i) of
the Program Agreement. Upon transfer of any of the Services to Primary Servicer
in accordance with Section 2.03(b), the

 

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amount payable to Servicer set forth in Schedule 9.1(a)(i) shall be adjusted as
set forth in Schedule 9.1(a)(i) in order to reflect the reduction of Services
being performed by Servicer and the assumption of the performance of such
Services by Primary Servicer.

 

Section 2.03. Services.

 

(a) Commencing on the Effective Date and continuing until the date, if any, upon
which any listed type of Service enumerated below is transferred to Primary
Servicer as provided in this Agreement, Servicer shall perform the following
services (collectively, the “Services”): (i) the Documentation Services;
(ii) the Late Stage Collection Services; (iii) the Credit Card Production
Services; (iv) the Data Processing Services; and (v) the Other Services, in each
case in accordance with this Agreement and the Risk Management Policies and
Operating Procedures. Servicer shall service the Accounts in compliance with
Applicable Law, in such a way as to not disparage or embarrass the Household
Companies or either of their names, with a level of service to Cardholders and
with no less care and diligence than the degree of service, care and diligence
employed by Servicer prior to the Effective Date. Notwithstanding anything to
the contrary contained herein, Bank shall be solely responsible for monitoring
legal developments applicable to the operation of the Credit Card Business,
although Servicer shall promptly apprise Bank of any such legal developments of
which it becomes aware.

 

(b) Servicer may elect upon not less than thirty (30) days’ written notice to
Bank to transfer (i) any one or more type of Services referenced in clauses
(i) through (iv) of Section 2.03(a) or (ii) following conversion to the Bank
Systems, all of the Services being performed hereunder, to Primary Servicer, in
which event Primary Servicer shall accept appointment as servicer with respect
to such Services and shall be required to comply with the provisions of the
Program Agreement in connection with the performance of such Services, including
the requirement to meet the SLAs applicable to Primary Servicer for such Service
set forth in Schedule 7.3(a) of the Program Agreement. Upon the date of the
foregoing transfer, Servicer shall be released from any further obligation with
respect to the performance of such Services.

 

(c) Notwithstanding Section 2.03(b), Bank and Servicer agree that the
Documentation Services shall be transferred to Primary Servicer as soon as
practicable after the date hereof and, upon such transfer, Primary Servicer
shall be required to comply with the provisions of the Program Agreement in
connection with the performance of such Services, including the requirement to
meet the SLAs applicable to the Documentation Services set forth in Schedule
7.3(a) of the Program Agreement.

 

(d) Servicer shall maintain records relating to its performance of the Services
in accordance with the record retention policies set forth on Schedule 4.4(f) of
the Program Agreement. Records may be kept in either paper or electronic form.
Servicer shall retrieve, reproduce and deliver to Bank any records reasonably
requested from time to time by Bank for the purpose of providing customer
assistance or resolving customer disputes, and Bank shall compensate Servicer on
demand for the reasonable costs and expenses associated with such retrieval,
reproduction and delivery.

 

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(e) Within fifteen (15) days after the end of each Fiscal Month, Servicer shall
provide to Bank the reports specified in Schedule 2.03(e) and such other reports
as are mutually agreed to by the Parties from time to time.

 

(f) Bank shall train personnel of Servicer on Bank’s systems and processes that
are related to or that interface with, but that are not components of, the
Services to the extent necessary for Servicer to perform the Services. Servicer
shall train personnel of Bank on Servicer’s systems and processes that are
related to the Services being provided under this Agreement.

 

(g) Bank shall cooperate, and shall ensure that each of its Affiliates shall
cooperate, with Servicer in all matters relating to Servicer’s performance of
the Services at Servicer’s reasonable request. Such cooperation shall be
provided at the expense of Bank and shall include providing Servicer with
reasonable access to the personnel, records, systems, technology and information
of the Household Companies and their Affiliates relating to the Accounts.
Servicer shall obtain all licenses and authorizations necessary to perform the
Services that it provides hereunder.

 

Section 2.04. Service Level Standards.

 

(a) Servicer shall perform the applicable Services in accordance with the SLAs
set forth on Schedule 2.04(a).

 

(b) Servicer shall report to Bank monthly, in a mutually agreed upon format,
Servicer’s performance under each of the SLAs set forth on Schedule 2.04(a). If
Servicer fails to meet any SLA, Servicer shall (i) immediately report to the
Management Committee the reasons for the SLA failure(s); and (ii) promptly take
commercially reasonable action to correct and prevent recurrence of such
failure(s).

 

Section 2.05. Use of Subservicers. Servicer shall have the right to perform any
portion of the Services through one or more subservicers; provided that (i) any
subservicer that is not an Affiliate of Servicer shall be subject to approval
pursuant to Article III of the Program Agreement and (ii) Servicer shall remain
fully responsible to Bank for the portion of the Services performed by any such
subservicer(s) (including its Affiliates). Notwithstanding the foregoing, to the
extent Servicer subcontracts or outsources to any third party any Services as of
the date hereof, Servicer may continue to subcontract or outsource such Services
to such third party.

 

Section 2.06. Disaster Recovery. For as long as Servicer is providing services
hereunder, Servicer shall continue to maintain the disaster recovery plan in
effect on the Effective Date. Servicer shall be prepared to and have the ability
to implement such plan if necessary. Servicer shall provide Bank with access to
review such plan upon request. Servicer shall test the plan annually and shall
promptly implement such plan upon the occurrence of a disaster or business
interruption. Servicer shall be excused from its failure to meet any applicable
SLAs that result directly from the failure of any of the Bank Systems. If in the
event of a disaster or severe business interruption Servicer fails to take
reasonable steps to respond to such disaster or severe business interruption,
Bank shall have reasonable access to Servicer’s systems, technical personnel and
disaster recovery resources, so as to ensure continuity of business and systems
required to service the Accounts.

 

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Section 2.07. Inventory. The Parties hereby agree that all paper, envelopes and
plastic reasonably required for production and mailing of Cardholder
Documentation and Loyalty Cards will be either (i) purchased by Servicer in
consultation with Bank, in which case Servicer shall invoice Bank directly for
such purchases and Bank shall pay Servicer for such invoices (including shipping
and taxes), or (ii) purchased by Bank in consultation with Servicer at Bank’s
sole cost and expense, provided that material qualities and quantities must be
reasonably satisfactory to Servicer.

 

Section 2.08. Securitization.

 

(a) As part of the Services hereunder, Servicer hereby agrees to continue and to
have its Subsidiaries continue to perform for the benefit of Bank and Bank
Parent on a subservicing basis, the servicing functions set forth under the
Securitization Documents with respect to the Accounts and receivables generated
thereunder that are subject to such Securitization Documents, from and after the
Closing Date, including the execution and delivery of all certificates and
reports as required by such Securitization Documents, which certificates and
reports shall be addressed to HSBC Finance Corporation, a Delaware corporation
as the Servicer.

 

(b) Servicer hereby acknowledges and agrees that HSBC Finance Corporation shall
be entitled to rely on such reports and certificates as a basis for issuing any
of its own reports and certificates under the Securitization Documents. In
addition, Servicer hereby agrees to use commercially reasonable efforts to cause
Servicer’s independent public accountants to issue the reports required by the
Securitization Documents and deliver such reports to HSBC Finance Corporation
for the period starting October 31, 2004 and ending on the Closing Date, such
reports to be delivered by such independent public accounting firm on or before
October 31, 2005.

 

(c) Servicer shall cooperate with Bank and Bank Parent to correct any errors or
deficiencies discovered in any of the reports referred to in this Section 2.08.

 

ARTICLE III

 

REPRESENTATIONS AND WARRANTIES

 

Section 3.01. Representations and Warranties of Servicer. Servicer represents
and warrants to Bank as follows:

 

(a) Organization. Servicer (i) is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation,
(ii) is duly licensed or qualified to do business and is in good standing as a
foreign corporation in all jurisdictions in which the conduct of its business or
the activities in which it is engaged makes such licensing or qualification
necessary, except to the extent that its non-compliance would not reasonably be
expected to have, individually or in the aggregate, a material adverse effect on
its ability to

 

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perform its obligations hereunder, and (iii) has all necessary licenses,
permits, consents or approvals from or by, and has made all necessary filings
and registrations with, all governmental authorities having jurisdiction, to the
extent required for the ownership, lease or conduct and operation of its
business, except to the extent that the failure to obtain such licenses,
permits, consents or approvals or to make such filings or registrations would
not reasonably be expected to have, individually or in the aggregate, a material
adverse effect on its ability to perform its obligations under this Agreement.

 

(b) Capacity; Authorization; Validity. Servicer has all necessary corporate
power and authority to (i) execute and enter into this Agreement, and
(ii) perform its obligations hereunder and the other documents, instruments and
agreements relating to this Agreement executed by it pursuant hereto. The
execution and delivery by Servicer of this Agreement and all documents,
instruments and agreements executed and delivered by Servicer pursuant hereto,
and the consummation by Servicer of the transactions specified herein, have been
duly and validly authorized and approved by all necessary corporate actions of
Servicer. This Agreement (i) has been duly executed and delivered by Servicer,
(ii) constitutes the valid and legally binding obligation of Servicer, and
(iii) is enforceable in accordance with its terms (subject to applicable
bankruptcy, insolvency, reorganization, receivership or other laws affecting the
rights of creditors generally and by general equity principles including those
respecting the availability of specific performance).

 

(c) Conflicts; Defaults; Etc. The execution, delivery and performance of this
Agreement by Servicer, its compliance with the terms hereof, and consummation of
the transactions specified herein will not (i) conflict with, violate, result in
the breach of, constitute an event which would, or with the lapse of time or
action by a third party or both would, result in a default under, or accelerate
the performance required by, the terms of any contract, instrument or agreement
to which Servicer is a party or by which it is bound, or to which any of the
assets of Servicer is subject; (ii) conflict with or violate the articles of
incorporation or by-laws of Servicer; (iii) breach or violate any Applicable Law
or Applicable Order, in each case, applicable to Servicer; (iv) require the
consent or approval of any other party to any contract, instrument or commitment
to which Servicer is a party or by which it is bound; or (v) require any filing
with, notice to, consent or approval of, or any other action to be taken with
respect to, any Governmental Authority, except, in the cases of clauses (i) and
(iii)-(v), for such conflicts, breaches, defaults, violations or failures to
obtain such consents or approvals or make or obtain such filings, notices,
consents and approvals as would not reasonably be expected to have, individually
or in the aggregate, a material adverse effect upon Servicer’s ability to
perform its obligations under this Agreement.

 

(d) Litigation. No action, claim, litigation, proceeding, arbitration or
investigation is pending or, to the Knowledge of Servicer, threatened against
Servicer or any of its Subsidiaries, at law, in equity or otherwise, by or
before any Governmental Authority, to which Servicer or any of its Subsidiaries
is a party, which would reasonably be expected to have, individually or in the
aggregate, a material adverse effect on the ability of Servicer to perform its
obligations under this Agreement.

 

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(e) Facilities and Equipment. Servicer has all necessary facilities, equipment,
supplies and such other resources as are reasonably necessary to provide the
Services under this Agreement.

 

(f) Solvency. Servicer is Solvent.

 

Section 3.02. Representations and Warranties of Bank. Bank represents and
warrants to Servicer as follows:

 

(a) Organization. Bank (i) is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction of its incorporation,
(ii) is duly licensed or qualified to do business and is in good standing as a
foreign corporation in all jurisdictions in which the conduct of its business or
the activities in which it is engaged makes such licensing or qualification
necessary, except to the extent that its non-compliance would not reasonably be
expected to have, individually or in the aggregate, a material adverse effect on
its ability to perform its obligations hereunder, and (iii) has all necessary
licenses, permits, consents or approvals from or by, and has made all necessary
filings and registrations with, all governmental authorities having
jurisdiction, to the extent required for the ownership, lease or conduct and
operation of its business, except to the extent that the failure to obtain such
licenses, permits, consents or approvals or to make such filings or
registrations would not reasonably be expected to have, individually or in the
aggregate, a material adverse effect on its ability to perform its obligations
under this Agreement.

 

(b) Capacity; Authorization; Validity. Bank has all necessary corporate power
and authority to (i) execute and enter into this Agreement, and (ii) perform its
obligations hereunder and the other documents, instruments and agreements
relating to this Agreement executed by it pursuant hereto. The execution and
delivery by Bank of this Agreement and all documents, instruments and agreements
executed and delivered by Bank pursuant hereto, and the consummation by Bank of
the transactions specified herein, have been duly and validly authorized and
approved by all necessary corporate actions of Bank. This Agreement (i) has been
duly executed and delivered by Bank, (ii) constitutes the valid and legally
binding obligation of Bank, and (iii) is enforceable in accordance with its
terms (subject to applicable bankruptcy, insolvency, reorganization,
receivership or other laws affecting the rights of creditors generally and by
general equity principles including those respecting the availability of
specific performance).

 

(c) Conflicts; Defaults; Etc. The execution, delivery and performance of this
Agreement by Bank, its compliance with the terms hereof, and consummation of the
transactions specified herein will not (i) conflict with, violate, result in the
breach of, constitute an event which would, or with the lapse of time or action
by a third party or both would, result in a default under, or accelerate the
performance required by, the terms of any contract, instrument or agreement to
which Bank is a party or by which it is bound, or to which any of the assets of
Bank is subject; (ii) conflict with or violate the articles of incorporation or
by-laws of Bank; (iii) breach or violate any Applicable Law or Applicable Order,
in each case, applicable to Bank; (iv) require the consent or approval of any
other party to any contract, instrument or commitment to which Bank is a party
or by which it is bound; or (v) require any filing with, notice to, consent or
approval of, or any other action to be taken with respect to, any Governmental
Authority, except,

 

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in the cases of clauses (i) and (iii)-(v), for such conflicts, breaches,
defaults, violations or failures to obtain such consents or approvals or make or
obtain such filings, notices, consents and approvals as would not reasonably be
expected to have, individually or in the aggregate, a material adverse effect
upon Bank’s ability to perform its obligations under this Agreement.

 

(d) Litigation. No action, claim, litigation, proceeding, arbitration or
investigation is pending or, to the Knowledge of Bank, threatened against Bank
or any of its Affiliates, at law, in equity or otherwise, by or before any
Governmental Authority, to which Bank or any of its Subsidiaries is a party,
which would reasonably be expected to have, individually or in the aggregate, a
material adverse effect on the ability of Bank to perform its obligations under
this Agreement.

 

(e) Solvency. Bank is Solvent.

 

ARTICLE IV

 

ADDITIONAL COVENANTS

 

Section 4.01. Further Assurances. From time to time after the execution of this
Agreement, as and when requested by either Party, the other Party shall execute
and deliver, or cause to be executed and delivered, all such documents and
instruments as may be reasonably necessary to consummate the transactions
contemplated by this Agreement.

 

Section 4.02. Modifications. Except as permitted by this Agreement, the Program
Agreement, the Risk Management Policies or the Operating Procedures, Servicer
shall not enter into any agreement or arrangement reducing amounts payable by
Cardholders.

 

Section 4.03. Correction of Errors. Each of the Parties shall correct or cause
to be corrected as promptly as practicable any data processing or billing errors
of which it receives knowledge that occur in the performance of the Services.

 

Section 4.04. Changes in Law. Bank shall notify Servicer from time to time, in a
timely manner, of the expiration, revocation or amendment of, or other material
developments relating to, any requirements of Applicable Law affecting the
provision by Servicer of the Services. If such changes in law materially
increase Servicer’s cost of providing the Services, the Management Committee
shall meet to discuss the increased cost and shall determine the allocation of
such increased cost between the Parties.

 

Section 4.05. Cooperation. Each Party covenants that it shall use commercially
reasonable efforts to cooperate with the other Party in the servicing of the
accounts.

 

Section 4.06. Facilities and Equipment.

 

(a) For as long as Servicer is providing Services hereunder, Servicer shall
maintain in good working order all necessary facilities, equipment, supplies and
such other resources as are reasonably necessary to provide any Services in
accordance with the SLAs under this Agreement.

 

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(b) Servicer shall provide Bank with written notice prior to opening a new
servicing facility for the purpose of providing the Services.

 

Section 4.07. Insurance. Servicer shall maintain insurance policies (in any
event including error and omissions liability insurance and fiduciary liability
insurance) with respect to its employees and properties under such terms and
conditions as are (i) commercially reasonable and available from time to time
and (ii) customary for similarly situated Persons engaged in similar business,
except in each case for insurance which a failure to maintain would not
reasonable be expected to have a material adverse effect on the ability of
Servicer to perform its obligations under this Agreement.

 

Section 4.08. Customer Information. Servicer shall maintain an information
security program that is designed to meet all requirements of Applicable Law,
including, at a minimum, maintenance of an information security program that is
designed to: (i) ensure the security and confidentiality of customer
information; (ii) protect against any anticipated threats or hazards to the
security or integrity of such information; (iii) protect against unauthorized
access to or use of such information; and (iv) ensure the proper disposal of
such information. Additionally, such security measures shall meet current
industry standards and shall be at least as protective as those used by Servicer
to protect its other confidential customer information. Servicer shall use the
same degree of care in protecting the customer information against unauthorized
disclosure as it accords to its own confidential customer information, but in no
event less than a reasonable standard of care. In the event Servicer becomes
aware of any unauthorized use of or access to customer information, Servicer
shall immediately notify Bank and shall cooperate with Bank, as it deems
necessary or as required by Applicable Law, (x) to assess the nature and scope
of such incident, (y) to contain and control such incident to prevent further
unauthorized access to or use of such information, and (z) to provide prompt
notice to affected customers to the extent required by Applicable Law or
otherwise with the approval of the Management Committee.

 

ARTICLE V

 

DEFAULT; REMEDIES

 

Section 5.01. Servicer Default. It shall be a “Servicer Default” if either of
the events set forth below shall occur and be continuing and remain unremedied
prior to the expiration of the specified period:

 

(a) Significant Failure. If Servicer (i) is more than 20% below the target for
any Starred SLA in any Fiscal Month, (ii) fails to meet any individual Starred
SLA in two (2) consecutive Fiscal Months or (iii) fails to meet any Starred SLA
four (4) times in any twelve (12) Fiscal Month period (including multiple
breaches of the same and individual breaches of different Starred SLAs) (each, a
“Significant Failure”).

 

(b) Regulatory Failure. If Servicer fails to meet an SLA designated as a
regulatory-based SLA on Schedule 2.04(a) (each, a “Regulatory SLA”) and such
failure results in a breach by Servicer of Applicable Law (such failure, a
“Regulatory Failure”).

 

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Section 5.02. Remedies.

 

(a) In the event of a Significant Failure, Servicer shall: (A) promptly report
to the Management Committee the reasons for the Starred SLA failure(s);
(B) within thirty (30) days of such Significant Failure, propose a remediation
plan for taking such action as Servicer deems necessary to correct and prevent
recurrence of such failure(s); and (C) subject to Bank’s agreement, implement
the remediation plan as soon as practicable. However, under no circumstances
shall the time period between Bank’s agreement to the remediation plan and
completion of such plan exceed two (2) months.

 

(b) If Servicer has an additional failure of any of the same Starred
SLA(s) (“Subsequent Failure”) during the twelve (12) Fiscal Months following the
occurrence of any Significant Failure, Servicer shall pay Bank the Initial
Penalty Amount, within fifteen (15) days of the end of such Fiscal Month, for
each such Subsequent Failure.

 

(c) Upon the occurrence of the second Subsequent Failure and each additional
Subsequent Failure of the same Starred SLA during the twenty four (24) Fiscal
Months following a Significant Failure or upon the occurrence of a Regulatory
Failure, Servicer shall pay Bank the Subsequent Penalty Amount, within fifteen
(15) days of the end of such Fiscal Month, per each additional Subsequent
Failure.

 

(d) Upon the occurrence of (i) the third and each additional Subsequent Failure
of the same Starred SLA during the twenty four (24) Fiscal Months following a
Significant Failure or (ii) a second Regulatory Failure of the same Regulatory
SLA, Bank shall, in addition to payment as provided in paragraph (c) above, have
the right to terminate the Program Agreement by providing thirty (30) days prior
written notice to Servicer, in which event the parties shall have the rights set
forth in Article XVII of the Program Agreement; provided, however, that prior to
either Party electing to transfer the provision of such Services pursuant to
Section 5.02(e) below or to terminate the Program Agreement, the Management
Committee shall meet to discuss the occurrence of the Subsequent Failure and
shall determine whether such SLA should be modified (except in the case of a
Regulatory Failure, in which event no Management Committee meeting shall be
required as a condition to transferring the affected Services pursuant to
Section 5.02(e)). If the Management Committee determines that such SLA shall be
modified, then Bank shall not be entitled to terminate the Program Agreement as
a result of the Subsequent Failure discussed at the meeting of the Management
Committee unless and until an additional Subsequent Failure of the same Starred
SLA occurs; and provided, further, that for purposes of transferring Services
pursuant to this Section 5.02(d) or Section 5.02(e), an SLA that is both a
Starred SLA and a Regulatory SLA shall be deemed to be a Regulatory SLA.

 

(e) Notwithstanding the foregoing, in the case of any Servicer Default with
respect to any type of Service, after the Management Committee meeting referred
to above (except in the case of a Regulatory Failure) and assuming that no SLA
is modified, in lieu of terminating the Program Agreement, either Party may
elect to cause the Services subject to such Servicer Default to be transferred
to Primary Servicer pursuant to the Program Agreement.

 

(f) No servicing transfer or termination of this Agreement pursuant to
Section 5.02(d) or Section 5.02(e) above shall be effective until either
assumption by the Bank or its

 

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Affiliate of the provision of the Services or the appointment by Bank of a
successor servicer reasonably satisfactory to Servicer pursuant to a servicing
agreement reasonably satisfactory to Servicer. Following the delivery by the
applicable Party of written notice of a servicing transfer or termination, Bank
shall have reasonable access to Servicer’s operations and systems to ensure
continuity of business and systems required to service the Accounts until such
time as Bank or its Affiliate assumes the provision of the Services or appoints
a successor servicer reasonably satisfactory to Servicer. Both Parties shall use
commercially reasonable efforts and cooperate with each other to ensure
continuity of business during any transfer of Services.

 

Section 5.03. Non-Starred SLAs. For purposes of this Article V, “Starred SLA”
shall be deemed to include Non-Starred SLAs in the event that there have been
more than eight (8) Significant Failures in any twelve (12) month period with
respect to any Non-Starred SLAs; provided, that in the event there are no
Significant Failures in the immediately following twelve (12) month period with
respect to any of the Non-Starred SLAs, then such Non-Starred SLAs shall no
longer be deemed to be Starred SLAs.

 

ARTICLE VI

 

TERM

 

Section 6.01. Term of Agreement. The term of this Agreement shall commence on
the date hereof and expire simultaneously with the termination of the Program
Agreement or the termination pursuant to Section 2.03(b), 5.02(d) or
5.02(e) (the “Term”).

 

Section 6.02. Servicer Termination Events. The occurrence of any one or more of
the following events (regardless of the reason therefor) shall constitute an
event of default by Servicer hereunder:

 

(a) Servicer shall fail to make payment in full of any amount due to Bank
pursuant to Section 5.02 within two (2) Business Days after such payment is due
pursuant to Section 5.02.

 

(b) Servicer shall fail to comply with Section 4.06, 4.07 or 4.08 and such
failure shall materially impair the quality of the Services hereunder.

 

(c) A petition under the U.S. Bankruptcy Code or similar law shall be filed
against Servicer and not be dismissed within sixty (60) days.

 

(d) A decree or order by a court having jurisdiction (i) for relief in respect
of Servicer pursuant to the Bankruptcy Code or any other applicable bankruptcy
or other similar law, (ii) for appointment of a custodian, receiver, liquidator,
assignee, trustee or sequestrator (or similar official) of Servicer or of any
substantial part of its properties, or (iii) ordering the winding-up or
liquidation of the affairs of Servicer shall, in any such case be entered, and
shall not be vacated, discharged, stayed or bonded within sixty (60) days from
the date of entry thereof.

 

(e) Servicer shall (i) file a petition seeking relief pursuant to the Bankruptcy
Code or any other applicable bankruptcy or other similar law, (ii) consent to
the institution of

 

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proceedings pursuant thereto or to the filing of any such petition or to the
appointment of or taking possession by a custodian, receiver, liquidator,
assignee, trustee or sequestrator (or similar official) of Servicer or any
substantial part of its properties, or (iii) take corporate or similar action in
furtherance of any such action.

 

Section 6.03. Termination by Bank. Bank may terminate this Agreement upon
written notice prior to the end of the Term after the occurrence of a Servicer
Event of Default. No such termination shall be effective until either assumption
by Bank or its Affiliate of the provision of the Services pursuant to the
Program Agreement or the appointment by Bank of a successor servicer reasonably
satisfactory to Servicer pursuant to a servicing agreement reasonably
satisfactory to Servicer. Following the delivery by Bank of written notice of a
servicing transfer or termination, Bank shall have reasonable access to
Servicer’s operations and systems to ensure continuity of business and systems
required to service the Accounts until such time as Bank or its Affiliate
assumes the provision of the Services or appoints a successor servicer
reasonably satisfactory to Servicer. Both Parties shall use commercially
reasonable efforts and cooperate with each other to ensure continuity of
business during any transfer of Services.

 

Section 6.04. Effect of Termination.

 

(a) If this Agreement terminates for any reason, the Parties shall cooperate to
ensure an orderly transfer of servicing as provided in subsection (b) below.

 

(b) If this Agreement is terminated pursuant to Section 5.02(e) or Section 6.03,
Servicer shall take all commercially reasonable steps necessary to effectuate a
transfer of the Services to Primary Servicer or any other applicable successor
servicer. To the extent that compliance with this Section 6.04(b) shall require
Servicer to disclose to a successor servicer any Confidential Information (as
defined in the Program Agreement), the successor servicer shall be required to
enter into a confidentiality agreement satisfactory in form and substance to
Servicer. Bank agrees that so long as the Program is in effect, it shall
perform, or require any successor servicer to perform, the Services in
accordance with the provisions of Sections 7.2 and 7.3 of the Program Agreement.

 

ARTICLE VII

 

INDEMNIFICATION

 

Section 7.01. Indemnification By Servicer. Servicer agrees to indemnify and hold
harmless Bank, its Affiliates and their respective officers, directors and
employees from and against and in respect of any and all losses, liabilities,
damages, costs and expenses of whatever nature, including reasonable attorneys’
fees and expenses (collectively, “Damages”), which are caused or incurred by,
result from, arise out of or relate to:

 

(a) the breach of any of Servicer’s representations or warranties made in this
Agreement;

 

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(b) the failure by Servicer to perform any of its covenants or agreements
contained in this Agreement, except to the extent such failure to perform is
caused by (i) the failure of any of the Household Companies to perform its
obligations under any Transaction Document or (ii) any actions or omission by
Servicer taken or not taken at any Household Companies’ written request or
direction pursuant to any Transaction Document;

 

(c) any fines or penalties imposed by a Governmental Authority on the basis of a
Regulatory Failure;

 

(d) any lawsuit, legal proceeding, arbitration proceeding, claim, dispute,
complaint or setoff by a Cardholder with respect to anything actually or
allegedly done or not done by Servicer in connection with the Services,
excluding anything actually or allegedly done or not done by Servicer that
(A) is required or expressly permitted under the Risk Management Policies, the
Operating Procedures or any Transaction Document or (B) is done at the express
direction of Bank.

 

(e) any lawsuit, legal proceeding, arbitration proceeding or claim by a third
party alleging any material inaccuracy in the information provided pursuant to
Section 2.08.

 

Section 7.02. Procedure for Indemnification.

 

(a) In case any claim is made, or any suit or action is commenced against Bank
in respect of which indemnification may be sought by it under this Section 7.02,
Bank shall promptly give Servicer notice thereof and Servicer shall be entitled
to participate in the defense thereof and, with prior written notice to Bank
given not later than twenty (20) days after the delivery of the applicable
notice from Bank, to assume, at Servicer’s expense, the defense thereof, with
counsel reasonably satisfactory to Bank. After notice from Servicer to Bank of
its election so to assume the defense thereof, Servicer shall not be liable to
Bank under this Section for any attorneys’ fees or other expenses subsequently
incurred by Bank in connection with the defense thereof, except as set forth in
Section 7.02(b), other than reasonable costs of investigation.

 

(b) Bank shall have the right to employ its own counsel if Servicer elects to
assume such defense, but the fees and expenses of such counsel shall be at
Bank’s expense, unless (i) the employment of such counsel has been authorized in
writing by Servicer, (ii) Servicer has not employed counsel to take charge of
the defense within twenty (20) days after delivery of the applicable notice or,
having elected to assume such defense, thereafter ceases its defense of such
action, or (iii) Bank has reasonably concluded that the interests of the Parties
are conflicting such that it would be inappropriate for the same counsel to
represent both parties (in which case Servicer shall not have the right to
direct the defense of such action on behalf of Bank), in any of which events the
attorneys’ fees and expenses of counsel to Bank shall be borne by Servicer.

 

(c) Bank or Servicer may at any time notify the other of its intention to settle
or compromise any claim, suit or action against Bank in respect of which
payments may be sought by Bank hereunder, and (i) Servicer may settle or
compromise any such claim, suit or action solely for the payment of money
damages for which Bank will be fully indemnified

 

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hereunder and given a full and complete release of any and all liability by all
relevant parties relating to such claim, suit or action, but shall not agree to
any other settlement or compromise unless Bank consents in writing, which
consent shall not be unreasonably withheld (it being agreed that any failure of
an Bank to consent to any settlement or compromise involving relief other than
monetary damages shall not be deemed to be unreasonably withheld), and (ii) Bank
may settle or compromise any such claim, suit or action solely for an amount not
exceeding One Thousand Dollars ($1,000), but shall not settle or compromise any
other matter without the prior written consent of Servicer, which consent shall
not be unreasonably withheld.

 

Section 7.03. Notice and Additional Rights and Limitations.

 

(a) If Bank fails to give prompt notice of any claim being made or any suit or
action being commenced in respect of which indemnification under this
Section 7.03 may be sought, such failure shall not limit the liability of
Servicer; provided, however, that this provision shall not be deemed to limit
Servicer’s rights to recover from Bank for any loss, cost or expense which it
can establish resulted from such failure to give prompt notice.

 

(b) This Section 7.03 shall govern the obligations of the Parties with respect
to the subject matter hereof but shall not be deemed to limit the rights that
either Party might otherwise have at law or in equity.

 

(c) Notwithstanding anything to the contrary in this Agreement, no Party shall
be liable to the other for punitive or exemplary damages relating to or arising
out of this Agreement, any breach hereof or any of the transactions provided for
therein, unless Bank shall have become liable to a third party for such amounts.

 

Section 7.04. Limits on Indemnification. Notwithstanding anything to the
contrary set forth in this article, Servicer shall not have any obligation to
indemnify Bank in respect of any breach of a representation or warranty under
Section 7.01(a) unless and until the Deductible Amount of Damages has been
incurred in the aggregate by Bank in respect of breaches of representations and
warranties under Section 7.01(a). After Bank incurs in aggregate the Deductible
Amount of Damages in respect of breaches of representations and warranties under
Section 7.01(a), Servicer shall indemnify Bank in accordance with this
Article VII to the extent of the full amount of such Damages.

 

ARTICLE VIII

 

MISCELLANEOUS

 

Section 8.01. Confidentiality

 

(a) General Confidentiality.

 

(i) For purposes of this Agreement, “Confidential Information” means any of the
following: (i) information that is provided by or on behalf of either Servicer
or the Household Companies to the other Party or its agents in connection with
providing Services hereunder (including information provided prior to the date
hereof or the Effective Date); (ii) information about Servicer or the Household
Companies or their

 

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Affiliates, or their respective businesses or employees, that is otherwise
obtained by the other Party in connection with providing Services hereunder, in
each case including: (A) information concerning marketing plans, objectives and
financial results; (B) information regarding business systems, methods,
processes, financing data, programs and products; (C) information regarding any
products offered or proposed to be offered under the Program Agreement or the
manner of offering of any such products; (D) information unrelated to the
Program obtained by Servicer or the Household Companies in connection with this
Agreement, including by accessing or being present at the business location of
the other Party; and (E) proprietary technical information, including source
codes, or other proprietary information developed in connection with the
Program; and (iii) the terms and conditions of this Agreement.

 

(ii) The restrictions on disclosure of Confidential Information under this
Section 8.01 shall not apply to information received or obtained by Servicer or
the Household Companies, as the case may be, that: (i) is or becomes generally
available to the public other than as a result of disclosure in breach of this
Agreement or any other confidentiality obligations; (ii) is lawfully received on
a non-confidential basis from a third party authorized to disclose such
information without restriction and without breach of this Agreement; (iii) is
contained in, or is capable of being discovered through examination of, publicly
available records or products; (iv) is required to be disclosed by Applicable
Law; provided that the Party subject to such Applicable Law shall use reasonable
efforts to avoid such disclosure and notify the other Party of any such use or
requirement prior to disclosure of any Confidential Information obtained from
the other Party in order to afford such other Party an opportunity to seek a
protective order to prevent or limit disclosure of the Confidential Information
to third Parties; provided, further, that such information shall be disclosed
only to the extent required by such Applicable Law and shall otherwise remain
Confidential Information; or (v) is developed by Servicer or the Household
Companies, as the case may be, without the use or knowledge of any proprietary,
non-public information provided by the other Party under, or otherwise made
available to such Party as a result of, this Agreement. Nothing herein shall be
construed to permit the Receiving Party (as defined below) to disclose to any
third party any Confidential Information that the Receiving Party is required to
keep confidential under Applicable Law.

 

(iii) The terms and conditions of this Agreement shall each be the Confidential
Information of Servicer and the Household Companies and each of the Parties to
this Agreement shall be deemed to be a Receiving Party of each of them;
provided, however, that the terms of this Agreement may be filed by either Party
with any Governmental Authority (including public filings with the Securities
and Exchange Commission) to the extent required by Applicable Law.

 

(iv) If Servicer, on the one hand, or the Household Companies, on the other
hand, receives Confidential Information of the other Party (“Receiving Party”),
the Receiving Party shall do the following with respect to the Confidential
Information of the other Party (“Disclosing Party”): (i) keep the Confidential
Information of the Disclosing Party secure and confidential; (ii) treat all
Confidential Information of the Disclosing Party with the same degree of care as
it accords its own Confidential Information, but in

 

16

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no event less than a reasonable degree of care; and (iii) implement and maintain
commercially reasonable physical, electronic, administrative and procedural
security measures, including commercially reasonable authentication, access
controls, virus protection and intrusion detection practices and procedures.

 

(b) Use and Disclosure of Confidential Information.

 

(i) Each Receiving Party shall use and disclose the Confidential Information of
the Disclosing Party only for the purpose of performing its obligations or
enforcing its rights with respect to the Program or as otherwise expressly
permitted by this Agreement, and shall not accumulate in any way or make use of
such Confidential Information for any other purpose.

 

(ii) Each Receiving Party shall: (i) limit access to the Disclosing Party’s
Confidential Information to those employees, authorized agents, vendors,
consultants, service providers, accountants, advisors and subcontractors who
have a reasonable need to access such Confidential Information in connection
with the provision of the Services hereunder, in each case in accordance with
the terms of this Agreement, and (ii) ensure that any Person with access to the
Disclosing Party’s Confidential Information agrees to be bound by a
confidentiality agreement containing the restrictions set forth in this
Section 8.01.

 

(c) Unauthorized Use or Disclosure of Confidential Information. Each Receiving
Party agrees that any unauthorized use or disclosure of Confidential Information
of the Disclosing Party might cause immediate and irreparable harm to the
Disclosing Party for which money damages might not constitute an adequate
remedy. In that event, the Receiving Party agrees that injunctive relief may be
warranted in addition to any other remedies the Disclosing Party may have. In
addition, the Receiving Party agrees promptly to advise the Disclosing Party by
telephone and in writing via facsimile of any security breach that may have
compromised any Confidential Information or of any unauthorized
misappropriation, disclosure or use by any Person of the Confidential
Information of the Disclosing Party which may come to its attention, and to take
all steps at its own expense reasonably requested by the Disclosing Party to
limit, stop or otherwise remedy such breach, misappropriation, disclosure or
use.

 

(d) Return or Destruction of Confidential Information. Upon the termination or
expiration of this Agreement, the Receiving Party shall comply with the
Disclosing Party’s reasonable instructions regarding the disposition of the
Disclosing Party’s Confidential Information, which may include return of any and
all the Disclosing Party’s Confidential Information (including any electronic or
paper copies, reproductions, extracts or summaries thereof); provided, however,
that the Receiving Party in possession of tangible property containing the
Disclosing Party’s Confidential Information may retain one archived copy of such
material, subject to the terms of this Agreement, which may be used solely for
regulatory purposes and may not be used for any other purpose. Such compliance
shall be certified in writing, including a statement that no copies of
Confidential Information have been kept, except as necessary for regulatory
purposes.

 

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Section 8.02. Access Rights. Each Party shall permit the other Party and its
representatives and regulators to visit its facilities related to the Program
during normal business hours with reasonable advance notice. The reviewing Party
shall employ such reasonable procedures and methods as necessary and appropriate
in the circumstances, minimizing interference to the extent practicable with the
reviewed Party’s normal business operations. The reviewed Party shall use
commercially reasonable efforts to facilitate the reviewing Party’s review,
including making reasonably available such personnel of the reviewed Party and
its service providers to assist the reviewing Party and its representatives as
reasonably requested. Each Party shall also permit the other Party and its
representatives and regulators to review (during normal business hours) and
obtain copies of the books and records relating to the Program, including any
audit results of subcontractors that provide Services; provided that neither
Party shall be required to provide access to records to the extent that (a) such
access is prohibited by Applicable Law, (b) such records are legally privileged,
(c) such records are company planning documents of such Party or any of its
Affiliates, operating budgets, management reviews or employee records, (d) such
records relate to other customers of, or credit programs operated by, the
Household Companies or Servicer or (e) such records relate to other customers or
operations of such Party other than the Program or to personnel records not
normally disclosed in connection with audits.

 

Section 8.03. No Waiver; Remedies; Amendment.

 

(a) Failure or delay on the part of either Party to exercise any right provided
for herein shall not act as a waiver thereof, nor shall any single or partial
exercise of any right by either Party preclude any other or further exercise
thereof.

 

(b) Remedies provided in this Agreement shall be the exclusive remedies of the
Parties for breaches of, or claims relating to, this Agreement.

 

(c) In no event shall a term or provision of this Agreement be deemed to have
been waived, modified or amended, unless a waiver, modification or amendment is
in writing and signed by the Parties hereto.

 

Section 8.04. Independent Contractor. In the performance of its duties or
obligations under this Agreement, Servicer shall not be deemed to be the agent
of Bank and Bank shall not be deemed to be the agent of Servicer and each Party
shall at all times take whatever measures as are necessary to ensure that its
status shall be that of an independent contractor.

 

Section 8.05. No Joint Venture. Nothing in this Agreement or any Transaction
Document shall be deemed to create a partnership or joint venture between
Servicer and Bank. Except as expressly set forth herein, no Party shall have any
authority hereunder to bind or commit the other Party.

 

Section 8.06. Payment Terms. All payments to be made by either Party pursuant to
this Agreement shall be made by wire transfer in lawful money of the United
States, immediately available funds, to such account as the receiving Party
shall specify prior to noon, New York time, two Business Days prior to the date
payment is required. Any payment required to be made on a day that is not a
Business Day shall be made on the next succeeding Business Day.

 

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Section 8.07. Entire Agreement. Each Party acknowledges that no representations,
agreements, or promises were made to it by the other Party other than those
representations, agreements or promises specifically contained in this Agreement
and in the Transaction Documents and in a separate confidentiality letter signed
by Bank dated March 9, 2005. This Agreement and the other Transaction Documents
and such confidentiality letter set forth the entire understanding between the
Parties hereto with respect to the subject matter hereof and thereof.

 

Section 8.08. No Set-Off. The Parties agree that each Party has waived any right
to set-off, combine, consolidate or otherwise appropriate and apply (i) any
assets of the other Party held by the Party or (ii) any indebtedness or other
liabilities at any time owing by the Party to the other Party, as the case may
be, against or on account of any obligations owed by the other Party in
connection with this Agreement, except as expressly set forth herein.

 

Section 8.09. Notices. All notices, requests, demands and other communications
which are required or permitted to be given under this Agreement shall be in
writing and shall be deemed to have been duly given upon the delivery or receipt
thereof, as the case may be, sent by registered or certified mail, return
receipt requested, via overnight delivery service, postage prepaid, or by
facsimile transmission (receipt confirmed) to:

 

(a)           In the case of Servicer:

 

c/o The Neiman Marcus Group, Inc.

One Marcus Square

1618 Main Street

Dallas, Texas 75201

Attention: General Counsel

Facsimile: (214) 573-5354

 

With a copy to:

 

c/o The Neiman Marcus Group, Inc.

One Marcus Square

1618 Main Street

Dallas, Texas 75201

Attention: Credit Card Program Manager

Facsimile: (214) 743-7646

 

With a copy to:

 

Simpson Thacher & Bartlett LLP

425 Lexington Avenue

New York, New York 10017

Attention: Maripat Alpuche, Esq.

Facsimile: (212) 455-2502

 

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(b)          In the case of Bank:

 

HSBC Bank Nevada, N.A.

2700 Sanders Road

Prospect Heights, Illinois 60070

Attention: Chief Operating Officer, HSBC Retail Services

Facsimile: (847) 205-7441

 

With a copy to:

 

HSBC Retail Services

2700 Sanders Road

Prospect Heights, Illinois 60070

Attention: General Counsel, Retail Services Division

Facsimile: (847) 205-7417

 

Section 8.10. Severability. To the fullest extent permitted by law, any term or
provision of this Agreement which is invalid or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such invalidity or unenforceability without rendering invalid or unenforceable
the remaining terms and provisions of this Agreement in such jurisdiction or in
any other jurisdiction.

 

Section 8.11. Headings. The headings and recitals contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.

 

Section 8.12. Survival. The provisions of Section 2.02, Section 6.02(a),
Section 6.02(b), Section 6.04, Section 8.01, Section 8.08, Section 8.12,
Section 8.13, Section 8.17 and Section 8.18 and Article VII shall survive any
termination of this Agreement.

 

Section 8.13. Costs and Expenses. Except as expressly provided otherwise in this
Agreement, the Risk Management Policies, the Operating Procedures or any other
Transaction Document, each Party shall bear all costs and expenses incurred by
such Party in connection with its performance of its duties hereunder
(including, in the case of Servicer, all costs and expenses incurred by it in
connection with its performance of the Services) or otherwise.

 

Section 8.14. Drafting. Each Party acknowledges that its legal counsel
participated in the drafting of this Agreement. The Parties hereby agree that
the rule of construction that ambiguities are to be resolved against the
drafting party shall not be employed in the interpretation of this Agreement to
favor one Party over the other.

 

Section 8.15. Counterparts. This Agreement may be executed in one or more
counterparts, each of which counterparts shall be deemed to be original, and all
such counterparts shall constitute one and the same instrument.

 

Section 8.16. Assignment; Successors. This Agreement shall not be assigned by
either Party without the prior written consent of the other, except that
(a) Servicer shall have the right to assign its rights and obligations hereunder
to any Affiliate of Servicer and (b) Bank shall

 

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have the right to assign its rights and obligations hereunder to an Affiliate.
This Agreement is intended for the exclusive benefit of the Parties hereto and
their respective successors and permitted assigns, and shall not create any
rights in or be enforceable by any other Person whomsoever, other than any
Person entitled to indemnification from Servicer pursuant to Article VII hereof,
it being the intention of the Parties that no other Person shall be deemed to be
a third party beneficiary of this Agreement. This Agreement shall be binding on,
and enforceable against, the successors and permitted assigns of the Parties.

 

Section 8.17. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York applicable to contracts
made and to be performed within such State, and the obligations, rights and
remedies of the parties hereunder shall be determined in accordance with such
laws.

 

Section 8.18. Waiver of Jury Trial and Venue.

 

(a) Each party hereto hereby waives all right to trial by jury in any action or
proceeding to enforce or defend any rights under this Agreement.

 

(b) Each party hereto hereby irrevocably submits to the jurisdiction of the
United States District Court for the State of Delaware or, if such federal
jurisdiction is unavailable, in the state courts of the State of Delaware over
any action arising out of this Agreement, and each party hereto hereby
irrevocably waives any objection which such party may now or hereafter have to
the laying of improper venue or forum non conveniens. Each party hereto agrees
that a judgment in any such action or proceeding may be enforced in other
jurisdictions by suit on the judgment or in any manner provided by law. Any and
all service of process and any other notice in any such suit, action or
proceeding with respect to this Agreement shall be effective against any party
hereto if given as provided herein.

 

21

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IN WITNESS WHEREOF, the Parties have caused their respective duly authorized
representatives to execute this Agreement as of the date first written above.

 

 

THE NEIMAN MARCUS GROUP, INC.

 

 

 

By:

/s/ Steven P. Dennis

 

Name:

Steven P. Dennis

 

Title:

Senior Vice President, Strategy & Business Development

 

 

 

 

 

HSBC BANK NEVADA, N.A.

 

 

 

By:

/s/ Charles A. Colip

 

Name:

Charles A. Colip

 

Title:

Executive Vice President

 

22

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SCHEDULE 1.01(a)

 

Services

 

I.   The Services that may be transitioned to Bank are defined as follows:

 

1.     Documentation Services — The Statement Mailing responsibilities include
preparing, processing and mailing customer billing statements with related and
appropriate inserts including but not limited to privacy policies and term
notifications. Additional credit correspondence may also be included. There are
non-credit functions (i.e. store and marketing mailings) not included in a
transfer of Documentation Services.  The ability for Universal Agents to
retrieve copies of customer billing statements through the SystemWare XNET or
comparable system must also be done as part of this transition. The cardholder
remittance processing (Payment Processing) functionality related to receiving
and processing all incoming charge payments, except those payments received in
the store, may also be transitioned.  The Payment Processing transition must
include a daily feed of NM and BG payments separately as a TRAMS input feed into
the NMG PaySys system until the Bank PaySys system is used.

 

2.     Credit Card Production Services — The production and issuance of all new,
replacement and reissued credit card plates related to the following credit card
programs (Neiman Marcus, Bergdorf Goodman, NM Gold, NM InCircle, NM Platinum). 
In addition to the embossed credit cards, the production services group
generates non-embossed gift cards with the 16-digit gift card number coded in
the magnetic stripe.  The timeline for the potential transition of gift card
issuance and additional costs incurred, if any, will be mutually agreed upon by
Bank and NMG prior to such conversion.

 

3.     Late Stage Collections — Collection accounts greater than or equal to 120
contractual days delinquent including charged-off (P&L) accounts.  Customer
contact may include the use of power dialing equipment, generated collection
letters in addition to outbound phone contact with the customer. Post Charge-off
(P&L) Collection Services include the administration, maintenance and placement
of accounts to outside attorneys and agencies on a contingency fee basis.

 

4.     Data Processing Services — Credit card data processing involves retail
cardholder account data storage and maintenance, transaction authorizing and
posting, fraud and risk management strategies and settlement.

 

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II.  Services not considered for transfer to the Bank includes:

 

On collection accounts less than 120 contractual days delinquent (Early Stage
Collections), services include providing account monitoring, identifying
over-extended accounts and initiating the appropriate collection efforts.

 

Credit Processing Services include the processing, primarily through store
referral call interaction, and decisioning of new applications and pending sale
transactions on existing accounts. Both of these underwriting processes are
governed by the risk management policies and operating procedures.

 

Customer Service Services has multiple areas of functionality.  The call center
responds and resolves cardholder and store inquiries and handles card program
billing-related claims for Neiman Marcus, Bergdorf Goodman and the InCircle
loyalty program.   Other support groups involved in the customer resolution
process include Bill Adjustments, Media Retention and Retrieval, Accounts
Receivable reconciliation, Third Party Charge-backs as well as various clerical
responsibilities.

 

2

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SCHEDULE 2.03(e)

 

Monthly Reports

 

Department

 

Hotel Report

 

Brookline Equivalent

Collections

 

Roll Rates

 

Trial Balance By Cycle

 

 

 

 

Trial Balance By Balance Range

 

 

 

 

Roll Rate

 

 

Dialer Reports

 

Job Performance Summary

 

 

 

 

Monthly Job Performance Summary

 

 

 

 

Monthly System Performance Summary

 

 

 

 

Monthly System Completion Code Summary

 

 

 

 

Monthly Job Completion Code Summary

 

 

Collection QA Reports

 

NM Monitoring Form

 

 

Collection Agency Audit Packages

 

Collection Agency Account Audit

 

 

 

 

e.g. Attorney Placement Summary (Strong Law Firm)

 

 

Collection Bureau Disputes

 

Report Card Information; Summary of Responses

 

 

Calling Strategies

 

Billing Calendar - Dialer Work Schedule

 

 

Block Code Report

 

Blocked Account Report

 

 

Block Code/User Code Report

 

No applicable Report

 

 

Debt Management Inventory Report

 

Payment Plans

 

 

 

 

CCCS Inventory

 

 

Outbound/Inbound Dialer Volume

 

Refer to Dialer Reports

 

 

Collection Productivity Reports

 

Collector Synopsis Summary Reports (By Team)

 

 

 

 

 

Credit

 

Override Report

 

Credit Application Processing System CAPS Listing

 

 

Credit Line Increases

 

New Accounts With Guidelines Exceeding $

 

 

 

 

Credit Limit Change Report

 

 

Forced Authorization Report

 

Daily Approval Override Code Usage - Manager Overrides

 

 

 

 

Daily Approval Override Code Usage - Credit Center Overrides

 

 

 

 

Authorization Production By Operator ID

 

 

 

 

Auto & Manual Decline Transactions

 

 

Reinstatement Report

 

No applicable Report

 

 

Application Decision Timing

 

No applicable Report

 

 

Adverse Action Timing

 

Adverse Action Letter Generation

 

 

Decline Reason Timing

 

Adverse Action Letter Generation

 

 

 

 

 

Fraud

 

New Fraud Claims Report

 

CAPS - Real-Time Fraud Detection Payment Report Model

 

 

 

 

Pending Fraud Write-Off

 

 

Fraud By Name Plate Report

 

Fraud Expense Forecast

 

 

 

 

Fraud Expense By Location

 

 

Fraud Block Code Vintage Report

 

No applicable Report

 

 

Fraud By Type

 

Fraud Loss By Type

 

 

Fraud Write-Off Policies

 

No applicable Report

 

 

Fraud Investigation Procedures

 

Loss Prevention Training Program - Module 5/Fraud Investigators

 

 

SAR Reporting Timelines

 

No applicable Report

 

--------------------------------------------------------------------------------

 

Customer Service

 

Credit Balance Refund Aging Report

 

Credit Balance Report

 

 

 

 

Check Register

 

 

Dispute Aging Report

 

Neiman Marcus FCBA Log

 

 

 

 

Service Profile By Division

 

 

 

 

Fiscal 2005 YTD Totals

 

 

 

 

Dispute Items Report

 

 

Lost/Stolen Account Maintenance

 

Accounts Transferred Today

 

 

 

 

Transactions On Transfers

 

 

SSCRA Reporting

 

No applicable Report

 

 

Repeat Credit Bureau Disputes

 

No applicable Report

 

 

QA Monitoring

 

Credit Services Quality Assurance Form

 

 

Key Performance Measures

 

Service Levels - Credit Call Center

 

 

Telephone Statistics Summary

 

Split/Skill Summary Monthly Authorizations

 

 

 

 

Split/Skill Summary Monthly Infobot

 

 

 

 

Split/Skill Summary Monthly Incircle/Gold

 

 

 

 

Split/Skill Summary Monthly Incircle/Platinum

 

 

 

 

Split/Skill Summary Monthly - NMD/NMO Referrals

 

 

 

 

Split/Skill Summary Monthly Customer Service Help

 

 

Dispute Processing & Procedures

 

Dispute Resolution Process

 

 

 

 

 

Compliance

 

Right to Financial Privacy

 

Subpoena Log

 

 

Compliance Training

 

No applicable Report

 

 

Escalated Complaint Reporting

 

No applicable Report

 

 

Cash Payment Monitoring

 

Reporting Monies Received on In-Store Cash Payments

 

 

OFAC Exception Reporting

 

Report Distribution Change Request

 

 

High Risk Country Reporting

 

No applicable Report

 

 

CIP Exception Reporting

 

No applicable Report

 

 

 

 

 

A/R System

 

Activity Recap Report (R16)

 

Activity Recap Report (R16)

 

 

Reject Re-Entry Report (R15)

 

Reject Re-Entry Report (R15)

 

 

Warehoused Transactions (D10)

 

Warehoused Transactions (D10)

 

 

Blocked Account Report (O07)

 

Blocked Account Report (O07)

 

 

Trial Balance by Account (O08)

 

Trial Balance by Account (O08)

 

 

Charged Off Accounts Report (D09)

 

Charged Off Accounts Report (D09)

 

 

Audit Exception Report (D15)

 

Audit Exception Report (D15)

 

 

Generated Transaction Journal (D11)

 

Generated Transaction Journal (D11)

 

 

Daily Balancing Report (R32)

 

Daily Balancing Report (R32)

 

 

Accounts Transferred Today (O24)

 

Accounts Transferred Today (O24)

 

 

 

 

 

Risk/Portfolio

 

Application Result Summary

 

CAPS Listing

Management

 

Key Portfolio Statistics

 

Customer Aging Report (CAR)

 

 

Authorization Summary

 

Daily Authorization Totals

 

 

 

 

Rescore Summary Report

 

 

 

 

Rescore With Limit Increase/Decrease - Tier I

 

 

 

 

Rescore Tier II With Limit Increase

 

 

 

 

Rescore Without Limit Increase/Decrease

 

 

 

 

Rescore Tier II Without Increase By Reason Code

 

2

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Charge-Off & Recovery Trends

 

Bad Debt Provision

 

 

 

 

Primary Collection Agency Performance Report

 

 

 

 

Secondary Agency & Bankruptcy Performance Report

 

 

 

 

Bankruptcy Analysis

 

 

 

 

Bankruptcy Write-Off Analysis

 

 

Behavior Score Control Chart

 

No applicable Report

 

 

 

 

Credit Reclassification Summary Report

 

 

FICO Score Control Chart

 

No applicable Report

 

 

Custom Score Control Chart

 

Population Stability Report Final Scores

 

 

Account Review Analysis

 

Quest Totals

 

3

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SCHEDULE 2.04(a)

 

Service Level Standards

 

For the Term, the following Servicing Levels will be maintained by Servicer as
noted:

 

A.            Documentation Services Servicer will meet the following service
levels on average each month (as measured by Servicer’s standard practices):

 

1.     Percentage of all billing statements that will be mailed out within 5
days of cycle close date provided that this standard shall not apply if a
systems problem prevents communication of the credit input data to Servicer’s
credit operations (monthly reporting will be completed on an Excel spreadsheet):
[***] * [Regulatory SLA]

 

2.     Statement Mailing Services and Credit Card Production Services paper
quality for statements, carriers and matching window envelopes must meet the
following minimum specifications: 70-pound Cougar smooth natural/cream design

 

3.     Term notifications and privacy and other inserts included in mailings
must meet the following minimum paper specifications: 60-pound offset

 

4.     Metavante CSF programming is used to produce the following billing
statements: one-color billing statements with 3 of 9 insertion barcode
instructions

 

5.     The following are the statement insert dimensions specifications: no
larger than 5 ½” long and 3 ¼” wide with a maximum insert weight of .150 ounces;
total single-page statement mailing package per envelope must not exceed 1.000
ounce to qualify for discounted postal rate

 

6.     Percentage of daily payments that will be processed within 48 hours of
receipt (Functionality includes desktop image archive capability up to 2 years
for browse access): [***]

 

B.            Credit Card Production Services Servicer will meet the following
service level on average each month (as measured by Servicer’s standard
practices):

 

1.     Percentage of all new account and replacement credit cards, including any
Program Loyalty Program Cards that will be mailed out within 5 business days
after they are requested (monthly reporting will be completed on an Excel
spreadsheet): [***] *

 

C.            Late and Early-Stage Collections Servicer will meet the following
service levels on average each month (as measured by Servicer’s standard
practices):

 

2.     Percentage of time that Servicer shall make its collections operations
available during the following times: [***]

 

Monday through Thursday 7:00 a.m. to 11:00 p.m.

 

--------------------------------------------------------------------------------

 

Friday 7:00 a.m. to 5:00 p.m.

Saturday 7:00 to 11:00 a.m.

Sunday closed

 

3.     Percentage of time that Servicer shall complete the following minimum
number of Account reviews per day for those accounts without a contact or
tentative agreement still in the CTA sub-system: [***]

 

Mid balances ($[***] to $[***])

every 3 days

Balances $[***] to $[***]

every 3 days

Balances greater than $[***]

every 3 days

 

4.     Percentage of time that Servicer shall maintain a [***] monthly promise
to pay ratio of accounts worked from the autodialer: [***]

 

5.     Percentage of time that Servicer shall maintain a [***] monthly contact
ratio of accounts worked from the autodialer: [***]

 

6.     Percentage of time that Servicer shall maintain a [***] cure rate for
Accounts worked excluding Accounts with balances greater than $[***]: [***] *

 

7.     Percentage of Accounts (greater than $[***] balance) which initially
enter the collections queue will be worked within 48 hours of such entry into
the collections queue: [***]

 

D.            Credit Processing Services & Customer Service Services Servicer
will meet the following service levels on average each month (as measured by
Servicer’s standard practices):

 

1.     Percentage of all customer service inquiry batch-work correspondence
(including address or name changes or credit bureau inquiries) that will be
opened and reviewed within 5 days of receipt: [***]

 

2.     Authorization, customer service and InCircle calls will be answered on a
monthly average within the following timeframes after the call first becomes
available for a Universal Agent to answer:

 

·      [***] (“[***] ASA”) during the months of April through October;

·      [***] (“[***] ASA”) during the months of November through February; and

·      [***] (“[***] ASA”) during March and during a month when there is a
significant promotion , sale event or another special event including the annual
InCircle, Platinum and Gold charge card re-issuance (and the Management
Committee has been notified of such promotion, sale event or special event).

 

If more than half of all Accounts receive a Change of Terms, then these
standards will not be applied for the months during which the Change of Terms is
becoming effective and one month after the Change of Terms has become effective.
If the initial charge card re-issuance (with Bank information on back of charge
cards) is not sent to all cardholders with the Change of Terms notice, then
these ASA standards will not be applied for the

 

2

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months in which the re-issued charge cards are sent and one month after all
re-issued charge cards have been mailed to all cardholders. *

 

3.     Percentage of all adverse action letters that will be mailed out within
21 days after the adverse decision was made: [***] [Regulatory SLA]

 

4.     Upon the request of a Cardholder or upon the end of the fourth cycle for
any Account with a Credit Balance up to $[***], the percentage of Credit Balance
refunds requested verbally or systemically that will be sent out within 5  days
of such request or cycle end date provided that no Credit Balance refund will be
sent out for a Credit Balance under [***] [Regulatory SLA]

 

5.     Upon the request of a Cardholder or upon the end of the fourth cycle for
any Account with a Credit Balance up to $[***], the percentage of Credit Balance
refunds requested by mail correspondence that will be sent out within 9 days of
such request or cycle end date provided that no Credit Balance refund will be
sent out for a Credit Balance under [***] [Regulatory SLA]

 

6.     Percentage of Fair Credit billing and all other customer initiated
disputes are handled [resolved] within 60 days of receipt of notification: [***]
* [Regulatory SLA]

 

7.     Percentage of time that Servicer shall make its customer service
operations from Monday through Friday from 8:00 a.m. CST to 7:00 p.m. CST and
Saturday from 9:00 a.m. CST to 1:00 p.m: [***]

 

8.     Percentage of time that Servicer shall make its authorizations and new
account operations available from Monday through Friday from 9:00 a.m. CST to
11:00 p.m. CST, Saturday from 9:00 a.m. CST to 11:30 p.m. CST and Sunday from
9:00 a.m. CST to 10:30 p.m. CST (and will extend these hours to accommodate the
store operations when formal store hours are extended due to special sales
events and seasonal demands): [***]

 

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* Denotes a Starred SLA

 

3

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SCHEDULE 5.02

 

Remedies

 

“Initial Penalty Amount”: [***].

 

“Subsequent Penalty Amount”: [***].

 

4

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SCHEDULE 7.04

 

Indemnity Matters

 

“Deductible Amount”: [***].

 

5

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