02052003 8K Exhibit 10.2




INTERIM SERVICING AGREEMENT

by and among

GOTTSCHALKS INC.

and

HOUSEHOLD BANK (SB), N.A.

Dated as of January 30, 2003



INTERIM SERVICING AGREEMENT

This Interim Servicing Agreement (this "Agreement")
is made and entered into as of January 30, 2003, by and among Household
Bank (SB), N.A., a national banking association ("Buyer"), and
Gottschalks Inc. ("Servicer").

RECITALS

A.Servicer has entered into a Purchase and Sale Agreement with Buyer
dated as of the date hereof (the "Purchase Agreement"),
pursuant to which Servicer has agreed to sell the Account Portfolio Assets to
Buyer.

B.Buyer desires to have Servicer administer and service the Accounts, and
Servicer desires to so administer and service the Accounts, all pursuant to the
terms and conditions of this Agreement.



	DEFINITIONS



	Certain Definitions.  Capitalized terms contained in this
Agreement that are not otherwise defined in this Agreement shall have the
respective meanings assigned to such terms in the Purchase Agreement or Related
Documents (as defined in the Purchase Agreement).

	Construction.  Unless the context otherwise clearly indicates, words
used in the singular include the plural and words used in the plural include the
singular.  The Schedules and Exhibits referred to herein shall be construed with
and as an integral part of this Agreement to the same extent as if they were set
forth verbatim herein.  All references to Articles, Sections, subsections and
Exhibits herein are references to Articles, Sections, subsections and Exhibits,
respectively, of this Agreement unless otherwise specified.  The Recitals and
the headings of Articles and Sections of this Agreement are solely for the
purpose of reference, are not part of the agreement of the parties and shall not
affect the meaning or interpretation of this Agreement.


	SERVICES AND PROCEDURES



	Term:  Services until Conversion Date.


	Term.  Subject to the terms of this Agreement, the term of this
Agreement shall commence on the Initial Closing Date and terminate on
May 1, 2003; provided, however, that the term of this Agreement may be
(i) extended by one (1) additional thirty (30) day period upon prior
written notice by Buyer to Servicer on or prior to April 1, 2003, or
(ii) pursuant to the terms of Section 2.06, terminated if Buyer completes
its conversion of the Accounts by an earlier date (the last day of the term, the
"Conversion Date").

	Services.  During the term of this Agreement, Servicer shall provide,
except as otherwise noted herein, directly, or indirectly through its Affiliates
or third-party service providers, all of the services that were rendered prior
to the Closing by Servicer in connection with the servicing, processing,
collection and administration of the Account Portfolio Assets (the
"Services"), including, without limitation, the services
specified in Exhibits 2.01(a) and 2.02.  Except as provided in the
Related Documents, Servicer shall, however, have no obligation to continue
marketing activities, initiate litigation, undertake management review, initiate
repossessions, contest bankruptcies or purchase Accounts.

	Servicing Obligations after Conversion Date.  From and after the
Conversion Date, Servicer shall have no servicing obligations or other
obligations under this Agreement whatsoever except as set forth in Section
6.01, Article VII and Exhibit 2.01(c).

	Servicing Standards.  Servicer shall perform (i) the Services set
forth in Exhibit 2.01(a) in all material respects in accordance with the written
policies and procedures previously reviewed and approved by Buyer relating to
the Account Portfolio Assets ("Policies and Procedures") and in
substantially the same manner as Servicer performed such services prior to the
date hereof, and (ii) the Services set forth in Exhibit 2.02, which
Servicer shall perform in a commercially reasonable manner; provided,
however, that notwithstanding anything to the contrary in this Agreement,
Servicer shall have no liability for performing the Services set forth in
Exhibit 2.02 in conformity with or pursuant to any request or direction of
Buyer, as long as such performance is done in a commercially reasonable manner,
and Servicer may rely and shall be protected in acting or refraining from acting
upon any instruction, statement, instrument, report, notice, request or document
believed by it to be genuine and to have been signed or presented by the proper
parties.

	Reports by Servicer.  Until the Conversion Date, Servicer shall
prepare or cause to be prepared and transmit to Buyer the following
reports:

	a Daily Settlement Sheet, which Servicer shall deliver to Buyer by 12:00
p.m., Eastern time., on the first Business Day following the day covered by the
report (in the form of Exhibit 2.03(i)); and
	the reports listed on Exhibit 2.03(ii), which Servicer shall deliver
to Buyer within the time frames specified in Exhibit 2.03(ii). Servicer
shall provide copies of the masterfile in tape form to Buyer for each calendar
month-end from the Initial Closing Date to the Conversion Date on or before the
fifth Business Day of the following calendar month.  Servicer shall prepare or
cause to be prepared and transmit to Buyer such additional reports as Buyer
shall reasonably request and as are currently available from Servicer's accounts
receivable system.



	Policies and Procedures; Manuals.  Until the Conversion Date,
Servicer shall make available for Buyer's inspection, Servicer's existing
manuals in which the Policies and Procedures are reflected
("Manuals").

	Access to System and Premises.

	Until the Conversion Date, subject to reasonable security and
confidentiality procedures and the approval of the appropriate service provider,
and upon reasonable prior notice, Servicer will provide to Buyer (at Buyer's
sole cost, if any):  (i) reasonable access during normal business hours to the
appropriate operating location of Servicer; (ii) reasonable access to employees
of Servicer providing Services; and (iii) reasonable access to all of Servicer's
facilities, data, applicable software, records, files and Books and Records
relating to the Account Portfolio Assets; provided, however, that
such access shall not unreasonably interfere with Servicer's normal
operations.
	Until the Conversion Date and subject to reasonable security and
confidentiality procedures and, where applicable, the approval of the
appropriate service provider, and upon reasonable prior notice, Servicer shall
(at Buyer's sole cost, if any):

	cause its personnel to provide Buyer assistance and reasonable access during
normal business hours to Servicer's premises in its investigation of such
matters as Buyer may reasonably request, provided, however, that such
investigation shall be conducted in a manner which does not unreasonably
interfere with Servicer's normal operations;
	subject to the provisions of any licensing agreements, provide Buyer with
reasonable access during normal business hours to, or screen prints of, the
parameters of various operating systems currently in use to manage the
Accounts;
	provide Buyer with on-line read only access to the Account processing
systems for the purpose of viewing Account data and systems (including
settlement systems) parameters to aid in conversion planning and auditing;
provided that such reasonable access shall be provided to not more than five (5)
of Buyer's employees; and
	consult with Buyer regarding material decisions in the transfer of Accounts,
including, but not limited to, decisions regarding Account mapping strategies
and usage of subsystems.




	Assistance with Conversion.  Buyer shall cause the Conversion Date to
occur as soon as practicable and shall keep Servicer informed, on a regular
basis, as to the progress of its conversion efforts.  Upon Buyer's reasonable
request, Servicer shall provide to Buyer assistance in connection with
conversion of the Accounts to the processing system designated by Buyer;
provided, that such reasonable assistance does not interfere with Servicer's
normal operations.  Servicer agrees that it shall provide in a timely fashion
such conversion tapes and other necessary materials for conversion from its
system in the Servicer's form and format as necessary to install and maintain
the information contained therein on the system designated by Buyer.  Buyer and
Servicer shall each bear its own conversion expenses.  Buyer shall pay the costs
associated with the conversion onto its designated processing system.

	Ownership of Accounts; Changes to Terms.  Subject to the terms of the
Program Agreement, all transactions and borrowings during the term of this
Agreement in connection with the Accounts shall create a relationship of debtor
and creditor between each cardholder and Buyer, respectively; and Buyer shall be
the owner and holder of all Accounts and the outstanding balances owed
thereunder and shall have all obligations with respect thereto as such owner and
holder.  Servicer acknowledges and agrees that after the Initial Closing Date
(i) for the Current Accounts sold on such date and any Subsequent Accounts sold
on any subsequent Closing Date thereafter, it has no right, title or interest in
or to any such Accounts, outstanding balances on such Accounts or payments made
by cardholders with respect to such Accounts, and (ii) it has no right,
privilege or power to establish or modify any terms or conditions of the Credit
Card Agreements or other instruments relating to the Accounts, including,
without limitation, the periodic finance charge or any fee applicable to the
Accounts (other than as provided in this Agreement or on an individual account
basis in accordance with past practice and the Policies and Procedures).
Servicer shall cooperate with Buyer in Buyer's providing notice of the initial
change of terms in the Cardholder Agreements requested by Buyer.  Buyer shall be
responsible for providing Seller with change of terms notices.

	Account Documentation.  The parties acknowledge that the Purchase
Agreement shall govern the parties' responsibilities with respect to delivery of
Account Documentation.

	Compliance With Laws.


	By Servicer.  From the Initial Closing Date until the Conversion
Date, Servicer shall comply in all material respects with all federal and state
laws and regulations applicable to Servicer.

	By Buyer.  Buyer shall comply in all material respects with all
applicable federal and state laws and regulations.  Buyer shall also notify
Servicer of any changes in applicable laws and regulations which impact the
provision of the Services.

	Negative Covenants.


	Communication with Cardholders.  Other than as provided in the
Program Agreement, Servicer shall not communicate with any cardholder with
respect to his or her Account without the prior written approval of Buyer,
except as may be deemed necessary by Servicer to provide the Services.

	Legal Action.  Servicer shall not initiate any legal action without
Buyer's prior written consent, including, without limitation, any repossessions
or bankruptcy contests, with respect to any Account, other than with respect to
Servicer enforcing its rights against Buyer under this Agreement.

	Other Actions.  Except as may be required by law, and except as
permitted by this Agreement or the Program Agreement, Servicer shall not take
any action or fail to take any action under this Agreement with respect to the
Accounts which, in the reasonable judgment of Servicer, will impair any material
rights of Buyer, and Servicer shall not amend, terminate, or otherwise modify or
prejudice any of Buyer's rights with respect to any terms or conditions of any
Credit Card Agreement, in each case, other than on an individual Account basis
in accordance with the Policies and Procedures.

	Change in Policies and Procedures.  Servicer may not make any change
to the Policies and Procedures except (i) as may be approved by Buyer in
writing or (ii) as otherwise required by law.

	Affirmative Covenants.  Servicer shall continue to use throughout the
term of this Agreement the contingency procedures used by Servicer as of the
Initial Closing Date, including contingency procedures for data processing,
telecommunications, payment processing and off-site maintenance and retention of
Accounts and Account Documentation.


	FEES, PAYMENTS AND SETTLEMENT



	Servicing Fees.


	Compensation for Services.  During the term of this Agreement, Buyer
shall pay Servicer a fee ("Servicing Fee") at the rate of $2
per Statemented Account per month (as hereinafter defined), but in no event
after the Conversion Date (unless Buyer has requested an extension), at which
time the Servicing Fees shall terminate (unless such Servicing Fee relates to
the period prior to the Conversion Date).  "Statemented
Account" shall mean an Account for which an original statement has been
mailed (in accordance with the Policies and Procedures and at the completion of
its billing cycle) as shown on Servicer's system, including fees related to
outside vendors and other out-of-pocket expenses.  Statemented Accounts shall
not include zero balance accounts.  If the Services either begin or terminate in
the middle of a calendar month, the Servicing Fee shall be paid based upon
actual Statemented Accounts from and after the start date and up to and
including the termination date.

	Payment Terms.  Servicer shall provide an invoice with supporting
documentation to Buyer on or before the fifth day of each month with respect to
amounts due under Section 3.01(a) for the immediately preceding month.
Buyer shall pay Servicer, within ten (10) days after receipt of the invoice
(such invoice to be e-mailed to Buyer), all amounts set forth in such invoice.
All payments under this Agreement shall be made by wire transfer of immediately
available funds to the bank accounts designated by the respective parties.

	Payment Obligations.  Notwithstanding anything to the contrary
contained herein, neither party shall refuse to make any payment required of it
under this Agreement as a result of a breach or alleged breach by the other
party of any of its obligations under this Agreement or any other agreement;
provided, however, that the making of any payment hereunder shall
not constitute a waiver by such party of any rights it may have under this
Agreement, the Purchase Agreement, or the Program Agreement or any other related
agreement to which the parties hereto are party or under applicable
law.

	Settlement.  Buyer and Servicer each shall designate a bank account
into which settlement funds (and not any Servicing Fee) due under Section 2.03
from the other party to this Agreement shall be wired.  From the Initial Closing
Date until the Conversion Date, Servicer shall provide Buyer with a Daily
Settlement Sheet in accordance with Section 2.03(a).  Buyer or Servicer,
as the case may be, shall pay the net amount due on the Daily Settlement Sheet
each day by wire transfer to the designated settlement account by 11:00 a.m.,
Central time on the day on which the Daily Settlement Sheet is provided pursuant
to Section 2.03(a) by 12:00 p.m. Eastern time on that day.  In addition to any
other rights and remedies available to a party under this Agreement, in the
event Servicer or Buyer fails to make any such settlement payment by the time
required herein (which failure is caused by a factor within the Servicer's or
Buyer's control, as the case may be, and such delay results in the receiving
party being unable to invest such funds overnight, the amount due from Servicer
or Buyer, as the case may be, for such next day's settlement shall be
accompanied by interest on the delayed settlement (plus the prior day's
settlement amount if such payment has not been paid) amount, calculated on the
basis of an interest rate equal to the Federal Funds Interest Rate plus two
percent, divided by three hundred and sixty (360) for each day such amount is
overdue.

	Payments.  All payments on Accounts that are received by Servicer in
connection with its obligations under this Agreement will be processed and
credited as collected funds within one (1) Business Day and in accordance with
Regulation Z; provided, however, that, as permitted by Regulation Z,
Servicer may process and credit within five (5) days after receipt any payment
that does not conform to the payment requirements disclosed on the Account
periodic statement.  Servicer agrees that all payments received by Servicer will
be deemed to be held in trust for Buyer until settled in accordance with
Section 3.02.  Buyer shall have the right (at Buyer's sole cost, if any)
to conduct on-site audit of the payment processing process during normal
business hours; provided, however, that prior written notice of the audit
is provided to Servicer and such audit does not unreasonably interfere with
Servicer's normal operations.

	Funds Received by Servicer After Conversion Date.  Following the
Conversion Date, Servicer shall use commercially reasonable efforts to forward,
or cause to be forwarded to Buyer (i) in the case of all funds received by
or credited to Servicer under the Accounts, within three (3) Business Days after
receipt by Servicer and (ii) in the case of all correspondence from
cardholders received with respect to the Accounts, within ten (10) Business Days
after receipt by Servicer.  Servicer shall provide to Buyer, via facsimile, a
daily settlement sheet which shall contain a summary of any such funds received
and forwarded.  In the event that Buyer receives funds or correspondence
relating to any account not included in the Account Portfolio Assets, Buyer
shall use commercially reasonable efforts to, within three (3) Business Days (in
the case of funds) or within ten (10) Business Days (in the case of
correspondence) after receipt, forward, or cause to be forwarded, to Servicer
all such funds and correspondence.  All such funds and correspondence shall be
sent by Servicer or Buyer, as applicable, by overnight mail or courier service
(in each case, at Buyer's expense).  The obligation to transmit funds shall
continue for a period of one year following the Conversion Date.  Effective on
the Conversion Date, (i) Servicer hereby appoints and empowers Buyer as its
true and lawful attorney-in-fact solely to endorse any check or instrument made
payable to Servicer and submitted as payment on any outstanding balance of any
Account and (ii) Buyer hereby appoints and empowers Servicer as its true
and lawful attorney-in-fact solely to endorse any check or instrument made
payable to Buyer and submitted as payment on any outstanding balance of any
Account.


	TERMINATION OF SERVICES



	Termination of Services.


	Early Termination of Services.  Either party to this Agreement may
terminate this Agreement reserving all other remedies and rights hereunder which
by their terms shall survive such termination in whole or in part as
follows:


	Event of Default.  Upon the occurrence of an Event of Default caused
by a party, the other party may terminate this Agreement by giving to the
defaulting party no less than ten (10) Business Days' prior written notice of
its intent to terminate.  Such written notice shall describe in detail the Event
of Default.  For purposes of this Agreement, an "Event of
Default" hereunder shall occur in the event a party fails to make a
payment in accordance with Article III (other than pursuant to a bona
fide dispute over the amount which is payable) or materially defaults in the
performance of any of its other duties or obligations under this Agreement.  If
the defaulting party makes the payment required in accordance with Article
III within ten (10) Business Days from the date of receipt of such written
notice of termination from the other party, or, in all other cases, corrects the
condition which resulted in the Event of Default within thirty (30) calendar
days from the date of receipt of such written notice of termination from the
other party, this Agreement shall not terminate.

	Bankruptcy.  A party may terminate this Agreement at any time upon
thirty (30) days' prior written notice to the other party after the filing of
any petition in bankruptcy (voluntary or involuntary) or for reorganization or
debt consolidation under the federal bankruptcy laws or under any comparable law
by or against the other party, or upon the other party's making of an assignment
of its assets for the benefit of creditors, or upon the application of the other
party for the appointment of a receiver or trustee of its assets; provided,
however, in the case of an involuntary filing of any petition in bankruptcy, the
party against whom such filing is made shall have sixty (60) days from the date
of receipt of such notice of termination to correct or otherwise have such
filing vacated, in which case this Agreement shall not terminate.  A party that
becomes subject to any proceeding under this subsection shall promptly so notify
the other party hereto.

	Effect of Termination of Services.  The termination of this Agreement
shall not terminate, affect, or impair any rights, obligations, or liabilities
of either party hereto which may accrue prior to such date of termination or
which, under the terms of this Agreement, continue after the termination of this
Agreement.


	REPRESENTATIONS AND WARRANTIES



	Representations and Warranties of Servicer.  Servicer represents
and warrants to Buyer as follows:


	Organization.  Servicer is a corporation validly existing and in good
standing under the laws of the State of Delaware.

	Capacity; Authority; Validity.  Servicer has all necessary corporate
power and authority to enter into this Agreement and to perform all of the
obligations to be performed by it under this Agreement.  This Agreement and the
performance by Servicer of its obligations hereunder have been duly and validly
authorized by all necessary corporate action of Servicer, and this Agreement has
been, or will be prior to the Initial Closing Date, duly executed and delivered
by Servicer and, assuming the due authorization, execution and delivery hereof
by Buyer, constitutes the valid and binding obligation of Servicer, enforceable
against Servicer in accordance with its terms (except as such enforcement may be
limited by bankruptcy, insolvency, reorganization, moratorium, receivership,
conservatorship, and other laws relating to or affecting creditors' rights
generally and by general equity principles.)

	Conflicts; Defaults.  Neither the execution and delivery of this
Agreement by Servicer nor the performance by Servicer of its obligations
hereunder will (i) conflict with, 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 material contract, instrument or commitment to which Servicer is a party
or by which it is bound, (ii) violate the articles of incorporation or by-laws,
or any other equivalent organizational document, of Servicer, (iii) result in
the creation of any lien, charge or encumbrance upon any of the Account
Portfolio Assets, or (iv) require any consent or approval under any judgment,
order, writ, decree, permit or license, to which Servicer is a party or bound,
or to which any of the Account Portfolio Assets are subject.

	Consents.  Except as contemplated under the Purchase Agreement, no
consent, authorization or approval of, or exemption by, or filing with, any
governmental authority or regulatory agency or any other person is required to
be obtained by Servicer in connection with the execution and delivery by
Servicer of this Agreement or Servicer's performance of its obligations
hereunder.

	Compliance with Laws.  Servicer's execution and delivery of this
Agreement and Servicer's performance hereunder will comply in all material
respects with federal and state laws and regulations, except where modified by
Exhibit 2.02 to require application of Buyer's policies and
procedures.

	Representations and Warranties of Buyer.  Buyer represents and
warrants to Servicer as follows:


	Organization.  Buyer is a national banking association, validly
existing and in good standing under the laws of the United States of
America.

	Capacity; Authority; Validity.  Buyer has all necessary corporate
power and authority to enter into this Agreement and to perform all of the
obligations to be performed by it under this Agreement.  This Agreement and the
performance by Buyer of its obligations hereunder have been, or will be prior to
the Initial Closing Date, duly and validly authorized by all necessary corporate
action of Buyer, and this Agreement has been duly executed and delivered by
Buyer and, assuming the due authorization, execution and delivery hereof by
Servicer, constitutes the valid and binding obligation of Buyer, enforceable
against Buyer in accordance with its terms (except as such enforcement may be
limited to bankruptcy, insolvency, reorganization, moratorium, receivership,
conservatorship, the rights and obligations of receivers and conservators of
insured depository institutions under 12 U.S.C.   1821(d) and (e) and other laws
relating to or affecting creditors' rights generally and by general equity
principles.)

	Conflicts; Defaults; Etc.  Neither the execution and delivery of this
Agreement by Buyer nor the performance by Buyer of its obligations hereunder
will:  (i) conflict with, 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 material contract, instrument or commitment to which Buyer is a party or
by which it is bound, (ii) violate the articles of incorporation or by-laws, or
any other equivalent organizational document, of Buyer, (iii) result in the
creation of any lien, charge or encumbrance upon any of the Account Portfolio
Assets, or (iv) require any consent or approval under any judgment, order, writ,
decree, permit or license, to which Buyer is a party or bound, or to which any
of the Account Portfolio Assets are subject.

	Consents.  Except as contemplated under the Purchase Agreement, no
consent, authorization or approval of, or exemption by, or filing with, any
governmental authority or regulatory agency or any other person is required to
be obtained by Buyer in connection with the execution and delivery by Buyer of
this Agreement or Buyer's performance of its obligations hereunder.

	Compliance with Laws.  Buyer's execution and delivery of this
Agreement and Buyer's performance hereunder will comply in all material respects
with federal and state laws and regulations.


	CONFIDENTIALITY/PRIVACY



	Confidential Information.  Except as specifically provided
herein, the provisions with respect to Confidential Information shall be the
same as the provisions set forth in Section 6.5 of the Purchase and Sale
Agreement, which provisions shall be incorporated herein in their entirety
including the survival provisions therein.

	Privacy.  Except as provided in the Program Agreement, Servicer shall
not make any unauthorized disclosure of or use any personal information of
individual consumers which it receives from Buyer or on the Buyer's behalf other
than to carry out the purposes for which such information is received, and
Servicer shall comply, to the extent applicable, in all material respects with
all privacy, consumer protection and other laws and regulations, including,
without limitation, the GLBA Privacy Law.  Servicer shall adopt and maintain a
comprehensive privacy policy with respect to its handling of the personal
information of individual consumers submitted by such consumers to Servicer
which policy shall not be inconsistent with the requirements of this Agreement.
Servicer shall comply in all respects with the provisions of such privacy
policy.

	Information Security.  Servicer has developed, implemented, and will
maintain effective information security policies and procedures that include
administrative, technical and physical safeguards which will a) ensure the
security and confidentiality of confidential information provided to it
hereunder, b) protect against anticipated threats or hazards to the security or
integrity of such confidential information, and c) protect against unauthorized
access or use of such confidential information.  All Servicer personnel handling
such confidential information have been appropriately trained in the
implementation of the party's information security policies and procedures.
Servicer regularly audits and reviews its information security policies and
procedures to ensure their continued effectiveness and determine whether
adjustments are necessary in light of circumstances including, without
limitation, changes in technology, customer information systems or threats or
hazards to confidential information.


	INDEMNIFICATION



	Indemnification.


	By Servicer.  Servicer shall defend, indemnify and hold harmless
Buyer and its Affiliates and their respective officers, directors and employees
("Buyer Indemnified Parties"), from and against, any and all
out-of-pocket liability, damages, costs and expenses, including, without
limitation, any attorneys' fees, disbursements and court costs
("Losses") directly or indirectly incurred by reason of: (i)
the inaccuracy of any representation or the breach of any warranty of Servicer
contained in this Agreement; or (ii) the failure by Servicer to perform any of
its covenants hereunder, including the covenant to perform any Services in
accordance with the terms of this Agreement, or (iii) the gross negligence or
willful misconduct of Servicer; or (iv) sexual harassment of, personal or bodily
injury to, or property damage to the property of, any Buyer Indemnified Party
which results from the Servicer's, or parties with whom the Servicer has
separately contracted, willful acts.

	By Buyer.  Buyer shall defend, indemnify and hold harmless Servicer
and its Affiliates and their respective officers, directors, employees,
subcontractors ("Servicer Indemnified Parties") and permitted
assigns, from and against, any and all Losses directly or indirectly incurred by
reason of: (i) the inaccuracy of any representation or the breach of any
warranty of Buyer contained in this Agreement; or (ii) the failure by Buyer to
perform any of its covenants hereunder; or (iii) the gross negligence or willful
misconduct of Buyer; or (iv) sexual harassment of, personal or bodily injury to,
or property damage to the property of, any Servicer Indemnified Party which
results from the Buyer's, or parties with whom the Buyer has separately
contracted, willful acts.

	Indemnification Procedures.  Except as otherwise expressly provided
herein, the procedures to be followed as to notice of claims, selection of
counsel, settlement of claims and subrogation with respect to the
indemnifications set forth in Sections 7.01(a) and 7.01(b) shall
be the same as the provisions set forth in the Purchase Agreement in Article
7 thereof, which provisions shall be incorporated herein in their entirety
and shall be subject to the survival provisions set forth therein.

	Survival of Indemnification.  The provisions of this Article
VII shall survive the Conversion Date for a period of one (1) year with
respect to all claims.  Notwithstanding the foregoing, any claim for
indemnification for which notice is given pursuant to Section 7.01(c) by
an Indemnified Party on or prior to the date such indemnification would
otherwise terminate in accordance with this Section 7.01, and the
corresponding indemnification obligation, shall survive until such claim is
fully and finally determined and paid in full, if payment is required under this
Article VII.

	Limitations on Indemnification by Servicer.  Subject to Section
7.01(a)(iv), no Servicer Indemnified Party shall be liable, responsible or in
any way accountable to Buyer for, and Buyer waives and releases any claims
(including any claim by way of subrogation, contractual or implied indemnity or
otherwise) against, such Servicer Indemnified Party for Losses which at any time
after the date hereof may be suffered or sustained by any individual, including
any individual employed by Buyer, who, after the date of this Agreement, and
with the permission of Servicer, has entered Servicer's facilities used to
provide Services, or may at any time be using or occupying or visiting such
facilities or be in, on or about the same, or in or about the common areas of
such facilities or the sidewalks adjacent thereto, except to the extent caused
by the gross negligence or willful misconduct of such Servicer Indemnified
Party.


	MISCELLANEOUS



	Cooperation.  Buyer shall furnish or cause to be furnished to
Servicer all powers of attorney and other documents necessary or appropriate to
enable Servicer to carry out its obligations hereunder.  Each party shall
provide such reasonable cooperation and assistance to the other party as may be
necessary to enable Servicer to perform its obligations hereunder and to enable
Buyer to monitor the Accounts and the servicing obligations of Servicer.

	Notices.  Except as otherwise provided in this Agreement, all notices
permitted or required by this Agreement shall be in writing and shall be deemed
to have been duly given (a) upon personal delivery (whether by messenger,
overnight delivery, telegram, or otherwise), (b) upon facsimile transmission
(receipt of which has been orally confirmed by the recipient) or transmission by
tested telex, or (c) five (5) Business Days after deposit, postage prepaid, in
the United States mail, if sent by certified or registered mail, return receipt
requested, and addressed:

If to Servicer:Gottschalks Inc.

7 River Park Place East

Fresno, CA  93720

Attn:  Chief Financial Officer

Fax Number: (559) 434-4666

copy to:Gottschalks Inc.

7 River Park Place East

Fresno, CA  93720

Attn:  General Counsel

Fax Number: (559) 434-4666

copy to:O'Melveny & Myers LLP

400 South Hope Street

Los Angeles, California  90071-2899

Attn:  Daniel Passage, Esq

Fax Number: (213) 430-6407

If to Buyer:Household Bank (SB), N.A.

1111 Town Center Drive

Las Vegas, NV 89144

Attn:  General Counsel

Fax Number: (847) 564-6001

copy to:Household Retail Services

2700 Sanders Road

Prospect Heights, IL 60070

Attn:  President

Fax Number: (847) 564-6280

or in accordance with such other address information as the party to
receive notice may provide in writing to the other party in accordance with the
above notice provisions.  Any notice given by any other method will be deemed to
have been duly given upon receipt thereof.

	Assignment.  Except as otherwise provided herein, this Agreement
shall not be assigned or transferred by either party; provided,
however, that Servicer may delegate all or part of its servicing
obligations under this Agreement to any Affiliate or any third party;
provided further, that no such delegation shall relieve Servicer
of its obligations hereunder.

	Severability.  If any provision or portion thereof of this Agreement
is held invalid, illegal, void or unenforceable by reason of any rule of law,
administrative or judicial provision, or public policy, such provision shall be
ineffective only to the extent invalid, illegal, void, or unenforceable, and the
remainder of such provision and all other provisions of this Agreement shall
nevertheless remain in full force and effect.

	Entire Agreement; Amendments.  This Agreement, together with the
Exhibits and Schedules hereto (which are hereby incorporated into and made a
part hereof), constitute the entire agreement between the parties relating to
the subject matter herein.  This Agreement may be amended only by a written
document signed by each of the parties.  In the course of the planning and
coordination of this Agreement, written documents have been exchanged between
the parties.  Such written documents shall not be deemed to amend or supplement
this Agreement.  This Agreement and the rights and obligations created hereunder
shall be binding upon and inure solely to the benefit of the parties hereto and
their respective successors and permitted assigns, and no other person shall
acquire or have any right under or by virtue of this Agreement.

	Waivers.  One party hereto may, with the prior written consent of the
other party hereto: (a) extend the time for the performance of any of the
obligations or other actions of the other party under this Agreement; (b) waive
any inaccuracies in the representations or warranties of the other party
contained in this Agreement or in any document delivered pursuant to this
Agreement; (c) waive compliance with any of the conditions or covenants of the
other party contained in this Agreement; or (d) waive or modify performance of
any of the obligations of the other party under this Agreement.  Except as
provided in the preceding sentence, no action taken pursuant to this Agreement,
including without limitation, any investigation by or on behalf of one party,
shall be deemed to constitute a waiver by such party of compliance with any of
the representations, warranties, covenants, conditions or agreements contained
in this Agreement.  The waiver by one party hereto of a breach of any provision
of this Agreement shall not operate or be construed as a waiver of any
subsequent breach.

	Governing Law and Waiver of Trial by Jury.  This Agreement shall be
governed by, and construed in accordance with, the laws of the State of New York
without regard to its conflict of laws rules.  The parties further irrevocably
waive the right to trial by jury in any action, suit or proceeding of any kind
or nature in any court to which it may be a party.

	Dispute Resolution.

(a)All Disputes shall be resolved in accordance with this Section
8.08.  "Dispute" means any dispute, controversy or claim
arising out of or relating to this Agreement, whether based on contract, tort,
statute or other legal or equitable theory (including without limitation, any
claim of fraud, misrepresentation or fraudulent inducement or any question of
validity or effect of this Agreement including this clause) or the breach or
termination thereof.

(b)The parties agree to communicate with each other to achieve informal
resolution of all Disputes that may arise under this Agreement.  However, if
such communication does not resolve such Dispute, the matter in dispute will be
subject to the dispute resolution provisions set forth in this Section 8.08.
The party that desires to initiate the dispute resolution shall notify the other
party in writing of the nature and details of the Dispute (the "Dispute
Notice"). Within thirty (30) days from the date of delivery of the Dispute
Notice, a face to face meeting of one or more principal officers of each party
shall be held at a mutually convenient time and location to negotiate a
resolution of the Dispute.  If negotiation does not resolve the matter, the
parties agree to submit the matter to mediation within forty (40) days from the
date of delivery of the Dispute Notice.  The mediation shall be administered in
accordance with American Arbitration Association's Commercial Mediation Rules.
The mediator will not have power to decide the Dispute, but will use mediation
techniques to assist the parties in reaching a resolution.  The costs of such
mediation shall be shared equally by the parties.  If the Dispute is not
resolved by negotiation or mediation within fifty (50) days of delivery of the
Dispute Notice, the parties agree to submit the matter in dispute to binding
arbitration which shall be conducted before JAMS/Endispute, Inc.
("JAMS") in accordance with the rules and regulations promulgated by
JAMS as in effect at the time of the commencement of the arbitration.

(c)The arbitration shall be held before a single arbitrator acceptable to
the parties .  If the parties cannot agree on a single arbitrator, then (i) each
party shall choose one arbitrator and (ii) a third arbitrator shall be chosen by
the other two arbitrators; provided that each arbitrator chosen under (i) and
(ii) above shall not be an Affiliate of any party to such arbitration (the
"Arbitrator(s)").  The Arbitrator(s) shall be bound by the terms of
this Agreement.  Any award made by the Arbitrator(s) shall be binding on the
parties.  Notwithstanding the foregoing provisions, either party at any time may
require that a matter in dispute be submitted directly to arbitration,
irrespective of whether negotiation or mediation has been attempted or
completed.

(d)Such arbitration shall be held in New York, New York.

(e)The Arbitrator(s) shall have the authority, taking into account the
parties' desire that any arbitration proceeding hereunder be reasonably
expedited and efficient, to permit the parties to conduct discovery.  Any such
discovery shall be (i) guided generally by and be no broader than permitted
under the United States Federal Rules of Civil Procedure and (ii) subject
to the Arbitrator and the parties entering into a mutually acceptable
confidentiality agreement.

(f)The Arbitrator's or Arbitrators' decision and award in any such
arbitration shall be made and delivered within 120 days of the date on which
such arbitration proceedings commenced.

(g)The Arbitrator's or Arbitrators' decision shall be in writing and
shall be as brief as possible and will include the basis for the Arbitrator's
decision.  A record of the arbitration proceeding shall be kept.

(h)Judgment on the award rendered by the Arbitrator may be entered into
any court having jurisdiction thereof.

(i)The Arbitrator(s) shall have the power but not the obligation to award
to the party it deems to have prevailed, all or a portion of the costs of the
arbitration (including, transcripts, room rental fees and fees and expenses of
the arbitrator and JAMS, and the reasonable legal fees, costs and disbursements
of the prevailing party thereto); provided, that if court proceedings to
stay litigation or compel arbitration are necessary, the non-prevailing party in
such proceedings shall pay all reasonable costs, expenses, and attorney's fees
incurred in connection with such court proceedings.

(j)The parties hereto acknowledge and agree that this Section 8.08
shall not limit the right of any party to seek from a court of competent
jurisdiction any equitable relief with respect to the Dispute to which such
party may otherwise be entitled, including, without limitation, specific
performance or injunctive or other relief.

(k)The parties agree to participate in any arbitration in good faith.

	Books and Records.  Until the Conversion Date, and for any period
required by applicable law, each party shall maintain books of account and
records, in accordance with standard accounting practices and procedures, of all
transactions arising in connection with its obligations pursuant to this
Agreement.

	Expenses.  Except as otherwise expressly set forth herein, any costs,
expenses, or other charges incurred by either of the parties hereto shall be
borne by the party incurring such cost, expense or charge.

	Relationship of the Parties.  The parties hereto agree that in
performing their responsibilities pursuant to this Agreement, they 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 venture or any association for profit between Servicer and
Buyer.  Servicer and Buyer acknowledge that this Agreement is being entered into
by Servicer as an incident to the Purchase Agreement for a limited transitional
period as an accommodation to Buyer and that Servicer does not intend to, and
shall not be required to act or serve as a fiduciary of Buyer, segregate Buyer's
funds, or satisfy regulatory or statutory requirements applicable to Buyer.

	Counterparts.  This Agreement may be executed in counterparts, each
of which shall be an original, but together shall constitute one and the same
instrument.

	Force Majeure.  Neither party to this Agreement shall 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 a cause beyond the
control and without the fault or negligence of such party.  Such causes may
include but are not limited to acts of God, of the public enemy or of civil or
military authority, unavailability of energy resources, system or communication
failure, delay in transportation, fires, strikes, 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.

IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement on the day and year first above written.
GOTTSCHALKS INC., Servicer

By: /s/ James Famalette

Title:  President & CEO

HOUSEHOLD BANK (SB), N.A., Buyer

By: /s/ Richard C. Klesse

Title:  Vice President





























EXHIBIT
2.01(a)

SERVICES UNTIL CONVERSION DATE

Servicer agrees:


	to prepare and maintain appropriate books and records evidencing or
pertaining to the Accounts;
	to provide new Account processing;
	to provide periodic statements to cardholders;
	to receive, process and account for payments on Accounts;
	to (i) respond as appropriate and in accordance with applicable laws in
writing or by telephone to cardholder inquiries, requests or billing error
notices and make appropriate Account adjustments with respect thereto, (ii)
process cardholder address changes, (iii) credit refunds to Accounts on behalf
of Buyer, and (iv) submit credit bureau corrections;
	to monitor and take action in accordance with the Policies and Procedures
where fraud is alleged or suspected or where credit cards are reported as lost
or stolen;
	to charge-off Accounts in accordance with the Policies and Procedures and to
hold such charged-off Accounts until receipt of further instructions from
Buyer;
	as set forth in Section 6.02 of this Agreement, to protect the
confidentiality of information relating to the Accounts and cardholders;
	to include inserts in periodic billing statements, billing statement
messages and other cardholder communications as Buyer may request
(provided that Buyer will bear the cost of production, in the case of an
insert, and any increased postage in respect thereof) and send out such
additional notices and mailings as Buyer may reasonably request at Buyer's
expense;
	upon Buyer's request or as required by law, to revise any written cardholder
communications to reflect Buyer's name as the owner and creditor;
	to insure the posting of all transactions, fees, and interest to the
Accounts;
	to respond to inquiries from any governmental authority with jurisdiction
over the Accounts;
	to provide both voice and electronic authorization services with respect to
cardholder transactions;
	to process requests for reinstatements and to process manual credit line
increases;
	to produce plastic cards as necessary to meet normal replacement and normal
reissue schedules and upon appropriate cardholder request;
	to provide daily net settlement functions as more specifically described in
Section 3.02;
	to process all purchases, chargebacks, credits, and other transactions;
	to provide customer service activities relating to the Accounts (including
responding to inquiries from cardholders);
	to perform Account control activities to address overlimit, delinquent and
lost/stolen Accounts which shall include statement messages, correspondence,
phone contact and Account blocking (but which shall not include initiation of
litigation) in accordance with the Policies and Procedures;
	to flag lost/stolen Accounts on appropriate exception files and, in such an
event, the transfer of all Account information and legitimate Account
transactions to replacement accounts;
	to notate in a cardholder's collection file and the Active History on ASM
master file any claim or defense asserted by such cardholder with respect to or
on behalf of any transaction; and
	to provide to Buyer a list of all Consumer Credit Counseling Services
agencies known by Servicer to be used by cardholders.



















EXHIBIT
2.01(c)

OBLIGATIONS AFTER CONVERSION DATE


	to forward funds in accordance with the provisions of Section
3.04;
	to receive inbound customer service calls and to redirect such calls to
Buyer;
	to receive and forward all payments on Accounts to Buyer;
	to receive inbound collection calls and to redirect such calls to
Buyer;
	to provide all supporting documentation for all pending disputed
Accounts;
	to provide up to 12 months of statement history for all Accounts or such
lesser period of time as is available; and
	to provide such reasonable assistance and co-operation as is necessary to
complete the conversion.




Notwithstanding the foregoing and with Servicer's consent, if Buyer
reasonably requests Servicer to perform any additional services, Servicer shall
take all reasonable steps to comply with such requests.  Buyer shall pay,
promptly upon request of Servicer, all pass-through expenses for such
services.

Prior to the Conversion Date, upon fifteen (15) days' prior written notice to
Servicer or such lesser period as may be mutually agreed upon, Buyer may elect
to perform certain of the above servicing functions on the Accounts (the
functions so assumed by Buyer shall be referred to as the "Removed
Servicing Function").  In such event, once Buyer commences performing a
Removed Servicing Function, Servicer's responsibility to continue providing such
Removed Servicing Function for the Accounts shall terminate.  Servicer shall
cooperate, at Buyer's expense, with Buyer to effectuate the transition of a
Removed Servicing Function for a period of one (1) month after notice of a
Removed Servicing Function is received.  Servicer shall not be obligated to
resume the performance of any Removed Servicing Function for the Accounts.

















EXHIBIT
2.02

ADDITIONAL SERVICES UNTIL CONVERSION DATE

Charge-offs:
(i)to charge-off on the cycle date Accounts with
contractual delinquencies of 180 days or more; place such Accounts in a separate
charged-off collection queue; and provide Buyer on a monthly basis an electronic
file or spreadsheet of all such charged-off Accounts;

(ii)to charge-off on the cycle date, Bankrupt Accounts
filed after the Initial Closing Date; and set up such Accounts with Block Code
"B"; forward to Buyer any bankruptcy notice(s); place such Accounts in
a separate charged-off collection queue; and provide Buyer on a monthly basis an
electronic file or spreadsheet of all such charged-off Accounts:

(iii)to charge-off on the cycle date, Deceased Accounts
with a date of death after the Closing Date, and set up such Accounts with a
Block Code "D"; forward to Buyer a copy of the death certificate;
place such Accounts in a separate charged-off collection queue; and provide
Buyer on a monthly basis an electronic file or spreadsheet of all such charged-
off Accounts.



Electronic Authorization:
Voice and electronic authorization services with respect to
cardholder transactions; Servicer acknowledges that Accounts shall be authorized
so long as (i) the Account is at a delinquency level of 1 or better (less than
30 days past due) and (ii) the proposed transaction would not cause the Account
to exceed the credit limit established by the Servicer for such
Account.



Overlimit:
Servicer shall apply the following overlimit
procedures:



	
Normal Call Wait Time:
	
Peak Call Wait Time:

	
Account Status
	
Overlimit %
	
Account Status
	
Overlimit %

	
Marginal Accounts
	
Zero
	
Marginal Accounts
	
Zero

	
New Accounts
	
10
	
New Accounts
	
20

	
Intermediate Accounts
	
15
	
Intermediate Accounts
	
30

	
Established Accounts
	
20
	
Established Accounts
	
40






For purposes of this Exhibit 2.02, the following
definitions shall apply:

"Normal Call Wait Time" means inbound
call average wait time of three (3) minutes or less.

"Peak Call Wait Time" means inbound call
average wait time of more than three (3) minutes.

"Account Status" means the credit class
behavioral scoring field in the Vision System.

Collections:
Initiate collection contacts on day five (5) via auto dialer
on those CD3 and CD2 Accounts with valid home phone numbers and outstanding
balances in excess of $750.  Provide on a weekly basis, collections production
reports which will allow Buyer to monitor the delinquency and performance of the
Accounts;



Miscellaneous:
(i)Cardholder mail shall be, in the case of bankruptcies,
responded to immediately and, in all other cases, responded to within the
timeframes dictated by applicable law.

(ii)Cardholder disputes shall be responded to within
thirty (30) days and resolved within the timeframes dictated by applicable
law.

(iii)Cardholder statements shall be mailed at least 14
days before the payment due date.




















EXHIBIT 2.03(i)

FORM OF DAILY SETTLEMENT SHEET

	
Add
	
Sales:

Regular Account Sales

Promotional Credit Plan Sales

Affiliate Sales
	 
	
Less
	
Returns:

Regular Account Sales

Promotional Credit Plan Sales

Affiliate Sales

Net Sales
	


	
Less
	
Lockbox Payments (net of NSF)

In-Store Payments (Net of NSF)

Total Payments
	


	
Less
	
Discount on Promotional Credit Plan Sales
	


	
Add
	
Credit Balance Refunds
	


	 	
Miscellaneous Adjustments
	


	 	
Net to

Gottschalks(Household)
	




















EXHIBIT 2.03 (ii)

OTHER REPORTS

New Accounts Report - daily

Decline Letter Requests - daily

Collection Production Report - weekly

Chronological Journal Report - daily

Overlimit Report - monthly

Score Table Statistics - daily

Source Code stats w/in type - daily

Source Code State w/in org - daily

Trial Balance by Account - At month end in Total and by Merchant

Activity Recap - at cycle and at month end

Activity Recap Report - on settlement date and at month end.

Month end report showing aged, bankrupt, deceased, fraud and recovery charge
off totals.

Customer Service Phone Volume Report - weekly, reflecting daily call
activity

Internet Sales Volume Report - weekly