Exhibit 10.6


 


MERCHANT
SERVICES AGREEMENT


 


DATED AS OF
JULY 10, 2000


 


BY AND
BETWEEN


 


HURLEY
STATE BANK,


 


ASSOCIATES
FIRST CAPITAL CORPORATION


 


ZALE
DELAWARE, INC.,


 


And


 


ZALE PUERTO
RICO, INC.


 

















 


TABLE OF
CONTENTS


 


	
  ARTICLE I -

  	
  DEFINITIONS

  	
  1

  
	
   

  	
   

  	
   

  
	
  1.1

  	
  Definitions

  	
  1

  
	
   

  	
   

  	
   

  
	
  1.2

  	
  Construction

  	
  10

  
	
   

  	
   

  	
   

  
	
  ARTICLE II -

  	
  CLIENT RELATIONSHIP TEAM
  AND PROGRAM COMMITTEE

  	
  10

  
	
   

  	
   

  	
   

  
	
  2.1

  	
  General

  	
  10

  
	
   

  	
   

  	
   

  
	
  2.2

  	
  Client Relationship Team

  	
  10

  
	
   

  	
   

  	
   

  
	
  2.3

  	
  Operational Oversight; Meetings, Voting and Records

  	
  12

  
	
   

  	
   

  	
   

  
	
  2.4

  	
  Program Committee

  	
  12

  
	
   

  	
   

  	
   

  
	
  2.5

  	
  Dispute Resolution

  	
  13

  
	
   

  	
   

  	
   

  
	
  ARTICLE III -

  	
  ISSUANCE OF ACCOUNTS AND
  ACCEPTANCE OF CARDS

  	
  13

  
	
   

  	
   

  	
   

  
	
  3.1

  	
  Maintenance of Accounts of JNB

  	
  13

  
	
   

  	
   

  	
   

  
	
  3.2

  	
  Procedures for Opening Accounts

  	
  14

  
	
   

  	
   

  	
   

  
	
  3.3

  	
  Honoring of Cards

  	
  18

  
	
   

  	
   

  	
   

  
	
  3.4

  	
  Acceptance of Cards by Bank

  	
  19

  
	
   

  	
   

  	
   

  
	
  3.5

  	
  Operating Regulations

  	
  20

  
	
   

  	
   

  	
   

  
	
  3.6

  	
  Completion of Sales Slips

  	
  20

  
	
   

  	
   

  	
   

  
	
  3.7

  	
  Authorization

  	
  21

  
	
   

  	
   

  	
   

  
	
  3.8

  	
  Settlement of Card Transactions

  	
  23

  
	
   

  	
   

  	
   

  
	
  3.9

  	
  Cardholder Credits and Payments

  	
  24

  
	
   

  	
   

  	
   

  
	
  3.10

  	
  Billing Inquiries and Cardholder Disputes

  	
  25

  
	
   

  	
   

  	
   

  
	
  3.11

  	
  Chargeback Rights and Procedures

  	
  26

  
	
   

  	
   

  	
   

  
	
  3.12

  	
  Representations and Warranties

  	
  27

  
	
   

  	
   

  	
   

  
	
  3.13

  	
  Reports; Audit Rights

  	
  28

  
	
   

  	
   

  	
   

  
	
  3.14

  	
  Conversion; Bank Performance

  	
  29

  
	
   

  	
   

  	
   

  
	
  3.15

  	
  Internet Support

  	
  31

  
	
   

  	
   

  	
   

  
	
  3.16

  	
  Second Look Program

  	
  31

  
	
   

  	
   

  	
   

  
	
  3.17

  	
  Insurance

  	
  32

  
	
   

  	
   

  	
   

  
	
  3.18

  	
  Zale Acquisitions; Unauthorized Goods and Services

  	
  33

  
	
   

  	
   

  	
   

  
	
  3.19

  	
  Inactive Accounts

  	
  34

  
	
   

  	
   

  	
   

  
	
  3.20

  	
  Monthly Cardholder Statements - Inserts and Messages

  	
  34

  
	
   

  	
   

  	
   

  
	
  3.21

  	
  Access to Products and Services; Enhancements

  	
  36

  



 

















 


	
  3.22

  	
  Sales Tax Credits

  	
  36

  
	
   

  	
   

  	
   

  
	
  ARTICLE IV -

  	
  FEES AND CERTAIN OTHER
  PAYMENTS

  	
  37

  
	
   

  	
   

  	
   

  
	
  4.1

  	
  Fees and Certain Other Payments

  	
  37

  
	
   

  	
   

  	
   

  
	
  ARTICLE V -

  	
  MISCELLANEOUS

  	
  39

  
	
   

  	
   

  	
   

  
	
  5.1

  	
  Indemnification

  	
  39

  
	
   

  	
   

  	
   

  
	
  5.2

  	
  Card Program Promotion; Advertising and Service Marks

  	
  41

  
	
   

  	
   

  	
   

  
	
  5.3

  	
  Books and Records

  	
  43

  
	
   

  	
   

  	
   

  
	
  5.4

  	
  Term and Termination

  	
  44

  
	
   

  	
   

  	
   

  
	
  5.5

  	
  Termination-Related Obligations: Sunset Management

  	
  48

  
	
   

  	
   

  	
   

  
	
  5.6

  	
  Status of the Parties

  	
  49

  
	
   

  	
   

  	
   

  
	
  5.7

  	
  Force Majeure

  	
  49

  
	
   

  	
   

  	
   

  
	
  5.8

  	
  Confidentiality

  	
  49

  
	
   

  	
   

  	
   

  
	
  5.9

  	
  Access to Cardholder List

  	
  51

  
	
   

  	
   

  	
   

  
	
  5.10

  	
  Arbitration

  	
  51

  
	
   

  	
   

  	
   

  
	
  5.11

  	
  Financial Information

  	
  53

  
	
   

  	
   

  	
   

  
	
  5.12

  	
  Assignability; Successors and Assigns

  	
  53

  
	
   

  	
   

  	
   

  
	
  5.13

  	
  Agreement not to Sell

  	
  53

  
	
   

  	
   

  	
   

  
	
  5.14

  	
  Cooperation

  	
  54

  
	
   

  	
   

  	
   

  
	
  5.15

  	
  Amendment

  	
  54

  
	
   

  	
   

  	
   

  
	
  5.16

  	
  Severability

  	
  54

  
	
   

  	
   

  	
   

  
	
  5.17

  	
  Entire Agreement

  	
  54

  
	
   

  	
   

  	
   

  
	
  5.18

  	
  Governing Law

  	
  54

  
	
   

  	
   

  	
   

  
	
  5.19

  	
  Applicable Law or Regulation

  	
  54

  
	
   

  	
   

  	
   

  
	
  5.20

  	
  Waivers

  	
  54

  
	
   

  	
   

  	
   

  
	
  5.21

  	
  Notices

  	
  54

  
	
   

  	
   

  	
   

  
	
  5.22

  	
  No Third-Party Rights

  	
  55

  
	
   

  	
   

  	
   

  
	
  5.23

  	
  Captions

  	
  55

  
	
   

  	
   

  	
   

  
	
  5.24

  	
  Counterparts

  	
  56

  
	
   

  	
   

  	
   

  
	
  5.25

  	
  Consent to Jurisdiction

  	
  56

  



 

















 


MERCHANT
SERVICES AGREEMENT


 


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


 


W I T N E S
S E T H:


 


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


 


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


 


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


 


ARTICLE I -DEFINITIONS


 


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


 


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


 


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


 


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


 


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


 


1

















 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


2

















 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


“Card Transactions”
means Card Sales and Credits.


 


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


 


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


 


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


 


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


 


3

















 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


4

















 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


5

















 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


6

















 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


7

















 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


8
















 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


9

















 


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


 


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


 


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


 


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


 


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


 


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


 


ARTICLE
II -CLIENT RELATIONSHIP TEAM AND PROGRAM COMMITTEE


 


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


 


2.2                                 Client
Relationship Team.


 


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


 


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


 


10

















 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


11

















 


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


 


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


 


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


 


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


 


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


 


2.3                                 Operational
Oversight; Meetings, Voting and Records.


 


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


 


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


 


2.4                                 Program
Committee.


 


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


 


12

















 


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


 


2.5          Dispute
Resolution.


 


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


 


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


 


ARTICLE
III -ISSUANCE OF ACCOUNTS AND ACCEPTANCE OF CARDS


 


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


 


13

















 


3.2           Procedures
for Opening Accounts.


 


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


 


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


 


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


 


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


 


14

















 


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


 


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


 


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


 


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


 


15

















 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


16

















 


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


 


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


 


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


 


17

















 


3.3           Honoring
of Cards.


 


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


 


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


 


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


 


18

















 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


19
















 


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


 


3.6                            Completion
of Sales Slips.


 


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


 


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


 


(i)                                     The
date of such Card Sale;


 


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


 


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


 


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


 


(v)                                 The
Cardholder’s Account number;


 


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


 


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


 


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


 


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


 


20

















 


(x)                                   The
shipping date (if applicable).


 


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


 


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


 


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


 


21

















 


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


 


(b)                            Obtaining
Authorization.


 


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


 


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


 


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


 


22

















 


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


 


3.8                            Settlement
of Card Transactions.


 


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


 


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


 


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


 


23

















 


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


 


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


 


3.9                            Cardholder
Credits and Payments.


 


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


 


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


 


24

















 


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


 


3.10                     Billing
Inquiries and Cardholder Disputes.


 


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


 


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


 


25

















 


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


 


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


 


3.11                     Chargeback
Rights and Procedures.


 


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


 


26

















 


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


 


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


 


3.12                     Representations
and Warranties.


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


27

















 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


3.13                     Reports;
Audit Rights.


 


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


 


28

















 


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


 


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


 


3.14                     Conversion;
Bank Performance.


 


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


 


	
  Date of Conversion

  	
   

  	
  Amount of  Early Conversion Payment

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Before August 1, 2000

  	
   

  	
  $

  	
  5,500,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Between August 1, and August 31,
  2000.

  	
   

  	
  $

  	
  5,006,394

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Between September 1 and
  September 30, 2000

  	
   

  	
  $

  	
  4,416,815

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Between October 1 and October 31,
  2000

  	
   

  	
  $

  	
  3,885,445

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Between November 1 and
  November 30, 2000

  	
   

  	
  $

  	
  3,179,533

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Between December 1 and
  December 31, 2000

  	
   

  	
  $

  	
  1,637,970

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Between January 1 and January 31,
  2001

  	
   

  	
  $

  	
  596,828

  	
   

  
						



 


29
















 


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


 


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


 


30

















 


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


 


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


 


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


 


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


 


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


 


31

















 


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


 


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


 


32

















 


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


 


3.18        Zale Acquisitions; Unauthorized Goods
and Services.


 


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


 


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


 


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


 


33

















 


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


 


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


 


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


 


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


 


3.20        Monthly Cardholder  Statements - Inserts and Messages.


 


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


 


34

















 


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


 


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


 


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


 


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


 


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


 


35

















 


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


 


3.21        Access to Products and Services;
Enhancements.


 


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


 


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


 


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


 


36

















 


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


 


ARTICLE
IV -FEES AND CERTAIN OTHER PAYMENTS


 


4.1          Fees and Certain Other Payments.


 


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


 


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


 


37

















 


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


 


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


 


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


 


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


 


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


 


38

















 


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


 


	
  Anniversary of Date of Agreement

  	
   

  	
  % of Sum to Be Repaid by Zale

  	
   

  
	
  First

  	
   

  	
  85

  	
  %

  
	
  Second

  	
   

  	
  70

  	
  %

  
	
  Third

  	
   

  	
  55

  	
  %

  
	
  Fourth

  	
   

  	
  40

  	
  %

  
	
  Fifth

  	
   

  	
  25

  	
  %

  



 


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


 


ARTICLE
V -MISCELLANEOUS


 


5.1          Indemnification.


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


(vii)         The negligence or
willful misconduct of Zale.


 


39
















 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


40

















 


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


 


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


 


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


 


5.2          Card Program Promotion; Advertising
and Service Marks.


 


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


 


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


 


41

















 


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


 


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


 


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


 


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


 


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


 


42

















 


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


 


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


 


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


 


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


 


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


 


43

















 


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


 


5.4          Term and Termination.


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


44

















 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


45

















 


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


 


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


 


46

















 


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


 


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


 


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


 


47
















 


5.5          Termination-related Obligations:
Sunset Management.


 


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


 


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


 


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


 


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


 


48

















 


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


 


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


 


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


 


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


 


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


 


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


 


49

















 


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


 


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


 


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


 


50

















 


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


 


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


 


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


 


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


 


51

















 


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


 


52

















 


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


 


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


 


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


 


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


 


53

















 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


 


54

















 


	
  if to Bank:

  	
   

  	
  Hurley State Bank

  
	
   

  	
   

  	
  1503 East 10th Street

  
	
   

  	
   

  	
  Sioux Falls, South Dakota 57103

  
	
   

  	
   

  	
  Fax No: (605)336-5781

  
	
   

  	
   

  	
  Attn: Senior Vice President

  
	
   

  	
   

  	
   

  
	
  With copies to:

  	
   

  	
  Associates First Capital Corporation

  
	
   

  	
   

  	
  250 East Carpenter Freeway

  
	
   

  	
   

  	
  Irving, Texas 75062

  
	
   

  	
   

  	
  Fax No: (972) 652-5798

  
	
   

  	
   

  	
  Attn:. General Counsel

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Associates Commerce Solutions, Inc.

  
	
   

  	
   

  	
  Four Parkway North

  
	
   

  	
   

  	
  Deerfield, Illinois 60015

  
	
   

  	
   

  	
  Fax No: (847) 597-3279

  
	
   

  	
   

  	
  Attn: General Counsel

  
	
   

  	
   

  	
   

  
	
  If to Company:

  	
   

  	
  Zale Delaware, Inc.

  
	
   

  	
   

  	
  901 West Walnut Hill Lane

  
	
   

  	
   

  	
  Irving, Texas 75038

  
	
   

  	
   

  	
  Fax No: (972) 580-5335

  
	
   

  	
   

  	
  Attn: Chief Operating Officer

  
	
   

  	
   

  	
   

  
	
  With copies to:

  	
   

  	
  Zale Delaware, Inc.

  
	
   

  	
   

  	
  901 West Walnut Hill Lane

  
	
   

  	
   

  	
  Irving, Texas 75038

  
	
   

  	
   

  	
  Fax No: (972) 580-4934

  
	
   

  	
   

  	
  Attn: General Counsel

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  John Beane, Esq.

  
	
   

  	
   

  	
  Troutman Sanders LLP

  
	
   

  	
   

  	
  600 Peachtree Street N.E.

  
	
   

  	
   

  	
  Suite 4500

  
	
   

  	
   

  	
  Atlanta, Georgia 30308

  
	
   

  	
   

  	
  Fax No: (404) 885-3900

  



 


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


 


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


 


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


 


55

















 


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


 


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


 


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


 


	
  ZALE DELAWARE, INC.

  	
   

  	
  HURLEY STATE BANK

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Alan P. Shor

  	
   

  	
  By:

  	
  /s/ William E. Johnson

  
	
  Name: Alan P. Shor

  	
   

  	
  Name: William E. Johnson

  
	
  Title: Executive Vice President and Chief Operating Officer

  	
   

  	
  Title: Senior Vice President

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  ZALE PUERTO RICO, INC. 

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Alan P. Shor

  	
  =

  	
   

  	
   

  
	
  Name: Alan P. Shor

  	
   

  	
   

  
	
  Title: Executive Vice President and Chief Operating Officer

  	
   

  	
   

  
						



 


56

















 


GUARANTY OF OBLIGATIONS OF HURLEY STATE BANK


 


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


 


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


 


 


	
   

  	
  ASSOCIATES FIRST CAPITAL CORPORATION

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Joseph N. Scarpinato

  
	
   

  	
  Name:

  	
  Joseph N. Scarpinato

  
	
   

  	
  Title:

  	
  Senior Executive Vice President

  
				



 


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