Document:

Exhibit 10.1

 

SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT

 

	
   

  	
  December 7,
  2010

  

 

Senior
Housing Properties Trust

400
Centre Street

Newton,
MA 02458-2076

Attention:  Richard A. Doyle, Jr.

 

Ladies
and Gentlemen:

 

Reference
is made to the Credit Agreement dated as of July 29, 2005 by and among
Senior Housing Properties Trust (“Borrower”), as borrower, each of the
financial institutions party thereto together with their assignees under Section 12.5
thereof, and Wells Fargo Bank, National Association, successor by merger to
Wachovia Bank, National Association (“Agent”), as Agent for the Lenders, as
amended by a First Amendment to Amended and Restated Credit Agreement dated November 15,
2006 (as so amended, the “Credit Agreement”). 
All capitalized terms used in this letter without definition shall have
the respective meanings specified in the Credit Agreement.

 

This
letter is to confirm that, pursuant to your request dated November 23,
2010, we have agreed to extend the Termination Date for a period of one (1) year
from December 31, 2010 to December 31, 2011 pursuant to and in
accordance with Section 2.15 of the Credit Agreement.  The effectiveness of such extension is
subject to the satisfaction of the following conditions precedent: (a) that
no Default or Event of Default shall exist as of the date of the current
Termination Date or would exist immediately after giving effect to the
requested extension; (b) the representations and warranties made or deemed
made by the Borrower and each other Loan Party in the Loan Documents to which
any of them is a party would be true and correct immediately after giving
effect to the requested extension of the Termination Date, except to the extent
that such representations and warranties expressly relate solely to an earlier
date (in which case such representations and warranties shall have been true
and accurate on and as of such earlier date) and except for changes in factual
circumstances specifically and expressly permitted hereunder; and (c) the
Borrower shall have paid to Agent, for the account of the Lenders, a fee in the
amount of $825,000 (the “Extension Fee”) prior to the commencement of such
extension.

 

 

Except
as herein expressly amended, all terms, covenants and provisions of the Credit
Agreement are and shall remain in full force and effect and all references
therein to such Credit Agreement shall henceforth refer to the Credit Agreement
as amended by this letter agreement.

 

THIS
LETTER AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS EXECUTED, AND TO BE FULLY
PERFORMED, IN SUCH STATE.

 

This
letter agreement may be executed by the parties hereto in separate
counterparts, each of which when so executed and delivered shall be an original,
but all such counterparts shall together constitute one and the same
instrument.

 

All
conditions precedent to the effectiveness of the extension contemplated hereby
shall be deemed satisfied upon the execution and delivery of this letter
agreement by Agent to Borrower.

 

[Signatures on Next Page]

 

 

	
   

  	
  Very
  truly yours,

  
	
   

  	
   

  
	
   

  	
  WELLS
  FARGO BANK, NATIONAL ASSOCIATION, SUCCESSOR BY MERGER TO WACHOVIA BANK,
  NATIONAL ASSOCIATION, as the Agent

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Frederick G. Bright

  
	
   

  	
   

  	
  Name:
  Frederick G. Bright

  
	
   

  	
   

  	
  Title:
  Vice President

  

 

 

AGREED,
ACCEPTED AND ACKNOWLEDGED:

 

BORROWER:

SENIOR
HOUSING PROPERTIES TRUST

 

 

	
  By:

  	
  /s/
  Richard A. Doyle, Jr.

  	
   

  
	
   

  	
  Richard
  A. Doyle, Jr.

  	
   

  
	
   

  	
  Treasurer
  and Chief Financial Officer

  	
   

  

 

GUARANTORS:

CCC
ALPHA INVESTMENTS TRUST

CCC
DELAWARE TRUST

CCC
FINANCING I TRUST

CCC
FINANCING LIMITED, L.P.

By:  CCC Retirement Trust, its General Partner

CCC
INVESTMENTS I, L.L.C.

CCC
LEISURE PARK CORPORATION

CCC
OHIO HEALTHCARE TRUST

CCC
PUEBLO NORTE TRUST

CCC
RETIREMENT COMMUNITIES II, L.P.

By:  Crestline Ventures, LLC, its General Partner

CCC
RETIREMENT PARTNERS TRUST

CCC
RETIREMENT TRUST

CCC
SENIOR LIVING CORPORATION

CCCP
SENIOR LIVING LLC

CCDE
SENIOR LIVING LLC

CCFL
SENIOR LIVING LLC

CCOP
SENIOR LIVING LLC

CCSL
SENIOR LIVING LLC

CRESTLINE
VENTURES LLC

 

 

GUARANTORS
(cont’d)

CSL
GROUP, INC.

ELLICOTT
CITY LAND I, LLC

ELLICOTT
CITY LAND II, LLC

HRES1
PROPERTIES TRUST

HRES
2 PROPERTIES TRUST

LTJ
SENIOR COMMUNITIES LLC

MSD
POOL 1 LLC

MSD
POOL 2 LLC

PANTHER
GENPAR TRUST

PANTHER
HOLDINGS LEVEL I L.P.

By:  Panther GenPar Trust, its General Partner

SHOPCO-SD,
LLC

SNH
ALT LEASED PROPERTIES TRUST

SNH/CSL
PROPERTIES TRUST

SNH
CHS PROPERTIES TRUST

SNH/LTA
PROPERTIES GA LLC

SNH/LTA
PROPERTIES TRUST

SNH
NS PROPERTIES TRUST

SNH
KNIGHT PROPERTIES TRUST

SPTGEN
PROPERTIES TRUST

SPTIHS
PROPERTIES TRUST

SPT-MICHIGAN
TRUST

SPTMISC
PROPERTIES TRUST

SPTMNR
PROPERTIES TRUST

SPTMRT
PROPERTIES TRUST

SPTSUN
II PROPERTIES TRUST

 

	
   

  	
   

  
	
  By:

  	
  /s/
  Richard A. Doyle, Jr.

  	
   

  
	
   

  	
  Richard
  A. Doyle, Jr.

  	
   

  
	
   

  	
  Treasurer
  and Chief Financial OfficerEXHIBIT 10.1

 

	
   

  	
  CONFIDENTIAL
  TREATMENT REQUESTED

  
	
   

  	
   

  
	
   

  	
  This
  agreement contains information that is subject to a confidential treatment
  request.

  

 

 

AMENDED AND RESTATED
MERCHANT SERVICES AGREEMENT

 

EFFECTIVE AS OF OCTOBER 1, 2010

 

AMONG

 

CITIBANK (SOUTH DAKOTA), N.A.,

 

ZALE DELAWARE, INC.,

 

And

 

ZALE PUERTO RICO, INC.

 

 

TABLE OF CONTENTS

	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE I DEFINITIONS

  	
   

  	
   

  	
  2

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 1.1

  	
  Definitions

  	
   

  	
  2

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 1.2

  	
  Construction

  	
   

  	
  12

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE II CLIENT
  RELATIONSHIP TEAM AND PROGRAM COMMITTEE

  	
   

  	
  12

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 2.1

  	
  General

  	
   

  	
  12

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 2.2

  	
  Client Relationship Team

  	
   

  	
  12

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 2.3

  	
  Operational Oversight; Meetings, Voting and Records

  	
   

  	
  14

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 2.4

  	
  Program Committee

  	
   

  	
  15

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 2.5

  	
  Dispute Resolution

  	
   

  	
  16

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE III ISSUANCE OF
  ACCOUNTS AND ACCEPTANCE OF CARDS

  	
   

  	
  16

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 3.1

  	
  Maintenance of Accounts

  	
   

  	
  16

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 3.2

  	
  Procedures for Opening Accounts

  	
   

  	
  16

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 3.3

  	
  Honoring of Cards

  	
   

  	
  19

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 3.4

  	
  Acceptance of Cards by Bank

  	
   

  	
  22

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 3.5

  	
  Operating Regulations

  	
   

  	
  23

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 3.6

  	
  Completion of Sales Slips

  	
   

  	
  23

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 3.7

  	
  Authorization

  	
   

  	
  24

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 3.8

  	
  Settlement of Card Transactions

  	
   

  	
  26

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 3.9

  	
  Cardholder Credits and Payments

  	
   

  	
  27

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 3.10

  	
  Billing Inquiries, Cardholder Disputes

  	
   

  	
  28

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 3.11

  	
  Chargeback Rights and Procedures

  	
   

  	
  29

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 3.12

  	
  Representations and Warranties

  	
   

  	
  30

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 3.13

  	
  Reports; Audit Rights

  	
   

  	
  33

  

 

i

 

	
  SECTION 3.14

  	
  Bank Performance

  	
   

  	
  34

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 3.15

  	
  [Intentionally Omitted]

  	
   

  	
  35

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 3.16

  	
  Insurance

  	
   

  	
  35

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 3.17

  	
  Zale Acquisitions; Unauthorized Goods and Services

  	
   

  	
  36

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 3.18

  	
  Purging Accounts

  	
   

  	
  37

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 3.19

  	
  Monthly Cardholder Statements—Inserts and Messages

  	
   

  	
  37

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 3.20

  	
  Access to Products and Services; Enhancements

  	
   

  	
  39

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 3.21

  	
  Programs

  	
   

  	
  39

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 3.22

  	
  Sales Tax Credits

  	
   

  	
  43

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 3.23

  	
  Zale Letter of Credit

  	
   

  	
  44

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 3.24

  	
  Warranty Reinsurance

  	
   

  	
  45

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 3.25

  	
  Insurance Recoveries

  	
   

  	
  46

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE IV FEES AND CERTAIN
  OTHER PAYMENTS

  	
   

  	
  46

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 4.1

  	
  Fees and Certain Other Payments

  	
   

  	
  46

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE V MISCELLANEOUS

  	
   

  	
  47

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 5.1

  	
  Indemnification

  	
   

  	
  47

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 5.2

  	
  Card Program Promotion; Advertising and Service Marks

  	
   

  	
  50

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 5.3

  	
  Books and Records

  	
   

  	
  54

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 5.4

  	
  Term and Termination

  	
   

  	
  54

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 5.5

  	
  Termination-related Obligations; Sunset Management

  	
   

  	
  59

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 5.6

  	
  Status of the Parties

  	
   

  	
  60

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 5.7

  	
  Force Majeure

  	
   

  	
  61

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 5.8

  	
  Confidentiality

  	
   

  	
  61

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 5.9

  	
  Access to Cardholder List

  	
   

  	
  62

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 5.10

  	
  Arbitration

  	
   

  	
  63

  

 

ii

 

	
  SECTION 5.11

  	
  Financial Information

  	
   

  	
  64

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 5.12

  	
  Assignability; Successors and Assigns

  	
   

  	
  65

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 5.13

  	
  Agreement Not to Sell, Securitization

  	
   

  	
  65

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 5.14

  	
  Cooperation

  	
   

  	
  66

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 5.15

  	
  Amendment

  	
   

  	
  66

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 5.16

  	
  Severability

  	
   

  	
  66

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 5.17

  	
  Entire Agreement

  	
   

  	
  66

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 5.18

  	
  Governing Law

  	
   

  	
  66

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 5.19

  	
  Applicable Law or Regulation

  	
   

  	
  66

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 5.20

  	
  Waivers

  	
   

  	
  66

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 5.21

  	
  WAIVER OF JURY TRIAL

  	
   

  	
  66

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 5.22

  	
  Notices

  	
   

  	
  66

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 5.23

  	
  No Third-Party Rights

  	
   

  	
  67

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 5.24

  	
  Captions

  	
   

  	
  67

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 5.25

  	
  Counterparts

  	
   

  	
  68

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 5.26

  	
  Consent to Jurisdiction

  	
   

  	
  68

  

 

iii

 

SCHEDULES AND EXHIBITS

 

	
  Schedule
  1.1

  	
  -

  	
  Zale
  Marks

  
	
  Schedule
  3.11(a)

  	
  -

  	
  Chargeback

  
	
  Schedule
  3.13(a)(i)

  	
  -

  	
  Bank
  Reports

  
	
  Schedule
  3.13(a)(ii)

  	
  -

  	
  Zale
  Reports

  
	
  Schedule
  3.23(e)(1)

  	
  -

  	
  Presentation
  of Net Debt Tangible Leverage and Fixed Charge Coverage Ratio

  
	
  Schedule
  3.23(e)(2)

  	
  -

  	
  Form of
  Officer’s Certificate

  
	
  Schedule
  4.1(a)(1)

  	
  -

  	
  Initial
  Merchant Fees

  
	
  Schedule
  4.1(a)(2)

  	
  -

  	
  Merchant
  Fees

  
	
  Schedule
  4.1(a)(i)

  	
  -

  	
  Merchant
  Fee Adjustments Due to Prime Rate Changes

  
	
  Schedule
  5.2(e)(ii)

  	
  -

  	
  Marketing
  Fund

  
	
   

  	
   

  	
   

  
	
  Exhibit A

  	
  -

  	
  Operating
  Regulations

  
	
  Exhibit B

  	
  -

  	
  Performance
  Standards

  

 

iv

 

AMENDED AND RESTATED MERCHANT SERVICES AGREEMENT

 

This
AMENDED AND RESTATED MERCHANT SERVICES AGREEMENT
(“Agreement”) is effective as of October 1, 2010 among
CITIBANK (SOUTH DAKOTA), N.A., a national banking association (“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,
Zale is in the business of offering certain goods and services for sale at
retail stores, 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;

 

WHEREAS,
Zale entered into a Merchant Services Agreement dated as of July 10, 2000,
as amended (the “Original Agreement”), with Hurley State Bank, a banking
corporation organized and existing under the laws of the State of South Dakota
(“Hurley”), which, at such time, was a wholly owned subsidiary of
Associates First Capital Corporation, a Delaware corporation (“AFCC”),
and which was subsequently merged (the “JNB Merger”) with Jewelers
National Bank, a national banking association (“JNB”);

 

WHEREAS,
subsequent to entering into the Original Agreement and the JNB Merger, AFCC was
acquired by an Affiliate of Bank;

 

WHEREAS,
Zale and Bank entered into a series of letter agreements and amendments to the
Original Agreement prior to the Effective Date;

 

WHEREAS,
Zale and Bank hereby desire to enter into an agreement to amend and restate the
Original Agreement and any amendments thereto on the terms and conditions set
forth herein; it being understood that this Agreement constitutes an amendment
to the Original Agreement;

 

WHEREAS,
in furtherance thereof, Zale and Bank have agreed that Bank shall, in
accordance with the terms and conditions set forth herein, (a) continue to
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) continue
to service the accounts pursuant to which such cards are issued and that are
established from time to time pursuant to this Agreement, that were acquired by
Hurley through the JNB Merger or that were issued and established under the
Original Agreement; and

 

WHEREAS,
it is Bank’s and Zale’s desire to mutually provide a credit card program to
optimally serve a broad spectrum of Zale customers.

 

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 and Zale hereby
agree as follows:

 

 

ARTICLE I

 

DEFINITIONS

 

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

 

“60/40 Account” has the meaning given to such term in Section 3.21(b)(i) of
this Agreement.

 

“60/40 Program” has the meaning given to such term in Section 3.21(b)(i) of
this Agreement.

 

“60/40 Recourse Account” has the meaning given to such term in Section 3.21(b)(ii) of
this Agreement.

 

“60/40 Recourse Amount Due” has the meaning given to such term
in Section 3.21(b)(ii) of this Agreement.

 

“60/40 Reserve Account” has the meaning given to such term in Section 3.21(c) of
this Agreement.

 

“60/40 Reserve Amount” has the meaning given to such term in Section 3.21(c) of
this Agreement.

 

“Account” means a Card account, including any Card accounts
issued and established pursuant to the Original Agreement (including any
account acquired by Hurley pursuant to the JNB Merger) or this Agreement.  An Account may have more than one Card issued
to Cardholders with respect to such Account.

 

“Acquired Business” has the meaning given to such term in Section 3.17(a) of
this Agreement.

 

“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.

 

“AFCC” has the meaning given to such term in the Recitals.

 

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

 

“Annualized Net Charge-offs” has the meaning given to such term
in Section 3.21(b)(ii) of this Agreement.

 

“Applicable Law” means all federal, state and local laws
(including common laws), statutes, rules, decrees, regulations, regulatory
guidance or bulletins, regulatory 

 

2

 

examinations,
orders, injunctions or judgments of any Governmental Authority, including the
Credit Card Accountability Responsibility and Disclosure Act of 2009, the Equal
Credit Opportunity Act and the Consumer Credit Protection Act, applicable to a
Person, and all orders and decrees of arbitrators in proceedings or actions in
which the Person in question is a party.

 

“Applicable Law and Regular Revolve Merchant Fee Cap” has the
meaning given to such term in Section 5.4(b)(xii).

 

“Application” means Bank’s credit application, containing
substantially the same customer data fields as the form used by Bank as of the
Effective Date, 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, catalogs, 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 to such term in Section 5.10
of this Agreement.

 

“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, silver, 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 in existence as of the
Effective Date or hereafter created.

 

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

 

“Bank Information” has the meaning given to such term in Section 2.1(a) of
this Agreement.

 

“Bank Products and Services” means, as of the Effective Date,
any secured or unsecured consumer financial products and services of Bank or
any Affiliate of Bank or any third-party products offered by Bank or any of its
Affiliates, including, but not limited to, Identity Monitor and Watch
Guard Registration Services, but shall not include any credit insurance
products of Bank, any Affiliate of Bank or any third-party credit insurance
products offered by Bank or any of its Affiliates.

 

3

 

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

 

“Bank Second Look Proposal” has the meaning given to such term
in Section 3.2(a) of this Agreement.

 

“Basic Bill Me Later Product” has the meaning given to such term
in Section 3.3(d) of this Agreement.

 

“BBB” means Bailey Banks & Biddle, a former brand of Z
Del.

 

“Big Ticket Recourse Account” has the meaning given to such term
in Section 3.21(a)(i) of this Agreement.

 

“Big Ticket Reserve Account” has the meaning given to such term
in Section 3.21(c) of this Agreement.

 

“Big Ticket Reserve Amount” has the meaning given to such term
in Section 3.21(c) of this Agreement.

 

“Big Ticket Recourse Program” has the meaning given to such term
in Section 3.21(a) of this Agreement.

 

“Business Day” means any day other than a Saturday, Sunday
or any other day on which federally insured depositary institutions in South
Dakota are authorized or obligated by Applicable Law to be closed.

 

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

 

“Call Determination Date” has the meaning given to such term in Section 5.4(f) of
this Agreement.

 

“Card” means a credit card (a) issued by JNB in respect of
an Account acquired by Hurley through the JNB Merger, (b) issued pursuant to
the Original Agreement or (c) issued by Bank, and in each case, evidencing an Account and 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.

 

4

 

“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.

 

“Cardholder List” means information regarding Cardholders,
including name, postal address, email address, telephone number, date of birth,
campaign management information, demographic data and other similar
information.

 

“Change of Control” means (a) the direct or indirect
acquisition by any Person or group of Persons of beneficial ownership of fifty
percent (50%) or more of the voting securities or other ownership interests of
either Z Del or Zale Puerto Rico or any direct or indirect parent company
thereof; (b) any transaction or series of transactions pursuant to which
either Z Del or Zale Puerto Rico or any direct or indirect parent company
thereof consummates a reorganization, merger, consolidation or similar
transaction, with respect to which all or substantially all of the Persons who
were the respective beneficial owners of the outstanding voting securities or
other ownership interests of Z Del, Zale Puerto Rico or any direct or indirect
parent company thereof, as the case may be, immediately prior to such
transaction would not, following the consummation of such transaction,
beneficially own, directly or indirectly, more than fifty percent (50%) of the
then outstanding voting securities or other ownership interests of the
corporation resulting from such transaction; or (c) the sale or other
disposition of all or substantially all the assets or properties of either Z
Del or Zale Puerto Rico or any direct or indirect parent company thereof in one
transaction or a series of related transactions to a Person or group of Persons
(other than any such sale or other disposition which is part of an internal
corporate reorganization not involving any third party).  Notwithstanding the foregoing, none of the
following shall constitute a Change of Control: 
(i) in the case of clauses (a) and (b) above, any transaction
in which Zale Parent continues to own Z Del and Zale Puerto Rico and the
stockholders’ investment (or equivalent) of Zale Parent following the
transaction is not significantly less than the stockholders’ investment (or
equivalent) of Zale Parent prior to the transaction; (ii) in the case of
clauses (a) and (b) above, any transaction in which the stockholders’
investment (or equivalent) of the purchaser of Z Del and Zale Puerto Rico or
the successor to Zale Parent, Z Del or Zale Puerto Rico, as the case may be, in
any reorganization, merger, consolidation or similar transaction is not
significantly less that the stockholders’ investment (or equivalent) of Zale
Parent, Z Del or Zale Puerto Rico, as the case may be, prior to the
transaction; and (iii) in the case of clause (c) above, any
transaction in which the purchaser purchases all or substantially all of the
assets of Z Del and Zale Puerto Rico and the stockholders’ investment (or
equivalent) of the purchaser following the transaction is not significantly
less that the stockholders’ investment (or equivalent) of Zale Parent prior to
the transaction.

 

“Chargeback” means the refusal of Bank to pay Zale for a Card
Sale for the reasons specifically set forth in Section 3.11 of this
Agreement.

 

“Claim” means any action, claim, counter-claim, suit,
litigation, arbitration, inquiry, proceeding or investigation by or before any
Governmental Authority.

 

5

 

 

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

 

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

 

“Contingent Liabilities” has the meaning given to such term in Section 3.23(c) of
this Agreement.

 

“Courtesy Credit Limit Account” has the meaning given to such
term in Section 3.21(b)(ii) of this Agreement.

 

“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) of
this Agreement.

 

“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 date of this Agreement.

 

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

 

“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.

 

6

 

“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.

 

“Finlay” means Finlay Fine Jewelers Corporation.

 

“Fixed Charge Coverage Ratio” means, with respect to Zale, as of
the end of any fiscal quarter, a ratio calculated where the numerator is the sum
of EBITDAR for the immediately preceding four fiscal quarters and denominator
is the sum of (a) the Net Interest Expense (defined as Gross Interest
Expense less Interest Income) for the immediately preceding four fiscal
quarters, and (b) the total Rental Expense for the immediately preceding
four fiscal quarters.  For the purposes
of this Agreement, EBITDAR means, for any period, the Net Sales for such period
minus the Cost of Goods Sold, minus Selling, General and Administrative
Expenses (such expenses do not include depreciation and amortization expenses),
plus Rental Expense, plus other reasonable and customary non-cash items.  For purposes of this definition, the terms “Gross
Interest Expense”, “Interest Income”, “Rental Expense”, “Net Sales”, “Cost of
Goods Sold”, and “Selling, General and Administrative Expenses” mean the amount
of monies designated under such titles, or subsequent titles that refer to such
items, on Zale’s financial statements provided to Bank in accordance with Section 3.23(e) of
this Agreement.

 

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

 

“Governmental Authority” means any federal, national,
supranational, state, provincial, municipal, local or other government,
governmental, regulatory or administrative authority, self-regulatory body
(including any stock exchange), agency or commission or any court, tribunal, or
judicial or arbitral body of competent jurisdiction.

 

“Hurley” has the meaning given to such term in the Recitals.

 

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

 

“Indemnifying Party” shall mean a party required to indemnify an
Indemnified Party as provided in Section 5.1 of this Agreement.

 

“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” shall have 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) of
this Agreement.

 

7

 

“Insurance Agreement” has the meaning given to such term in Section 3.16
of this Agreement.

 

“Insurance Recoveries” has the meaning given to such term in Section 3.25(a) of
this Agreement.

 

“Letters of Credit” has the meaning given to such term in Section 3.23(c) of
this Agreement.

 

“JNB” has the meaning given to such term in the Recitals.

 

“JNB Merger” has the meaning given to such term in the Recitals.

 

“Letters of Credit” has the meaning given to such term in Section 3.23(b).

 

“Marketing Fund” has the meaning given to such term in Section 5.2(e) of
this Agreement.

 

“Material Adverse Effect” means, as of the applicable date of
determination, any event, circumstance, development, occurrence, change or
effect that is or is reasonably likely to be, individually or in the aggregate,
materially adverse to (a) the Card Program or (b) the ability of Zale
to perform its obligations contemplated by this Agreement.

 

“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.

 

“Merchant Fees” has the meaning given to such term in Section 4.1(a) of
this Agreement.

 

“Minimum Volume Amount” means Net Card Sales of $315,000,000.

 

“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.

 

“Net Debt Tangible Leverage” means, with respect to Zale, as of
the end of any fiscal quarter, a ratio calculated with the numerator defined as
(a) Total Debt minus (b) Cash; and the denominator defined as (x) Total
Shareholders’ Equity; minus (y) Goodwill; minus
(z) Other Intangible Assets.  For
purposes of this definition, the term “Total Debt” is defined as any funds
borrowed with an intent to repay by a specific date and represented by various
forms of senior and subordinated debt and debt-like 

 

8

 

instruments,
including, but not limited to, loans, notes, mortgages and other similar
instruments.  “Cash”, “Total Shareholders’
Equity”, “Goodwill”, and “Other Intangible Assets” mean the amount of monies
designated under such titles, or subsequent titles that refer to such items, on
Zale’s financial statements provided to Bank in accordance with Section 3.23(e)
of this Agreement.

 

“Non-Proposing Party” has the meaning given to such term in Section 5.2(b)(ii) of
this Agreement.

 

“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 A 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, shall be
deemed to be incorporated herein by reference as fully as though set forth
herein in their entirety.

 

“Original Agreement” has the meaning given to such term in the
Recitals.

 

“Performance Standards” means
those standards set forth on Exhibit B hereto, 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.

 

“Permanent Letter of Credit” has the meaning given to such term
in Section 3.23(a) of this Agreement.

 

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

 

“Prime Rate” means the base rate on corporate loans at large
United States money center commercial banks, as such rate is reported under “Prime
Rate” in The Wall Street Journal on the first
Business Day of each calendar month.

 

“Prime Rate Merchant Fee Cap” has the meaning given to such term
in Section 5.4(b)(xi).

 

“Published Rate” has the meaning given to such term in Section 2.2(a) of
this Agreement.

 

“Program Committee” means the Program Committee consisting of
representatives of both Bank and Zale established pursuant to Section 2.2(a) of
this Agreement and having the responsibilities set forth in Section 2.4(a) of
this Agreement.

 

9

 

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

 

“Proposing Party” has the meaning given to such term in Section 5.2(b) of
this Agreement.

 

“Put Determination Date” has the meaning given to such term in Section 5.4(f) of
this Agreement.

 

“Qualifying Person” has the meaning given to such term in Section 3.3(c) of
this Agreement.

 

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

 

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

 

“Renewal Term” shall have the meaning given to such term in Section 5.4(a) of
this Agreement.

 

“Repeated and Material Breach” means multiple breaches by either
party of the Performance Standards and/or such party’s payment obligations
hereunder which, when considered in the aggregate, could reasonably be expected
to have a material adverse effect on the Card Program taken as a whole 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.

 

“Reserve Account” has the meaning given to such term in Section 3.21(c) of
this Agreement.

 

“Reserve Amount” has the meaning given to such term in Section 3.21(c) of
this Agreement.

 

“Reset Date” has the meaning given to such term in Section 2.2(a) of
this Agreement.

 

“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.

 

“Seasonal Letter of Credit” has the meaning given to such term
in Section 3.23(b) of this Agreement.

 

10

 

“Second Look Program” has the meaning given to such term in Section 3.3(c) of
this Agreement.

 

“Security Period” has the meaning given to such term in Section 3.23(b) 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.

 

“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.

 

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

 

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

 

“Texas UCC” has the meaning given to such term in Section 2.2(a) of
this Agreement.

 

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

 

“Unauthorized Card Sale” has the meaning given to such term in Section 3.7(c) of
this Agreement.

 

“Unauthorized Goods and Services” has the meaning given to such
term in Section 3.17(b) of this Agreement.

 

“Warranty Reinsurance” has the meaning given to such term in Section 3.24
of this Agreement.

 

“Zale Customer Information” has the meaning given to such term
in Section 2.1(a) of this Agreement.

 

“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) and any
new or successor or replacement names, logos, trademarks, service marks,
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 1.1 to this Agreement.

 

11

 

“Zale Parent” means Zale Corporation, a Delaware corporation.

 

SECTION 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

 

SECTION 2.1                 General.  (a) Bank shall be the sole and exclusive
owner of the Accounts, the Cards, and the Credit Card Agreements and the
Cardholder Lists and is solely responsible for management, in a manner
consistent with the provisions of this Agreement, of the Accounts and the Card
Program.  Except as otherwise provided in
this Section 2.1(a), Zale and Bank will not use, permit any of its
respective Affiliates to use, or authorize any third party to use the
Cardholder Lists, for any purpose except that each of Zale and Bank and their
respective Affiliates shall be entitled to use the Cardholder Lists in
connection with the operation of the Card Program, and for such purposes as may
be authorized pursuant to this Agreement. 
In addition, Zale shall be entitled to use the Cardholder List in
connection with the offering of Authorized Goods and Services, and Bank shall
be entitled to use the Cardholder List in connection with the offering of any
Bank Products and Services. 
Notwithstanding the foregoing, any party hereto may use the Cardholder
List to perform any and all analysis on such data as such party in its sole
discretion may choose to perform, provided that such analyses shall not
be used in a manner adverse to the Card Program.  Nothing contained in this Agreement shall
prohibit Zale or a third party on behalf of Zale from collecting and utilizing
customer and transaction information captured by Stores (including any internet
site operated by or for the benefit of Zale) at the point of sale from
customers (some of whom may be Cardholders) as allowed by Applicable Law (“Zale
Customer Information”); provided, however, that Zale Customer
Information shall not include Account numbers and information provided by
customers to Bank solely for the purpose of obtaining or utilizing an Account (“Bank
Information”), and Bank Information may not be used by Zale except as
expressly provided in this Agreement.

 

(b)           Subject to the terms and conditions
of this Agreement, Bank shall control at its sole discretion all aspects of the
operation of the Card Program, including credit policy (i.e. any and all
decisions on whether to extend credit to any Credit Applicant, including, the
amount of credit to be extended, and whether to continue or terminate any
individual Account).  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.

 

SECTION 2.2                 Client
Relationship Team.

 

(a)           Structure.  Bank and Zale shall use commercially
reasonable efforts and work in good faith to advance the Card Program,
including by using commercially reasonable efforts to increase the number of
Cardholders, increase Card Sales and generally work toward the fulfillment of
each party’s stated goals and objectives. 
In furtherance of the foregoing, the ongoing operations of the Card
Program will be subject to the continuing review of a Client 

 

12

 

Relationship Team (the “Client
Relationship Team”) and a Program Committee (the “Program Committee”).  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.  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
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
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, developing the
private label credit card annual business plan, monitoring actual results
against milestones and expectations, dealing with day-to-day operational issues
and matters that arise in connection with the Card Program, discussing and
reviewing Material Changes in the Card Program, 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 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 Team an opportunity to discuss such proposed Material
Change (and alternatives to the proposed Material Change) and the likely
implications of such Material Change. 
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 Bank shall at the appropriate time, or from time
to time, as the case may be:

 

(i)            review
and approve any marketing plans and related implementation schedules;

 

(ii)           review
and approve any proposal concerning special inserts, messages or letters except
for special inserts, messages or letters that are, in Bank’s sole discretion,
required under Applicable Law to be included in Account statements to the
extent such proposal is required to be approved by the Client Relationship Team
as provided herein;

 

(iii)          discuss
and approve any proposals for new Card products, it being understood and agreed
by the parties hereto that any Card products of Bank in existence as of the
Effective Date shall not be considered new Card products;

 

13

 

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

 

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

 

(vi)          discuss
plans for the development and implementation of major systems changes affecting
the Card Program and recommend action as needed;

 

(vii)         manage
priorities and, only to the extent such implementation would require Zale to
modify any of its systems interfaces or data transmission, sharing or exchange
features, approve the implementation of any systems interface and data
transmission, data sharing and data exchange between Zale and Bank or designees
of either party, except to the extent if such implementation is required by
Applicable Law, as determined in Bank’s sole discretion, in which case Zale
shall not have any approval rights hereunder;

 

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

 

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

 

(x)            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;

 

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

 

(xii)          discuss
Card Program strategies within the parameters established from time to time by
the Program Committee;

 

(xiii)         review
and approve additional Bank Products and Services;

 

(xiv)        discuss
any other operating and marketing issues that may arise from time to time; and

 

(xv)         discuss
developing the capability to allow Cardholders to cross-shop and make purchases
across the various divisions of Zale.

 

SECTION 2.3                 Operational
Oversight; Meetings, Voting and Records.

 

(a)           The Client Relationship Team members
shall interface as regularly as may be necessary or appropriate and shall work
closely on all operational matters pertaining to the Card Program.

 

14

 

(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.  The presence of a
representative of both Zale and Bank who is authorized to vote shall constitute
a quorum for meetings of the Client Relationship Team.  Any matter requiring approval of the Client
Relationship Team shall require the affirmative vote of both Zale and
Bank.  The Client Relationship Team 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.

 

SECTION 2.4                 Program
Committee.

 

(a)           The Program Committee is hereby
established and shall be maintained for the purpose of periodically reviewing
the Card Program and resolving any claim, controversy or dispute between Bank
and Zale arising out of or relating to the operation of the Card Program (any
such claim, controversy or dispute, a “Dispute”), as contemplated by
this Agreement and subject to Section 2.5.  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. 
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 upon written notice to the other party or parties
hereto.

 

(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.

 

(c)           On at least an annual basis, but as
often as quarterly if requested in writing by Zale, the Program Committee shall
discuss (i) a review of historic data relating to Applications, credit
score distributions of applicants and approved accounts, acceptance rates,
credit line assignments on approved accounts, significant account management
actions and similar matters, along with Bank’s then current non-binding
expectations for future periods; (ii) a comparison of the terms of the
Cardholder, including interest rates, fees, balance and finance charge
calculations, minimum payment requirements, payment dates, and grace periods,
of the Cards relative to other private label card programs in general; and (iii) Bank’s
assessment of how the economic terms of the Card Program compare to other card
programs generally.  Any and all
information provided by Bank to Zale pursuant to this Section 2.4(c)
shall be in a form acceptable to Bank and for the avoidance of doubt shall, in
no event, include or contain any information that is confidential or
proprietary to Bank.

 

15

 

 

(d)           During the Term, Bank shall give Zale
at least thirty (30) days’ notice of any Material Change, if such change
in Bank’s reasonable determination would be likely to have a material and
adverse impact to the competitive nature of the Program and would be likely to
competitively disadvantage Zale as to those terms and conditions offered by a
majority of similarly situated specialty jewelry retailers and department
stores offering Authorized Goods and Services, which notice shall include
reasonable detail on the nature of such Material Change including Bank’s
reasonable estimate of the impact of such change, and to the extent, in Bank’s
reasonable determination, alternatives to such Material Change exist, any such
alternatives.

 

SECTION 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 General Manager of the Retail Partner Cards division of Bank and the CFO of
Z Del’s ultimate 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

 

SECTION 3.1                 Maintenance
of Accounts.  Bank hereby
agrees, as of the Effective Date, to accept (i) all Persons who became
accountholders and cardholders pursuant to the Original Agreement and continue
to be accountholders and cardholders as of the Effective Date as Accountholders
and Cardholders hereunder, (ii) the cards held by such Accountholders and
Cardholders 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.

 

SECTION 3.2                 Procedures
for Opening Accounts.

 

(a)           Bank’s Account Issuance Criteria.  (i)  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”).  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 (A) Bank shall give Zale at
least 

 

16

 

thirty (30) days’
notice of any Material Change, which notice shall include reasonable detail on
the nature of the Material Change including Bank’s reasonable estimate of the
impact of such change on approval rates, initial credit limits, Net Card Sales
and the number of Credit Applicants, and (B) Bank will not make any
Material Changes between November 15 of any given year and January 2
of the immediately following year. 
Notwithstanding the foregoing, Bank shall provide notice to Zale of any
Material Change that will be made between January 3 and February 14
no later than September 30 of the immediately preceding year.  Bank shall decision each Application in
accordance with the terms hereof and, if such Application is approved, promptly
issue a Card to such Accountholder.  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.

 

(ii)           Account
Management; Adjustments to Credit Card Agreements.  Subject to Section 3.2(a)(i),
Bank shall have sole authority and discretion to determine, change and modify
from time to time, the credit and payment terms of the Accounts and Credit Card
Agreements, including without limitation, interest rates, fees, balance and
finance charge calculations, minimum payment requirements, payment dates, grace
periods (if any), credit limits, and all terms and conditions associated with
Special Credit Plans; provided, however, Bank shall give Zale at
least thirty (30) days’ notice of any such change or modification, which
notice shall include reasonable detail on the nature of such change or
modification including Bank’s reasonable estimate of the impact of such change
or modification.  Bank agrees that prior
to January 1, 2012, it shall not introduce any Cardholder account fees
that are not being applied as of the Effective Date on the Cardholder Accounts;
provided, however, the restrictions set forth in this sentence
shall not limit Bank’s ability to modify existing promotional or transaction
fees at any time during the Term; provided that such modifications are
consistent with the modifications to such fees in the other programs managed by
Bank.

 

(b)           [Intentionally Omitted.]

 

(c)           Limitation on Bank’s Right to Make
Changes.  Notwithstanding any other
provision hereof to the contrary, in the event Bank changes the Bank’s Account
Issuance Criteria or the terms and conditions of the Credit Card Agreement and
such changes 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 (with Bank contributing at least some portion of
Zale’s costs) and in no event will any such changes require the temporary or
other closure of any Zale Store; provided, however, in the event
that any such changes to Bank’s Account Issuance Criteria are made as a result
of changes in Applicable Law, then each party hereto shall bear its own costs
and expenses associated with such change.

 

(d)           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, whether such Application 

 

17

 

has been approved or
denied.  In connection with Applications
submitted under Section 3.2(a), 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 (other than for Internet applications);

 

(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,
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;

 

(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.

 

(e)           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 under
the Original Agreement or as may be otherwise agreed by Zale and Bank.

 

(f)            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 has paid Zale for Authorized Goods and Services charged to such
Account.

 

(g)           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
reasonably be required by Zale hereunder. 
Arrangements for and the cost of printing Applications, Credit Card
Agreements and Sales Slips shall be Zale’s responsibility; 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, 

 

18

 

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 any Special Credit Plans in existence as of the Effective Date and
other Special Credit Plans hereafter adopted, such plans to be reasonably
agreed to by Bank and Zale 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 approval 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.

 

SECTION 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 brand at all of such brand’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. 
(i) Acceptance of Applications by Bank, authorization by Bank of
Card Sales and acceptance of Cards by Zale will commence on the Effective Date
and will continue until the termination of this Agreement in accordance with
the provisions hereof.

 

19

 

(ii)           During
the Term, except as otherwise contemplated hereby, none of Zale, Zale’s
Affiliates, nor any other party on behalf of Zale or any of its Affiliates will
enter into any arrangement or agreement with a third party under which Zale or
any of Zale’s Affiliates issues, sponsors, promotes, participates in or accepts
another private label credit card or private label credit account or license
that uses, in connection with any such arrangement or agreement, any Zale Mark
utilized by Zale and Bank on any Card.

 

(iii)          During
the Term, except as otherwise contemplated hereby, none of Z Del, Zale Puerto
Rico or any direct or indirect parent or subsidiary company thereof shall enter
into any direct or indirect arrangement or agreement with any of its respective
Affiliates or with any third party, pursuant to which Z Del, Zale Puerto Rico,
any direct or indirect parent or subsidiary thereof, any of such Affiliates or
any such third party issues, sponsors, promotes, participates in or accepts
(A) any cobranded credit card or credit account, or (B) any financial
product that finances the sale of Zale’s Authorized Goods and Services that is
available or may become available via the internet.  Notwithstanding the foregoing, nothing
contained in this Agreement will be construed to prohibit Zale or any of Zale’s
Affiliates from accepting any major general purpose credit or debit card (including
by way of example and not by way of limitation, NOVUS, American Express,
MasterCard, Discover or Visa) as a means of payment by customers for purchases
of Authorized Goods and Services or taking the actions set forth in Section 3.3(c) and
(d).

 

(c)           Second Look Program.  Subject to Zale’s compliance with this Section 3.3(c),
Bank hereby grants a limited waiver to the provisions of Section 3.3(b) of
this Agreement to allow Zale or any of its Affiliates to offer a Second Look
Program.  As used in this Agreement, a “Second
Look Program” means any credit program that is available to customers of
Zale who have properly submitted Applications for an Account, and have been
declined by Bank (each, a “Qualifying Person”), for the avoidance of
doubt any Application that is approved and assigned an initial credit line
consistent with the minimum credit lines provided by Bank for the Card Program
as a whole shall not be considered a decline for the purposes of this Section 3.3(c),
immediately preceding the customers’ application to any Second Look Program
provider.  Bank shall have a right of
first offer to provide a Second Look Program and must provide a response to
Zale within 30 days of being presented with the written notice from Zale that
Zale desires to establish a Second Look Program.  Zale shall continue to promote the Card
Program as the primary source of credit for Zale customers for the duration of
the Card Program, and Zale shall continue to provide levels of support to the
management and operation of the Card Program in accordance with this Agreement
and in a manner consistent with the support provided by Zale during the period
immediately preceding the implementation of the Second Look Program.  Both parties agree that to the extent Zale
offers a Second Look Program, it shall not affect Bank’s right to determine or
adjust its credit policy for the Card Program. 
Zale shall not advertise to the general public any promotional offers
for the purchase of Authorized Goods and Services as part of a Second Look
Program if such promotional offers are inconsistent with the promotional offers
made to the general public under the terms of the Card Program; provided,
that the parties hereto agree that any account information or legal disclosures
made by Zale or a provider of a Second Look Program at the point of sale to any
Qualifying Person shall not be advertising of a promotional offer.  To the extent Bank offers the Second Look
Program 

 

20

 

such program may be
terminated by either party in accordance with the terms thereof.  To the extent that the provider of a Second
Look Program is a party other than Bank, Bank agrees to use its commercially
reasonable efforts to develop and implement changes to the Application that
would allow Zale to provide Application information to the provider of the
Second Look Program; provided that in all cases the Applications and the
information set forth therein shall be determined by Bank in its reasonable
discretion.  Further, to the extent that
changes to the Application are implemented to support a Second Look Program,
Zale shall be solely responsible for all of Bank’s and its costs and expenses
associated therewith.

 

(d)           Money Transmittal Products.  Subject to Zale’s compliance with this Section 3.3(d),
Bank hereby grants a limited waiver to the provisions of Section 3.3(b) of
this Agreement solely for the purpose of permitting Zale to offer access to
PayPal and similar money transmittal products as a payment option available
solely on Zale websites; provided, however, that:  (i) Zale will not actively promote any
such money transmittal product, but shall offer them only as payment options on
the check out (or other customary) page of its websites; and (ii) Zale
will not grant a license to the providers of such money transmittal products
for the use of any Zale Mark utilized by Zale and Bank on any Card in
connection with any such arrangement; and (iii) with respect to any
purchases made using any such money transmittal product, Zale will not offer,
directly or indirectly, access to special or promotional credit terms,
including without limitation, any deferred payment or deferred interest
promotions, any installment purchase arrangements or any promotional or
introductory annual percentage rates.

 

(e)           Basic Bill Me Later Products.  Subject to Zale’s compliance with this Section 3.3(e),
Bank hereby grants a limited waiver to the provisions of Section 3.3(b) of
this Agreement solely for the purpose of permitting Zale to offer access to the
Basic Bill Me Later Product offered by Bill Me Later, Inc., as a payment
option available solely on Zale websites; provided, however,
that:  (i) Zale will not actively
promote the Basic Bill Me Later Product, but shall offer it only as a payment
option on the check out (or other customary) page of its websites; and (ii) Zale
will not grant a license to Bill Me Later, Inc. for the use of any Zale
Mark utilized by Zale and Bank on any Card in connection with any arrangement
or agreement with Bill Me Later, Inc. and (iii) with respect to any
purchases made using the Basic Bill Me Later Product, the Basic Bill Me Later
Product shall be the sole and exclusive product, special or promotion being
utilized and Zale will not offer special or promotional credit terms, including
without limitation, any deferred payment or deferred interest promotions, any
installment purchase arrangements or any promotional or introductory annual
percentage rates.  For purposes herein,
the “Basic Bill Me Later Product” means a product that includes the ability to
make a standard purchase subject to a grace period of twenty-five (25) days if
the purchase amount is paid in full on or before the payment due date, and an
annual percentage rate of no less than 19.99%. 
The content and appearance of the Basic Bill Me Later product on the
Zale website shall be subject to the review and approval by Bank, with such
approval not to be unreasonably withheld. 
Bank shall have the right to terminate this limited waiver upon thirty
(30) days prior written notice to Zale.

 

(f)            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 

 

21

 

States dollar is
generally accepted in commercial transactions in Puerto Rico, or, if Zale, in
good faith 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 time 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 fails to exercise such option or fails 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 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.

 

SECTION 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.

 

22

 

SECTION 3.5                 Operating
Regulations.  Zale agrees
to comply in all material respects with the Operating Regulations and Bank
agrees to provide adequate training to Zale on Operating Regulations.  The Operating Regulations may be changed by
Bank in consultation with Zale from time to time upon not less than thirty (30)
days’ prior written notice to Zale, provided, however, that
changes which do not require major systems or operational modifications and
changes by Zale that are required for security measures shall become effective
as soon as possible following Zale’s receipt of notice thereof but in any event
shall become effective within five (5) days of Zale’s receipt of
notice thereof.  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.

 

SECTION 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 mail,
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
shipping address (if applicable); and

 

(vii)         The
shipping date (if applicable).

 

(c)           Store Sales.  For Card Sales in Stores, each Sales Slip
must be legible and fully completed and will include 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 and additionally will include
(i) the Authorization number (if any) provided by Bank to Zale,
(ii) the Credit Plan code (if any) provided by Bank to Zale, and
(iii) unless provided separately, Zale’s Bank-assigned merchant
number.  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 

 

23

 

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 signature, 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 fails
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 fails 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).

 

SECTION 3.7                 Authorization.

 

(a)           Bank agrees at all times during the
Term, 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 district
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.  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 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 the Original Agreement 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, the provisions applicable to 

 

24

 

non-Electronic Locations as set forth in Section 3.7(b)(ii) 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 is
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, 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.  If the Authorization Center approves the Card
Sale by telephone, 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 (i) 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 or (ii) 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 (in each case, an “Unauthorized Card Sale”).  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).

 

(d)           Cancellation of
Account/Authorization.  In connection
with Card Transactions by catalog, 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.

 

25

 

 

SECTION 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 less frequently
than weekly) during the Term, 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
of this Agreement, Bank shall reimburse Zale in accordance with Section 3.8(c) 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, Bank will pay Zale an amount equal to (i) the total
amount of Net Card Sales, if any, submitted to and received by Bank in
accordance with the terms of this Agreement with respect to which Settlement is
then due,  minus the sum of (A) the
Merchant Fee adjusted for any Credit as provided in Section 3.9
hereof due in accordance with Section 4.1 of this Agreement, (B) the
amount of In-Store Payments, if any, submitted to Zale and (C) any
Chargebacks, plus or minus (iii) the amount of any other adjustments to
the amounts submitted.  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 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 date 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 Settlement amount due to Zale
with respect to such Business Day is a negative amount, but rather Bank shall
deduct from the amount due Bank from the amount of future Settlements until any
such amount due Bank has been satisfied. 
Bank may, at 

 

26

 

its option, deduct
from any amount wired to a Settlement Account hereunder an amount equal to any
amount owing to Bank pursuant to the terms of this Agreement.  Zale agrees that any deduction made by Bank
from amounts Zale otherwise owes to Bank pursuant to this Section 3.8(c) is
an act of recoupment, not a set off. 
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.

 

SECTION 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 Cardholder a
Credit Slip 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 in accordance with the following:

 

(i)            If
Zale shall receive any In-Store Payments, Zale shall be deemed to hold such
In-Store Payments in trust for Bank until such payments are either delivered to
Bank or applied to reduce amounts payable by Bank to Zale pursuant to Section 3.8.

 

(ii)           Zale
shall bear the risk of loss for all In-Store payments received.

 

(iii)          Zale
shall give or cause to be given to each Cardholder making an In-Store Payment
an electronic receipt for such payment.

 

(iv)          In-Store
Payments shall be included by Zale in the Sales Data for the Business Day upon
which the In-Store Payment is received. 
In-Store Payments shall be credited to the Account of the relevant
Cardholder as of the date of actual receipt and posting by Zale.

 

27

 

(v)           Upon
request of Bank, Zale shall forward to Bank, in the manner reasonably specified
by Bank, evidence of all requested In-Store Payments received by Zale within
twenty-five (25) days of such request by Bank.

 

(vi)          Zale
shall not have the right to charge any fees related to or collect on any checks
received as In-Store Payments and returned for insufficient funds.  Zale warrants that all actions taken by it,
its employees or agents to take or remit In-Store Payments shall be undertaken
in accordance with the terms of this Agreement and Applicable Law.

 

(vii)         For
each In-Store Payment made in a foreign currency, Zale shall capture all of the
information listed on a currency transaction report form provided to Zale by
Bank and shall provide such information to Bank upon Bank’s request.

 

(viii)        Bank
may audit Zale, from time to time, at its discretion and upon reasonable
notice, to ensure compliance with the terms of this Agreement pertaining to the
taking and remitting of In-Store Payments. 
Zale shall allow Bank reasonable access during normal business hours to
Zale’s documents, facilities and key employees for the purpose of conducting
such audit.  Bank agrees to use
commercially reasonable efforts to schedule such audit, if necessary, to avoid
interference with the normal operations of Zale.

 

(ix)           Zale
agrees that Bank, upon written notice to Zale and after any applicable cure
period set forth in this Section 3.9(b)(ix), may suspend Zale’s
right to take In-Store Payments during any period in which Zale has failed to
comply with the provisions of this Section 3.9(b) and may
terminate such right upon termination of this Agreement.  However, prior to any suspension of In-Store
Payments, Bank will notify Zale of the specific nature of its non-compliance
with this Section 3.9(b), discuss specific remedies to bring Zale
into compliance, and allow Zale the opportunity, for a period of ten (10) Business
Days, to cure the specific issue.  To the
extent that Zale, after such ten (10) Business Day cure period, fails to
comply with this Section 3.9(b), Bank may suspend In-Store
Payments.  Neither the suspension of Zale’s
right to take In Store Payments nor the termination of this Agreement shall
affect Zale’s obligations under this Agreement with respect to In Store
Payments received after the suspension of its right to take In Store Payments
or termination of this Agreement.

 

SECTION 3.10               Billing
Inquiries, Cardholder Disputes.

 

(a)           Billing Inquiries.  Bank agrees at all times during the Term to
maintain a 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 a toll number with a human response
system accessible by customers for billing and other Account-related
inquiries.  If at any time during the
Term, 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 

 

28

 

reputation
generally, Bank shall, at Bank’s cost and expense, 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 reasonable 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 in accordance with the Operating Regulations.  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 dispute 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 inquiries and disputes, Bank shall
utilize a designated unit of trained collection and customer service personnel
who will interact with Cardholders 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 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 upon
becoming aware 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 to
the Card Program; (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 (A) Bank is legally prohibited from disclosing
the same or (B) the disclosure of the same would jeopardize any legal or
other privilege of Bank; provided, however, that Bank’s notification obligation
under clause (iii) shall not extend to individual customer complaints
that are not otherwise material.

 

SECTION 3.11               Chargeback
Rights and Procedures.

 

(a)           Chargeback Rights.  (i) To the extent specified in Schedule 3.11(a),
attached 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; provided,
however, Bank will not have the right to process such Chargeback more
than twelve (12) months after the applicable Card Sale (plus the period of
any Special Credit Plan applicable to such Card Sale that provides for deferral
of principal payments), except in the case of confirmed involvement in an act
or acts of fraud by any Zale employee. 
Solely with respect to Chargebacks related to the Big Ticket Recourse
Program or the 60/40 Program, Bank agrees to process any such Chargeback when
an Account with respect to either of the foregoing Accounts becomes one hundred
fifty (150) days 

 

29

 

delinquent.  Any Unauthorized Card Sale (solely with
respect to purchases made pursuant to the Big Ticket Recourse Program or the
60/40 Program) that occurred over twelve (12) months after the applicable
Card Sale will not be subject to Chargeback. 
Except to the extent required by Applicable Law, Bank shall not process
Chargebacks to Zale based upon a merchandise or billing dispute by an
Accountholder without first giving Zale notice of such dispute and at least
twenty-five (25) days following such notice to resolve such dispute.  If Bank and Zale agree that a Chargeback is
to be reversed, such reversal shall be executed in accordance with the
Operating Regulations and the Settlement process described in Section 3.8.  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.

 

(ii)           Bank
shall advise Zale electronically at least monthly in such format as shall be
reasonably agreed by Bank and Zale (specifying in reasonable detail the name
and account number of the Cardholders subject to Chargeback, the amount of the
Chargeback associated with each account number, the reason for the Chargeback
associated with each account number and whether Bank has previously paid Zale
for the Card Sale which is the subject of each Chargeback) of all Chargebacks
effected by Bank in the immediately preceding month.

 

(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, Bank shall deduct the amount to be charged back
from the Settlement Account or deduct such amount from a future payment to
Zale.  Zale agrees that any deduction
made by Bank from amounts Zale otherwise owes to Bank pursuant to this Section 3.11(b) is
an act of recoupment, not a setoff.  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.

 

SECTION 3.12               Representations
and Warranties.

 

(a)           By Zale.  Each of Z Del and Zale Puerto Rico hereby
jointly and severally represents and warrants to Bank as follows:

 

30

 

(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
and any of the agreements contemplated hereby. 
Each of Z Del and Zale Puerto Rico (i) is duly qualified to do
business and in good standing in every jurisdiction in which the nature of its
business or ownership or leasing of property requires it to be so qualified and
(ii) has all necessary licenses, permits, consents or approvals from or
by, and has made all necessary filings and registrations with, all Governmental
Authorities having jurisdiction, to the extent required for the ownership,
lease or conduct and operation of its business, except, in each case, to the
extent that the failure to be so qualified or to obtain such licenses, permits,
consent or approvals or to make such filings or registrations would not
reasonably be expected to have, individually or in the aggregate, a material
adverse effect on the Card Program taken as a whole.

 

(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 may be required pursuant to the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder, 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 Authority, or any other Person which has not been made or
obtained or which will not be obtained or made prior to closing.

 

(v)           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, such
party’s respective certificate of incorporation, bylaws, or other similar
organizational documents, 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
accordance with the terms of this Agreement, and not previously submitted by Zale
to Bank.

 

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

 

(viii)        All
merchandise offers prepared or provided by Zale in connection with this
Agreement are and shall be true, fair, accurate and complete and Zale shall 

 

31

 

comply with Applicable Law, including, but not
limited to, all applicable consumer protection laws and regulations, in making
any promotional offer or providing the related Authorized Goods and Services
under the terms of this Agreement.

 

(ix)           Neither
Z Del nor Zale Puerto Rico has executed any document contemplated by this
Agreement (A) in contemplation of insolvency, (B) with a view toward
preferring one creditor over another, (C) after committing an act of
insolvency, or (D) with an intent to hinder, delay or defraud itself or
its creditors.

 

(x)            There
are no Claims or, to Z Del’s or Zale Puerto Rico’s knowledge, threatened
Claims, that would materially impair Z Del’s or Zale Puerto Rico’s ability to
perform under this Agreement or would result in a material adverse effect on
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 and any of the
agreements contemplated hereby.  Bank
(i) is duly qualified to do business and in good standing in every
jurisdiction in which the nature of its business or ownership or leasing of
property requires it to be so qualified and (ii) has all necessary
licenses, permits, consents or approvals from or by, and has made all necessary
filings and registrations with, all Governmental Authorities having
jurisdiction, to the extent required for the ownership, lease or conduct and
operation of its business, except, in each case, to the extent that the failure
to be so qualified or to obtain such licenses, permits, consent or approvals or
to make such filings or registrations would not reasonably be expected to have,
individually or in the aggregate, a material adverse effect on the Card Program
taken as a whole.

 

(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 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 Bank’s
certificate of incorporation, bylaws, or such similar documents, 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.

 

32

 

(vii)         There
are no Claims or, to Bank’s knowledge, threatened Claims, that would materially
impair Bank’s ability to perform under this Agreement or would result in a
material adverse effect on Bank.

 

SECTION 3.13               Reports;
Audit Rights.

 

(a)           Reports.

 

(i)            Bank
shall supply Zale, at Bank’s sole cost and expense, with (A) those
periodic report(s) regarding the Card Program which are described in Schedule 3.13(a)(i) hereto
and (B) those reports regarding the sale of insurance products and
services specified in the Insurance Agreement, which reports, in each case,
shall be in forms reasonably determined by Zale and Bank.  As soon as practicable following the end of
each calendar quarter during the Term, Bank shall provide to Zale a risk
management report detailing the delinquency and charge-off levels consistent
with the type of information that has previously been provided by Bank to Zale
in Program Committee meetings prior to the Effective Date.  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.

 

(ii)           Zale
shall supply Bank, at Zale’s sole cost and expense, with the reports regarding
the Card Program listed in Schedule 3.13(a)(ii) attached
hereto at such times set forth on such schedule.  Zale shall also supply Bank with such
additional information and additional reports from time to time as Bank may
reasonably request, provided that, if any such additional report is not
produced by Zale 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 Zale’s reasonable cost of producing such report), and
such cost shall be paid by Bank.

 

(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 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 Zale 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.

 

33

 

SECTION 3.14               Bank
Performance.

 

(a)           [Intentionally Omitted.]

 

(b)           Agreement to Maintain Performance
Standards.  At all times during the
Term, Bank shall perform its services hereunder and conduct the Card Program 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 maintain
the capability, to the same extent available under the Original 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
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, 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 with all
Performance Standards.

 

(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 Bank became aware 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 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
the period when such upgrade is being implemented.  Any such upgrade shall be effected by Bank
with as little disruption to the Card Program as reasonably possible 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, at its sole cost and expense, at
all times during the Term keep its operations systems updated and in conformity
with then current industry standards at no additional cost to Zale.

 

34

 

(e)           Backup Capability.  Bank covenants at all times during the Term
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 delivered by Bank to Zale contemporaneously herewith.  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, 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.

 

SECTION 3.15               [Intentionally
Omitted].

 

SECTION 3.16               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.  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 insurance related 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 related
products and services sold pursuant to Card Sales hereunder shall be subject to
the terms and conditions of an Insurance Agreement, dated February 21,
2001, entered into by and among Z Del, Zale Puerto Rico, Zale Indemnity
Company, Zale Life Insurance Company, Jewel Re-Insurance, Ltd. and Hurley,
as amended (the “Insurance Agreement”). 
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 Zales’ 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 3.16
and shall 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.

 

35

 

 

SECTION 3.17               Zale Acquisitions; Unauthorized Goods and
Services.

 

(a)           In the event that, during the Term, 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 goods and services reasonably consistent with the Authorized Goods and
Services offered by Zale, 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 goods and services which are not reasonably consistent with the
Authorized Goods and Services offered by Zale, 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 in respect only of the
goods and services sold by the Acquired Business at the time of such
acquisition by Zale.

 

(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 goods and services
reasonably consistent with the Authorized Goods and Services offered by Zale,
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 Acquired Business offers goods and services which are not
reasonably consistent with the Authorized Goods and Services offered by Zale
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 in respect only of the
goods and services sold by the Acquired Business at the time of such
acquisition by Zale.

 

36

 

(iii)          In the event that an Acquired Business has an
existing private label credit card program that will remain in effect following
the closing of Zale’s purchase of such Acquired Business and such Acquired
Business offers goods and services reasonably consistent with the Authorized
Goods and Services offered by Zale, 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, Zale offers goods and services for
sale other than Authorized Goods and Services (such goods and services being “Unauthorized
Goods and Services”) 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.

 

SECTION 3.18               Purging 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.  Bank agrees to
provide reasonable advance notice to Zale of any purging of accounts.

 

SECTION 3.19               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 by Bank to Cardholders; provided, however,
Zale shall not have the right to include any inserts to Cardholders who meet
Bank’s exclusion criteria for Authorized Goods and Services or any other
products or services that are required to be paid for by a Cardholder with the
Card.  For the purpose of this Section 3.19,
“exclusion criteria” means the criteria generally applied by Bank with respect
to the exclusion of Cardholders, including due to delinquency, closure, death
or other similar criteria.  Zale will be
solely responsible for the cost of producing 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 inserts and bangtail payment
envelopes shall be subject to reasonable size, materials, and weight
specifications of Bank.  Zale agrees that
such inserts and/or bangtails will not (i) reference Bank without Bank’s
prior written approval, except in respect of 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 

 

37

 

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 3.19(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 Bank Products and Services; 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 3.19,
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; provided, however
Zale shall not have the right to include any messages, coupons and/or
advertisements to Cardholders who meet Bank’s exclusion criteria for Authorized
Goods and Services or any other products or services that are required to be
paid for by a Cardholder with the Card. 
Bank shall not be entitled to share in any fees or commissions paid to
Zale by third party vendors based on the sales of any products or services of
such third party vendors procured by Zale (other than Authorized Goods and
Services) that are sold to Cardholders as a result of such messages, coupons or
advertisements.

 

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

 

38

 

SECTION 3.20               Access to Products and Services; Enhancements.  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 3.20 hereof shall be
provided by Bank at no cost or expense to Zale. 
Bank agrees to provide all such system improvements or enhancements on
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.

 

SECTION 3.21               Programs. 
Pursuant to the terms of this Section 3.21, Bank will make
available the following credit card programs, and Bank shall have recourse
against Zale for any related credit losses to the extent specified below.

 

(a)           Big Ticket Recourse Program.  Bank and Zale agree that (with respect to
both new and existing Accounts) in any case where the credit line requested or
the Card Sale gross amount is more than $10,000 (or such lower amount as to
which Bank may determine on a case-by-case basis), and where Bank would
otherwise approve the Account (based on Bank’s Account Issuance Criteria) but
not grant an initial credit line or a credit line increase greater than or
equal to the amount requested, and where the Big Ticket Recourse Program risk
criteria for customers or applicants are met as determined from time to time by
Bank in its sole discretion, such Accounts shall be eligible for the “Big
Ticket Recourse Program”, as described below.  In no event shall the aggregate amount of
receivables under the Big Ticket Recourse Program at any time exceed                                     
[redacted].

 

(i)            Approval Process.  Bank
shall, promptly upon receipt, refer to Zale Credit Applications or Card Sales
involving accounts that are eligible to be included in the Big Ticket Recourse
Program.  Consistent with credit review
guidelines approved by Bank (Bank’s approval not to be unreasonably withheld,
conditioned or delayed), Zale shall determine, in compliance with Applicable
Law, whether to approve or not approve any such referred Account for the Big
Ticket Recourse Program (any Account so approved being a “Big Ticket
Recourse Account”).

 

(ii)           Recourse Liability.  Bank
shall extend credit in the amount requested for Big Ticket Recourse Accounts,
and, except as otherwise provided herein, Zale shall be liable for and bear all
of the losses resulting from charge off of the principal balances of such Big
Ticket Recourse Accounts in accordance with this Agreement, including, without
limitation:  (i) any existing
principal balance at the time the Account becomes a Big Ticket Recourse Account
and (ii) all subsequent charges to the Big Ticket Recourse Account for the
duration of the Account.  Zale’s recourse
liability for Big Ticket Recourse Accounts shall be calculated on a monthly
basis and charged against the Big Ticket Reserve Account as set forth in this Section 3.21(a) up
to the amount of such Account approved by Zale as set forth in this Section 3.21(a).  Any Accounts in the Big Ticket Recourse
Program will be subject to Chargeback to Zale for Cardholder fraud as 

 

39

 

set forth in this Section 3.21(a).  If the Zale Credit Services Department
requests that Bank approve, and Bank so agrees, any such Account prior to Bank’s
satisfactory completion of its normal authentication procedures, Zale shall
bear one hundred percent (100%) of the principal amount of any loss on such Big
Ticket Recourse Account resulting from Cardholder fraud.  With respect to all other Big Ticket Recourse
Accounts, Zale shall be responsible only for the principal amount of fraud
losses in excess of the credit limit that Bank would otherwise have
approved.  Bank shall have no recourse to
Zale with respect to the charge off of principal balances resulting from Big
Ticket Recourse Account credit line increases that were not expressly approved
by Zale.  As of the Effective Date, Bank
does not reclassify Big Ticket Recourse Accounts to non-recourse status on its
data processing system.  Bank may develop
means that Bank determines, in its sole discretion, will allow Big Ticket
Recourse Accounts to be reclassified to non-recourse status.  In such event, Bank shall consider
reclassification of zero balance Big Ticket Recourse Accounts and the removal
of such Accounts from the Big Ticket Recourse Program.  Upon removal of any Account from the Big
Ticket Recourse Program, Zale shall have no further liability for any such
Account under this Agreement.  Bank may,
at its option, request that Zale bear the costs associated with any systems
development related to the means as set forth in this Section 3.21(a)(ii).  If Zale elects not to bear such costs, Bank
shall have no further obligation to review Big Ticket Recourse Accounts for
potential removal from the Big Ticket Recourse Program.  The parties hereto hereby agree that the
rights and obligations set forth in this Section 3.21(a)(ii) shall
survive the termination of this Agreement.

 

(iii)          Merchant Fees.  Bank and Zale agree that Merchant Fees in
effect from time to time pursuant to Section 4.1 of this Agreement shall
be reduced by 160 basis points for Big Ticket Recourse Accounts.

 

(iv)          Termination.  Either
party may terminate the Big Ticket Recourse Program at any time by providing
thirty (30) days prior written notice to the other party, which notice
shall be deemed given upon receipt by the non-terminating party.  Bank shall, at Zale’s request, operate the
Big Ticket Recourse Program following termination for a wind-down period not to
exceed 90 days after the date of such termination.  Within ten (10) days of receipt by Zale
of a notice of termination of the Big Ticket Recourse Program from Bank, or
upon receipt by Bank of any notice of termination of the Big Ticket Recourse
Program from Zale, Zale shall specify the length of any wind-down period (not
to exceed ninety (90) days); provided, however, Zale may, at its
discretion, shorten, but not lengthen, the wind-down period by giving Bank ten
(10) days prior written notice.

 

(b)           60/40 Program.  Bank and Zale agree that Accounts in the
60/40 Program shall be operated pursuant to this Section 3.21 and
all Applicable Law:

 

(i)            Approval Process.  Bank
shall extend credit in the amount required to complete a purchase on either a
new or existing Account for those Cardholders that qualify for a minimum credit
line of $500.00 but do not qualify for the amount of credit requested for such
purchase; provided, that such Cardholder makes a down payment of not
less than forty percent (40%) of the difference between the available credit on
the 

 

40

 

Account (including any credit line increase granted
at the time of purchase) and the full amount of such purchase (including taxes
and any other charges).  (The program
described in the immediately preceding sentence is referred to herein as the “60/40
Program”, and an Account that includes a purchase made pursuant to the
60/40 Program is referred to herein as a “60/40 Account”).  Bank and Zale acknowledge that rounding and
calculation errors may result in minor variances from the forty percent (40%)
down payment requirement.  For purposes
of this Agreement, down payments of not less than 35% on not more than 5% of
the total volume of purchases made under the 60/40 Program shall be considered
within the scope of the 60/40 Program, and shall not constitute a store
violation.

 

(ii)           Recourse Liability.  For
purposes of this Agreement, any 60/40 Account for which the total new balance
resulting from a transaction made under the 60/40 Program exceeds four hundred
percent (400%) of the Account’s existing credit line immediately prior to
such 60/40 Program transaction shall constitute a 60/40 Recourse Account (“60/40
Recourse Account”).  All outstanding
balances on any 60/40 Recourse Accounts, including any balances resulting from
a transaction made under the 60/40 Program, any existing balances at the time
the Account is identified as a 60/40 Recourse Account, and all subsequent
purchases on any 60/40 Recourse Account, shall be included in the calculation
of the 60/40 Recourse Amount Due (as defined below).  No later than the thirtieth (30th) day of each
month during the Term, beginning on October 30, 2010, and for so long as
any 60/40 Recourse Account exists, Bank shall calculate and bill Zale for, and
Zale shall be liable for, an amount equal to the amount by which the Annualized
Net Charge-offs of the 60/40 Accounts for the immediately preceding month
exceed ten percent (10%) of the aggregate amount of all 60/40 Recourse Account
balances (the “60/40 Recourse Amount Due”).  For purposes herein, “Annualized Net
Charge-offs” shall mean (A) the sum of (1) gross losses minus (2) late
fee and finance charge reversals, multiplied by
(B) twelve (12).  Zale’s
liability for the 60/40 Recourse Amount Due shall be calculated on a monthly
basis and charged against the 60/40 Reserve Account as outlined below.  Commencing in January 2011, and for each
succeeding January during the Term, Bank and Zale will review the loss
sharing results and the parties will make a determination as to whether the
Zale loss share exceeds the actual principal loss minus ten percent (10%) of
the average accounts receivable, with any loss in excess of such amount to be
refunded by Bank to Zale.  Once a 60/40
Recourse Account balance is reduced to the amount of the credit line in
existence immediately prior to the transaction made under the 60/40 Program
that caused such Account to be identified as a 60/40 Recourse Account, Zale
shall have no liability, whether now or hereafter, for such Account under this
Agreement, unless the Cardholder makes a subsequent transaction made under the
60/40 Program resulting in such Account being identified as a 60/40 Recourse
Account.  If a Cardholder returns
merchandise purchased in a transaction made under the 60/40 Program, and Zale
issues a full credit for the amount charged to the Card in the 60/40 Program
transaction, and there are no other 60/40 Program outstanding balances on the
60/40 Recourse Account, then at Zale’s request, Bank will remove the Account
from the 60/40 Program, and Zale shall have no further liability for such
Account under this Agreement.  At no time
shall the aggregate amount of receivables for the 60/40 Recourse Accounts under
the 60/40 Program exceed                               
[redacted].

 

41

 

(iii)          Termination.  Either
party may terminate the 60/40 Program at any time by providing thirty (30) days
prior written notice to the other party, which notice shall be deemed given
upon receipt by the non-terminating party. 
Bank shall, at Zale’s request, operate the 60/40 Program following
termination for a wind-down period not to exceed ninety (90) days after the
date of such termination.  Within ten
(10) days of receipt by Zale of a notice of termination of the 60/40
Program from Bank, or upon receipt of any notice of termination of the 60/40
Program from Zale, Zale shall specify the length of any wind-down period (not
to exceed ninety (90) days); provided, however, Zale may, at its
discretion, shorten, but not lengthen, the wind-down period by giving Bank ten
(10) days prior written notice.

 

(c)           Recourse Reserve Requirement.  The Big Ticket Reserve Amount shall be equal
to the sum of (A) and (B) below and the 60/40 Reserve Amount shall be
equal to the sum of (C) and (D) below:

 

(A)                          five percent
(5%) of all Big Ticket Recourse Account outstanding balances less than sixty
(60) days delinquent;

 

(B)                           one hundred
percent (100%) of all Big Ticket Recourse Account outstanding balances greater
than fifty-nine (59) days delinquent (the sum of clauses (A) and
(B) of this Section 3.21(c) being the “Big Ticket
Reserve Amount”);

 

(C)                           five and one
half percent (5.5%) of all 60/40 Recourse Account outstanding balances less
than thirty (30) days delinquent; and

 

(D)                          seventy five
percent (75%) of all 60/40 Recourse Account outstanding balances greater than
twenty-nine (29) days delinquent (the sum of clauses (C) and (D) of
this Section 3.21(c) being the “60/40 Reserve Amount”).

 

(d)           Reserve Funding and Reporting.

 

(i)            Bank shall calculate the Reserve Amounts each
month, not later than thirty (30) days from the end of the month for which
the calculation is made.  If, as of the
monthly calculation, the balance in a Reserve Account is less than the
corresponding Reserve Amount, Zale shall promptly deposit via wire transfer the
difference in the appropriate Reserve Account following receipt by Zale from
Bank of the calculations (in reasonable detail), of the amount due.  If, as of the monthly calculation, the
balance in the Reserve Account is greater than the Reserve Amount required for
such Reserve Account, Bank shall promptly withdraw the difference from the
appropriate Reserve Account and pay the difference to Zale via wire transfer.  Bank may deduct or recoup any amounts owed
which are not paid within fifteen (15) business days after the Reserve Amount
calculation is delivered to Zale from Settlements due to Zale pursuant to Section 3.8
of this Agreement.  If either the funds
in the Reserve Accounts or the Settlement amount due Zale is insufficient to
cover the amount due from Zale to appropriately fund the Reserve Accounts, Bank
may deduct or recoup the amounts owed by Zale to fund a Reserve Account as
provided herein, or any remaining portion thereof 

 

42

 

from subsequent amounts due Zale under this
Agreement and shall promptly deposit any such amount into the appropriate
Reserve Account.  Zale agrees that any
deduction made by Bank from amounts Zale otherwise owes to Bank pursuant to
this Section 3.21(d)(i) is an act of recoupment, not a
setoff.  As applicable, the Recourse
Reserve Requirements, Reserve Funding, and Reserve Reporting shall survive the
termination of the Big Ticket Recourse Program, the 60/40 Program, and this
Agreement, until such time as Zale’s recourse obligations under those programs
have been fully satisfied.  Upon such
satisfaction, any remaining amounts shall be promptly paid by Bank to Zale,
together with the interest thereon.

 

(ii)           Bank will analyze and present to the Program
Committee the historical loss and delinquency performance of the Big Ticket
Recourse Program and the 60/40 Recourse Accounts on a quarterly basis.  Zale may initiate a request to lower the
Reserve Requirements, which shall be reviewed by the Program Committee; provided,
however, any final decision to lower the Reserve Requirements shall
remain in the sole discretion of Bank.

 

(iii)          Bank shall provide monthly reporting in
reasonable detail for each program as set forth below:

 

(A)                          Big Ticket
Recourse Accounts — account level status and aging, inclusive of all current,
delinquent and charge off accounts.

 

(B)                           60/40 Recourse
Accounts — portfolio aging and roll rates, account level detail for all recourse
balance accounts and realized losses.

 

(C)                           The monthly
interest calculation for each Reserve Account and amount on deposit in each
Reserve Account as of the date of such report.

 

(iv)          All reporting shall be in reasonable detail
and shall be provided to Zale no later than the last day of the calendar month
following the month for which the report is made.

 

SECTION 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 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 

 

43

 

all reasonable costs and expenses incurred by Bank in
performing Bank’s obligations under this Section 3.22.

 

SECTION 3.23               Zale Letter of Credit.

 

(a)           Subject to Section 3.23(c), Zale hereby covenants and agrees
that it shall obtain and maintain in full force and effect at all times during
the Term an irrevocable stand-by letter of credit in an amount equal to ten
million dollars $10,000,000, subject to and in accordance with the terms and
conditions set forth below and in a form acceptable to Bank consistent with the
standard form utilized by Bank of America or another issuer acceptable to Bank
(the “Permanent Letter of Credit”). 
Zale shall replenish the Permanent Letter of Credit within
thirty (30) days to eliminate any deficit in an amount equal to or greater
than two hundred fifty thousand dollars $250,000, in the aggregate, that is
created as a result of a draw or draws by Bank.

 

(b)           Subject to Section 3.23(c), Zale hereby covenants and agrees
that during the Term it shall obtain and maintain in full force and effect at
all times during the time period commencing on November 15 of each year
and continuing until March 31 of the following year (the “Security
Period”) an additional irrevocable stand-by letter of credit in an amount
equal to, (i) for the initial Security Period, three million five hundred
thousand dollars $3,500,000 and (ii) for each Security Period other than
the initial Security Period, one percent (1%) of the Net Card Sales for the
year ending on October 31 of the year in which the applicable irrevocable
stand-by letter of credit is obtained, in each case subject to and in
accordance with the terms and conditions set forth below and in a form
acceptable to Bank consistent with the standard form utilized by Bank of
America or another issuer acceptable to Bank (the “Seasonal Letter of Credit,”
and, together with the Permanent Letter of Credit, the “Letters of Credit”).

 

(c)           Zale acknowledges and agrees that Bank shall have the right in its sole
and absolute discretion (without prior notice to or consent by Zale):  (i)  to make full or partial draws on
the Letters of Credit at any time in an amount equal to any amounts to which
Bank is entitled to receive from Zale and that have not been paid pursuant to
the terms of this Agreement, including without limitation, Chargebacks,
returns, the non-delivery of merchandise, amounts owed under the terms of any
recourse programs, and In-Store Payments (“Contingent Liabilities”);
(ii) to make full or partial draws on the Permanent Letter of Credit upon
the receipt of notice of non-renewal of the Permanent Letter of Credit;
(iii) to make full or partial draws on the Permanent Letter of Credit upon
the failure of Zale to replenish the Permanent Letter of Credit as required by
this Agreement to eliminate any deficit created as a result of a draw by Bank;
or (iv) to make full or partial draws on the Permanent Letter of Credit
upon the failure of Zale to deliver the Seasonal Letter of Credit prior to the
beginning of any Security Period.  In the
event Zale does not timely make any adjustment to the amount of the Seasonal
Letter of Credit as required by Bank pursuant to such notice, Bank may deduct
the amount of any such required adjustment from the Settlement Account or
withhold any Settlement amounts due Zale to cover such adjustment.  Zale agrees that any deduction made by Bank
from accounts Zale otherwise owes to Bank pursuant to this Section 3.23(c) is
an act of recoupment, not a setoff. 
Notwithstanding the foregoing, in the event Bank makes a partial draw on
the Letters of Credit at any time in an amount less than two hundred fifty
thousand dollars ($250,000.00), the draw shall be considered a final draw and
Bank shall not have the right to make any further draws on the 

 

44

 

Letters of
Credit.  Zale shall take whatever action
is required for the Letters of Credit to remain available for full or partial
draws by Bank as set forth above during the Term, during any period following
termination or expiration of this Agreement where the parties continue to
comply with the terms and conditions of this Agreement pursuant to Section 5.4(d) and
Section 5.4(e), and for a period of ninety (90) days following
the final Card Sale under the terms of the Card Program.  Under no circumstances shall Bank’s decision
to draw down any amount under the Letters of Credit constitute a waiver of any
of Bank’s other rights under this Agreement, including without limitation Bank’s
right to terminate this Agreement in accordance with Section 5.4.  The parties hereto hereby agree that the rights
and obligations set forth in this Section 3.23(c) shall
survive the termination of this Agreement.

 

(d)           The failure by Zale to obtain and maintain (i) the Permanent Letter
of Credit in full force and effect at all times and (ii) the Seasonal
Letter of Credit in full force and effect at all times during the Security
Period shall constitute a material breach of an obligation to pay an amount
under this Agreement as set forth in Section 5.4(b)(iii) of
this Agreement.

 

(e)           Zale shall deliver to Citi: 
(i)  no later than forty-five (45) days following the end of each
of its fiscal quarters during the Term and (ii) no later than ninety (90)
days following the end of each of its fiscal year ends during the Term,
calculations of Net Debt Tangible Leverage and the Fixed Charge Ratio presented
in a form substantially similar to Schedule 3.23(e)(1) attached
hereto and an officer’s certificate, in a form substantially similar to the
form of officer’s certificate set forth on Schedule 3.23(e)(2) attached
hereto, certifying the accuracy of the Net Debt Tangible Leverage and the Fixed
Charge Coverage Ratio.  If the Net Debt
Tangible Leverage is below 1.5x for the immediately preceding two consecutive
quarters and the Fixed Charge Coverage Ratio is above 1.25x for the immediately
preceding two consecutive quarters, Zale may deliver a written notice to Bank
seeking consent (such consent not to be unreasonably withheld, conditioned or
delayed) to no longer maintain the Letters of Credit.  If, pursuant to this Section 3.23(e),
Bank no longer holds the Letters of Credit, and at any time during the Term
either, or both, of the Net Debt Tangible Leverage exceeds 1.5x or the Fixed
Charge Coverage Ratio drops below 1.25x then Zale shall, within five (5) Business
Days obtain and deliver to Bank the Permanent Letter of Credit pursuant to Section 3.23(a) and
the Seasonal Letter of Credit pursuant to Section 3.23(b) and
all agreements and obligations pursuant to this Section 3.23 shall
be in full force and effect.

 

SECTION 3.24               Warranty Reinsurance.  Zale caused its affiliate, Zale Indemnity
Company to issue a Contractual Liability Policy, effective as of June 30,
2009 with Citibank (South Dakota), N.A. as the third party beneficiary, which
is fully incorporated herein by reference (the “Warranty Reinsurance”).  As of the Effective Date, Zale shall have
entered into an amended contractual liability policy acceptable to Bank, such
policy to be substantially similar to the form of the Warranty Reinsurance (the
“New Warranty Reinsurance”).  The
New Warranty Reinsurance shall, among other things, insure this Agreement.  From and after the Effective Date, the
failure by Zale to at all times maintain in full force and effect the New
Warranty Reinsurance shall constitute a material breach of an obligation to pay
an amount under this Agreement as set forth in Section 5.4(b)(iii) of
this Agreement.  The parties hereto
hereby agree, pursuant to the terms of the Warranty Reinsurance and the New
Warranty Reinsurance, as applicable, that the rights and obligations set forth
in this Section 3.24 shall survive the termination of this
Agreement for a period of twelve (12) months after the final Card Sale.

 

45

 

 

SECTION 3.25               Insurance Recoveries.

 

(a)           Pursuant to Section 3.16 of this Agreement and Section 3(d) of
the Insurance Agreement, Zale may (but is not obligated to) pursue recovery
from Cardholders of billed insurance  premiums (“Insurance
Recoveries”) charged to Accounts that are subsequently charged off by Bank;
provided, however, it being understood by the parties hereto that
Bank currently includes billed insurance premiums in the balance of charged off
Accounts sent to recovery agencies.  Bank
and Zale agree as follows with respect to Insurance Recoveries:

 

(i)            Bank will continue  to include Insurance Recoveries in its collection and
recovery of charged off Accounts, and shall be entitled to retain all amounts
collected in connection therewith; and

 

(A)                          Bank agrees to
timely apply all payments to the Account balance arising from credit insurance
benefit payments to reduce or avoid a Chargeback; and

 

(B)                           Bank will pay
to Zale Insurance an amount equal to 2.27% of portfolio gross recoveries
beginning on the date of this Agreement until termination  of
the Insurance Recovery Program.

 

(b)           The Insurance Recovery Program shall terminate at the earlier of:

 

(i)            The termination or expiration of this
Agreement, including any renewals; or

 

(ii)           The termination or expiration of the Insurance
Services Agreement, including any renewals; or

 

(iii)          Upon 30 days written notice of
termination  of the Insurance
Recovery Program by either party.

 

(c)           If the Insurance Recovery Program terminates prior to either the
termination or expiration of either of this Agreement or the Insurance
Agreement, in each case, in accordance with their terms, the Insurance Recovery
balances charged off after the termination of the Insurance Recovery Program
shall be excluded by Bank from its collection and recovery efforts.  In such event, Zale shall be entitled to
attempt recovery of such charged off Insurance Recovery balances directly with
the customer.

 

ARTICLE IV

 

FEES AND
CERTAIN OTHER PAYMENTS

 

SECTION 4.1                 Fees and Certain Other Payments.

 

(a)           For each Card Sale made by Zale, during the first year of the Initial
Term, Bank shall charge and Zale shall pay a fee expressed as a percentage of
the Card Sale as set forth on Schedule 4.1(a)(1).  For each Card Sale made by Zale during the
Term (other than during the 

 

46

 

first year of the
Initial Term), Bank shall charge and Zale shall pay a fee expressed as a
percentage of the Card Sale as set forth on Schedule 4.1(a)(2) (the
fees set forth on Schedule 4.1(a)(1) and (2),
collectively, the “Merchant Fees”). 
The Merchant Fees for each year of the Term (except for the first year
of the Term) shall be determined based on the Net Card Sales from the
immediately prior year of the Term.  The
Merchant Fee will be calculated in accordance with Section 4.1(b) of
this Agreement and shall be subject to adjustment as provided herein.

 

(i)            Merchant Fee Adjustments Due to Prime Rate
Changes.  In addition to Merchant Fee changes provided
for in clause (iii) below, the Merchant Fees applicable to all Credit
Plans as outlined above, are subject to change on the first Business Day of
each calendar month during the Term based on changes to the Prime Rate as set
forth on Schedule 4.1(a)(i) and subject to Section 5.4(b)(xi);
provided, however, if making a change in the Merchant Fee in the
amount as set forth on Schedule 4.1(a)(i) would result in Bank
exceeding the Prime Rate Merchant Fee Cap, Bank shall be entitled to adjust the
Merchant Fee in an amount less than as set forth on Schedule 4.1(a)(i).

 

(ii)           [Intentionally omitted.]

 

(iii)          Merchant Fee Adjustments Due to Changes in
Applicable Law and Net Credit Sales on the Regular Revolve Plan.  At
any time, and from time to time, from and after the Effective Date, in the
event (A) there is any change in Applicable Law that could, in Bank’s
reasonable discretion, impact the Card Program, the Accounts or the Credit Card
Agreements, or (B) Net Credit Sales on the Regular Revolve Plan constitute
more than                             
[redacted] of the total Net Credit Sales for any consecutive three (3) month
period, Bank shall have the right to adjust any one or more, or all of the
Merchant Fees, subject to Section 5.4(b)(xii).

 

(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 3.16 hereof or sales of products or services
via inserts pursuant to Section 3.20.

 

ARTICLE V

 

MISCELLANEOUS

 

SECTION 5.1                 Indemnification.

 

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

 

47

 

(i)            Any Claim or setoff made by or on behalf of a
Cardholder relating to Card Sales or Credits submitted by Zale pursuant to this
Agreement to the extent related to Zale’s acts or omissions.

 

(ii)           Any negligent, reckless or wrongful acts or
omissions by Zale or any employee, agent or representative of Zale, in
connection with the furnishing of any Authorized Goods and Services purchased by
Cardholders pursuant to this Agreement.

 

(iii)          Any Claim by a Cardholder, any Governmental
Authority or any other third party to the extent relating to a violation of
Applicable Law by Zale or its employees, agents or representatives in
connection with the furnishing of any product or service by Zale to any
Cardholder.

 

(iv)          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 (including any product liability or warranty
claim with respect thereto) purchased with the Card.

 

(v)           Any Claim 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.

 

(vi)          Any breach by Zale of any representation,
warranty, covenant, agreement or obligation under this Agreement.

 

(vii)         The negligence, willful misconduct,
misfeasance, malfeasance or fraudulent acts of any employee, agent or
representative of Zale.

 

(viii)        Any Claim arising out of any jewelry or
merchandise offers that are sent by Zale, whether directly or indirectly, its
Affiliates, or by Bank at Zale’s request, to the customers of an Affiliate of
Bank.

 

(ix)           Any Claim arising out of any and all
advertising, promotions and marketing programs, materials (in any media form),
documents for Authorized Goods and Services or materials or other items to the
extent conducted or produced by or at the direction of Zale.

 

(x)            Any Claim arising out of a failure of Zale’s
systems or operations relating to the Card Program.

 

(xi)           Any Claim arising directly or indirectly out
of (A) the sale by Zale of the BBB brand and related assets and
liabilities to Finlay; and (B) the offering of the Card Program to BBB
customers under the terms of this Agreement, including without limitation any
claims by Finlay related to the Settlement of transactions involving BBB
customers.

 

(xii)          Any Claim arising out of or related to any
Second Look Program entered into by Zale with any third party.

 

48

 

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

 

(i)            Any Claim by or on behalf of a Cardholder to
the extent relating 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 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 by a Cardholder, any Governmental
Authority or any other third party to the extent relating 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 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, covenant, agreement or obligation under this Agreement.

 

(vi)          Any Claim 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.

 

(viii)        Any Claim arising out of any and all
advertising, promotions and marketing programs, inserts, documents for
Authorized Goods and Services or materials or other items to the extent
conducted or produced by or at the direction 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 give
the Indemnifying Party written notice thereof promptly, but in any event no
later than thirty (30) days after the Indemnified Party becomes aware of
such claim, suit or action, provided that the failure to so notify the
Indemnifying Party within such thirty (30) day period shall not relieve
the Indemnifying Party of its indemnification obligations under this Section 5.1,
except to the extent that such failure actually and materially prejudices the
Indemnifying Party.  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 

 

49

 

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 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 Section 5.4(c),
5.4(g), 5.5, 5.7 and 5.8, 5.10, 5.13,
5.18, 5.26 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.

 

SECTION 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, subject to any
further limitations set forth in Section 5.2(f)(i), and 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.  Zale shall provide support for the Card Program
at its Stores in a manner reasonably consistent with the support provided by 

 

50

 

Zale under the terms of
the Original Agreement.  Zale shall
encourage customers to apply for Cards and shall encourage Cardholders to use
Cards for purchases of Authorized Goods and Services.  Promotion of the Card Program by Zale shall
be generally consistent with industry practices.  Zale shall display at each of its Stores
advertising and promotional materials relating to the Card Program, including
without limitation, signage promoting the Special Credit Plans.  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 the Effective Date, Bank
shall develop and submit to Zale forms of Required Disclosures (including
without limitation Required Disclosures regarding the Special Credit Plans
described in Schedule 1.1) 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, (A) 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 

 

51

 

deemed approved by the Non-Proposing Party in
accordance with the terms of this Section 5.2; and (B) the
Non-Proposing Party will have the option to 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, including without limitation through periodic, weekly, file
updates.  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 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. 
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 Bank 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 Fund.  During the Term, Bank and Zale shall create a
marketing fund available in order to market the Card Program (the “Marketing
Fund”).

 

(i)            Beginning on October 1, 2011 and on each
October 1 thereafter during the Term, Bank and Zale shall commit to accrue
                      
[redacted] basis points of Net Card Sales from the prior year, for the purposes
of this Section 5.2(e), such year to commence on the October 1
and end on September 30.

 

(ii)           Bank shall commit to accrue the amounts set
forth on Schedule 5.2(e)(ii) during the time periods set forth
on such schedule.

 

(iii)          The expenditure of the Marketing Fund shall be
for the marketing of the Card Program through new initiatives that are above
and beyond the typical, expected level of program promotional efforts engaged
in by the parties under the terms of the Original Agreement including without
limitation, the following:

 

(A)          10% off offers tied to the
card;

 

(B)           employee incentive programs
tied to the card;

 

(C)           additional offerings of
longer term promotions (18 month no interest for example) at a reduced MDR;

 

52

 

(D)          current purchases that
include discount offers for future purchases tied to the card;

 

(E)           gift with purchase programs
tied to the card;

 

(F)           additional merchandise
discounts for Card Sales;

 

(G)           re-issue;

 

(H)          sweepstakes; and

 

(I)            and any other materials and
expenses promoting the Card Program

 

Prior
to the expenditure of any amount from the Marketing Fund, such planned
expenditure shall be approved in writing by Bank and Zale.  Bank and Zale agree to work together to
develop and execute marketing efforts to promote the Card Program and as
programs are executed Bank and Zale each party hereto shall agree to an
allocation of the funding of the expenses incurred for said approved programs
from the Marketing Fund.  Bank and Zale
shall use their respective commercially reasonable efforts to spend the full
amount committed to the Marketing Fund each year.  If after such commercially reasonable efforts
to spend the committed amounts, there remain unspent amounts, any unspent
amounts in the Marketing Fund shall be considered not to be spent and neither
Bank nor Zale will be required to spend those amounts.  Upon termination of the Agreement for any
reason, neither party shall be obligated to expend directly any portion of the
Marketing Fund that is then not expended.

 

(f)            Promotions for Authorized Goods and Services.

 

(i)            Zale will not publish or distribute (in any
media form) promotional offers targeted at the customers of an Affiliate of
Bank (because they are customers of an Affiliate of Bank) without the prior
written consent of Bank.  Bank or its
Affiliate shall have final approval with respect to the general design of all
promotional offers, and Zale shall have the exclusive approval with respect to
the design, layout and content of any merchandise offer.  Zale shall incorporate any and all revisions
required as a condition of approval by Bank, and shall bear all costs related
thereto.  Bank or its Affiliate shall
determine in its sole discretion: (i) whether to permit any proposed
promotional offer; (ii) the timing of any promotional offer; and
(iii) the customers of the Affiliate who will receive any promotional
offers.

 

(ii)           Zale acknowledges the exclusive proprietary
interest of Bank and/or its Affiliates in and rights to all Citi logos, trademarks,
trade names, service marks, branding and “look and feel” as well as any unique
logo, trademark, trade name or service mark that may be created for a
promotional offer.  Bank or its Affiliate
hereby grants Zale a limited license to use said logos, trademarks and trade
names solely in connection with an approved promotional offer, provided Zale
obtains Bank’s or Affiliate’s prior written approval of such use.  Zale recognizes and acknowledges that it
shall acquire no right in or to these logos, trademarks, trade names, service
marks and trade dress.  Bank or its
Affiliate may, at their sole discretion, deny or limit Zale’s use of such
logos, trademarks, trade names and service marks.

 

53

 

(iii)          Bank and Zale agree that with respect to any
marketing activity undertaken pursuant to this Agreement, any Affiliate of Bank
whose customers receive a promotional offer shall be considered a third party
beneficiary under this Agreement.

 

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

 

SECTION 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 will remain in effect until the
close of business on the date that is five years from execution of this
Agreement (the “Initial Term”). 
This Agreement shall automatically renew for successive two year periods
after the Initial Term and any subsequent applicable term (each a “Renewal
Term”, and together with the Initial Term, the “Term”), unless Bank
or Zale provides the other party with written notice of termination no less
than six (6) months prior to the end of the Initial Term or any Renewal
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
end of the 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;

 

54

 

(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 Bank or Zale, upon thirty (30) days’
prior written notice of a Repeated and Material Breach by Zale or Bank,
respectively;

 

(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 calendar month period
(the “Decrease Period”) decreases below the Minimum Volume Amount.  Notwithstanding anything to the contrary in
the Agreement and for the avoidance of doubt, Bank shall have the right to
terminate the Agreement in accordance with the terms and conditions of this Section 5.4(b)(v) at
any time regardless of when or whether Bank has previously given notice
hereunder, including without limitation, after either party has provided notice
of termination pursuant to Section 5.4(a) of the Agreement;

 

(vi)          by Bank or Zale, upon
three (3) months’ prior written notice if (A) the other party
has intentionally or willfully violated Applicable Law and such violation has
an adverse impact on the Card Program taken as a whole; provided that
the non-breaching party shall be entitled to terminate this Agreement
immediately at any time during such three (3) month period if the
breaching party is not using commercially reasonable efforts to cure such act
or omission that violated Applicable Law, (B) the other party has violated
Applicable Law with respect to the Card Program, or (C) a Governmental
Authority has determined that the operation of the Card Program or the
practices utilized by the other party in connection with the Card Program
violated Applicable Law; provided, however, in each of clauses (A) and
(B) such violation of Applicable Law is to be determined by a court of
competent jurisdiction; provided, further in the case of clause (B) or
(C) the non-breaching party shall, upon written notice to the breaching party,
provide the breaching party ten (10) days to cure such act or omission
that was found to have violated Applicable Law prior to delivering the written
notice described in clauses (B) or (C);

 

(vii)         by Bank upon not less than one hundred eighty
(180) days’ prior written notice to Zale in the event that during any
twelve (12) consecutive calendar month period Net Card Sales decrease by
twenty percent (20%) or more from the immediately prior twelve (12)
consecutive calendar month period;

 

(viii)        by Bank upon thirty (30) days’ prior
written notice to Zale in the event of a Material Adverse Effect;

 

(ix)           by Bank upon sixty (60) days’ prior
written notice to Zale in the event a Change of Control shall have occurred
with respect to Zale;

 

55

 

 

(x)           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;

 

(xi)          by Zale, upon not less than sixty (60) days
prior written notice to Bank, in the event that the Merchant Fees have been
adjusted pursuant to Section 4.1(a)(i) by an aggregate of 50
basis points or more in any twelve (12) month period or by an aggregate of two
hundred fifty (250) basis points or more in any five (5) year period
during the Term (the “Prime Rate Merchant Fee Cap”); provided, however,
that, upon receipt of any such notice from Zale, Bank shall have thirty (30)
days to reduce any increase in the Merchant Fees that was made pursuant to Section 4.1(a)(i) below
the Prime Rate Merchant Fee Cap, and if Bank does so, then Zale’s termination
right under this Section 5.4(b)(xi) shall be extinguished and
of no further force or effect; provided, further, however, that if Bank does
not cure or rescind such increase in Merchant Fees during such thirty (30) day
period, Bank shall continue to have the right to maintain the increased
Merchant Fees until the earlier of the effective date of the termination of
this Agreement pursuant to this Section 5.4(b)(xi) and the
date on which Zale’s purchase of the Card receivables and Accounts is completed
pursuant to Section 5.4(d) hereof (it being understood and
agreed by the parties that any such termination notice by Zale must be
delivered to Bank within thirty (30) days of the date on which Zale first
became aware of an increase in the Merchant Fees in excess of the Prime Rate
Merchant Fee Cap; it also being understood and agreed by the parties that the
Prime Rate Merchant Fee Cap is a separate cap on Merchant Fees from the
Applicable Law and Regular Revolve Merchant Fee Cap);

 

(xii)         by Zale, upon not less than sixty (60) days
prior written notice to Bank, in the event that the Merchant Fees have been
adjusted pursuant to Section 4.1(a)(iii) by an aggregate of 50
basis points or more in any twelve (12) month period or by an aggregate of two
hundred fifty (250) basis points or more in any five (5) year period
during the Term (the “Applicable Law and Regular Revolve Merchant Fee Cap”);
provided, however, that, upon receipt of any such notice from
Zale, Bank shall have thirty (30) days to reduce any increase in the Merchant
Fees that was made pursuant to Section 4.1(a)(iii) below the
Applicable Law and Regular Revolve Merchant Fee Cap, and if Bank does so, then
Zale’s termination right under this Section 5.4(b)(xii) shall
be extinguished and of no further force or effect; provided, further,
however, that if Bank does not cure or rescind such increase in Merchant Fees
during such thirty (30) day period, Bank shall continue to have the right to
maintain the increased Merchant Fees until the earlier of the effective date of
the termination of this Agreement pursuant to this Section 5.4(b)(xii) and
the date on which Zale’s purchase of the Card receivables and Accounts is
completed pursuant to Section 5.4(d) hereof (it being
understood and agreed by the parties that any such termination notice by Zale
must be delivered to Bank within thirty (30) days of the date on which Zale
first became aware of an increase in the Merchant Fees in excess of the
Applicable Law and Regular Revolve Merchant Fee Cap; it also being understood
and agreed by the parties that the Applicable Law and Regular 

 

56

 

Revolve
Merchant Fee Cap is a separate cap on Merchant Fees from the Prime Rate
Merchant Fee Cap);

 

(xiii)        by either party in accordance with the terms
set forth in Section 5.4(a); or

 

(xiv)        by Bank, immediately and automatically,
without notice, upon the rejection of this Agreement in any bankruptcy of Zale.

 

(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 of this
Agreement (x) by Zale as a result of the events described in Section 5.4(b)(i),
(ii), (iii), (iv), (vi), (x), (xi), (xii) or
(xiii) or (y) by Bank as a result of the events described in Section 5.4(b)(v),
(vii), (viii), (ix), (x) or (xiii),
Zale (or its designee) 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 (or its designee), 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 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 receipt by Zale of notice of termination of this
Agreement by Bank (the date on which such notice is delivered by Zale to Bank
being the “Call Determination Date”), but in any event, not later than
the effective date of the termination or expiration of this Agreement.  Following such election, Bank shall, as
promptly as commercially reasonable, and in any event not later than one
hundred eighty (180) days after the Call Determination Date, 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 (or its
designee) may reasonably request, to effect or evidence such transfer, and
furthermore, during such one hundred eighty (180) day period the parties agree
to continue to abide by the terms and conditions 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. 
Concurrently with such purchase, and as a condition thereto, Zale (or its
designee) 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.

 

57

 

(e)           Put Option.  Upon 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), (iv), or (vi) and for a period of
thirty (30) days thereafter, Bank will have the right, but not the
obligation (subject to clause (d) above), upon written notice to Zale
during such thirty (30) day period (the date on which such notice is
delivered by Bank to Zale being the “Put Determination Date”), 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 on hundred
eighty (180) days from the Put Determination Date, 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, and furthermore, during such one hundred eighty (180) day period
the parties agree to continue to abide by the terms and conditions 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. 
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) 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 thirty (30) days
following notice of such purchase and sale, the purchase price shall be the
value to Bank, as determined using any and all reasonable and available
methodologies generally accepted in the industry, of the outstanding Card
receivables on a going concern basis on the date of transfer arrived at by a
neutral, independent public accounting firm which is one of the six (6) 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.

 

58

 

(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 Cardholder Lists for any purpose
including, without limitation, any solicitation of Cardholders of such Accounts
by Bank or its Affiliates or any third party or the disclosure or sale of such
Cardholder Lists 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 the Cardholder Lists 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
or use such information for any purpose, including to issue to Cardholders a
general purpose bank credit card or other private label credit card, to the
extent Bank obtains such information from any source other than 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, all right, title and interest in the Cards, Accounts,
Cardholder Agreements and Cardholder Lists shall remain with Bank.  Zale shall have no right, title or interest
in or to the Cards, Accounts, Cardholder Agreements and Cardholder Lists.  Bank’s exclusive ownership and rights to the
Cardholder Lists shall include the right to use the Cardholder Lists for any
purpose, including the right to use the Cardholder Lists to issue to
Cardholders a general purpose bank credit card or other private label credit
card in substitution of their existing Card at any time prior to or following
termination of this Agreement, or to offer Cardholders an additional or
alternate general purpose bank credit card or other private label credit card.

 

SECTION 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.  In the event a
party exercises its right to effect a purchase and sale of the outstanding Accounts
or Card receivables pursuant to Section 5.4(d) or (e) above,
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
confidentiality, security, audits, and third party contracts.

 

(b)           [Intentionally Omitted.]

 

(c)           Bank agrees to provide Zale with the information reasonably required to
allow Zale to execute a formal Request for Proposal (RFP) Process to identify
and select a new service provider.  Zale
will submit such reasonable information requests to Bank and Bank agrees to
provide such information (the RFP Data) in a timely manner.  The nature of the 

 

59

 

information will be
consistent with that required for a third party to evaluate the Zale credit
program and submit a binding bid as is customary in RFP processes of this
scale.  For avoidance of doubt, Bank also
agrees to provide information should Zale issue an RFP for a Second Look
Provider recognizing that the information will be more limited.  Zale shall not be permitted to share with any
third party any information provided by Bank pursuant to this Section 5.5(c) unless
and until such third party enters into a non-disclosure agreement with respect
to such information with Bank on terms and conditions reasonably satisfactory
to Bank.

 

(d)           Upon termination of this Agreement, the parties shall endeavor, in good
faith, to close any transaction contemplated by Section 5.4(d) or
(e) and to complete the related transition as promptly as
commercially reasonable and in any event not later than one hundred
eighty (180) days after the Call Determination Date or the Put
Determination Date, as applicable, and the parties shall continue to comply
with the terms and conditions of this Agreement until the date of the closing
of such transaction.  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.

 

(e)           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
this Agreement at commercially reasonable rates and as may be mutually agreed
by the parties hereto and 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.

 

(f)            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.

 

(g)           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.

 

SECTION 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 venture 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 

 

60

 

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.

 

SECTION 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, except to the extent Bank is prevented from
implementing such backup capacity, failover plans or disaster recovery
procedures because of such force majeure event. 
Such causes may include, but are not limited to acts of God or of the
public enemy, acts of civil or military authority, fires, floods, earthquakes,
embargoes, work stoppages, labor disputes, strikes, epidemics, pandemics, war,
acts of terrorism, nuclear disasters, riots, rebellions, revolutions in any
country 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.

 

SECTION 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”) 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, 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); (c) 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, 

 

61

 

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 Authority 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 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.  Bank acknowledges that Zale will be filing a
copy of this Agreement as an exhibit to its SEC filings and consents thereto.

 

(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.

 

SECTION 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’s 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 3.19
hereof.  Except as specifically provided
herein, during the Term 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 

 

62

 

Cardholder by Bank to Zale and otherwise use
reasonable efforts to be able to disclose such information to Zale.

 

SECTION 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 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, 

 

63

 

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 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.

 

SECTION 5.11             Financial Information.  To the extent the statements referred to in
this Section 5.11 are not publicly available, Zale shall cause Zale
Corporation to provide or make available to Bank, during the Term, promptly
following preparation thereof, (a) annual audited financial statements
prepared by its independent accounting firm and (b) unaudited quarterly
financial statements.

 

64

 

SECTION 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.

 

SECTION 5.13             Agreement Not to Sell, Securitization.

 

(a)           Except in connection with an assignment permitted pursuant to the
provisions of Section 5.12 hereof or Section 5.13(b) below,
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
any receivable under any Account, during the Term 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, Bank may sell any Accounts which have
been written off and closed by Bank in accordance with Bank’s standard
operating procedures.

 

(b)           Bank shall have the right to securitize all or any portion of the
Accounts and any receivables originated under an Account at any time.  Any right(s) to purchase the Accounts
and such receivables which Zale may have hereunder shall be subject to Bank’s
right to securitize or participate the Accounts and the receivables originated
under an Account, and such rights shall be available to Zale only with respect
to Accounts and such receivables owned by Bank at the time of such purchase; provided,
however, that: (i) Bank shall securitize only on terms and
conditions that permit such arrangements to be unwound or that allow removal or
substitution of Card Program assets in the event of the exercise of the
purchase right under Section 5.4(d) or (e) of this
Agreement or in the event Bank’s securitization arrangements are terminated for
any reason; (ii) neither Bank nor any Person who is a party to such
securitization, participation or other financing arrangement involving
Accountholder receivables and/or any legal or beneficial interest therein shall
have the right to use the Zale Marks or otherwise refer to Zale in connection
with any securitization, participation or financing in any disclosure material
other than in accordance with traditional and customary standards, or as
required or advisable under Applicable Law; and (iii) if Bank, in
connection with any such securitization, intends to file with the Securities
and Exchange Commission (the “SEC”) or otherwise make public information
concerning Card Program performance, Bank shall only disclose Accountholder
receivable and Accountholder performance information on a disaggregated basis
to the extent that Bank, in its sole discretion, determines that such
disclosure is required or advisable under Applicable Law or would otherwise
facilitate such securitization in its view of then existing market
conditions.  If, in connection with any
securitization, Bank determines that it is required

 

65

 

 

or advisable to
disaggregate Card Program information in connection with any filing with the
SEC, it shall notify Zale prior to filing such information with the SEC.  Notwithstanding the foregoing, except as may
be required by Applicable Law in Bank’s sole discretion, Bank shall not
publicly disclose any Card Program information that could be competitively
disadvantageous to Zale.

 

SECTION 5.14             Cooperation.  Subject to legal privilege, 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 in existence as of the Effective Date or hereafter
initiated in connection with Zale’s credit card operations and Card Program.

 

SECTION 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.

 

SECTION 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.

 

SECTION 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.

 

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

 

SECTION 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.

 

SECTION 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.

 

SECTION 5.21             WAIVER
OF JURY TRIAL.EACH PARTY WAIVES, TO THE FULLEST EXTENT PERMITTED
BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF
ANY ACTION, SUIT, OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT.

 

SECTION 5.22             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 

 

66

 

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.

 

	
  If
  to Bank:

  	
  Citibank
  (South Dakota), N.A.

  
	
   

  	
  710
  East 60th Street North

  
	
   

  	
  Sioux
  Falls, South Dakota 57117

  
	
   

  	
  Attention:

  	
  General
  Counsel

  
	
   

  	
  Facsimile:

  	
  (605)
  330-6745

  
	
   

  	
   

  
	
   

  	
  with
  a copy to (which shall not constitute notice):

  
	
   

  	
   

  
	
   

  	
  Citigroup
  Inc.

  
	
   

  	
  399
  Park Avenue, 3rd Floor

  
	
   

  	
  New York,
  New York 10022

  
	
   

  	
  Attention:

  	
  Deputy
  General Counsel, M&A Legal

  
	
   

  	
  Facsimile:

  	
  (212)
  559-7057

  
	
   

  	
   

  	
   

  
	
  If
  to Zale:

  	
  Zale
  Delaware, Inc.

  
	
   

  	
  901
  West Walnut Hill Lane

  
	
   

  	
  Irving,
  Texas 75038

  
	
   

  	
  Fax No: (972) 580-4670

  
	
   

  	
  Attn: Chief Financial Officer

  
	
   

  	
   

  
	
  With
  copies to:

  	
  Zale
  Delaware, Inc.

  
	
   

  	
  901
  West Walnut Hill Lane

  
	
   

  	
  Irving,
  Texas 75038

  
	
   

  	
  Fax
  No: (972) 580-4934

  
	
   

  	
  Attn:
  General Counsel

  

 

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.

 

SECTION 5.23             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.

 

SECTION 5.24             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.

 

67

 

SECTION 5.25             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.

 

SECTION 5.26             Consent
to Jurisdiction.  The parties
hereto irrevocably submit to the exclusive jurisdiction of (a) the courts
of the State of Delaware and (b) the federal court sitting in the Delaware
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 Delaware 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
Delaware.  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 Delaware with respect to any matters to which it has submitted to
jurisdiction in this Section 5.26. 
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 Delaware or (ii) the federal court sitting in the Delaware, 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.

 

68

 

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

 

 

	
  ZALE
  DELAWARE, INC.

  	
   

  	
  CITIBANK (SOUTH DAKOTA), N.A.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:
  

  	
  /s/
  MATTHEW W. APPEL

  	
   

  	
  By:
  

  	
  /s/
  DOUGLAS C. MORRISON

  
	
  Name:
  Matthew W. Appel

  	
   

  	
  Name:
  Douglas C. Morrison

  
	
  Title:
  EVP and CFO

  	
   

  	
  Title:
  VP and CFO

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  ZALE
  PUERTO RICO, INC.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:
  

  	
  /s/
  MATTHEW W. APPEL

  	
   

  	
   

  
	
  Name:
  Matthew W. Appel

  	
   

  	
   

  
	
  Title:
  EVP and CFO

  	
   

  	
   

  

 

 

Schedule 1.1 — Zale Marks

 

1.              Gordon’s

 

2.              Gordon’s Jewelers

 

3.              Gordon’s Jewelers (stylized)

 

4.              Gordon’s Joyeros (stylized)

 

5.              Misc. Design (Flying Z)

 

6.              Zales

 

7.              Zales Jewelers

 

8.              Zales the Diamond Store

 

9.              Zales the Diamond Store
Outlet

 

10.       Zales the Online Diamond
Store

 

 

Schedule 3.11(a) - Chargeback

 

	
  ARTICLE VICODE

  	
   

  	
  Definition

  	
   

  	
  Explanation

  	
   

  	
  Documentation to

  Support 

  Chargeback

  	
   

  	
  Documentation to

  Reverse 

  Chargeback

  	
   

  	
  Comments/Questions

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  01

  	
   

  	
  Transaction
  without Required Authorization

  	
   

  	
  A
  valid Authorization was not obtained.

  	
   

  	
  Authorization
  Report for Sales Data; Cardholder Statement.

  	
   

  	
  Valid
  Authorization Code

  	
   

  	
  Chargeback
  will occur on the date of the earlier to occur of: (1) the date the
  underlying Account becomes one hundred fifty (150) days delinquent, or
  (2) the date the underlying Account is changed by Bank to a Bankruptcy
  status or is determined to be uncollectible as determined by Bank in its sole
  discretion.

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  02

  	
   

  	
  Declined
  Authorization

  	
   

  	
  The
  transaction was completed after the Company received a decline.

  	
   

  	
  Authorization
  Report showing Decline; Cardholder Statement.

  	
   

  	
  Valid
  Authorization Code

  	
   

  	
  Chargeback
  will occur on the date of the earlier to occur of: (1) the date the
  underlying Account becomes one hundred fifty (150) days delinquent, or
  (2) the date the underlying Account is changed by Bank to a Bankruptcy
  status or is determined to be uncollectible as determined by Bank in its sole
  discretion.

  

 

 

	
  ARTICLE VICODE

  	
   

  	
  Definition

  	
   

  	
  Explanation

  	
   

  	
  Documentation to

  Support 

  Chargeback

  	
   

  	
  Documentation to

  Reverse 

  Chargeback

  	
   

  	
  Comments/Questions

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  03

  	
   

  	
  Invalid
  Cardholder Account Number

  	
   

  	
  The
  transaction was submitted using an Account number for which no valid Account
  exists or can be located.

  	
   

  	
  Non-Post
  Report

  	
   

  	
  Valid
  Cardholder Number

  	
   

  	
   

  

 

 

	
  ARTICLE VICODE

  	
   

  	
  Definition

  	
   

  	
  Explanation

  	
   

  	
  Documentation to

  Support 

  Chargeback

  	
   

  	
  Documentation to

  Reverse 

  Chargeback

  	
   

  	
  Comments/Questions

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  04

  	
   

  	
  Late
  Presentation of Transaction

  	
   

  	
  The
  time from transaction date to date of processing exceeds the 60-day limit
  allowed by Bank, and the transaction cannot be promptly collected from the
  Cardholder. In the event the Company’s employees or representatives accept
  payments at Company’s retail locations and such payment is returned to
  Company for insufficient funds, Company must present Bank with the
  insufficient funds item within sixty (60) days of the payment transaction
  date.

  	
   

  	
  Sales
  Ticket; Cardholder Statement.

  	
   

  	
  Proof
  that transaction was presented to Bank within the 60 day notification period
  from date of transaction.

  	
   

  	
   

  

 

 

	
  ARTICLE VICODE

  	
   

  	
  Definition

  	
   

  	
  Explanation

  	
   

  	
  Documentation to

  Support 

  Chargeback

  	
   

  	
  Documentation to

  Reverse 

  Chargeback

  	
   

  	
  Comments/Questions

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  05

  	
   

  	
  Cardholder
  Disputes Merchandise/Services

  	
   

  	
  The
  Cardholder disputes the quality of merchandise purchased or service rendered
  or any portion thereof, and Company has not responded to such dispute in
  accordance with Section 3.11 of the Merchant Services Agreement and the
  Operating Regulations.

  	
   

  	
  Explanation
  of cardholder dispute

  	
   

  	
  Resolution
  of dispute by Company within time frame set forth in section 3.11 of the
  Merchant Services Agreement and the Operating Regulations as evidenced by a
  signed agreement. Partial/Full Credit posted to Account.

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  06

  	
   

  	
  Alteration
  of Amount

  	
   

  	
  The
  Cardholder claims that the purchase amount for which the Cardholder signed
  was altered after the Cardholder signed the Sales Slip and without the
  Cardholder’s consent or direction. Only the difference will be charged back
  to the Company.

  	
   

  	
  Cardholder’s
  Receipt does not match copy of Sales Ticket received from Company or the
  Bank’s Transaction Report.

  	
   

  	
  POS
  Transaction Log proving Cardholder altered the amount.

  	
   

  	
   

  

 

 

	
  ARTICLE VICODE

  	
   

  	
  Definition

  	
   

  	
  Explanation

  	
   

  	
  Documentation to

  Support 

  Chargeback

  	
   

  	
  Documentation to

  Reverse 

  Chargeback

  	
   

  	
  Comments/Questions

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  07

  	
   

  	
  Duplicate
  Processing

  	
   

  	
  Cardholder
  claims they have been charged twice for a transaction.

  	
   

  	
  Cardholder
  statement(s).

  	
   

  	
  Production
  of two Sales Slips with different authorization codes. POS Transaction Log

  	
   

  	
   

  

 

 

	
  ARTICLE VICODE

  	
   

  	
  Definition

  	
   

  	
  Explanation

  	
   

  	
  Documentation to

  Support 

  Chargeback

  	
   

  	
  Documentation to

  Reverse 

  Chargeback

  	
   

  	
  Comments/Questions

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  08

  	
   

  	
  Non-Receipt
  of Credit or Failure to Provide In-Store Payment

  	
   

  	
  Cardholder
  claims that a Credit issued by the Company has never been posted to the
  Cardholder’s Account, Cardholder received a cash refund in connection with a
  Card Sale and the Cardholder did not pay the Bank for such Card Sale, or an
  In-Store Payment was not properly applied to Cardholder’s Account. The
  Chargeback is limited to the amount of the Credit or the In-Store Payment.

  	
   

  	
  Cardholder’s
  Credit Slip or Evidence of In-Store Payment and Credit or In-Store Payment
  was not received or posted to Cardholder’s Account.

  	
   

  	
  Proof
  of Credit issued or In-Store Payment.

  	
   

  	
   

  

 

 

	
  ARTICLE VICODE

  	
   

  	
  Definition

  	
   

  	
  Explanation

  	
   

  	
  Documentation to

  Support 

  Chargeback

  	
   

  	
  Documentation to

  Reverse 

  Chargeback

  	
   

  	
  Comments/Questions

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  09

  	
   

  	
  Unauthorized
  Purchase

  	
   

  	
  The
  Cardholder claims that neither the Cardholder nor any party authorized by the
  Cardholder participated in the transaction and that the Cardholder has no
  knowledge of the transaction.

  	
   

  	
  Claim
  from Cardholder, Copy of Billing Statement and Copy of Sales Slip.

  	
   

  	
  Signed
  Sales Slip indicating Card was presented by a Cardholder or that Cardholder’s
  Identification was checked.

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  10

  	
   

  	
  Missing
  Signature

  	
   

  	
  The
  Application or the Sales Slip is missing the Cardholder signature and the
  Cardholder does not recognize the Card Sale.

  	
   

  	
  Unsigned
  Sales Slip or Unsigned Application.

  	
   

  	
  Signed
  Application or Signed Sales Slip.

  	
   

  	
   

  

 

 

	
  ARTICLE VICODE

  	
   

  	
  Definition

  	
   

  	
  Explanation

  	
   

  	
  Documentation to

  Support 

  Chargeback

  	
   

  	
  Documentation to

  Reverse 

  Chargeback

  	
   

  	
  Comments/Questions

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  11

  	
   

  	
  Non-Receipt
  of Goods or Services

  	
   

  	
  Company
  submitted a Card Sale in which the goods or services were not yet shipped or
  otherwise provided to the Cardholder or the Cardholder claims they have not
  received the goods or services for which they have been charged. In the case
  of Internet, Mail or Telephone sales, if the ship to and bill to addresses
  are different.

  	
   

  	
  Cardholder
  claim and copy of billing statement.

  	
   

  	
  Shipping
  Invoice and Signed Delivery Ticket

  	
   

  	
   

  

 

 

	
  ARTICLE VICODE

  	
   

  	
  Definition

  	
   

  	
  Explanation

  	
   

  	
  Documentation to

  Support 

  Chargeback

  	
   

  	
  Documentation to

  Reverse 

  Chargeback

  	
   

  	
  Comments/Questions

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  12

  	
   

  	
  Split
  Sale (where applicable)

  	
   

  	
  A
  purchase for a single item cannot be split between the Card and another
  credit card or financing vehicle. However, the purchase can be split between
  the Card and cash or check or the Card and an unsecured general purpose bank
  card such as Visa, MasterCard or a NOVUS brand card.

  	
   

  	
  Sales
  Slip; Cardholder Claim.

  	
   

  	
  None

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  13

  	
   

  	
  No
  Card Application

  	
   

  	
  Any
  transaction made by a Cardholder for whom a written Card application has not
  been properly submitted and the Cardholder claims they did not open an
  Account.

  	
   

  	
  Cardholder
  Claim.

  	
   

  	
  Copy
  of the Completed Application

  	
   

  	
   

  

 

 

	
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  Comments/Questions

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  14

  	
   

  	
  Mismatched
  or Incomplete Application

  	
   

  	
  One
  or more of the following items on the Application provided by the Company
  employee or representative at the point-of-sale for telephone approvals or
  REAP approvals does not match the written application information provided by
  the applicant. 

   

  1.
  Applicant’s identification 

   

  2.
  Absence of Applicant’s signature

  	
   

  	
  Cardholder
  Claim, Application copy.

  	
   

  	
  None

  	
   

  	
   

  

 

 

	
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  15

  	
   

  	
  Non-Receipt
  of Requested Document or Dispute Resolution

  	
   

  	
  Sales
  Slip, Application or Credit Slip has not been provided within twenty-five
  (25) calendar days in response to a document retrieval request or within any
  other date as otherwise specified in the Merchant Services Agreement or
  Company does not resolve cardholder dispute.

  	
   

  	
  Explanation
  of cardholder claim and billing statement.

  	
   

  	
  Receipt
  of requested information

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  16

  	
   

  	
  Non-Receipt
  of Special Credit Plan Disclosure

  	
   

  	
  Cardholder
  claims they have not received a point-of-sale disclosure describing the terms
  of the Special Credit Plan.

  	
   

  	
  Cardholder
  Claim. Copy of all Sales Slips applicable to Cardholder claim.

  	
   

  	
  Set
  procedure in place and written documentation regarding point-of-sale
  disclosures.

  	
   

  	
   

  

 

 

	
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  17

  	
   

  	
  Invalid
  Credit Plan

  	
   

  	
  Company
  charged a sale to an invalid credit plan or misrepresented the type of the
  credit plan to the Cardholder and the Cardholder claims they were told the
  plan was either valid or for a longer period of time.

  	
   

  	
  Monetary
  File/Authorization Report reveals an invalid credit plan number and Customer
  claim.

  	
   

  	
  Signed
  Sales Slip with valid plan identified and procedures to support provision of
  Required Disclosures.

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  18

  	
   

  	
  Altered
  or Counterfeit Cards

  	
   

  	
  Card
  Sale made with invalid Cards and/or Card Account number.

  	
   

  	
  Copy
  of counterfeit card proving card appearance was not consistent with the Card
  in use during the time of the Card Sale(s).

  	
   

  	
  None

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  19

  	
   

  	
  Improper
  Card Use

  	
   

  	
  Card
  use for purposes other than personal, family, household and charitable
  purposes.

  	
   

  	
  Name
  on Application is a business name.

  	
   

  	
  None

  	
   

  	
   

  

 

 

	
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  20

  	
   

  	
  Failure
  to Give Cardholder Agreement to Cardholder

  	
   

  	
  The
  Cardholder claims that they did not receive the Cardholder Agreement at the
  point-of-sale for a new Account at the time the Account was opened.

  	
   

  	
  Cardholder
  Claim.

  	
   

  	
  Signed
  Application and documented procedure in place and training regarding the
  distribution of Credit Card Agreement and Required Disclosures.

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  21

  	
   

  	
  No
  Proper Identification For New Account Application

  	
   

  	
  Company
  submitted an application that did not contain evidence that Company’s
  employees or representatives obtained and verified the appropriate identification
  for a New Account application.

  	
   

  	
  Application
  Copy; NAPS record of verification of identification and Cardholder claim.

  	
   

  	
  Copy
  of the Application used to open the Account proving that the required
  identification was obtained.

  	
   

  	
   

  

 

 

	
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  22

  	
   

  	
  No
  Proper Identification For an Add-On-Sale without a Card

  	
   

  	
  Company’s
  employee or representative failed to note on the Sales Slip the required
  information to indicate the identification used and that no card was present
  at the time of the sale.

  	
   

  	
  Sales
  Slip and Cardholder claim.

  	
   

  	
  Sales
  Slip with proof that required identification notation was obtained and noted.

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  23

  	
   

  	
  Expired
  Cardholder Forms

  	
   

  	
  Company’s
  employees or representatives used Card forms that have expired or have been
  otherwise replaced by new forms by Bank. Only the portion of the transaction
  affected by the expired forms will be charged back to Company.

  	
   

  	
  Copy
  of Application-Form number indicates date on Form; Cardholder Claim.

  	
   

  	
  None

  	
   

  	
   

  

 

 

	
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  24

  	
   

  	
  Employee
  Fraud

  	
   

  	
  Company’s
  employee or representative involved in fraud relating to the Card Plan.

  	
   

  	
  Evidence
  indicating Employee or Former-employee involvement

  	
   

  	
  None

  	
   

  	
   

  

 

 

Schedule 3.13(a)(i) — Bank Reports

 

1) Variance Report Roll Up

 

·              Monthly and YOY

 

2) Variance Report

 

·              Month and YOY

 

3) Monthly Portfolio Performance

 

·              Apps

·              Approvals

·              Credit Line

·              Add-ons — Processed, Approved

·              New Account and Add-on Sales Dollars Requested and Approved

·              Sales Volume by Promotion (New Account and Add-on)

 

(a)           4) Store Operations Standards

(b)           5) Zale Daily WCR

 

6) Executive Correspondence

 

7) Closed Accounts

 

8) FICO Band Analysis

 

9) Weekly Authorization File

 

10) Weekly/Monthly Marketing File

 

11) Monthly Activations

 

12) Monthly Sales Tax Recapture File

 

13) Daily App Count

 

 

Schedule 3.13(a)(ii) — Zale Reports

 

1)
Monthly Sales Mix

 

2)
60/40 Wrong Authorization

 

 

Schedule 3.23(e)(1) — Presentation of Net Debt Tangible
Leverage and Fixed Charge Coverage Ratio

 

Net Debt Tangible Leverage

 

Net Debt Tangible Leverage
at the end of the period ending:

 

	
   

  	
   

  	
  $000’s

  	
   

  	
  QX FYXX

  	
   

  	
   

  
	
   

  	
   

  	
  Quarter Ending

  	
   

  	
  XX/XX/20XX

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Total Debt

  	
   

  	
   

  	
   

  	
   

  
	
  Minus

  	
   

  	
  Cash and Cash
  Equivalents

  	
   

  	
   

  	
   

  	
   

  
	
  Equals

  	
   

  	
  Net
  Debt

  	
   

  	
   

  	
   

  	
  (a)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Total
  Stockholders’ Investment

  	
   

  	
   

  	
   

  	
   

  
	
  Minus

  	
   

  	
  Goodwill

  	
   

  	
   

  	
   

  	
   

  
	
  Minus

  	
   

  	
  Other Intangible
  Assets

  	
   

  	
   

  	
   

  	
   

  
	
  Equals

  	
   

  	
  Tangible
  Net Worth

  	
   

  	
   

  	
   

  	
  (b)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Net
  Debt / Tangible Net Worth = 

  	
   

  	
   

  	
   

  	
  (a) / (b)

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Maximum

  	
   

  	
  <=
  1.50

  	
   

  	
   

  

 

 

Fixed Charge Coverage Ratio

 

Fixed Charge Coverage Ratio for the 4 quarter period ending:

 

	
   

  	
   

  	
   

  	
   

  	
  QX 

  FYXX

  	
   

  	
  QX 

  FYXX

  	
   

  	
  QX 

  FYXX

  	
   

  	
  QX 

  FYXX

  	
   

  	
  Total 

  YTD

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  $000’s

  Quarters Ending

  	
   

  	
  XX/XX/

  20XX

  	
   

  	
  XX/XX/

  20XX

  	
   

  	
  XX/XX/

  20XX

  	
   

  	
  XX/XX/

  20XX

  	
   

  	
  XX/XX/

  20XX

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Total Revenue

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Minus

  	
   

  	
  Cost of Sales

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Minus

  	
   

  	
  SG & A
  Expenses

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Plus

  	
   

  	
  Other Reasonable
  and Customary Non-Cash Items

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Plus

  	
   

  	
  Total Rent Expense

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Equals

  	
   

  	
  EBITDAR

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  (a)

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Net Interest
  Expense

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Plus

  	
   

  	
  Total Rent Expense

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Equals

  	
   

  	
  Net
  Interest+ Rent Expense

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  (b)

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  EBITDAR
  /(Net Interest + Rent Expense) =

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  (a) / (b)

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Minimum

  	
   

  	
  >= 1.25

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

 

Schedule 3.23(e)(2) — Form of Officer’s Certificate

 

ZALE CORPORATION

 

This
certificate is delivered pursuant to Section 3.23(e) of the Amended
and Restated Merchant Services Agreement (the “Agreement”) dated September [   ],
2010, by and among Citibank (South Dakota), N.A., Zale Delaware, Inc. and
Zale Puerto Rico, Inc.  All
capitalized terms used herein and not otherwise defined shall have the meaning
ascribed to such terms in the Agreement.

 

The
undersigned, as [Chief Financial Officer][Chief Accounting
Officer][Treasurer][Assistant Treasurer] of Zale Corporation (the “Company”),
does hereby certify that:

 

(i)            The Company had as of the
period ended [     ], 20    a
Net Debt Tangible Leverage of        ;

(ii)           The Company        
maintained         did not maintain
(mark where applicable) Net Debt Tangible Leverage of no more than 1.50 at the
end of the period ended [        ],
20   ;

(iii)          The Company had as of the
period ended [        ], 20   
a Fixed Charge Coverage Ratio of         ;

(iv)          The Company         
maintained        did not maintain (mark
where applicable) Fixed Charge Coverage Ratio of more than 1.25 at the end of
the period ended [         ],
20  ; and

(v)           All necessary back-up
documentation to evidence such ratios, including the Company’s calculation
thereof, is attached hereto.

 

IN
WITNESS WHEREOF, the undersigned has hereunto set his name as of the       
day of              
20   .

 

	
  ZALE
  CORPORATION

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:
  [Chief Financial Officer][Chief Accounting Officer][Treasurer][Assistant
  Treasurer]

  

 

 

Schedule 4.1(a)(1) — Initial Merchant Fees

 

	
  Credit Plan

  	
   

  	
  Merchant Fee

  	
   

  
	
  Regular Revolve Credit Plan

  	
   

  	
   

  	
   

  	
   

  	
  %

  
	
  6 Month No Interest, Payments Required

  	
   

  	
   

  	
   

  	
   

  	
  %

  
	
  12 Month No Monthly Interest, Payments Required

  	
   

  	
   

  	
   

  	
   

  	
  %

  
	
  18 Month No Monthly Interest, Payments Required

  	
   

  	
   

  	
   

  	
   

  	
  %

  

 

[redacted]

 

 

Schedule
4.1(a)(2) — Merchant Fees

 

	
   

  	
   

  	
  Net Card Sales (in $ millions)

  	
   

  
	
  Credit Plan

  	
   

  	
  Up to 314.99

  	
   

  	
  315 – 374.99

  	
   

  	
  375 – 474.99

  	
   

  	
  475+

  	
   

  
	
  Regular Revolve

  	
   

  	
   

  	
   

  	
  %

  	
   

  	
   

  	
  %

  	
   

  	
   

  	
  %

  	
   

  	
   

  	
  %

  
	
  6 Month No Interest, Payments Required

  	
   

  	
   

  	
   

  	
  %

  	
   

  	
   

  	
  %

  	
   

  	
   

  	
  %

  	
   

  	
   

  	
  %

  
	
  12 Month No Monthly Interest, Payments Required

  	
   

  	
   

  	
   

  	
  %

  	
   

  	
   

  	
  %

  	
   

  	
   

  	
  %

  	
   

  	
   

  	
  %

  
	
  18 Month No Monthly Interest, Payments Required

  	
   

  	
   

  	
   

  	
  %

  	
   

  	
   

  	
  %

  	
   

  	
   

  	
  %

  	
   

  	
   

  	
  %

  

 

[redacted]

 

 

Schedule 4.1(a)(i) — Merchant Fee Adjustments Due to Prime Rate
Changes

 

MDR Adder Methodology for the Protection of Money Cost Changes

 

Assumptions:

 

·              MDR will increase or decrease for every 25
bps change in the published Prime Rate

 

	
  Promo

  	
   

  	
  Adder

  	
   

  
	
  6 Month 

  	
   

  	
   

  	
   

  	
   

  	
  %*

  
	
  7 Month 

  	
   

  	
   

  	
   

  	
   

  	
  %

  
	
  8 Month 

  	
   

  	
   

  	
   

  	
   

  	
  %

  
	
  9 Month 

  	
   

  	
   

  	
   

  	
   

  	
  %

  
	
  10 Month 

  	
   

  	
   

  	
   

  	
   

  	
  %

  
	
  11 Month 

  	
   

  	
   

  	
   

  	
   

  	
  %

  
	
  12 Month 

  	
   

  	
   

  	
   

  	
   

  	
  %*

  
	
  13 Month 

  	
   

  	
   

  	
   

  	
   

  	
  %

  
	
  14 Month 

  	
   

  	
   

  	
   

  	
   

  	
  %

  
	
  15 Month 

  	
   

  	
   

  	
   

  	
   

  	
  %

  
	
  16 Month 

  	
   

  	
   

  	
   

  	
   

  	
  %

  
	
  17 Month 

  	
   

  	
   

  	
   

  	
   

  	
  %

  
	
  18 Month 

  	
   

  	
   

  	
   

  	
   

  	
  %*

  
	
  19 Month 

  	
   

  	
   

  	
   

  	
   

  	
  %

  
	
  20 Month 

  	
   

  	
   

  	
   

  	
   

  	
  %

  
	
  21 Month 

  	
   

  	
   

  	
   

  	
   

  	
  %

  
	
  22 Month 

  	
   

  	
   

  	
   

  	
   

  	
  %

  
	
  23 Month 

  	
   

  	
   

  	
   

  	
   

  	
  %

  
	
  24 Month 

  	
   

  	
   

  	
   

  	
   

  	
  %

  
	
  25 Month 

  	
   

  	
   

  	
   

  	
   

  	
  %

  
	
  26 Month 

  	
   

  	
   

  	
   

  	
   

  	
  %

  
	
  27 Month 

  	
   

  	
   

  	
   

  	
   

  	
  %

  
	
  28 Month 

  	
   

  	
   

  	
   

  	
   

  	
  %

  
	
  29 Month 

  	
   

  	
   

  	
   

  	
   

  	
  %

  
	
  30 Month 

  	
   

  	
   

  	
   

  	
   

  	
  %

  
	
  31 Month 

  	
   

  	
   

  	
   

  	
   

  	
  %

  
	
  32 Month 

  	
   

  	
   

  	
   

  	
   

  	
  %

  
	
  33 Month 

  	
   

  	
   

  	
   

  	
   

  	
  %

  
	
  34 Month 

  	
   

  	
   

  	
   

  	
   

  	
  %

  
	
  35 Month 

  	
   

  	
   

  	
   

  	
   

  	
  %

  
	
  36 Month 

  	
   

  	
   

  	
   

  	
   

  	
  %

  

 

*Current Promotions offered per schedule 4.1(a)(1). Additional promotions
will be priced by bank as requested and the MDR will be subject to the above
adjustments if the Prime Rate changes while the promotion is being offered.

 

[redacted]

 

 

* Bank shall be entitled
to increase or decrease the Merchant Fees applicable to All Credit Plans based
on      
[redacted]% changes to the Prime Rate as detailed in the attached table;
provided, however Bank shall not be entitled to increase Merchant Fees pursuant
to this Section 4.1(a)(i) by more than      
[redacted] basis points during any consecutive twelve calendar month period or
by more than       [redacted] basis points in
the aggregate during the Term.  The Prime
Rate will be pegged to the rate existing as of contract signing      
[redacted]% as of September 1st, 2010.

 

 

Schedule 5.2(e)(ii) — Marketing Fund

 

Bank
shall commit to accrue an additional                  
[redacted], during the first year of the Term, and then an additional                
[redacted], during the remainder of the Initial Term

 

 

Exhibit A — Operating Regulations

 

Nothing herein is intended nor shall it be deemed to change or modify
any of the terms and conditions of the Merchant Services Agreement.  To the extent there is any provision herein
which is inconsistent with the terms of the Merchant Services Agreement, the
terms of the Merchant Services Agreement shall govern.

 

Company Service Calls

 

Bank,
directly or through its servicer, will staff a Customer Service Department to
handle all New Accounts, Authorizations, and Cardholder inquiries.

 

ARTICLE VIICARD
LOGO

 

Company
will properly display the appropriate Card logo on promotional materials to
inform the public that the Card will be honored at Company’s place(s) of
business.  Use of decals, signs, and
print and broadcast materials, which bear the Card logo, must comply with the
Merchant Services Agreement.  Company may
use the Card logo or the Card name or representations thereof, on promotional,
print or broadcast materials to indicate that the Card is accepted.  All advertisements for the Card Plan or
promotional uses of the Card must be done in accordance with the Merchant
Services Agreement Section 5.2 (b).

 

ARTICLE VIIIALTERED
AND COUNTERFEIT CARDS

 

Company’s
employees and representatives must be trained on the appearance and features of
the Card.  The Company’s employee or
representative must check each card presented at time of sale for signs of
counterfeiting, tampering, or alterations.

 

ARTICLE IXPREPARATION
OF SALES SLIP AND CREDIT SLIP

 

Company’s
employees and representatives must provide the Cardholder with a completed copy
of the Sales Slip or Credit Slip at the time of each completed Card
transaction.  For information regarding
the preparation of Sales Slip refer to the Merchant Services Agreement Section 3.6.

 

ARTICLE X
AUTHORIZATION REQUIREMENTS

 

ARTICLE XICOMPANY WILL INFORM ITS EMPLOYEES OR REPRESENTATIVES THAT
CARDHOLDERS MAY ONLY USE THEIR ACCOUNT OR THE CARD FOR PERSONAL, FAMILY,
HOUSEHOLD, AND CHARITABLE PURPOSES.

 

Bank,
directly or through its servicer, will provide authorization services to
Company’s locations located within the United States and Puerto Rico as
outlined in the Merchant Services Agreement. 
When submitting an electronic authorization the following information is
required:

 

 

1.               The Cardholder’s Account
number

 

2.               The total amount of the
transaction (including sales tax)

 

3.               Company’s store number

 

An
electronic authorization will result in a response to the store’s terminal of
an approval, a decline, or a referral. 
In the event of a referral, the store will receive an electronic
response, or in some instances, a telephone call from the Operations
Center.  Responses to referral situations
will be in a timely manner in accordance with requirements as outlined in the
Performance Standards.

 

In
the event Authorizations cannot be obtained electronically, authorizations will
be obtained by following the agreed upon downtime procedures referenced in the
Merchant Services Agreement Section 3.7 (b) (ii) in the Merchant
Services Agreement. To obtain a non-electronic authorization, the following
information is required:

 

1.               The Cardholder’s Account
number

 

2.               The total amount of the
transaction (including sales tax)

 

3.               Company’s store number

 

Company’s
employees or representatives must enter the above information into the terminal
and include the authorization code provided by the authorization department.

 

The
procedure for adding insurance coverage to an account after the initial sale
will be as follows:

 

1.               The sales associate will
have the cardholder sign a retail credit application, indicating the type of
insurance requested, the sixteen (16) digit account number, and a signature in
the insurance section of the retail credit application.  The sales associate should also indicate the
Cardholder’s name on the retail credit application.

 

2.               The sales associate will fax
the retail credit application to the toll-free number provided for New
Application processing and retain the retail credit application in the store
files in accordance with the Company’s and Bank’s policy.

 

3.               The Operations Center will
forward any/all information to the Corporate General Office Insurance
Department as agreed and will add the insurance coverage to the Cardholder’s
account if directed by the Insurance Head Office.

 

ARTICLE XIIREQUEST
FOR NEW ACCOUNT AT POINT OF SALE

 

For
applications taken at Company’s retail locations the applicant must complete
the retail credit application in its entirety and sign the application.  Company’s employees or representatives must
provide a copy of the Citibank (South Dakota) N.A. Cardholder Agreement (the “Cardholder
Agreement”) to the applicant.

 

 

Company’s
employees or representatives must ask the applicant for a valid piece of
identification which bears the applicant’s signature to attempt to verify the
applicant’s identity.  The Company’s
employees or representatives should be trained in the appearance and
characteristics of state identification commonly presented in their local area
as well as the Federal identification that may be used as primary
identification.  For applicants residing
in all states or territories, the first piece of identification must have the
applicant’s picture on it (except in New Jersey and any other states that do
not include a photo on their state issued identification card) and must be a
valid U.S. State issued driver’s license, U.S. government military I.D., U.S.
issued resident alien card (Green Card), U.S. issued passport or Voter
Registration Card (Puerto Rico only). For purposes of this paragraph, the term “valid”
means (i) that the identification presented indicates that the applicant
is a resident of the state for which the identification was issued, (ii) the
address on the identification must match the address on the application, and (iii) the
identification must not have expired.  A
second piece of identification must be reviewed if the address on the primary
identification does not match the address on the retail credit
application.  If the applicant cannot
produce a second form of identification (as defined below) the representative
should follow Code 10 procedures.  The
second piece of identification can be any other form of identification that
identifies the applicant, contains the applicant’s signature and contains
information that is consistent with the information on the first piece of
identification.  If the second form of
identification is a credit card, Company’s employees or representatives cannot
write down such credit card number. 
Company’s employees or representatives must then compare the pictures,
if applicable and signatures on the forms of identification with the applicant
and the applicant’s signature.  If
Company’s employee or representative fails to obtain, record and verify the
appropriate identification, Bank may issue a Chargeback if Bank is unable to
enforce collection due to Company’s employee’s or representative’s alleged
failure in obtaining and verifying the appropriate identification.

 

All
new retail credit applications for the Card Plan should be processed using the
POSIC terminal or IVR.

 

After
submitting an application via the POSIC terminal, the store will receive an
electronic response indicating an approval, a decline, or a referral. In the
event of an approval, an account number and credit limit will be supplied. The
authorization supplied on a sale is valid for five (5) days.  In the event of a referral, a message
indicating the pending number of the application will be supplied.  This information should be written on the
retail credit application in the spaces provided.  Referrals will result in an automated
response from the Operations Center, or in some cases, a telephone call from
the Operations Center.  Responses to
referral situations will be in a timely manner in accordance with the
Performance Standards.

 

Each
company’s location must send all approved, declined or pending applications,
including the information contained in those applications including received by
telephone, to the designated card operations center once annually by the end of
the second calendar quarter and include all applications in the same envelope.

 

 

ARTICLE XIIIREQUEST
FOR NEW ACCOUNT BY THE TELEPHONE/INTERNET IN CONJUNCTION WITH A PURCHASE

 

Bank
will consider a consumer’s application for an Account made via
Telephone/Internet. For Internet applications, the Cardholder Agreement shall
be presented to the applicant and applicant will agree to Terms and Conditions
prior to submitting the application to the Bank through the website.  If approved, Accounts opened via the Internet
application process are immediately available for Card authorization.

 

Sales
made by Telephone/Internet require sales slips prepared in accordance with Section 3.6
(b) in the Merchant Services Agreement. 
Signature requirements will be as outlined in Section 3.6(d) and
Authorization of such sales will be as outlined in Section 3.7 of the
Merchant Services Agreement.

 

ARTICLE XIVSPECIAL
CREDIT PLANS

 

Company
must provide Cardholders who make a purchase under a Special Credit Plan with
the proper disclosure that Bank provides to Company prior to the Company’s
employee or representative submitting the Card Sale to the Bank for payment.

 

ARTICLE XVADD-ON
SALE WITHOUT A CARD OR CARD WON’T SWIPE

 

For
purchases made at Company’s retail locations:

 

If
a Cardholder wants to make a purchase at a retail location of the Company and
does not have his/her Card, Company’s employee or representative must obtain
acceptable identification in accordance to the Operating Regulations (as
defined in section 1006 of these regulations). 
Company’s employee or representative must record on the sales slip the
type of primary identification reviewed, the issuer, the expiration date of the
identification, and the identification number, as applicable by the State of
issuance. For any Cardholder that is a resident of a state that prohibits
recording any of the aforementioned information, the Company’s employee or
representative must record only the type of identification (such as DL for
driver’s license) and no other information about the identification, in accordance
with the guidelines of that state. Bank will provide guidance to Company
designated representative(s) to ensure compliance with state requirements
as necessary. The Company’s employee or representative must compare the
signature on the identification to the signature obtained from the purchaser on
the sales slip and verify that the signatures are similar in appearance.  Then, Company’s employee or representative
must access the Cardholder’s account number by using the Account Look-Up
functionality available through the Point of Sale device.  The Company’s employee or representative must
then obtain an authorization code as outlined in Section 3.7 of the
Merchant Services Agreement.  When the
Company’s employee or representative manually enters an account number on the
Point of Sale device to request authorization for a sale, the Company will
ensure the transmission includes information showing that the card number was
keyed.  If the card was present and the
employee keyed the request due to a failure of the Point of Sale device to read
the magnetic strip, the employee should obtain a valid piece of identification
then document and record that information on the sales draft.  The 

 

 

Company’s
employee or representative must verify that the name used by the purchaser is
the same name as the primary or authorized cardholder on the account.  If the Company’s employee or representative
is suspicious of the transaction or the purchaser the employee should follow
the Code 10 Alert procedures as defined in section 1010 of this document.

 

For
Internet purchases, refer to Sections 3.6(b), 3.6(d), and 3.7 in the Merchant
Services Agreement.

 

ARTICLE XVI“CODE
10” ALERT

 

A
Company’s employee or representative who is suspicious of the validity of a
Card or Card Account number or the presenter of the Card or Card Account number
for any reason should notify the Authorization Center via the “Code 10”
Alert.  The “Code 10” Alert should be
used regardless of the dollar amount of the sale.

 

There
are two types of “Code 10” Alerts.

 

R-10
“Code 10” Alert

 

R-10
Alert involves a suspicious person, Card, or Card Account number.  This would include a person who is acting in
a suspicious manner, a person who presents suspicious identification, or a
person that requests the Company’s employee or representative deviate from
normal procedures as outlined in these Operating Regulations during the
processing of any retail credit application or Card transaction.

 

M-10
“Code 10” Alert

 

M-10
Alert involves a suspicious transaction. 
This would include instances when the purchaser is attempting to buy
multiple pieces of the same or similar items or is unconcerned with price,
quality, size, features, or warranty of a given product(s).

 

The
procedure is as follows:

 

·                  For New Accounts, enter the retail credit
application into POSIC, indicating an M10 or R10 condition, as appropriate.

 

·                  For Add-On Sale(s) to an existing
account, the Company employee or representative should notify the Operations
Center that a “Code 10” Alert situation exists.

 

·                  If the presenter is attempting a new retail
credit application transaction, the Operations Center will contact the
store.  This contact will be received in
a time frame that complies with the Performance Standards.

 

·                  The Operations Center representative will ask
a brief series of “Yes” or “No” questions about the Card or the presenter, or
may ask the Company employee or representative to attempt to obtain a photo
I.D. from the presenter or ask to speak to the purchaser.

 

 

·                  If the Operations Center representative is
able to confirm the identity of the presenter as a valid Cardholder, Applicant,
or authorized user of the Card, Bank will approve the transaction, if
creditworthy, based on applicable Bank credit granting criteria.

 

ARTICLE XVIICREDIT
ISSUED FOR RETURNED MERCHANDISE AND ADJUSTMENTS

 

Bank
will honor Company’s return policy as long as the policy complies with all
federal, state, and local laws, and Company clearly posts or otherwise notifies
the Cardholder of the policy at the time of the Card sale.  Company must not give cash refunds to any
Cardholder in conjunction with a Card Sale, as outlined in Section 3.9 of
the Merchant Services Agreement.  If a
Cardholder returns goods or services purchased with a Card at Company’s retail
establishments in accordance with Company’s policy, Company’s employees or
representatives must give a Credit to the Cardholder’s Account by completing a
Credit Slip, as described in section 1004 of these Operating Regulations.
Cardholder disputes on merchandise and services will be governed by the
Merchant Services Agreement.   The Credit
Slip should be prepared by Company’s employee or representative in accordance
with Section 3.6(b) of the Merchant Services Agreement with the
exception of items (vi), (vii), (ix), and (x) which do not apply when
crediting a Cardholder’s account. 
Employees or representatives must send the Bank Sales Data for the
Credit within 7 calendar days after Company’s employees or representatives
issue the Credit to the Cardholder.

 

In-store
credit balance refund requests from Cardholders should be referred to the
Operations Center for processing and handling.

 

ARTICLE XVIIIPAYMENTS

 

Company
is only allowed to receive and process Cardholder’s payments to Bank as
outlined in the Merchant Services Agreement, Section 3.9(b).  The Company shall post all payments received
on any Cardholder’s account within five (5) calendar days of receipt. All
payments received by the Company shall be posted with an effective date of the
date the payment was received by the Company.

 

Any
check or other instrument tendered as In-Store Payment and not honored by
Cardholder’s Bank or Financial Institution will be handled by Company and Bank
by crediting Company and debiting Cardholder’s account through the Merchant
Settlement Process.

 

The
Company and the Bank will handle all return Payments in accordance with the
Merchant Service Agreement, Section 3.9(b).

 

ARTICLE XIXDISPUTES

 

Company has twenty-five (25)
calendar days to provide copies of Sales Slips, Credit Applications, Credit
Slips, or other documents upon request by Bank.  If Company has not
responded at the end of twenty-five (25) calendar days, Bank will process a
chargeback for the item. If within fifteen (15) calendar days from the date of
the Chargeback Company is able to resolve the dispute with the Bank, Company
may present 

 

 

a request for a chargeback
reversal.  Bank will review all relevant
facts and circumstances pertaining to the reversal request.  If Bank determines that it should reverse the
Chargeback, Bank will issue a separate credit to the Company and debit the
Cardholder.  Company must not submit a new Card Sale transaction in an
identical amount in order to recover from a Cardholder for a transaction for
which Bank has issued a Chargeback.  Company may request a reversal of a
Chargeback by submitting to Bank a copy of the original Sales Slip and
documentation to support the request for reversal of the Chargeback as set
forth in Schedule “3.11(a)” Charge Back Codes.

 

ARTICLE XX
FORMS

 

Company
must use the Card forms provided by Bank as soon as Bank provides the forms to
Company.  Company must destroy all Card
forms that Bank replaces.  If Company
fails, Bank may process a Chargeback for the amounts uncollectible by Bank
because Company failed to use current Card forms.

 

ARTICLE XXICHARGEBACKS

 

Chargebacks
will be governed by the Merchant Services Agreement

 

ARTICLE XXIICHARGEBACKS
DISPUTES

 

All
Chargeback disputes will be resolved as outlined in these Operating Regulations
and in Section 3.11(a) of the Merchant Services Agreement along with
the accompanying schedule.

 

ARTICLE XXIIICOMPANY
EMPLOYEE FRAUD

 

Bank
and Company will work together to minimize possible fraud by Company employees
or representatives.  Company employees or
representatives must not issue or accept temporary credit cards.  If Company confirms (confession or
conviction) that one of its employees is involved with fraud relating to the
Card Plan, Company must notify Bank as soon as reasonably possible of the fraud
and provide Bank with the employee’s name and address.

 

A
Company employee or representative who wishes to apply for a Card account will
complete and submit a retail credit application to their store manager.  The store manager will enter the credit
application into POSIC.  The application
will be processed as normal and the decision returned to the store.  A Company employee or representative will not
be permitted to enter their own retail credit application into the POSIC
system.

 

ARTICLE XXIVCLAIM
BY CONSUMER OF NON — RECEIPT OF PURCHASE

 

If
a Cardholder advises Bank that he or she did not receive a purchase which was
billed to his or her Account, Bank will make a reasonable investigation.  If, after investigation, Bank cannot
determine that the Cardholder actually received the purchase, Bank shall remove
the amount of the purchase from the Cardholder’s Account and charge that amount
back to Company.

 

 

Exhibit B — Performance Standards

 

The
terms herein are incorporated into that certain Merchant Services Agreement
attached.  Capitalized terms used herein
and not otherwise defined herein shall have the meanings assigned to them in
said Merchant Services Agreement.

 

I.                                         Store Operation
Standards

 

A.           Electronic New Accounts

 

1.               A minimum of 99.5% of all
point of sale instant credit applications involving sales less than $10,000,
which do not pend for review, will be processed and an approval, letter
required code or pend for review decision will be communicated to the Store
within 20 seconds from time of receipt. The 20 second standard applies to Bank’s
response, without reference to delays solely attributable to Zale’s POS
devices.

 

2.               A minimum of 90% of all new
account transactions pended for review involving sales less than $10,000 will
be processed and an approval or letter required code will be communicated to
the Store in 15 minutes or less from time of receipt.  The remaining transactions will be decisioned
within one hour from time o receipt.  An
acknowledgement of receipt of application will be communicated to the Store
within 30 minutes on those transactions not decisioned in 30 minutes.  Incomplete applications will not be included
in this measure.

 

3.               A minimum of 90% of all new
account transactions involving sales of $10,000 to $25,000 will be processed
and an approval or letter required code will be communicated to the Store in 30
minutes or less from time of receipt. 
The remaining transactions will be decisioned within two hours from time
of receipt.  An acknowledgement of
receipt of application will be communicated to the Store within 30 minutes from
time of receipt on those transactions not decisioned in 30 minutes.  Incomplete applications will not be included
in this measure.

 

4.               A minimum of 85% of all new
account transactions involving sales of $25,001 to $100,000 will be processed
and an approval or letter required code will be communicated to the Store in
two hours or less from time of receipt. All others will be decisioned within
one Business Day.  An acknowledgement of
receipt of application will be communicated to the Store within 30 minutes of
the authorization request.  Incomplete
applications will not be included in this measure.

 

5.               A minimum of 85% of all new
account transactions involving sales in excess of $100,000 will be approved or
a letter required code communicated as soon as commercially reasonable but in
no event later than one Business Day from date of receipt.  All others will be decisioned within two
Business Days.  An acknowledgement of
receipt of application will be communicated to the Store within 30 minutes of
the authorization request.  Incomplete
applications will not be included in this measure.

 

 

B.             Electronic Authorization

 

1.               A minimum of 99.5% of all
Add-on Sales authorization requests which do not pend for review will be
processed and an approval, letter required code or pend for review decision
will be communicated to the Store within 20 seconds from time of receipt.  The 20 second standard applies to Bank’s
response, without reference to delays attributable solely to Zale’s POS devices.

 

2.               A minimum of 90% of all
Add-on Sales authorization transactions involving sales less than $10,000 which
pend for review, will be processed and an approval or letter required code will
be communicated to the Store within 10 minutes or less from time of
receipt.  The remaining transactions will
be decisioned within one hour from time of receipt.  An acknowledgement of receipt of transaction
will be communicated to the Store within 30 minutes on those transactions not
decisioned in 30 minutes.

 

3.               A minimum of 90% of all
Add-on Sales authorization transactions involving sales of $10,000 to $25,000
which pend for review will be processed and an approval of letter required code
will be communicated to the Store within 15 minutes or less from time of receipt.  The remaining transactions will be decisioned
within two hours from time of receipt. 
An acknowledgement of receipt of transaction will be communicated to the
Store within 30 minutes on those transactions not decisioned in 30 minutes.

 

4.               A minimum of 90% of all
Add-on Sales authorization transactions involving sales of $25,001 to $100,000
will be processed and an approval or letter required code will be communicated
to the Store in two hours or less from time of receipt.  The remaining transactions will be decisioned
within one Business Day from time of receipt. 
An acknowledgement of receipt of transaction will be communicated to the
Store within 30 minutes of the authorization request.

 

5.               85% of all Add-on Sale
authorization transactions involving sales in excess of $100,000 will be
processed and an approval or letter required code will be communicated to the
Store as soon as commercially reasonable but in no event later than one
Business Day from date of receipt.  All
others will be decisioned within two Business Days.  An acknowledgement of receipt of application
will be communicated to the Store within 30 minutes of the authorization
request.

 

C.             Non Electronic Authorization

 

1.               A minimum of 95% of all
authorization transactions involving sale of $25,000 or less processed in a non
electronic “system down” environment will be processed and an approval or
letter required code will be communicated to the Store within 60 minutes or
less from the time Zale submitted the authorization request, either by telephone
or fax.  The remaining transactions will
e decisioned within two hours of receipt.

 

2.               Sales exceeding $25,000 will
be processed according to the standards set out above in I.B. 4 & 5.

 

3.               An authorization Floor Limit
will be utilized by Zale during periods of non-electronic “systems down” time.

 

 

D.            Store Communications

 

A
toll free Regional Manager and a toll free Store Relations telephone line will
be provided by the Bank and a daily combined ASA of forty (40) seconds will be
maintained for the combined call volume to those telephone numbers. The
combined daily abandon rate for calls to the Regional Manager line and to the
Store Relations line shall not exceed five percent (5%) (calls abandoned in the
first twenty (20) seconds following connection are not included in the daily
abandon rate count).

 

Store Operations Measurement:

 

These
standards will be measured monthly on reports (in a form reasonably acceptable
to both parties) and provided by Bank.

 

Failure
to meet Store Operation Standards:

 

Bank’s
failure to perform the Store Operations Standards set out above monthly will
result in the following liquidated damages payable by Bank to Zale.

 

For
purposes of determining compliance with these standards, sections A and C above
will apply when electronic systems are operable, and section B and D will apply
when non-electronic processes are in place. 
Bank’s performance during system downtime attributable solely to a
failure of Zale POS devices shall not be subject to Store Operation Standards
set out in A through D above.  For each
one hundred basis points of noncompliance greater than 2% of the volume of
accounts subject to a specific standard, liquidated damages of $10,000 will be
assessed, except in November and December, when liquidated damages of
$20,000 will be assessed and payable by Bank to Zale.

 

II.                                     System Downtime

 

Bank
will utilize commercially reasonable efforts to avoid system downtime.  A system downtime event which triggers the
non electronic performance standards for new accounts and authorizations set
out in section I. B and D will result in liquidated damages of $5,000 for each
30 consecutive minute period of Bank’s New Account or Authorization system down
time during the first second and third calendar quarters.  Liquidated damages of $10,000 for each 30
consecutive minute period of Bank’s New Account or Authorization system down
time will apply during the fourth calendar quarter.

 

III.                                 Customer Service Standards

 

A.           Cardholder Services

 

1.               A toll-free customer service
IVR telephone line will be established for Cardholders seeking general Account
information and will be published on customer’s monthly billing statement.  The IVR will include the following customer
request options:

 

·                  Spanish speaking Cardholders will be referred
through the IVR menu to services in Spanish and Spanish Speaking customer
service representatives

 

 

·                  Balance

 

·                  Available Credit

 

·                  Amount and Date of Payment Due

 

·                  Cash Available (if the account has cash
availability

 

·                  Amount and Date of Last Payment

 

·                  Payment Mailing Address

 

·                  Last 5 Transactions Posted to an Account

 

2.               A toll free customer service
line will be established for customer service calls.  It will be recited on the toll free customer
service IVR telephone line. An average daily ASA not exceeding 40 seconds will
be maintained on customer calls to the toll customer service line.

 

3.               The average daily abandon
rate for calls to the customer service telephone lines shall not exceed
5%.  (Customer calls abandoned in the
first twenty (20) seconds following connection are not included in the daily
abandon rate count.)

 

4.               The average daily busy rate
for calls to the customer service telephone lines shall not exceed 3%.

 

5.               During periods of
non-electronic new accounts or non-electronic authorizations the Customer
Service Standard set out above will not apply, with the exception of that IVR
will continue to be operable.

 

Customer Service Measurement:

 

These
standards will be measured monthly on report (in a form reasonably acceptable
to both parties) and provided by Bank.

 

Failure to meet Customer Service Standards:

 

Bank’s
failure to perform the Customer Service Standards set out above will result in
the following liquidated damages:

 

Bank’s failure to meet a
specific standard two (2) days each month will result in zero liquidated
damages.  For each day of noncompliance
greater than two (2) days and less than six (6) days, liquidated
damages of $10,000 a day will be assessed. 
For each day of noncompliance greater than five (5) days,
liquidated damages of $20,000 a day will be assessed, payable by Bank to Zale.

 

 

IV.                                 General
Standards

 

A.           Hours of operation

 

1.               An IVR will be made
available from the hours of 7:00 a.m. — 3:00 a.m. (EST), seven days a
week for use by customers and Stores.

 

2.               Bank shall operate the
following departments during the days and hours listed below.  Bank shall extend these hours to accommodate
Zale when normal store hours are extended due to special sales events and
seasonal demands.  A minimum of fourteen
(14) days written advance notice is required from Zale to enable Bank to accommodate
the change in normal operating hours.

 

	
  New
  Accounts:

  	
   

  	
  9:00 a.m.
  (EST) — 3:00 a.m. (EST)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  7
  days per week

  
	
   

  	
   

  	
   

  
	
   

  	
  (including
  store communications toll-free telephone line)

  
	
   

  	
   

  	
   

  
	
  Authorizations:

  	
   

  	
  9:00 a.m.
  (EST) — 3:00 a.m. (EST)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  7
  days per week

  
	
   

  	
   

  	
   

  
	
  Customer
  Service:

  	
   

  	
  9:00 a.m.
  (EST) — 9:00 p.m. (EST)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Each
  Business Day

  

 

B.             Customer Service Standards

 

1.               A minimum of 95% of all
customer complaints (Regulation Z disputes will be resolved by Regulation Z due
date) will be resolved within 45 days of the customer’s initial contact,
including those which require media retrieval. 
All other will be resolved within 60 days.

 

2.               Customer dispute resolutions
shall be fair, biased in favor of the customer, and performed with the goal of
maintaining a positive relationship between Cardholder and Zale and Cardholder
and Bank.

 

C.             Collections

 

1.               Bank will perform all
collection activity in compliance with the federal Fair Debt Collection
Practices Act, whether or not it deems those activities to be subject to the
Act.

 

2.               Bank will perform all
collection activities in compliance with all applicable state and federal laws
and regulations.

 

3.               Collection calls and letters
will not be initiated prior to five days after the date at which the payment
due was not satisfied on accounts delinquent less than 30 days.

 

4.               Collection activities will
be conducted in a professional manner, with an understanding and
acknowledgement that Zale desires to maintain a positive customer 

 

 

relationship with the Cardholder, regardless of the status of Cardholder’s
Account with Bank.

 

General Standards Measurement:

 

Zale will periodically perform monitoring of Bank’s calls with
customers, sampling, and review of Accounts. 
Zale will also review reports, customer collection complaints,
regulatory and legal complaints, and Bank’s internal audits.  Bank agrees to provide Zale representatives
periodic access to operations facilities and the documentation described above
for this purpose.  These standards will
be measured monthly on reports (in a form mutually acceptable to both parties)
and provided by Bank.

 

Failure to meet General Standards:

 

Unfavorable results will be discussed by the Client Relations Team and
the appropriate action plans will be developed. 
In the event of disagreement either party may refer matters to the
Program Committee as if such disagreement represented a Dispute.

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