SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended May 1, 1999 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
-------- ----------
Commission File No. 000-19372
CATHERINES STORES CORPORATION
(exact name of registrant as specified in its charter)
Tennessee 62-1350411
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
3742 Lamar Avenue, Memphis, Tennessee, 38118
(Address of principal executive offices)
Registrant's telephone number, including area code (901) 363-3900
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports).
Yes X No
Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of the latest practicable date.
As of June 2, 1999 there were 7,022,806 shares of Catherines Stores
Corporation common stock outstanding.
CATHERINES STORES CORPORATION
FORM 10-Q
May 1, 1999
Table of Contents
PART 1 - FINANCIAL INFORMATION
Consolidated Statements of Income
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Management's Discussion and Analysis of
Financial Condition and Results
of Operations
PART 2 - OTHER INFORMATION
PART 1 - FINANCIAL INFORMATION
CATHERINES STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Thirteen weeks ended
May 1, 1999 May 2, 1998
----------- -----------
Net sales $80,299,728 $76,452,394
Cost of sales, including buying
and occupancy costs 53,279,423 51,109,138
----------- -----------
Gross margin 27,020,305 25,343,256
Selling, general and administrative expenses 20,718,058 20,431,048
Amortization of intangible assets 253,191 254,308
----------- -----------
Operating income before store closing costs 6,049,056 4,657,900
Write-down of store assets and store
closing costs 206,756 188,657
----------- -----------
Operating income 5,842,300 4,469,243
Interest and other, net 103,371 279,648
----------- -----------
Income before income taxes 5,738,929 4,189,595
Provision for income taxes 2,292,000 1,718,000
----------- -----------
Net income $ 3,446,929 $ 2,471,595
=========== ===========
Net income per common share $ 0.49 $ 0.34
=========== ===========
Net income per common share, assuming dilution $ 0.48 $ 0.34
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
CATHERINES STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
May 1, January 30,
1999 1999
------ -----------
A S S E T S
Current Assets:
Cash and cash equivalents $ 11,239,091 $ 11,561,223
Receivables 5,073,552 2,457,333
Merchandise inventory 54,341,816 50,355,267
Prepaid expenses and other 4,696,153 3,398,562
Deferred income taxes 4,203,000 4,203,000
------------- ------------
Total current assets 79,553,612 71,975,385
------------- ------------
Property and Equipment, at cost:
Land 500,000 500,000
Buildings and leasehold improvements 25,952,174 25,751,524
Fixtures and equipment 32,899,561 31,910,633
Equipment under capital leases 14,304,145 13,588,016
Improvements in process 2,303,612 2,644,496
------------- ------------
75,959,492 74,394,669
Less accumulated depreciation and amortization (41,250,750) (39,410,261)
------------- -------------
34,708,742 34,984,408
------------- -------------
Other Assets and Deferred Charges, less
accumulated amortization of $2,078,944
and $1,997,082 2,069,808 2,290,022
Goodwill, less accumulated amortization of
$5,667,927 and $5,534,646 21,566,592 21,871,164
------------- ------------
$ 137,898,754 $ 131,120,979
============= ============
L I A B I L I T I E S A N D S T O C K H O L D E R S ' E Q U I T Y
Current Liabilities:
Accounts payable $ 27,296,860 $ 22,310,110
Accrued expenses 20,319,484 19,347,208
Current maturities of long-term bank
and other debt 1,695,319 1,816,119
----------- -----------
Total current liabilities 49,311,663 43,473,437
----------- -----------
Long-Term Bank and Other Debt, less
current maturities 9,274,277 9,517,067
Deferred Income Taxes 378,000 378,000
Stockholders' Equity:
Preferred stock, $.01 par value, 1,000,000
shares authorized, none issued and outstanding -- --
Common stock, $.01 par value, 50,000,000
shares authorized, 6,999,743 and 7,279,949
shares issued and outstanding 69,998 72,800
Additional paid-in capital 44,263,399 46,525,187
Retained earnings 34,601,417 31,154,488
------------ ------------
Total stockholders' equity 78,934,814 77,752,475
------------ ------------
$ 137,898,754 $ 131,120,979
============ ============
The accompanying notes are an integral part of these consolidated balance
sheets.
CATHERINES STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Thirteen weeks ended
May 1, 1999 May 2, 1998
----------- -----------
Cash Flows from Operating Activities:
Net income $ 3,446,929 $ 2,471,595
------------ ------------
Adjustments to reconcile net income to
net cash provided by operating activities--
Depreciation and amortization 2,318,901 2,191,213
Change in reserve for store closing costs (1,300) 148,211
Write-down of underperforming and
closed store assets 206,756 --
Net change in current assets and liabilities (2,821,416) (1,412,788)
Change in other noncash reserves 881,383 962,785
Change in other assets 138,354 (108,156)
------------ ------------
Total adjustments 722,678 1,781,265
------------ ------------
Net cash provided by operating activities 4,169,607 4,252,860
------------ ------------
Cash Flows from Investing Activities:
Capital expenditures (1,695,427) (1,299,029)
------------ ------------
Net cash used in investing activities (1,695,427) (1,299,029)
------------ ------------
Cash Flows from Financing Activities:
Sales of common stock 29,364 35,514
Repurchases of common stock (2,293,954) --
Proceeds from long-term bank and other debt -- 6,919,000
Principal payments of long-term bank and
other debt (531,722) (8,532,489)
------------ ------------
Net cash used in financing activities (2,796,312) (1,577,975)
------------ ------------
Net (Decrease) Increase in Cash and
Cash Equivalents (322,132) 1,375,856
Cash and Cash Equivalents,
beginning of period 11,561,223 3,089,290
------------ ------------
Cash and Cash Equivalents,
end of period $ 11,239,091 $ 4,465,146
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
CATHERINES STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) General
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of normal recurring
adjustments) which management considers necessary to present fairly the
consolidated financial position of Catherines Stores Corporation ("Stores") and
its wholly owned subsidiaries as of May 1, 1999 and May 2, 1998 and the
consolidated results of their operations and their cash flows for the thirteen
weeks ended May 1, 1999 and May 2, 1998. Stores and its subsidiaries are
collectively referred to as the "Company". The results of operations for the
thirteen week periods may not be indicative of the results for the entire year.
These statements should be read in conjunction with the Company's audited
financial statements and related notes which have been incorporated by reference
in the Company's Form 10-K for the year ended January 30, 1999. Accordingly,
significant accounting policies and other disclosures necessary for complete
financial statements in conformity with generally accepted accounting principles
have been omitted since such items are reflected in the Company's audited
financial statements and related notes thereto.
Certain prior year balances have been reclassified to conform to the
current year presentation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities, at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(2) Accounts Receivable
The Company sells accounts receivable generated from its proprietary credit
card to a third-party provider, without recourse. Under the agreement, the
Company sells its receivables from in-house credit sales on a daily basis. In
April 1999, the agreement was extended to January 2005. In addition, certain
terms of the agreement were favorably amended. Also, as an incentive to extend
the agreement, the third-party provider agreed to pay the Company an up-front
cash payment. This amount was included in accounts receivable in the
accompanying balance sheet as of May 1, 1999 and will be amortized into income
evenly over the life of the new agreement.
(3) Statements of Cash Flows
The changes in current assets and liabilities reflected in the statements
of cash flows were as follows:
Thirteen Weeks Ended
May 1, May 2,
1999 1998
------ ------
Increase (decrease) in cash and
cash equivalents-
Receivables $(2,580,918) $ (879,239)
Merchandise inventory (4,750,233) (4,687,575)
Prepaid expenses and other (1,297,591) (513,702)
Accounts payable 4,986,750 2,640,335
Accrued expenses 820,576 2,027,393
----------- -----------
Total $(2,821,416) $(1,412,788)
=========== ===========
Interest paid during the thirteen weeks ended May 1, 1999 and May 2, 1998
was approximately $213,000 and $295,000, respectively. Interest expense is net
of interest income of approximately $123,000 and $15,000 for the first quarters
of fiscal 1999 and 1998, respectively. Income taxes paid during the thirteen
weeks ended May 1, 1999 and May 2, 1998 were approximately $1,488,000 and
$463,000, respectively.
(4) Accrued Expenses
Accrued expenses consisted of the following:
May 1, January 30,
1999 1999
------- ----------
Payroll and related benefits $ 3,346,776 $ 5,012,439
Taxes other than income taxes 2,216,970 1,761,964
Rent and other related costs 2,430,622 2,427,805
Deferred revenues 2,377,613 1,556,298
Reserve for customer awards 1,521,417 1,513,900
Reserve for store closing costs 1,109,045 1,110,345
Income taxes 1,774,877 1,000,333
Other 5,542,164 4,964,124
----------- -----------
Total $20,319,484 $19,347,208
=========== ===========
(5) Long-Term Bank and Other Debt
Long-term bank and other debt consisted of the following:
May 1, January 30,
1999 1999
------- -----------
Due to banks:
Mortgage note $ 6,745,361 $ 6,784,599
Working capital notes -- --
Other:
Capital lease and other obligations 4,224,235 4,548,587
------------ ------------
10,969,596 11,333,186
Less current maturities (1,695,319) (1,816,119)
------------ ------------
Total $ 9,274,277 $ 9,517,067
============ ============
The mortgage financing agreement provides a $6,919,000 mortgage facility
with a seven-year term and a 20-year amortization period. The interest rate on
the mortgage note is fixed at 7.5%. The working capital facility has a total
availability of $28 million, including the swing line of credit. The interest
rate fluctuates based on the Company's debt coverage ratio. The interest rate
can range from LIBOR plus 1 1/4 to LIBOR plus 2 1/4, or the agent bank's prime
rate, at the Company's option. Based on the formula in the agreement, the
Company's current borrowing cost would be LIBOR plus 1 1/4%, or the agent bank's
prime rate, at the Company's option. Amounts available under this facility are
based on the Company's eligible receivables and inventories.
At May 1, 1999, the Company had approximately $22,500,000 available under
its combined working capital and swing line facility. Outstanding letters of
credit were approximately $5,500,000 at May 1, 1999. During the thirteen weeks
ended May 1, 1999, the Company entered into capital lease agreements for the
purpose of obtaining computer equipment, at a cost of approximately $168,000.
(6) Leases
During the thirteen weeks ended May 1, 1999, the Company entered into new
or relocation leases for 18 stores and amended or extended leases for 17 stores,
which increased future minimum rental payments by approximately $10,700,000
since January 30, 1999. Total future minimum rental payments under all
noncancelable operating leases with initial or remaining lease terms of one year
or more are approximately $76,800,000.
Total rent expense for all operating leases was as follows:
Thirteen Weeks Ended
May 1, May 2,
1999 1998
------ -------
Minimum rentals $5,264,617 $5,229,744
Contingent rentals 100,765 36,003
---------- ----------
Total $5,365,382 $5,265,747
========== ==========
(7) Net Income Per Common Share
The reconciliation of net income per common share and diluted net income
per common share is as follows:
Diluted
Net Income Net Income
Per Stock Per
Common Share Options Common Share
------------ ------- ------------
Thirteen weeks ended May 1, 1999:
Net income $3,446,929 - $3,446,929
Weighted average shares 7,106,469 134,466 7,240,935
---------- ----------
Per share amount $ 0.49 $ 0.48
========== ==========
Thirteen weeks ended May 2, 1998:
Net income $2,471,595 - $2,471,595
Weighted average shares 7,232,696 125,250 7,357,946
---------- ----------
Per share amount $ 0.34 $ 0.34
========== =========
(8) Store Closing Costs
In late fiscal 1997, the Company adopted a plan to close approximately 30
underperforming stores upon lease termination or settlement with the landlords.
During fiscal 1998, 14 unprofitable stores were closed, including two during the
first quarter. In addition, based on financial performance evaluations,
management added 10 stores to the store closing plan and removed 11 stores from
the store closing plan, bringing the number of stores in the store closing plan
to 15 at January 30, 1999. The Company closed one unprofitable store during the
first quarter of 1999.
The Company has scheduled seven additional stores for closing during the
remainder of fiscal 1999. Terminations of the remaining stores' leases are still
being negotiated with the landlords. Write-down of store assets and store
closing costs were approximately $207,000 and $189,000 during the first quarters
of 1999 and 1998, respectively.
(9) Stockholders' Equity
The change in stockholders' equity was as follows:
Additional
Common Paid-In Retained
Stock Capital Earnings Total
----------- ------------ ----------- --------
Balance at
January 30, 1999 $ 72,800 $ 46,525,187 $ 31,154,488 $ 77,752,475
Net proceeds from the sale
of 4,894 common shares 49 29,315 -- 29,364
Repurchase of 285,100
shares of common stock (2,851) (2,291,103) -- (2,293,954)
Net income -- -- 3,446,929 3,446,929
------------ ------------ ------------ ------------
Balance May 1, 1999 $ 69,998 $ 44,263,399 $ 34,601,417 $ 78,934,814
============ ============ ============ ============
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
This outlook contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Such forward- looking
statements are based on current expectations that are subject to known and
unknown risks, uncertainties and other factors that could cause actual results
to differ materially from those contemplated by the forward-looking statements.
Such factors include, but are not limited to, the following: Year 2000
information systems issues; general economic conditions; competitive factors and
pricing pressures; the Company's ability to predict fashion trends; consumer
apparel buying patterns; adverse weather conditions and inventory risks due to
shifts in market demand. The Company does not undertake to publicly update or
revise the forward-looking statements even if experience or future changes make
it clear that projected results expressed or implied therein will not be
realized.
Overview
The Company's net income for the thirteen week period ended May 1, 1999 was
$3,447,000 compared to $2,472,000 in the thirteen week period ended May 2, 1998.
Operating income margins were 7.3% for the first quarter of 1999 compared to
5.8% in 1998. Write-down of store assets and store closing costs were
approximately $207,000 and $189,000 during the first quarters of 1999 and 1998,
respectively. Before these costs, the operating income margins would have been
7.5% and 6.1% in 1999 and 1998, respectively.
The improvement in operating income margin over the prior year is
attributable to improved sales and merchandise margins, leveraged buying and
occupancy costs, savings generated from the amendment and extension of the
contract with the Company's third-party credit processor and a decrease in
consulting fees, which were incurred in 1998 to re-engineer the merchandise
planning and distribution functions.
Liquidity and Capital Resources
The Company's cash provided by operations was $4,170,000 during the
thirteen weeks ended May 1, 1999, compared to cash provided by operations of
$4,253,000 during the thirteen weeks ended May 2, 1998. The decrease in cash
flow provided by operations is primarily attributable to an investment in
working capital, offset by increases in net income and depreciation expense. The
Company's working capital was $30,242,000 at May 1, 1999 compared to $28,502,000
at January 30, 1999. The Company's internally generated cash flow financed its
operating requirements, capital expenditures and debt service during the
thirteen week period ended May 1, 1999.
The Company maintains a merchant services agreement with a third-party
credit processor. This agreement provides for the Company to sell, without
recourse, accounts receivable from private label credit card sales. The third-
party provides all authorization, billing and collection services for these
accounts. The agreement was amended and extended during the first quarter of
1999, allowing the Company to obtain more favorable terms. Also, as an incentive
to extend the agreement, the third-party provider agreed to pay the Company an
up-front cash payment. This amount will be amortized evenly into income over the
life of the new agreement. The agreement expires in January 2005.
Capital Expenditures
The Company has incurred approximately $1,100,000 to relocate, remodel or
expand approximately seven existing stores during the first quarter of fiscal
1999. An additional $400,000 has been incurred for the opening of five new
locations. The Company estimates that total fiscal 1999 capital expenditures
will be approximately $8,000,000, of which an estimated $5,500,000 will be used
for the opening of 12 new locations and the remodeling, relocation and expansion
of approximately 42 other locations. The remainder of the capital expenditures
are to upgrade existing computer systems, add additional software technology and
to maintain existing facilities.
Banking Arrangements
The mortgage financing agreement provides a $6,919,000 mortgage facility
with a seven-year term and a 20-year amortization period. The interest rate on
the mortgage note is fixed at 7.5%. The existing bank credit facility has an
availability of $28,000,000, including the swing line of credit. The interest
rate fluctuates based on the Company's debt coverage ratio. The interest rate
can range from LIBOR plus 1 1/4 to LIBOR plus 2 1/4, or the agent bank's prime
rate, at the Company's option. Based on the formula in the agreement, the
Company's current borrowing cost would be LIBOR plus 1 1/4%, or the agent bank's
prime rate, at the Company's option. The agreement expires June 30, 2001.
At May 1, 1999, the Company had approximately $22,500,000 available under
its combined working capital and swing line facility and approximately
$5,500,000 in outstanding letters of credit.
The Company believes that its internally generated cash flow, together with
borrowings under the bank credit agreement, will be adequate to finance the
Company's operating requirements, debt repayments and capital needs during the
foreseeable future.
Results of Operations
Thirteen Weeks Ended May 1, 1999 Compared to Thirteen Weeks Ended May 2,
1998
Net sales in the first quarter of 1999 increased 5.0% to $80,300,000
from $76,452,000 in the first quarter of 1998. Comparable stores' sales
increased 6.0%, primarily due to an increase in the number of saleschecks
generated and an increase in the number of units per salescheck, offset by a
decrease in average unit price. During the first quarter, one store was closed
and five stores were opened, increasing the number of stores operated by the
Company on May 1, 1999 to 436. At May 2, 1998, the Company operated 440 stores.
Gross margin, after buying and occupancy costs, increased as a percentage
of sales to 33.6% from 33.1% in the first quarter of 1998. The increase is
attributable to both leveraged buying and occupancy costs and improved
merchandise margins. Buying and occupancy costs deceased as a percentage of
sales by 21 basis points. Additionally, merchandise margin increased as a
percentage of sales by 29 basis points. The increase in merchandise margin was
driven primarily by an increase in merchandise markup.
Selling, general and administrative expenses increased to $20,718,000 in
the first quarter of 1999 compared to $20,431,000 in the first quarter of 1998.
As a percentage of sales, the selling, general and administrative expenses
decreased to 25.8% from 26.7% in the first quarter of 1998. Factors contributing
to this decrease were the savings obtained through the amendment and extension
of the Company's third-party credit agreement and a decrease in consulting fees,
which were incurred in 1998 to re-engineer the merchandise planning and
distribution functions.
In late fiscal 1997, the Company adopted a plan to close approximately 30
underperforming stores upon lease termination or settlement with the landlords.
During fiscal 1998, 14 unprofitable stores were closed, including two during the
first quarter. In addition, based on financial performance evaluations,
management added 10 stores to the store closing plan and removed 11 stores from
the store closing plan, bringing the number of stores in the store closing plan
to 15 at January 30, 1999. The Company closed one unprofitable store during the
first quarter of 1999. The Company has scheduled seven additional stores for
closing during the remainder of fiscal 1999. Terminations of the remaining
stores' leases are still being negotiated with the landlords. Write-down of
store assets and store closing costs were approximately $207,000 and $189,000
during the first quarters of 1999 and 1998, respectively.
Interest expense was approximately $103,000 in the first quarter of 1999
compared to $280,000 in the first quarter of 1998. The decrease is primarily
attributable to the decrease in working capital borrowings and an increase in
interest income. Interest expense is net of interest income of approximately
$123,000 and $15,000 for the first quarters of fiscal 1999 and 1998,
respectively.
Income taxes were provided at effective rates of 39.9% and 41.0% for the
thirteen weeks ended May 1, 1999 and May 2, 1998, respectively. The statutory
rate is affected primarily by non-deductible goodwill amortization and state
income taxes.
Net income for the first quarter of 1999 was $3,447,000 compared to
$2,472,000 for the first quarter of 1998. Net income per common share, assuming
dilution, was $0.48 per share in the first quarter of 1999 and $0.34 per share
in the first quarter of 1998. Before the write-down of store assets and store
closing costs, the Company's net income per common share would have been $0.49
and $0.35 for the first quarters of 1999 and 1998, respectively.
During the first quarter of 1999, the Company repurchased and retired
285,100 shares of its outstanding common stock for approximately $2,294,000.
Year 2000 Compliance
The Company has developed a plan to ensure its systems are compliant with
the requirements to process transactions in the year 2000. The majority of the
Company's information systems are provided and serviced by outside vendors who
are in the process of completing all necessary updates to ensure they will
continue to be effective in the year 2000. Management currently believes that
any other minor technological equipment, if not year 2000 compliant, will not
have a material impact on the Company's business operations.
The Company has requested, from its key third-party providers,
certifications of year 2000 compliance. The Company is developing plans to test
the systems where the third-party responded as being compliant by December 31,
1999. Contingency plans to address unexpected year 2000 scenarios will be
developed to address the material risks and uncertainties for those
third-parties who either do not respond or who responded that they will not be
compliant. The Company expects the majority of its information systems to be
year 2000 compliant by 2000; however, no assurances can be given that the
efforts by the Company and its third-parties will be successful. The Company
does not currently estimate that the cost to remedy year 2000 noncompliant
technologies will be significant.
PART 2 - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in the Rights of the Company's Security Holders
Not applicable
Item 3. Defaults by the Company on its Senior Securities
Not applicable
Item 4. Submission of Matters to a vote of Security Holder
The Annual Meeting of the Stockholders of the Company was held on
June 2, 1999. Matters voted upon at the meeting were the election of
directors, the ratification of independent public accountants and the
increase of the number of shares under the 1994 Omnibus Incentive
Plan, to limit discretion thereunder and to ratify the grant of
options thereunder.
Abstain/
Broker
For Against Withheld Non-Votes
Election of directors:
David C. Forell 5,561,431 - 1,329,215 -
Allen B. Morgan, Jr. 5,561,431 - 1,329,215 -
Elliot J. Stone 5,559,631 - 1,331,015
Increase incentive plan
authorized shares, limit
discretion thereunder, and
ratificationof all grants
under the plan to date 3,511,698 1,356,116 - 2,022,832
Appointment of Arthur Andersen LLP 6,876,238 7,531 - 6,877
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits:
(1) Merchant Services Agreement between Hurley State Bank
and Catherines, Inc.
(2) 27.1 Financial Data Schedule (for EDGAR filing only)
(B) Reports on Form 8-K:
None.
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SIGNATURES
June 2, 1999 /s/ David C. Forell
(Date) --------------------------
David C. Forell,
Executive Vice President,
Chief Financial Officer
Secretary
CONFIDENTIAL INFORMATION HAS BEEN OMITTED FROM THIS EXHIBIT AND FILED SEPARATELY
WITH THE SEC. EACH PLACE OF OMISSION IS INDICATED WITH **.
MERCHANT SERVICES AGREEMENT
This MERCHANT SERVICES AGREEMENT (the "Agreement") is made as of December
1, 1998, by and between Hurley State Bank ("Bank"), a Bank organized and
existing under the laws of the State of South Dakota with its offices at 811
East 10th Street, Sioux Falls, South Dakota 57103, and Catherines, Inc.
("Company"), a corporation organized and existing under the laws of the State of
Delaware, with its offices at 3742 Lamar Avenue, Memphis, Tennessee 38118.
WITNESSETH:
WHEREAS, Bank intends to issue to consumers private label credit cards for
use at specific retail establishments and desires to offer to certain consumers
the ability to use a Bank-issued credit card (bearing certain Tradenames and/or
Trademarks which are either licensed to or owned by Company) for the purchase of
goods, gift certificates for goods, and services normally offered by Company to
its Cardholders (either in its stores, by mail, including statement inserts, by
electronic means or as otherwise agreed to by the parties)(collectively
"Authorized Goods"); and
WHEREAS, Company is in the business of providing Authorized Goods and
desires to offer consumers the convenience of using a Bank-issued credit card
with its licensed or owned Tradenames and/or Trademarks appearing on such card
in payment therefor; and
WHEREAS, Bank directly or through its designee will operate and administer
a merchant authorization and settlement program whereby, subject to certain
conditions, Bank will authorize certain Bank-issued credit card transactions for
Company and Company or its designated agent will present Bank with transaction
records for payment; and
WHEREAS, Bank and Company intend that this Agreement supersede all previous
agreements (and their various addendums) between the parties for merchant
services provided by Bank to Company, and cover all outstanding accounts under
such previous agreements.
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 Company
agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. Except as otherwise specifically indicated, the following
terms shall have the meaning specified herein:
"Account" means a credit account on which a purchase transaction has been
made or may be made by (or by a person authorized by) the Cardholder pursuant to
a Card. An Account may have more than one Card issued for it. Any Account shall
be deemed to be the property of Bank and Bank shall establish the terms and
conditions under which Accounts will be established.
"Account Balances" shall have the same meaning as is set forth in the
Additional Purchase Agreement.
"Account Issuance Criteria" means the credit criteria under which Bank
shall determine whether to approve or decline applications for Accounts. Bank
may make changes to the Account Issuance Criteria based on the performance of
the Card Plan and will advise Company and discuss such changes with Company
prior to implementation of such changes. Bank and Company shall meet from time
to time to discuss the Account Issuance Criteria as it relates to the
performance of the Card Plan.
"Active Account" means an Account which at any time during a billing cycle
has a debit or credit balance.
"Additional Purchase Agreement" means a Purchase and Sale Agreement, in
substantially the form attached hereto as Schedule G.
"Affiliates" means Catherines of California, Inc., a California
corporation, Catherines of Pennsylvania, Inc., a Tennessee corporation, and
Catherines Partners, L.P., a Tennessee limited partnership.
"Assets to be Sold" shall have the same meaning as is set forth in the
Additional Purchase Agreement.
"Authorization" means permission from Bank to make a Card Sale.
"Authorization Center" means the facility designated by Bank as the
facility at which Card Sales are authorized.
"Business Day" means Mondays through Fridays except days when Bank is
closed for business.
"Card" means (i) a credit card issued by Company (or a Predecessor in
Interest of Company) prior to the Transfer Date bearing Company's (or such
Predecessor's) name or one of its Tradenames, and which evidences an Account
which was purchased from Company pursuant to the Original Purchase Agreement, or
(ii) a credit card issued by Bank with certain Tradenames and Trademarks
appearing on such card or with such other design as mutually acceptable to the
parties, which evidences an Account. During the term of this Agreement, Company
shall not (and shall not cause or permit the Affiliates to) issue, arrange to
issue, or accept any other private label credit card, or private label credit
account, including any credit card or account under any of the Tradenames or
Trademarks, except for Accounts which Bank purchased but returned to Company as
an Ineligible Account under the Original Purchase Agreement. The foregoing
limitation shall not apply to third party non-private label credit cards such as
Visa, MasterCard or Discover Card (including those which are co-branded cards
bearing the Trademarks or Tradenames). "Card Plan" means the programs under
which Accounts have been or will be established and Cards issued to Cardholders.
"Card Sale" means any sale of Authorized Goods that Company makes to a
Cardholder pursuant to this Agreement that is charged to an Account.
"Cardholder" means (i) the person in whose name an Account is maintained
and (ii) an authorized user of that Account, as applicable.
"Chargeback" means the refusal of Bank to pay Company for a Card Sale or
the return to Company and reimbursement to Bank of a Card Sale for which Company
was previously paid.
"Credit" means a non-cash refund (for returns or otherwise) issued by
Company to a Cardholder of all or a portion of the amount of a Card Sale.
"Credit Slip" means evidence of a Credit in paper or electronic form.
"Customer Satisfaction Survey" shall have the meaning set forth in Section
3.1(d) below.
"Daily Remittances" shall have the meaning set forth in Section 2.7(c)
below.
"Effective Date" means December 1, 1998.
"Electronic Commerce" means transactions generated from the Internet- based
catalog developed by Company and transmitted by Cardholder to Company or its
agent via the Internet, telephone, facsimile or mail. Company and Bank shall
mutually agree on the process by which a Cardholder may transmit transactions to
Company or Bank via the Internet (including without limitation transmissions by
a third party intermediary designated by Company (such as AT&T Secure Buy).
"Electronic Location" means a Company 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
Authorization. Company agrees that the Electronic Terminals it uses hereunder
shall be reasonably acceptable to Bank.
"Eligible Accounts" shall have the meaning set forth in the Additional
Purchase Agreement.
"Floor Limit" means the United States dollar amount designated by Bank, as
it may be changed from time to time, at or above which Authorization must be
obtained to make a Card Sale.
"Ineligible Accounts" shall have the meaning set forth in the Additional
Purchase Agreement.
"Net Card Sales" means the actual amount of Card Sales less Chargebacks or
Credits. "Network Services" shall have the meaning set forth in the Network
Services Agreement attached hereto as Schedule B.
"Operating Regulations" means the standard operating procedures of Bank, as
they may be changed from time to time, which shall be provided to Company upon
written request therefore. For purposes of this Agreement, the Operating
Regulations shall be deemed an integral part of the Agreement and references to
the Agreement shall be deemed to include the Operating Regulations.
"Predecessor in Interest" means a corporation or entity from whom or as to
which Company acquired or otherwise succeeded to ownership of Cardholder
Agreements (as defined in the Original Purchase Agreement) and Accounts relating
thereto.
"Privilege Fee" shall have the meaning set forth in Section 3.1(e).
"Original Purchase Agreement" means the agreement Company and Bank dated
October 1, 1992, for the initial purchase of Company's then existing private
label credit card accounts and the balances thereunder.
"Sales Data" means Card Sales and Credits whether in paper form, in the
form of magnetic tape, or in a form in which the data representing Card Sales
and Credits are electronically transmitted.
"Sales Slip" means evidence of a Card Sale in paper or electronic form.
"Securitization Agreement" means an agreement between Bank and a third
party which may include a limitation or delay in the timing of Bank's right to
cause the purchase, or Company's right to purchase the receivables on certain
Accounts covered under such securitization agreement.
"Settlement" means the reimbursement to Company for the net amount of Card
Sales and Credits remitted to Bank, including any reduction for payments
accepted by Company in accordance with paragraph 2.7 herein.
"Settlement Account" means the deposit account(s) at the financial
institution(s) designated by Company as the account(s) to be debited and/or
credited, as applicable, for the Settlement of Card transactions and the payment
of any fees and charges due hereunder.
"Standards" means all of the standards of performance set forth in Schedule
C attached hereto.
"Tradename" means Catherines, Plus Sizes (including "PS Plus Sizes . . .
Plus Savings"), Catherine's Stout Shoppe, Clothes for Eve, Added Dimensions, The
Answer, Other Dimensions, Virginia Specialty Stores, VSSI, the corporate name of
Company, and any combinations thereof.
"Trademark" means any logo or symbol utilized by Company as a trademark or
service mark in connection with the sale of Authorized Goods. "Transfer Date"
shall have the meaning set forth in the Additional Purchase Agreement.
Other capitalized terms used herein without definition shall have the
definitions ascribed to them in the Additional Purchase Agreement.
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
ISSUANCE OF ACCOUNTS AND ACCEPTANCE OF CARDS
2.1 Conditions of Opening Accounts. Subject to the terms and conditions of
this Agreement, Bank shall receive Cardholder applications and approve or
decline Accounts in accordance with Bank's Account Issuance Criteria.
(a) Written Applications. Applications which are received by Bank through
the mail and are not made contemporaneously with a sale shall be reviewed in
accordance with Account Issuance Criteria and Bank's customary practice for
written applications.
(b) Applications with Accompanying Sale. Applications telephoned to Bank by
Company's employees in conjunction with a sale shall be reviewed by Bank in
accordance with Bank's Account Issuance Criteria. Subject to the obligations of
Bank under Section 3.1(f)(iii), Bank shall use its best efforts to approve or
decline such applications within five (5) minutes after receipt by Bank. Company
shall be responsible for the following:
(i) Providing all information found on Customer's Application which has
been requested by Bank's representative.
(ii) Obtaining positive identification of the individual applying for the
Account, including but not limited to obtaining driver's license and social
security numbers.
(iii) Obtaining the signature on the application of all persons whose name
will appear on the Account or will be responsible for the Account.
(iv) Upon either approval or decline, the application must be sent to Bank
at the designated address.
(v) The sale must be entered into Company's Electronic Terminal. If
requested to do so by Bank's representative, Company's employee shall also enter
into the Electronic Terminal the approval code provided by Bank.
Failure by Company to adhere to the above procedures shall result in a
chargeback in accordance with Paragraph 2.10 of this Agreement.
(c) Credit Scoring Models. Any changes by Bank to new Account Credit
Scoring Models (as utilized in opening new Accounts) will be submitted by Bank
to Company and will be discussed by Bank with Company prior to implementation,
with Bank to provide to Company in connection with such discussion the reasons
for such changes. Bank will test any new credit scoring model based on
historical data from previous applications for Accounts, and will not implement
the new model if the prior testing of the new model reflects a 20% or greater
reduction in the application approval rates; provided, however, that Bank may
implement such new scoring model if such implementation is necessary to ensure
the safety and soundness of Bank. Notwithstanding the above, Bank will not,
without Company's prior agreement, replace the credit scoring models with a new
model more than one time during the Initial Term or one time during any
Subsequent Term unless Bank is required to do so to comply with applicable law
or regulation, or to address material changes in economic conditions or the
demographics of applicants.
(d) Toll Free Line. Bank shall at all times designated in the Standards, at
its expense, provide a toll free telephone number to Company accessible at all
Company locations in the United States for use by Company in transmitting
telephone or other electronic applications for new Accounts; provided, however,
Bank shall not be obligated to furnish more than four (4) toll free telephone
numbers to Company.
(e) POS Fee. As an inducement for Company to utilize a Remote Entry
Application Processing ("REAP") function for transmitting applications for the
Card to Bank (including applications transmitted from or through Company's
website [except for those applications transmitted by the prospective
Cardholder] or other Internet connections mutually agreed upon by the parties),
Bank will pay to Company a POS Fee, as set forth below, for each REAP
application for the Card which has been approved by Bank and activated by the
Cardholder in the same calendar month. The base POS Fee will be [**] per such
application. For each month during which the total of applications submitted
utilizing the REAP function is between 50% and 74.99%, the POS Fee will be [**]
per such application. For each month during which the total of Company
applications submitted utilizing the REAP function is 75% or greater, the POS
Fee will be [**] such application. The POS Fee will be paid to Company once
monthly under the mechanism for settlement of Card Sales as set forth in
paragraph 2.7.
(f) Monthly Reports on New Accounts. Bank shall furnish to Company, on a
monthly basis, at Bank's expense, a report setting forth all material
information regarding all new Accounts opened by Bank during the prior month in
substantially the form attached hereto as Schedule D.
(g) Viewing Access as to Certain Matters. At all times during the hours
Bank is to furnish customer service pursuant to the Standards, Bank shall, at
its expense, provide to the credit department of Company, on-line viewing only
access to the Account inquiry screens for each Account, which will include the
"PLCI" screen (containing the customer's name, address, limit and balance
information) and the "ARIH" screen, and Company will implement a procedure to
obtain a Cardholder's consent to access Cardholder's credit information.
2.2 Honoring of Cards.
(a) Conditions for Honoring Cards. Subject to the terms and conditions of
this Agreement, Company agrees to accept the Card for payment of Authorized
Goods in those instances when a Cardholder wishes to charge the purchase of such
Authorized Goods to his/her Account and shall not attempt to suppress or
discriminate against use of a Card by a Cardholder (except in accordance with
this Agreement). Company shall accept the Card at all of its participating
locations for the purchase of Authorized Goods, provided the Card transactions
resulting from such acceptance of the Card are submitted to Bank in United
States dollars. Bank will advise Company if it develops the capability of
accepting Card transactions in currencies other than United States dollars. In
such event, Card transactions may be made in such other currencies upon terms
and conditions to be mutually determined at that time. If any facility or
service is operated on Company premises under a franchise, lease or license from
Company and such franchisee, lessee or licensee (who is not a party to a
merchant services agreement with Bank) agrees with Company to accept Cards, Card
Sales incurred at such facility or service shall be subject to the terms and
conditions of this Agreement and must be handled through Company as if it had
transacted such Card Sales. Company shall be obligated to pay its franchisee,
lessee or licensee with respect to such Card Sales in accordance with the
provisions of Company's agreement with such franchisee, lessee or licensee, to
the extent such agreement does not conflict with the terms of this Agreement.
(b) Card Acceptance. Acceptance of Cards by Company shall continue until
the termination of this Agreement.
2.3 Acceptance of Cards. Company shall accept each Card presented by a
Cardholder as conditional payment for Authorized Goods provided that all of the
following conditions are met with respect to each Card Sale and that Company
further complies with all of the procedures set forth elsewhere in this
Agreement and in the Operating Regulations relating to the acceptance of Cards
each time it makes a Card Sale:
(a) The Card is used as conditional payment for Authorized Goods purchased
by a Cardholder;
(b) Company will not accept a Card for the purpose of advancing money to a
Cardholder or paying money to a Cardholder for any amount that is included in a
Card Sale;
(c) Company has followed the procedures for the completion of Sales Slips
as set forth in Section 2.5 below; and
(d) Company has obtained Authorization for the Card Sale if required
pursuant to paragraph 2.6 below.
2.4 Operating Regulations. The Operating Regulations may be changed by Bank
from time to time upon sixty (60) days prior written notice to Company,
provided, however, that changes which do not require major systems or
operational modifications and changes required for security measures shall be
made effective as soon as possible following Company's receipt of notice thereof
but in all events shall become effective within ten (10) days of Company's
receipt of notice thereof. Notwithstanding the above, other than for
modifications required by applicable law or regulation (which will be effective
immediately) the parties shall mutually agree on such modification in the event
such modification involves a significant cost to Company. In the event of any
conflict or inconsistency between the terms of this Agreement and those of the
Operating Regulations, the former shall govern.
2.5 Completion of Sales Slips.
(a) General Requirements. For each Card Sale, Company shall prepare a Sales
Slip using a form that is mutually acceptable to Bank and Company, e.g., a
universal sales slip. Each Sales Slip must be legible and fully completed with
the following information:
(i) The date and, unless otherwise provided to Bank, e.g. batch reports,
etc., location (city/state or Internet) of the Card Sale;
(ii) A brief description of the Authorized Goods;
(iii) The total amount of the Card Sale, including tax;
(iv) The Account number;
(v) The Authorization number or code (where applicable); and
(vi) Company's merchant number, unless otherwise provided to Bank, e.g.
batch reports; and
(vii) A unique number must be assigned to each transaction that is
transmitted via the Internet.
Each Sales Slip shall be imprinted to obtain a clear imprint of the Card;
provided that in the case of Sales Data which are electronically produced by
Company, Company shall not be required to obtain an imprint of the Card.
However, Company shall be required to enter the Account number, as applicable
into the electronic terminal.
(b) Cardholder's Signature. With the exception of transactions generated
through Electronic Commerce, a Sales Slip must be signed by the Cardholder for
each Card Sale at the time the Card Sale is made and in the presence of an
authorized representative or employee of Company. The signature on the Sales
Slip must be reasonably similar to the signature appearing on the signature
panel of the Card. Transactions generated through Electronic Commerce must
include a Sales Slip with a notation as to the method of presentation for the
transaction. After completion of the Card Sale, Company shall provide a legible
and completed copy of the Sales Slip to the Cardholder. If Company fails to
obtain the signature of the Cardholder or the required notation on a Sales Slip
and the Cardholder has not authorized the Card Sale or denies the validity of
the Card Sale, the Card Sale shall be subject to Chargeback pursuant to
paragraph 2.10 below.
2.6 Authorization.
(a) General Requirements. In accordance with the terms of this paragraph
2.6, Company shall obtain Authorization for each proposed Card Sale at or above
the Floor Limit and, as required below. For purposes of this Agreement, the
purchase of one or more items or other Authorized Goods made by a Cardholder at
one Company location and at one time shall be deemed to constitute a single Card
Sale.
(b) Floor Limit. The Floor Limit shall be $0. Bank may change the Floor
Limit upon thirty (30) days prior notice to Company. Notwithstanding the above,
the Floor Limit shall automatically become $200 only during such times that
Company is unable to obtain an electronic or telephone authorization from Bank
due solely to Bank's authorization system not being operational.
(c) Obtaining Authorization.
(i) Electronic Locations. To obtain Authorization for Card Sales made at
Electronic Locations, including transactions transmitted to Company via
Electronic Commerce, Company shall utilize an Electronic Terminal in accordance
with procedures applicable for the use of that terminal. At an Electronic
Location, if a referral code is displayed on an Electronic Terminal, Company
shall telephone Bank to obtain further instructions, using a toll-free telephone
number provided by Bank for such purpose.
(ii) Non-Electronic Authorization. To obtain Authorization when Bank's
electronic capability to provide Authorization or Company's electronic
capability to obtain Authorization is not operational, Company shall contact
Bank using a toll-free telephone number provided by Bank for such purpose. If
the Authorization Center approves the Card Sale, Company will be given an
Authorization code or number which must be written on the Sales Slip.
(d) Right of Chargeback. If Authorization for any Card Sale is required but
not obtained by Company, or requested by Company but declined by Bank, Bank may
process a Chargeback for such Card Sale pursuant to paragraph 2.10 below.
(e) Cancellation of Authorization. At its expense, Bank shall make
available during Bank's normal authorization hours, a toll-free number which
Company may call in the event a previously authorized Card Sale is canceled by
the Cardholder.
(f) Account Number Look-Up. In the event Company calls Bank to look-up an
Account number for a purchasing Cardholder due to the fact that such Cardholder
does not have his Card with him at the time of purchase, Bank shall provide the
number to Company and proceed with the authorization process without requiring
the Cardholder to produce any forms of identification provided that the identity
of the Cardholder is known to Company and Company orally vouches to Bank as to
the identity of such Cardholder at the time such authorization is requested.
Notwithstanding the foregoing, Bank is specifically authorized to Chargeback any
such sale to Company if the person in whose name the Account is maintained
refuses to pay for such the Card Sale on the basis that the person who utilized
the Card to make such sale was not the Cardholder which such person represented
himself/herself to be. (g) Authorization of Card Usage by Cardholder's Spouse,
Subject to Chargeback Rights. For purposes of this Agreement, the spouse of a
person in whose name an Account is maintained shall automatically be deemed to
be an authorized user of the Account (even if such spouse has not been
specifically authorized by such person to be a user of the Account) unless and
until a charge made by such spouse on such Account is rejected by such person on
the basis that such spouse is not an authorized user. Accordingly, unless and
until such a rejection of a charge has been made by such a person with respect
to his (her) spouse, in the event that Company requests authorization for a sale
to such spouse, Bank shall not deny the authorization by reason of the fact that
such spouse is not a specifically authorized user of the Account.
Notwithstanding any of the foregoing, Bank is specifically authorized to
Chargeback any sale to Company if the person in whose name the Account is
maintained refuses to pay for such a Card Sale on the basis that his (her)
spouse was not specifically designated by such person as an authorized user.
(h) Payment Made in Store. For purposes of determining whether aCard Sale
will be authorized or denied for a Cardholder on the basis of the credit limit
for the Account, Bank shall accept the oral statement of Company that such
Cardholder has made an in-store payment to Company. Notwithstanding the
foregoing, Bank is specifically authorized to Chargeback any such sale to
Company if the Account was in fact over its credit limit at the time of such
sale and the charge arising from such sale is not paid by or on behalf of the
person in whose name the Account is maintained.
(i) Over Limit Sales. Bank will continue to authorize Card Sales to a
Cardholder when the Cardholder's Account would be in excess of Bank's prescribed
credit limit, up to a maximum of 30% over such limit, when warranted by and in
accordance with the "Triad" behavioral scoring criteria or other similar scoring
criteria as utilized by Bank from time to time.
2.7 Settlement of Card Transactions.
(a) Remittance of Sales Data by Company. At least weekly, Company shall
remit Sales Data to Bank. All such remittances shall be in Bank's form and
format. Remittances of Sales Data shall contain all of the information specified
in this Agreement and the Operating Regulations. Upon receipt thereof, Bank will
balance and edit the data submitted and make appropriate adjustments for errors
or invalid or incomplete transactions. In the event all or a portion of the
required data is not received by Bank or such data is unreadable, Bank shall not
be required to process the Sales Data containing the missing or unreadable data,
but shall promptly inform Company or its designated agent of the missing or
unreadable data. Company shall be responsible for retrieving and resubmitting
the Sales Data in completed form. Company shall be responsible for the loss,
damage or destruction of Sales Data until such Sales Data is received by Bank.
(b) Obligation to Reimburse Company for Sales Data. Subject to Bank's right
of Chargeback, Bank shall pay Company for all Card Sales properly submitted by
Company and received by Bank. Bank will pay Company an amount equal to the total
amount of Card Sales submitted to and received by Bank, less the amount of
Credits and in-store payments under Section 2.8, if any, submitted that Business
Day by Company, plus or minus the applicable amount, if any, for other
adjustments to the amounts so submitted as expressly provided for herein. Bank
shall not be required to pay Company for any Card Sale not submitted within 60
days of the date of the Card Sale.
(c) Method and Timing of Settlement. For each electronic or tape remittance
of Sales Data received in Bank's form and format by the following specified
local time on a particular Business Day at the location specified by Bank, Bank
will initiate the appropriate credit or debit to the Settlement Account, as
applicable, by federal wire transfer of funds, on the U.S. Federal Reserve wire
system, by the following specified Business Day ("Daily Remittances"), as
follows: (x) receipt by 10:00 AM, Eastern Time, transfer initiated by the next
Business Day; (y) receipt after 10:00 AM, Eastern Time, transfer initiated by
the second Business Day. Company hereby authorizes Bank and its designated
agents and representatives to credit or debit the Settlement Account, as
applicable, in accordance with this Agreement and the rules and procedures of
the settlement institution. This authority shall remain in effect until five (5)
Business Days after Bank receives written notice from Company of its
cancellation of such authorization, provided that in the event of termination of
this Agreement, Company agrees to maintain the Settlement Account with
sufficient funds until such time as Company and Bank agree that all Chargebacks
and other adjustments are processed and to permit Bank to credit and debit such
Settlement Account until all charges, Chargebacks and other adjustments are
settled as provided in this Agreement. Bank shall not be liable to Company for
any delays in receipt of funds or errors in credit entries caused by third
parties including, but not limited to, a clearinghouse, Company's financial
institution, or any agent of Company.
2.8 Cardholder Credits and Payments. Unless specifically required by law,
Company will not give cash refunds to any Cardholder in connection with a Card
Sale. For each Credit issued by Company, Company will prepare and deliver to the
Cardholder a Credit Slip which Company will complete in accordance with the
Operating Regulations. Company shall submit Sales Data evidencing each Credit to
Bank within one (1) Business Day after it is issued in order that the
appropriate Credit may be entered on the Cardholder's Account. Company may
accept payment for a Card Sale from a Cardholder (other than through the use of
the Card) if Authorization for such Card Sale is denied by Bank or such Card
Sale is charged back to Company by Bank. In addition, Company may accept in
store payments on an Account from Cardholders provided that the payment amount
and Cardholder information is submitted with the settlement data and in a form
that is mutually agreeable to Bank and Company.
2.9 Billing Inquiries and Cardholder Disputes.
(a) Bank will notify Company as soon as practical when a Cardholder has
made a billing inquiry or filed a billing error notice relating to a Card Sale
made by Company. Company agrees to investigate and make a good faith effort to
resolve each billing inquiry or dispute referred to it by Bank or received
directly from a Cardholder. Within fifteen (15) Business Days from the date Bank
provides a billing inquiry or dispute to Company, Company shall notify Bank in
writing of the resolution thereof or the action Company will take to resolve the
billing inquiry or dispute. Company shall provide Bank with all such information
as Bank may reasonably request in connection therewith.
(b) Bank shall continue to adjust disputed late fees and finance charges in
accordance with the same policy as in effect at Bank on the Effective Date.
(c) 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 a professional and helpful manner. Further, all collection calls
will be conducted in conformance with the debt collection practices provisions
of the Federal Fair Debt Collection Practices Act and similar applicable state
acts. In the event Company advises Bank of its receipt of a significant increase
in the number of complaints from Cardholders relating to Banks collection
practices, Bank will review with Company the nature of such complaints and Bank
will remedy any non-compliance with the aforementioned criteria.
(d) Bank will notify Company of each 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 the Federal Fair Debt Collection Practices Act or similar
applicable state acts.
2.10 Chargeback Rights and Procedures.
(a) Chargeback Rights. If Company has not complied with the terms of this
Agreement or with the Operating Regulations with respect to either the Opening
of Accounts or a Card Sale made by Company, or if, at the end of the fifteen
(15) Business Day billing inquiry/dispute resolution period specified in
paragraph 2.9 above, the billing inquiry or dispute is not resolved (or Bank has
not been informed of the resolution or the action Company will take to resolve
the billing inquiry or dispute), Bank may process a Chargeback to Company for
the amount of the disputed portion of the Account balance, the Card Sale or the
disputed portion thereof, as applicable. Bank will supply Company with
reasonable documentation to support such Chargeback. If Bank processes a
Chargeback and the disputed amount is subsequently paid by the Cardholder, Bank
will promptly reimburse Company for the amount of the disputed Card Sale or
disputed portion thereof.
(b) Method of Recourse. Bank is not required to pay Company for a Card Sale
which is being charged back. If Bank has already paid Company for such Card
Sale, Bank, at its sole discretion, may deduct the amount to be charged back
from the Settlement Account or offset such amount from a future payment to
Company. Any Chargebacks which are not paid by the aforesaid means shall be due
and payable by Company promptly on demand. In the event Bank processes a
Chargeback, Bank will supply support detail to Company to enable Company to
attempt to collect such amount from its customer.
(c) Company's Right to Collect from its Customer. If Bank fails to pay for
the Card Sale for any reason (or exercises its right of Chargeback with respect
thereto) then Company may pursue any rights or remedies available to Company at
law or in equity against its customer (the Cardholder or other person to whom
Company sold the Authorized Goods) to recover payment for the Authorized Goods
sold by Company, and the initial acceptance by Company of the Card as
conditional payment therefor is not intended by either party hereto to
constitute a waiver by Company of any such rights or remedies against its
customer.
(d) Compliance with Laws. Notwithstanding anything to the contrary
contained herein, in the event a Cardholder, in accordance with the provisions
of applicable state law or the federal Truth in Lending Act and Regulation Z, as
they may be amended from time to time, files with Bank a billing error inquiry
or alleges a quality dispute with respect to goods or services purchased from
Company, Bank has the right of Chargeback against Company with respect to the
Card Sale which is the subject of such inquiry or dispute.
2.11 Representations and Warranties. Company represents and warrants to
Bank that each Card Sale will arise out of a bona fide sale of Authorized Goods
by Company and will not involve the use of a Card for any other purpose.
2.12 Reports. Within 30 days after the close of each month, Bank shall
supply Company with a monthly statement containing the following information for
said month: Card Sales, Credits, in-store payments, Chargebacks, and Daily
Remittances. Company may elect to receive additional reports available from Bank
containing additional information at Bank's then current price for such reports.
2.13 Standards. The Standards are hereby incorporated herein by reference
and constitute terms and provisions of this Agreement. The term "Agreement", and
all references thereto, shall be deemed to include the Standards.
Notwithstanding anything to the contrary contained in any other agreement
between Bank and Company, or between Bank's designated processor and Company,
Bank agrees as follows:
(a) Except as provided in paragraph 4.6 of this Agreement (Force Majeure),
Bank shall at all time perform (and/or cause its designated processor to
perform) all of the Standards; and
(b) in the event of any conflict or inconsistency between the terms of the
Standards and any present or future Operating Regulations, the Standards, to the
extent that they do not conflict with applicable law, shall govern; and
(c) Bank shall, on a monthly basis, at its expense, furnish to Company a
written report as to the performance by it (and/or its designated processor) of
the Standards during the previous month, in substantially the form attached
hereto as Schedule C, reporting each incident of performance and non-performance
thereof with respect to the matters covered by the Standards.
2.14 Observation and Review of Processing Facilities. At Company's request,
Bank shall, at Bank's expense, provide to Company (x) a letter from Bank's or
its designated processor's independent accounting firm reporting the results of
the accounting firm's review (as such may exist) of Bank's and/or its designated
processor's records and internal control procedures relating to the Accounts and
conformance with this Agreement, or (y) (if no such review exists) will prepare
and provide to Company such review following the accounting period succeeding
Company's request therefor. At Company's request and expense, Bank will permit
Company's auditors to make reasonable inquiries to Bank's independent accounting
firm to respond to any questions relating to such letter provided to Company.
Upon reasonable notice and subject to reasonable scope and frequency, Bank shall
permit Company's employees to visit any of its processing locations to review
and observe the records, programs, credit processing procedures and procedures
relating to the Accounts or Bank's obligations under this Agreement. Upon
reasonable notice and subject to reasonable scope and frequency, Bank shall also
review with Company's employees Bank's scoring models in reasonable detail.
2.15 Conflicts and Inconsistencies. In the event of any conflict or
inconsistency between the terms of this Agreement (inclusive of the Standards)
and any present or future Operating Regulation or the Network Services
Agreement, the terms of this Agreement shall govern unless such terms are
prohibited by law or regulation.
ARTICLE III
RESPONSIBILITIES/PAYMENTS
3.1 Bank's Responsibilities.
(a) Promptly following the date upon which this Agreement is fully
executed, Bank will pay to Company a one-time payment of [**] (the "Initial
Payment"). If this Agreement is terminated prior
to the end of the Initial Term for any reason pursuant to the sections of this
Agreement referred to on Schedule F as to which "Yes" appears in the Fee Refund
column of Schedule F, Bank shall be entitled to a pro-rated return of the
Initial Payment described in this Section 3.1(a) based on the unexpired portion
of the intended Initial Term of this Agreement (74 months). (For example, if
this Agreement is terminated after 36 months, Bank would be entitled to a return
of 38/74ths of the Initial Payment [74-36=38].)
(b) During the term of this Agreement, Bank will compensate SPS Payment
Systems, Inc. ("SPS") for transaction processing services related to the Card
provided by SPS to Company pursuant to the Network Services Agreement attached
hereto as Schedule B.
(c) During the term of this Agreement, Bank will provide servicing of the
Accounts from its center in Gray, Tennessee; provided, however, that Bank may
move such servicing to a different location upon one hundred eighty (180) days
prior notification to Company, at which time, Company will have the option to
terminate this Agreement upon written notice, given within thirty (30) days of
Company's receipt of Bank's notice of relocation, and elect a Purchase Option
according to Section 4.4(d) of this Agreement. Notwithstanding the immediately
preceding sentence, Company cannot terminate the Agreement as provided in this
Section 3.1(c) if such relocation is (x) required by a federal or state statute
or regulation or any court of competent jurisdiction, (y) a temporary (i.e., not
more than ninety (90) days) relocation, or (z) a natural disaster.
(d) Bank agrees to conduct a Customer Satisfaction Survey according to the
following guidelines and with the following consequences:
(i) Customer Satisfaction Survey. (i) Promptly after the execution of this
Agreement, Bank shall retain (at Bank's expense) the services of an independent
firm to conduct promptly a survey (the "Customer Satisfaction Survey") the
purpose of which is to measure overall customer satisfaction based on the
aggregate percentage of Customers that respond "satisfied" and "very satisfied"
to the survey questions that are determined by the parties to be relevant to
identifying levels of customer satisfaction. The aggregate level of "satisfied"
and "very satisfied" customers identified by such initial survey shall become
the baseline satisfaction percentage for purposes of measuring Bank's
performance under this Section. Bank and Company shall mutually establish the
target satisfaction percentage for each calendar year. Beginning on May 1, 1999,
during the term of this Agreement, Bank shall retain the services of an
independent firm to conduct a Customer Satisfaction Survey during each calendar
quarter, on regularly scheduled dates, and to prepare a report describing in
appropriate detail the results of such survey, comparing Bank's current level of
customer service for that quarter against target satisfaction percentage. Bank
shall discuss with Company, prior to Bank committing to any change mentioned
below, any proposed change in the method, form or questions of the survey to be
used. Bank shall cause the firm which conducts each Customer Satisfaction Survey
to send the complete report thereon to Company at the same time as it is sent to
Bank.
(ii) Meeting Customer Satisfaction Standards. In the event that Bank fails
to meet the target satisfaction percentage for any calendar quarter, Bank shall
report to Company the reasons for the failure to achieve such target
satisfaction percentage and propose a plan for taking such action as Bank
deems appropriate to meet such target satisfaction percentage. The parties
acknowledge that Company will be damaged by Bank's failure to meet such customer
satisfaction standards and that such damages would be difficult to quantify.
Therefore, if Bank fails to meet the customer satisfaction standards as measured
by the survey conducted closest to the third anniversary of this Agreement, then
Company may elect, by providing Bank with 180 days advance written notice, to
terminate this Agreement and Company shall have the right to purchase the
Accounts pursuant to the Purchase Option as stated in Section 4.4(d).
Notwithstanding the foregoing, if any significant upgrade to the systems related
to the operation of the Accounts (i.e., which might reasonably be expected to
have a favorable impact on Bank's ability to meet the target satisfaction
percentage) has been approved in advance by Company, then Company's termination
rights under this Section shall be waived during a reasonable period if and
while such upgrade is being actively implemented.
(e) During the term of this Agreement, Bank will pay to Company within
seven (7) days after the last Saturday after each month end, an amount (the
"Privilege Fee") equal to [**] of Net Card Sales by Company to Cardholders
during the subject month.
(f) Bank agrees to implement the following processes:
(i) Bank will implement by August 1, 1999, an "enhanced statementing
process", which will include the ability to place on monthly billing statements
messages, coupons and/or advertisements which target the statements of specific
Cardholders or groups of Cardholders based on selected Account data, geographic
location, or Bank's Cardholder Account number provided by Company. (Bank will
not be required to add such information on statements of Cardholders who do not
currently meet Bank's criteria for purchases, and Bank will advise Company
monthly of the number of Cardholders who did not receive such information for
such reason.) If Bank fails to implement the enhanced statementing process
described in this subsection (i) by said date, Company shall be entitled to a
payment of [**] per month for each calendar month in which the process is not
available for use by Company. From and after such implementation, Bank shall
place on statements such messages, coupons and/or advertisements as may be
requested from time to time by Company. Bank shall not place any such
information on statements for the purpose of soliciting sales of products or
services, without Company's prior written consent. However, Bank shall be
entitled to place information on statements that relates to the administration
or collection of Accounts, without the prior written consent of Company. Bank
shall not be entitled to share in any fees or commissions by Company paid by
vendors whose products or services are sold to Cardholders as a result of such
messages, coupons and/or advertisements.
(ii) Bank will implement by February 1, 2000, an "enhanced statementing
process", which will include the ability to insert with monthly billing
statements up to nine (9) different inserted messages, coupons and/or
advertisements per statement per monthly billing cycle which target the
statements of specific Cardholders or groups of Cardholders based on selected
account data, geographic location, or Bank's Cardholder Account number provided
by Company. If Bank fails to implement the enhanced statementing process
described in this subsection (ii) by said date, Company shall be entitled to a
payment of [**] per month for each calendar month in which the process is not
available for use by Company. From and after such implementation, Bank shall
insert such materials as may be requested from time to time by Company; provided
however, that Bank is entitled, at its option, to utilize up to five (5)
different inserted messages or advertisements each month, including, but not
limited to notices required by applicable law or regulation and envelopes. Bank
shall not insert any such materials without the prior written consent of Company
(except notices required by applicable law or regulation). If such vendors were
procured by Bank and approved by Company, then Bank and Company will split
evenly any fees or commissions paid by vendors whose products or services are
sold to Cardholders using such inserts, with the exception of products or
services related to credit insurance. Bank shall not be entitled to share in any
fees or commissions paid by vendors procured by Company, whose products or
services are sold to Cardholders using such inserts. Company agrees to pay any
additional postage expenses incurred by Bank for any monthly statements weighing
in excess of one (1) ounce, due solely to Company's inserts. Cardholders shall
not be permitted to purchase goods offered by such inserts by use of credit
cards other than Cards issued by Bank.
(iii) Bank agrees to be prepared by October 1, 1999, to accommodate the
receipt from Company, by electronic transmission to Bank's electronic data
interface system, of application information for the opening of new Accounts,
and the approval by Bank of the opening of such new Accounts, which meet the
following standards:
A. The receipt of application information requires Company to conform to
data transmission requirements specified by Bank. Such data transmission
requirements, as may be amended from time to time, shall be provided to Company
by Bank;
B. Such accommodation to receive applications must enable Bank to make the
credit response to the application and return such response into the electronic
data interface system within an average time of sixty (60) seconds from the time
that the required application information is received by Bank's electronic data
interface system.
C. Bank shall provide Company with application processing software and
reference materials to transmit the application information to Bank's electronic
interface system if Company utilizes a compatible Windows-based PC or Hypercom
T77GQ in all Company store locations at no cost to Company. At Company's option
Bank will provide to Company (using either Bank personnel or personnel of the
information input device vendor) implementation services, and Company will pay
Bank for such services the actual cost to Bank therefor.
D. If Bank is not prepared to accommodate the receipt from Company, by
electronic transmission to Bank's electronic data interface system of
application information for the opening of new Accounts and the approval by Bank
of the opening of such new Accounts by said date, Company shall be entitled to
an additional payment of [**] per month for each calendar month.
(iv) The parties specifically acknowledge that, notwithstanding the
payments required to be made by Bank for the failure by Bank to implement the
processes or procedures required by this section 3.1(f), Company is also
entitled to terminate this Agreement pursuant to the provisions of Section
4.4(b)(vii) for such failure.
(v) All amounts payable by Bank to Company under this Section 3.1(f) for
any calendar month shall be paid within thirty (30) days of the last day of the
calendar month. All amounts payable by Bank to Company under this Section 3.1(f)
shall be deemed liquidated damages, as to which the parties hereby stipulate as
follows: (a)damages, in the event of failure by Bank to discharge timely its
obligations under this Section 3.1(f), are incapable or very difficult of
accurate estimation at the time this Agreement was made; (b) the parties have
discussed, negotiated and made a reasonable attempt to fix the appropriate
amount of compensation in the event of such failure by Bank; (c) the amounts
stipulated bear a reasonable relationship to the probable damages in the event
of such failure by Bank and are not disproportionate to any damages reasonably
to be anticipated, in a context where proof of loss would be very difficult; (d)
it would be difficult, if not impossible, for Company to obtain an adequate
remedy in the event of a failure by Bank; (e) Company and Bank have relatively
equal bargaining power; and (f) Company and Bank have relied upon advice of its
own counsel in entering into this Agreement, including these liquidated damages
provisions.
(g) Bank will pay to Company [**] one time for each new Account opened and
activated in the same calendar month during this Agreement (the aggregate of
such amounts payable to be paid within seven (7) days after the last Saturday
after each month end).
(h) Bank will provide thirty (30) days prior written notice to Company of
the intended sale of any Ineligible Accounts to any person or entity other than
Company. Company will have the option, upon receipt of such notice, to purchase
such Ineligible Accounts at a price equal to market value of the Account
Balances (determined by bona fide written offer to purchase obtained by Bank
from an independent third party). Company must notify Bank of its intention to
purchase such Ineligible Accounts not later than ten (10) days after Company's
receipt of Bank's notification. If Company does not purchase such Ineligible
Accounts, then Bank can sell such Ineligible Accounts at a price and on terms no
more favorable than those set forth in the above notice to Company, provided
Bank shall sell only with a right of recall from the purchaser. The purchase and
sale of such Ineligible Accounts shall be pursuant to the terms of the
Additional Purchase Agreement (except for the price, which shall be determined
as set forth in this Subsection (h)).
(i) Upon request by Company from time to time, Bank shall provide to
Company a written copy of the application information required by Bank for the
opening of new Accounts. The application information required by Bank for the
opening of new Accounts shall not, at any time, be substantially more burdensome
than the information then required by at least two other banks or credit
institutions that are major competitors of Bank in the business of private label
credit cards (including, without limitation, GE Capital, Bank One, Citibank,
Alliance Data Systems, and Household Retail).
3.2 Payments by Company
(a) Company will pay Bank such fees for services, forms or materials as set
forth in Schedule A which is attached hereto and incorporated herein. Except as
otherwise set forth herein, unless custom development is requested by Company,
there shall be no further charges to Company for set up or conversion hereunder.
ARTICLE IV
MISCELLANEOUS
4.1 Indemnification.
(a) Indemnification by Company. Company shall be liable to and shall
defend, indemnify and hold harmless Bank and its officers, employees and
directors for, from and against any losses, damages, claims or complaints
(including reasonable outside attorney's fees and disbursements) incurred by
Bank or its respective officers, employees and directors arising out of:
Any claim, complaint or setoff made by a Cardholder with respect to Card
Sales or Credits submitted by Company pursuant to this Agreement;
(ii) Anything wrongfully done or not done by Company in connection with the
furnishing of any Authorized Goods purchased by Cardholders pursuant to this
Agreement; and
(iii) The death or injury to any person or the loss, destruction or damage
to any property arising out of the furnishing by Company of any Authorized Goods
purchased with the Card.
(iv) Any claim or complaint of a third party in connection with the use of
any Tradename or Trademark on the Card or in advertisements and promotions
relating to the Card Plan.
(b) Indemnification by Bank. Bank shall be liable to and shall defend,
indemnify and hold harmless Company and its officers, employees and directors
for, from and against any losses, damages, claims or complaints (including
reasonable outside attorney's fees and disbursements) incurred by Company or its
officers, employees and directors arising out of any claim or complaint by a
Cardholder with respect to anything wrongfully done or not done by Bank in
connection with such Cardholder's Account. Notwithstanding the foregoing, the
indemnification by Bank shall not apply to any claim or complaint relating to
Company's failure to resolve a billing inquiry or dispute with a Cardholder.
Bank further agrees to defend, indemnify and hold Company, its officers,
employees and directors harmless from and against any claims, demands, damages
or assertions of liability of any kind or nature whatsoever, resulting from:
(i) a breach of any of the terms, covenants, conditions or other provisions
hereof or any action taken by Bank hereunder, and from and against any and all
actions, suits, proceedings, assessments, settlements, judgments, costs and
expenses, including legal fees, arising therefrom;
(ii) the failure of any actions taken by Bank or any form, letter, notice,
statement, or other material used by it in connection with the performance of
its duties and obligations under this Agreement, to comply with
the Federal Consumer Credit Protections Act and Regulation Z under Title I
thereof, all applicable installment sales, billing error and credit
discrimination statutes or laws (including any regulations, judicial decisions
and/or official opinions relating thereto), any applicable statutes or laws
regarding the issuance of credit cards and/or liability thereon for unauthorized
use, applicable statutes or laws regarding the obtaining and/or use of credit
reports and other information concerning individuals, any applicable statutes or
laws regarding the collection of debts, or interest charged thereon, any
applicable requirements relating to credits or credit balances, and all other
applicable Federal, state and local statutes, laws, rules or regulations with
respect to the administration of the Card Plan under this Agreement, including
but not limited to, those relating to unfair, deceptive or unconscionable acts
and practices, except to the extent that such noncompliance results from an act
or acts of Company or Company's failure to act, as required by this Agreement;
and
(iii) the misfeasance, malfeasance or fraudulent acts of any employees or
agents of Bank.
The indemnity provisions under Section 4.1(b) hereof shall not apply and
the provision of Section 4.1(a) hereunder shall control to the extent that any
claims, demands, damages or assertions of liability are caused by the actions or
inactions of Company, unless such action or inaction occurred by reason of the
instructions of Bank or materials provided or specified by Bank.
(c) Notice of Claim. In the event that Bank or Company shall receive any
claim or demand or be subject to any suit or proceeding of which a claim may be
made against the other under this Section 4.1, the indemnified party shall give
prompt written notice thereof to the indemnifying party and the indemnifying
party will be entitled to participate in the settlement or defense thereof and,
if the indemnifying party elects, to take over and control the settlement or
defense thereof with counsel satisfactory to the indemnified party. 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, demand,
suit or proceeding.
(d) Survival. The terms of this Section 4.1 shall survive the termination
of the Agreement.
4.2 Card Plan Promotion; Advertising and Service Marks.
(a) Limited License. Company hereby authorizes Bank for purposes of this
Agreement to use the Tradenames and Trademarks, whether or not registered, and
any other proprietary designations, on the Card and in advertising and promoting
the Card Plan, subject to Company's prior periodic reasonable review of the form
of such use and to such reasonable specifications of Company to the extent such
specifications are directly related to the legal maintenance of the Tradenames
and Trademarks, if any. In addition, Company authorizes Bank and Bank's credit
card processor to identify Company as a client in trade advertising and trade
promotional material, including the use of Company's corporate name and
representations of the credit card issued by Bank, provided however, that
Company's name shall be used only in the context of a list of current
representative clients of Bank and Bank's processor.
(b) Promotion of the Card Plan. Company shall prominently display at each
of its locations advertising and promotional materials relating to the Card
Plan, including without limitation "take-one" applications for the Card.
Further, to the extent Company displays other third party credit or charge card
materials, it shall display the advertising and promotional materials relating
to the Card Plan in a manner and with a frequency equal to or greater than that
accorded any other third party credit or charge card. Company shall only use or
display such materials in accordance with the Operating Regulations or in
accordance with any specifications provided by Bank. Bank and Company shall
cooperate in the development of advertising and display materials and such other
operating forms and materials necessary to promote the Card and make Card Sales.
All advertising copy relating to the Card Plan produced or used by Company must
be presented to Bank in writing for its approval in advance of any use thereof
and may not be used without having been so approved. Bank may charge Company and
Company agrees to pay for credit applications and for any other materials and
forms requested by Company. Any materials which refer to Bank shall not be used
by Company following termination of this Agreement.
(c) Cardholder Solicitation. Any solicitations of Company's customers or
any other consumers by Bank during the term of this Agreement must be first
mutually agreed to by Bank and Company but subject to Bank's credit analysis and
determination. During the term of this Agreement, Cardholders' names and
addresses shall be deemed the property of Bank. Company's customer names and
addresses shall be deemed the property of Company. The names and addresses of
Company's customer base may be used by Company for any purpose not prohibited
under this Agreement. Cardholder information may be used by Bank for the
maintenance of Accounts and operation of the Card Plan so long as Bank does not
use such information in a manner that is anti-competitive and injurious to
Company's retail business. After termination of this Agreement, in the event
Company does not purchase all of Bank's outstanding Card receivables, Bank shall
not be restricted in its use of Cardholder information, including, without
limitation, conversion of the Accounts to another Bank program, except that Bank
shall not sell Company's customer list to a direct competitor of Company unless
such list is sold in conjunction with a sale of the outstanding Card receivables
to that competitor. During the term of this Agreement, Bank cannot use, sell,
transfer, or otherwise dispose of or permit third party access to or use of
(with or without compensation to Bank)Cardholder information for any purpose
(including Cardholder solicitations of any nature) without the prior written
consent of Company.
(d) Periodic Meetings. Company and Bank shall meet periodically and as
necessary by mutual agreement to discuss the performance, operation and
promotion of the Card Plan. At these meetings, Bank will discuss with Company,
prior to implementation, any changes which Bank intends to make to the
Cardholder Agreements that might affect the cost of the Card Plan to the
Cardholder. After such discussions, any such changes to the Cardholder
agreements which would increase the cost of the Card Plan to the Cardholder may
only be made by Bank (i) if required by applicable law or regulation, or (ii)
with Company's prior consent, such consent not to be unreasonably withheld, or
(iii) if a majority of Company's competitors which are major national women's
apparel retailers and which issue private label cards (either proprietary or
third party), are or have been offering similar terms to their cardholders. For
purposes of this paragraph, the such competitors of Company means United Retail,
Charming Shoppes, May Department Stores, Dillard Department Stores, Federated
Department Stores, The Limited Inc., and Dayton-Hudson Department Stores.
(e) Marketing Fund. Beginning on January 1, 1999, and on each January 1st
thereafter during the Initial Term of this Agreement, Bank shall make available
to Company an amount equal to at least [**] to be used during the next
succeeding twelve-month period by Company and Bank for mutually agreed upon Card
promotions. Amounts not spent or committed prior to December 31 of any such
twelve-month period during the Term will not carry over to the next such period
and will be retained by Bank. Amounts up to the aforesaid limit shall be paid
directly by Bank or if, handled by Company, shall be promptly paid by Bank to
Company, upon presentation by Company to Bank of invoices (no later than ninety
(90) days from the date of the invoice) for expenses (paid or to be paid) for
such mutually agreed promotions, as if such amount were a Card Sale amounts
under paragraph 2.7. Notwithstanding the foregoing, such annual promotional sum
shall only be made available by Bank on each such January 1st if the outstanding
balance of all Accounts on such date is greater than 90% of the outstanding
balance of all Accounts measured as of February 1, 1999.
4.3 Books and Records. Company shall retain an original copy of each Sales
Slip and Credit Slip for one hundred 180 days following the date of the Card
Sale and a microfilm or other copy thereof for a total of seven (7) years.
Company will send to Bank the original or a legible copy of any Sales Slip,
Credit Slip or any other record relating to this Agreement retained by Company
within fifteen (15) Business Days of a request from Bank.
4.4 Term and Termination.
(a) Term. This Agreement shall become effective as of the Effective Date
when executed by authorized officers of each of the parties and shall remain in
effect (unless otherwise terminated as provided herein) through January 31, 2005
(the "Initial Term") and shall continue thereafter for additional two (2) year
periods ("Subsequent Term(s)") unless either party provides written notice of
termination at least one (1) year prior to the end of the Initial Term or
Subsequent Term(s). The termination of this Agreement shall not affect the
rights and obligations of the parties with respect to transactions and
occurrences which take place prior to the effective date of termination, except
as otherwise provided herein.
(b) Termination. This Agreement may otherwise be terminated, in addition to
the termination provisions contained in Sections 3.1(c), (d)(ii) and (f), and
Section 4.10, as follows:
(i) by Bank or Company immediately upon notice to the other party in the
event the other party shall for reasons of insolvency (a) elect to wind up or
dissolve its operation or is wound up and dissolved, (b) make an assignment for
the benefit of creditors, (c) file a voluntary petition in bankruptcy or for
reorganization or is adjudicated as bankrupt or insolvent, or (d) have a
liquidator or trustee appointed over its affairs and such appointment shall not
have been terminated and discharged within 30 days thereof; or by Bank or
Company upon 60 days prior written notice to the other party in the event that
other party becomes insolvent or repeatedly fails to pay its debts as they
become due or otherwise suffers a material adverse change in its financial
condition (for purposes of this Agreement, a material adverse change in the
party's financial condition shall mean but not be limited to a default in
payment or some other failure to meet a debt obligation, either of which is of
such a material nature that a lender could declare a default), and such
condition shall not have been cured prior to the expiration of the 60 day notice
period; or
(ii) by Bank or Company upon 30 days prior written notice to the other in
the event the other materially breaches its obligations hereunder provided that
such termination shall be deemed ineffective if the breaching party cures its
breach within the 30 day period; or
(iii) by Bank upon 30 days prior written notice to Company in the event
that Company closes or otherwise ceases operation in twenty percent (20%) or
more of its retail locations (as such exist on the Effective Date) such that the
aggregate of such closures or cessations materially impacts the Cardholder's use
or the utility of their Accounts (provided, however, that if Company disposes of
a division to a third party, Bank will not unreasonably object to entering into
a Merchant Services Agreement with such third party and, if no such agreement is
entered into, Bank may cause Company (or a third party designated by Company) to
purchase that portion of the Accounts and outstanding receivables relating to
that division under the purchase requirements in Section 4.4(c) herein); or
(iv) by Company, upon six (6) months prior written notice to Bank, if
during any three (3) consecutive month period Bank fails to comply (or fails to
cause its designated processor to comply) with any two or more of the Standards;
or
(v) by Company, upon six (6) months prior written notice to Bank, if during
any 12 consecutive month period Bank fails to comply (or fails to cause its
designated processor to comply) with any two or more of the Standards (computed
by measuring the average performance of each Standard over the entire twelve
month period); or
(vi) by Company, upon six (6) months prior written notice, if during the
Initial Term of this Agreement, Bank is sued by or on behalf of one or more
Cardholders and found by one or more courts of competent jurisdiction in a total
of three separate lawsuits to have violated the provisions of the Federal Fair
Debt Collection Practices Act (or a similar applicable state act).
(vii) by Company, upon six (6) months prior written notice to Bank, if Bank
fails to implement by the third anniversary date of the Effective Date, any of
the processes or procedures required by Section 3.1(f).
(viii) by Company, upon not less than six (6) months prior written notice
to Bank, if Bank implements a new scoring model pursuant to Section 2.1(c), the
prior testing or actual implementation of which reflects a 20% or greater
reduction in application approval rates.
(c) Purchase Requirement.
(i) If any event arises that would be a basis for termination of this
Agreement by Bank under Section 4.4(b)(ii) or (iii), Bank may, at its sole
option, require Company, its successors and assigns, to purchase, or to cause
its parent corporation, if any, to purchase from Bank or Bank's designee
(subject to the terms of any then current securitization agreements of Bank) all
of the Assets to be Sold at a price equal to 102% of the Account Balances. In
the event of any such required purchase, Bank's refund rights under Section
3.1(a) shall be as set forth on Schedule F.
(ii) If any event arises that would be a basis for termination of this
Agreement by Bank under Section 4.4(b)(i) or 4.10, Bank may, at its sole option,
require Company, its successors and assigns to purchase, or to cause its parent
corporation, if any, to purchase from Bank or Bank's designee (subject to the
terms of any then current securitization agreements of Bank) all of the Assets
to be Sold at a price equal to 100% of the Account Balances. In the event of any
such required purchase, Bank's refund rights under Section 3.1(a) shall be as
set forth on Schedule F.
(iii) Notwithstanding any other provisions herein, if Bank (or its
designee) is a party to any securitization agreement with respect to any
receivables of the Accounts (comprising Assets to be Sold) at the time of any
purchase thereof by Company (its successors, assigns, or parent company), then
Bank (or its designee) shall be entitled to cause the sale and delivery of such
particular receivables to be delayed to the extent reasonably necessary for it
to remove the encumbrance of such securitization agreement, and Company (or such
purchasing entity) shall not be required to pay the purchase price for such
receivables until such time as such receivables are so delivered, all as further
described in the Additional Purchase Agreement.
(iv) Notwithstanding any other provision herein, if Company is required or
permitted to purchase the Assets to be Sold under the terms hereof, then Company
(or its designated purchaser of the Assets to be Sold) shall also have the right
to purchase the Ineligible Accounts. The purchase price for the Ineligible
Accounts shall be (at Bank's option) the greater of zero or the amount of any
bona fide bid Bank receives therefor from an unaffiliated third party; provided,
however, that if Bank elects to sell the Ineligible Accounts hereunder for more
than zero, then Company (or its designated purchaser of the Assets to be Sold)
may refuse to purchase the Ineligible Accounts.
(d) Company's Purchase Option. If any event arises that would be a basis
for termination of this Agreement by Company under Sections 3.1(c), 3.1(d)(ii),
3.1(f), 4.4(b)(i), (ii), (iv), (v), (vi) or (vii), or 4.10 (see Schedule F),
Company may, at its sole option, require Bank, its successors and assigns to
sell or to cause its parent corporation, if any, to sell to Company or Company's
designee (subject to the terms of any then current securitization agreements of
Bank) all of the Assets to be Sold at a price equal to 100% of the Account
Balances, pursuant to the terms of the Additional Purchase Agreement. The
provisions of Section 4.4(c)(iii) and (iv) above shall also apply in the
circumstances described in this Section 4.4(d). In the event of any such
optional purchase, Bank's refund rights under Section 3.1(a) shall be as set
forth on Schedule F.
(e) Termination of Card Acceptance. Bank upon 30 days prior written notice
to Company may elect to terminate the acceptance of the Card at a particular
Company location if acceptance of the Card at such location is subject to high
fraudulent activity, excessive Chargebacks or other course of business conduct
that is materially injurious to the business relationship between Bank and
Company, where Bank has provided 60 days prior written notice to Company of such
activity or conduct and Company has not either (i) cured such within the 60 day
period, or (ii) has not put in place within such period reasonable procedures
where such will be cured within an additional 30 days. Termination of an
individual Company location shall not affect this Agreement.
(f) Duties Upon Termination. Upon termination of this Agreement, Company
will promptly submit to Bank all Sales Data made through the date of
termination. In the event Company purchases all of the outstanding Card
receivables from Bank or Bank's designee, Company shall be entitled to receive
from Bank the books and records relating to the Card Plan. In the event any
notice of termination is given by Company or Bank pursuant to the terms of this
Agreement, Bank agrees to maintain, until the effectiveness of the termination
so noticed, a level of services which satisfies the Standards.
(g) Reasonable Adjustments to Additional Purchase Agreement as to
Designees, Etc. Bank and Company acknowledge that pursuant to the provisions of
paragraph 4.4(c) of this Agreement, Bank may appoint a designee to be the seller
of the Assets to be Sold under the Additional Purchase Agreement, and/or require
the successors, assigns, or parent corporation (if any) of Company to be the
purchaser thereunder. Bank and Company further acknowledge that pursuant to the
provisions of paragraph 4.4(d) of this Agreement, Bank may appoint a designee to
be the seller of the Assets to be Sold under the Additional Purchase Agreement,
and/or Company may appoint a designee to be the purchaser thereunder.
Notwithstanding anything to the contrary contained herein, Bank and Company
agree that if any such entity is appointed as seller or purchaser of the Assets
to be Sold in accordance with paragraphs 4.4(c) or (d) hereof, then Bank and
Company shall make such changes and revisions to the current form of the
Additional Purchase Agreement attached as Schedule G hereto, as may be
reasonably necessary (prior to the execution thereof) to insert and describe
such other entity therein in such capacity, and to properly define and describe
the Assets to be Sold, the Credit Card Business, and the other matters disclosed
or covered by the provisions thereof.
(h) Other Reasonable Adjustments to Additional Purchase Agreement. In
addition to the foregoing paragraph 4.4 (g), regardless of whether or not any
such appointment is made by Bank or Company, Bank and Company each agree that in
the event a sale of the Assets to be Sold is to occur pursuant to the provisions
of paragraphs 4.4(c) or (d) of this Agreement, then they shall each perform such
other acts and deeds, and make such other revisions to the Additional Purchase
Agreement, as may be reasonably necessary to effectuate an orderly sale and
transfer of the Assets to be Sold in accordance with the overall intents,
purposes, and economic terms of this Agreement and the Additional Purchase
Agreement without materially or substantially changing the economic terms of the
Additional Purchase Agreement.
4.5 Status of the Parties. In performing their responsibilities pursuant to
this Agreement, Bank and Company are in the position of independent contractors.
This Agreement is not intended to create, nor does it create and shall not be
construed to create, a relationship of partner or joint venturer or an
association for profit between Bank and Company. Further, notwithstanding
anything contained in this Agreement to the contrary, any third party designated
by Company to obtain Authorization or perform data capture, remittance or
Settlement functions hereunder shall be subject to the approval of Bank and
shall be deemed to be the agent of Company for all such purposes and not the
agent of Bank and Company shall be fully liable for the fees and actions of any
such third party with respect to obtaining such Authorization or the performance
of such functions.
4.6 Force Majeure. Neither party to this Agreement shall be liable to the
other (and this Agreement shall not be subject to termination) 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. Such causes may include but are not limited to acts of
God or of the public enemy, acts of civil or military authority, fires, strikes,
unavailability of energy resources, delay in transportation, riots or war. In
the event of any force majeure occurrence, the disabled party shall use its best
efforts to meet its obligations as set forth in this Agreement. The disabled
party shall promptly and in writing advise the other party if it is unable to
perform due to a force majeure event, the expected duration of such inability to
perform, and of any developments (or changes therein) that appear likely to
affect the ability of that party to perform any of its obligations hereunder in
whole or in part.
4.7 Confidentiality. In performing its obligations pursuant to this
Agreement, each party may have access to and receive certain confidential or
proprietary information about the other party, including, but not limited to:
such 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 or
other information of the business or affairs of each party, its parent company,
or its affiliated and subsidiary companies, which that party reasonably
considers confidential and/or proprietary (hereinafter collectively referred to
as "Confidential Information"). Both parties agree that they will reveal such
Confidential Information only to those of their directors, officers, or
employees (or, with regard to Company, directors, officers or employees of any
of its operating divisions/subsidiaries which accept or may consider accepting
the Card, and, with regard to Bank, directors, officers, or 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 Company. Each party agrees not to use
such Confidential Information nor to disclose Confidential Information to any
third party, except as may be necessary for that party to perform its
obligations pursuant to this Agreement and except as may be agreed upon by the
parties. If either should disclose Confidential Information to a third party,
such party shall cause said third party to agree to the confidentiality
provisions set forth in this paragraph 4.7.
Confidential Information shall not include information in the public
domain, information already known by the party receiving the information prior
to commencing the discussions that led to this Agreement, and information
lawfully obtained from a third party. The provisions of this Paragraph 4.7 shall
survive the termination of this Agreement.
4.8 Access to Cardholder List. Company may request from Bank the Cardholder
names and addresses of Cardholders who use their Cards to purchase Authorized
Goods. With respect to each such request, except when Company uses the
Cardholder information only to sell or advertise any Authorized Goods, Bank
shall charge and Company agrees to pay a fee in the amount set forth in Schedule
A. Except as specifically provided in the definition of Cardholder herein,
during the term of this Agreement, any other use of such Cardholder information
including, without limitation, the disclosure or sale of such information to
third parties, is prohibited and is subject to the confidentiality provisions of
Paragraph 4.7.
4.9 Financial Information. At least annually, Company shall provide to Bank
financial statements prepared by Company and audited by an independent public
accounting firm in the form required to be presented in an Annual Report on Form
10-K (or its successor form) to the Securities and Exchange Commission. Company
shall provide to Bank quarterly unaudited financial information for Catherines
Stores Corporation for the previous quarter, in the form required to be
presented in a Quarterly Report on Form 10-Q (or its successor form) to the
Securities and Exchange Commission
4.10 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 (including
without limitation the Affiliates). Bank may assign this Agreement to a third
party upon the sale of all or substantially all of its assets or stock to such
third party, provided however that in the event Bank assigns this agreement to a
party other than an affiliate or subsidiary of Bank, Company may terminate this
Agreement upon at least 60 days prior written notice and shall have the option
to purchase all of the outstanding Card receivables from Bank or Bank's designee
in accordance with the terms Section 4.4(d) of this Agreement. This Agreement
may not otherwise be assigned without the prior written consent of the
non-assigning party, which consent shall not be unreasonably withheld or
delayed. The rights and obligations of the parties hereto shall inure to the
benefit of and shall be binding upon the successors and permitted assigns of
each of them. Company shall notify Bank within 20 days after it or its parent
corporation, if any, agrees to merge or be consolidated into or transfer all or
substantially all of either of their respective assets to another entity. In
such event if the new entity does not meet Bank's financial requirements (that
the net worth of assignee be equal to or greater than Company's net worth as of
the Effective Date) Bank may, within 30 days of its receipt of Company's notice,
terminate this Agreement upon 60 days written notice to Company. Notwithstanding
anything to the contrary herein, Company is entitled, at any time and from time
to time, without the consent of or notice to Bank, to grant to any person or
entity, as collateral security for the payment or performance of any present or
future indebtedness, obligation, or liabilities of Company or any other person
or entity, a security interest, collateral assignment, pledge, or other lien in,
on, or with respect to any or all of Company's present or future rights (whether
now existing or hereafter acquired) to receive payments of monies or funds from
Bank (or its designee) under the terms of any prior Merchant Services Agreement
or this Agreement (as modified or amended from time to time).
4.11 Amendment. Except as otherwise provided herein, neither this Agreement
nor any of its provisions shall be amended or modified except in writing
executed by a duly authorized officer of each party.
4.12 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 shall nevertheless remain in full force and in effect.
4.13 Entire Agreement. This Agreement, including the Operating Regulations
and any exhibits and documents incorporated by reference, constitutes the entire
Agreement between the parties in connection with the acceptance of the Card by
Company and supersedes all prior agreements, negotiations and communications on
such subject matter.
4.14 Governing Law. This Agreement will be governed by and construed in
accordance with the laws of the State of South Dakota.
4.15 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 by any federal or state court or
regulatory agency of competent jurisdiction of any applicable federal or state
statute or regulation will not constitute a breach of this Agreement.
4.16 Waivers. Neither party shall 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.
4.17 Notices. Whenever notice or demand under this Agreement is given to or
made upon either party by the other party, such notice or demand shall 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 shall be deemed to have been given at the time
when it was mailed, or (ii) by courier, telecopier, or similar method, and such
notice or demand shall be deemed to have been given when the telex, cablegram,
writing, or other form of notice or demand is either personally delivered to the
party or delivered to the address set forth below. Notwithstanding the
foregoing, notice of intent to terminate this Agreement and notice of default
shall be sent by certified or registered mail, return receipt requested.
If to Bank: Hurley State Bank
811 East 10th Street
Sioux Falls, South Dakota 57103
Attn: President
With a copy to: SPS Payment Systems, Inc.
2500 Lake Cook Road
Riverwoods, Illinois 60015
Attn: General Counsel
If to Company: Catherines, Inc.
3742 Lamar Avenue
Memphis, Tennessee 38118
Attn: Chief Financial Officer
With a copy to: Waring Cox PLC
50 North Front Street
Memphis, Tennessee 38103
Attn: Sam D. Chafetz, Esq.
EITHER PARTY MAY CHANGE THE ADDRESS TO WHICH NOTICE SHALL BE SENT BY GIVING
WRITTEN NOTICE OF SUCH CHANGE TO THE OTHER PARTY IN THE MANNER PROVIDED HEREIN.
4.18 Captions. The captions used in this Agreement have been inserted for
convenience and for reference only and shall not be deemed to limit or define
the text of this Agreement.
4.19 Counterparts. This Agreement may be executed by the parties in
separate counterparts, each of which shall constitute an original but all of
which shall constitute one and the same Agreement.
4.20 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.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first written above.
CATHERINES, INC. HURLEY STATE BANK
By:________________________ By: _______________________
Title: _____________________ Title: _____________________
SCHEDULE A
FEES
ITEM AMOUNT
1. Credit cards and card carriers, in-store forms, including credit
applications and sales and credit slips (Company shall have the right to
supply the above in a form approved by Bank Cost Company's expense): plus
15% handling
2. Each tape file or exception report of Cardholder names and addresses
12 per year free upon request.
Each request thereafter: $150
3. System changes requested by Company: Cost
SCHEDULE B
NETWORK SERVICES
(ATTACHED)
SCHEDULE C
STANDARDS
The following rules constitute the Standards. As of the date hereof, Bank's
designated processor for fulfilling the Standards is SPS Payment Systems, Inc.
("SPS"):
OPERATING HOURS:
SPS shall operate the following departments during the days and hours
(E.S.T.) listed below. SPS shall extend these hours to accommodate Company when
normal store hours are extended due to special sales events and seasonal sales
events. A minimum of a 14 day advance written notice is required from Company to
enable SPS to accommodate the change in normal operating hours. SPS will notify
Company 30 days in advance if the operating hours or days are changed.
NEW ACCOUNTS:
8 a.m. to Midnight, Monday through Saturday. Sundays, 10 a.m. to
Midnight
AUTHORIZATIONS:
9 a.m. to Midnight, Monday through Saturday. Sundays, 11 a.m. to 9 p.m.
CUSTOMER SERVICE:
9 a.m. to 7 p.m., Monday through Friday
COLLECTIONS:
8 a.m. to 9 p.m., Monday through Saturday
The above departments hours and days of operation will be altered on the
following holidays: New Years Eve and New Years Day, Christmas Eve and Christmas
Day, and Thanksgiving Eve and Thanksgiving Day.
PERFORMANCE
Monthly average answering time for:
New Accounts, except 11 A.M.- 2 P.M., shall not exceed: 30 Seconds New
Accounts 11 A.M.-2.P.M. shall not exceed: 20 Seconds
Authorizations, except 11 A.M. - 2 P.M., shall not exceed: 30 Seconds
Authorizations, 11 A.M. - 2 P.M., shall not exceed : 30 Seconds Customer
Service shall not exceed: 45 Seconds
The monthly Abandon Call Rate shall not exceed: 4.5%
The monthly average processing time* for new Accounts shall not exceed: 5
Minutes
Network Availability shall equal or exceed: 98%
* New Application processing time will be 5 minutes for current processing.
This will be 60 seconds for new processing
SPS shall use its existing systems to track and report the monthly performance
of the above performance standards.
SYSTEMS
The Voice Response Unit shall be available from 7 A.M. to Midnight (EST), 7
days a week. The Telephone System shall be available from 9 A.M. to Midnight
(EST), 7 days a week. A manual log of the "down time" of the above shall be
maintained for Catherines review. This manual log will be kept to the best of
SPS' knowledge.
The Network shall be available 7 days a week during operating hours listed
above in Operating Hours and Systems. The availability shall be 98% of the time.
Reporting of Network Series 1 availability shall be provided to SPS by the
network supplier.
PHONE AND WRITTEN INQUIRIES
Phone and written inquiries to Customer Service shall be resolved in an
average of 4 business days or less, from the day received. Inquiries which
require Company to assist in resolving (such as ticket retrieval) are not
included in this measurement. During periodic visits to the Operations Center an
authorized representative of Company may survey Cardholder Accounts to measure
the resolution rate of phone inquiries.
COLLECTIONS
SPS will operate its collection activity in accordance with the Fair Debt
Collection Act, or other legal requirements in effect.
1. Full payment of Account Balance will not be demanded from the Cardholder
as a routine collection procedure.
2. Customers may be allowed to make arrangements as low as one months
payment.
3. With two consecutive minimum payments, a customer's Account will be
brought current at least once in a 15 month period.
4. Triad collection strategies will be reviewed in general terms with
Company.
5. Customers will be given 5 days from promised payment date before a follow-up
call is made, as a routine collection procedure.
6. SPS will notify Company if collection calls are made on Sunday.
SCHEDULE D
REPORTS
SCHEDULE E
INQUIRY SCREEN
SCHEDULE F
TERMINATION MATRIX
Section Event General Summary Purchase Price Prorated Fee Refund
3.1(c) Bank servicing moves from Gray 100% No
3.1(d)( ii) Bank customer satisfaction failure 100 Yes
3.1(f) Bank failure to produce technology See 4.4(b)(vii) See 4.4(b)(vii)
4.4(b)(i) Company insolvency, etc. 102 No
Bank insolvency, etc. 100 No
4.4(b)(ii) Company breaches 102 Yes
Bank breaches 100 No
4.4(b)(iii) Company closes 20% of stores 102 Yes
4.4(b)(iv) Bank fails standards 100 No
4.4(b)(v) Bank fails standards 100 No
4.4(b)(vi) Bank loses lawsuits 100 No
4.4(b)(vii) Bank fails to implement 100 Yes
processes/procedures
4.4(b)(viii) Scoring model change 100 No
4.10 Bank merges, etc. 100 No
Company merges, etc. 100 Yes
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SCHEDULE G
ADDITIONAL PURCHASE AGREEMENT