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EXECUTION COPY
CERTAIN INFORMATION (AS INDICATED BELOW) HAS BEEN OMITTED FROM THIS AGREEMENT
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE
WITH RULE 24b-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
INTERIM AGREEMENT II
INTERIM AGREEMENT II, dated as of February 3, 1996 between
Federated Department Stores, Inc. ("FDS") and General Electric Capital
Corporation ("GE Capital").
WHEREAS, R. H. Macy & Co. ("Macy") and certain of its
affiliates are parties to (i) a Credit Card Program Agreement (the "Consumer
Agreement") dated as of May 10, 1991 with GE Capital Consumer Card Co., formerly
known as Monogram Bank, USA ("GE Bank") and (ii) a Commercial Accounts Agreement
(the "Commercial Agreement") dated as of May 10, 1991 with GE Capital (the
Consumer Agreement and Commercial Agreement are referred to together herein as
the "Program Agreements" and the credit card program conducted thereunder is
referred to as the "Program"). Capitalized terms used herein have the meaning
given to them in the Program Agreements unless otherwise defined herein.
WHEREAS, on December 19, 1994, the predecessor to FDS merged
with and into Macy, Macy was the surviving entity and changed its name to
"Federated Department Stores, Inc."
WHEREAS, the parties hereto are parties to an Interim
Agreement dated as of August 6, 1995 (the "Prior Interim Agreement").
WHEREAS, the Prior Interim Agreement is applicable with
respect to the period from August 6, 1995 until February 3, 1996 (the "Prior
Interim Period") and the parties desire to enter into additional interim
arrangements with respect to the period from February 4, 1996 until August 3,
1996 (the "New Interim Period").
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WHEREAS, the parties desire that the Prior Interim Agreement
continues to be applicable with respect to the Prior Interim Period and that
this Agreement be applicable with respect to the New Interim Period.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Interim Period. During the New Interim Period all provisions of the
Program Agreements and the Program, other than those temporarily suspended for
the New Interim Period to the extent strictly necessary to reflect the
provisions of this Agreement, shall remain in full force and effect. Certain
financial and economic provisions (as more fully described herein) shall be
implemented for the New Interim Period, and for that period only shall modify
the related provisions set forth in the Program Agreements. If, prior to the
last day of the New Interim Period, FDS and GE Capital have not executed and
delivered a definitive agreement regarding the terms and structure of the
Program which supersedes the Program Agreements, then the Program Agreements
shall, as of such last day, revert to their original terms (or such other terms
as may be set forth in a certain Program Agreement Amendment dated as of the
date hereof (the "Program Agreement Amendment") and expressly designated therein
as surviving the termination of the New Interim Period) and the provisions
hereof shall no longer be applicable, except as necessary to complete any of the
settlement procedures described herein with respect to the New Interim Period.
2. Program Economics for the New Interim Period.
2.1. GE Capital Return. The parties agree that GE Capital
shall be entitled to a profit, after Taxes, of [Information omitted] per annum
on its Deemed Equity Amount invested in the Program for the New Interim
Period (the "Interim Period Target Profit"), subject to certain adjustments as
described in Section 2.4.2(d) and (e) below. For purposes of calculating the
settlements referred to in Section 2.4, Interim Period Target Profit and
Monthly Target Profit will be expressed as a pre-tax equivalent amount. GE
Capital's Deemed Equity Amount invested in the Program for the New Interim
Period shall be
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calculated as provided in the Program Agreements (i.e., [Information omitted]
of the Average Net Receivables outstanding during the six-month New
Interim Period, calculated based on a seven point average). In order to
determine whether GE Capital has received the Interim Period Target Profit, the
amount by which Program revenues for the New Interim Period exceed Program
expenses for the New Interim Period shall be calculated (the "Interim Period
Actual Profit"). To the extent that Interim Period Actual Profit and Interim
Period Target Profit differ, the parties shall settle such difference in
accordance with the provisions of Section 2.4.
2.2. Program Revenues.
Program revenues shall be as set forth below:
2.2.1. Financing Income. All Financing Income generated by the
Program during the New Interim Period shall be revenue of the Program.
2.2.2. Late Fees and Returned Check Fees. All revenue from
late fees and returned check fees (after deducting therefrom late fee and
returned check fee write-offs) shall be revenue of the Program.
2.2.3. Service Discount. The Bank Service Discount and GE
Capital Service Discount for the New Interim Period shall be as identified on
Exhibit B hereto*. All Bank Service Discount Income under the Consumer Agreement
and GE Capital Service Discount Income under the Commercial Agreement collected
during the New Interim Period shall be revenue of the Program.
2.3. Program Expenses.
Program expenses shall be as set forth below:
2.3.1. Money Costs. All Money Costs during the New Interim
Period, as calculated and assessed to the Program in accordance with past
practices, shall be an expense of the Program.
2.3.2. Operating Expenses. Subject to Section 2.4.2(d) hereof,
all Operating Expenses incurred by GE Capital during the New Interim Period
shall be
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* Exhibit B has been omitted.
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expenses of the Program, it being acknowledged that the expenses incurred by GE
Capital in connection with providing the services described in Section 2 of the
Program Agreement Amendment shall be included as Operating Expenses.
2.3.3. Overhead. Overhead shall be an expense of the Program
and shall equal [Information omitted] during the New Interim Period.
2.3.4. [Information omitted]
2.3.5. Losses. All Losses on accounts during the New Interim
Period (after deducting therefrom late fee write-offs and returned check fee
write-offs) shall be an expense of the Program.
2.3.6. Postage Increases. In the event the United States
first-class postage rate is increased during the New Interim Period, the
aggregate amount of actual documented out-of-pocket postage expenses for each
and every mailed item (including, without limitation, periodic billing
statements and other credit card documentation) due to such increased postage
rate shall be an expense of the Program.
2.4. Monthly and Final Settlements.
2.4.1. Monthly Settlements. (a) Within 10 business days after
the end of each Program Fiscal Month during the New Interim Period (commencing
with the end of February, 1996), GE Capital shall deliver to FDS a monthly
return and settlement statement in the form of Exhibit C hereto (the "Monthly
Return and Settlement Statement"*). All other reports required to be provided
pursuant to the Program
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* Exhibit C has been omitted.
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Agreement will be provided as required in the Program Agreement. The Monthly
Return and Settlement Statement shall set forth (i) the amount by which Program
revenue for the immediately prior Program Fiscal Month exceeded Program
expenses for such month on the basis set forth herein (the "Monthly Actual
Profit"), and (ii) the amount of profit, after Taxes, that GE Capital would
have required for the month in order to receive a [Information omitted] per
annum return on its Deemed Equity Amount invested in the Program for the month
(the "Monthly Target Profit") (the Deemed Equity Amount for the month
shall equal [Information omitted] of the Average Net Receivables outstanding
during the month calculated on a two point average).
(b) FDS will have 5 days to review each Monthly Return and
Settlement Statement. If within such 5-day period FDS demonstrates to GE Capital
that the Statement contains a calculation error, then GE Capital shall use good
faith, reasonable efforts to correct such error. If the Monthly Return and
Settlement Statement indicates that Monthly Actual Profit was less than the
Monthly Target Profit, then GE Capital shall be entitled to receive from FDS, by
wire transfer within 2 business days, an amount equal to such difference,
provided that if GE Capital does not receive such payment within such time, then
GE Capital shall be entitled to deduct from one or more daily settlement
payments to be made to FDS pursuant to the Program Agreements an amount equal to
such difference. If the Monthly Return and Settlement Statement indicates that
Monthly Actual Profit was more than the Monthly Target Profit, then GE Capital
shall pay to FDS, by wire transfer within 2 business days, an amount equal to
such difference.
2.4.2. Final Settlement. (a) Within 30 days after the end of
the New Interim Period, GE Capital shall deliver to FDS (i) a statement which
sets forth the Interim Period Actual Profit (the "Interim Period Return
Statement"), (ii) a statement setting forth Operating Expenses for the New
Interim Period (the "Operating Expenses Statement") and (iii) a statement
setting forth Net Write-offs for the New Interim Period (net of late fee and
returned check fee write-offs) (the "Write-off Statement"). The
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Interim Period Return Statement, the Operating Expenses Statement and the
Write-off Statement are each referred to herein as a "Statement" and together as
the "Statements."
(b) FDS shall have 45 days to review the Statements. At the
end of such 45-day period, the Statements shall become final (the "Final
Statements" and each a "Final Statement") unless FDS has delivered to GE Capital
a written notice prior to the end of such 45-day period setting forth in
reasonable detail its objections to one or more Statements. If FDS delivers an
objection notice with respect to a Statement within such 45-day period, the
other Statements shall become Final Statements and the parties shall negotiate
in good faith to try to resolve any disputes with respect to the Statement as to
which FDS objected. If the parties are able to resolve their dispute within 45
days, the applicable Statement, as finalized by agreement of the parties, shall
become a Final Statement. If the parties are unable to resolve their dispute
within such 45-day period, the dispute shall be finally settled by arbitration
conducted in accordance with the rules of the American Arbitration Association
as in effect on the date arbitration is commenced, by a single arbitrator
selected in accordance with the rules of the American Arbitration Association.
The arbitration shall be held in New York, New York. Judgment upon any
arbitration award may be entered by any court having jurisdiction thereof, and
the parties waive any appeal or other remedy on the merits of the dispute or the
award to which they might otherwise be entitled under applicable law. The
Statement, as finalized by the arbitrator, shall be a Final Statement. The costs
of the arbitration shall be paid by one or more of the parties as determined by
the arbitrator whose determination shall be final and binding.
(c) If the Final Interim Period Return Statement indicates
that the Interim Period Actual Profit exceeded the Interim Period Target Profit,
then GE Capital shall promptly pay to FDS, by wire transfer within 2 business
days, an amount equal to the difference. If the Final Interim Period Return
Statement indicates that the Interim Period Actual Profit was less than the
Interim Period Target Profit, then FDS shall
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promptly pay to GE Capital, by wire transfer within 2 business days, an amount
equal to such difference, provided that if GE Capital does not receive such
payment within such time, then GE Capital shall be entitled to deduct from one
or more daily settlement payments to be made to FDS pursuant to the Program
Agreements an amount equal to such difference. For purposes of calculating
Interim Period Actual Profit, all monthly settlement payments made pursuant to
Section 2.4.1. shall be deemed to have increased or decreased Service Discount
Income, as appropriate.
(d) If the Final Operating Expenses Statement indicates that
Operating Expenses for the New Interim Period exceeded the Maximum Operating
Expenses (as defined below) for the New Interim Period, then GE Capital shall
promptly pay to FDS an amount equal to such excess. "Maximum Operating Expenses"
means an amount equal to 105% of the budgeted Operating Expenses for the New
Interim Period as set forth in the Interim Period Operating Budget which has
been agreed to by the parties and is attached as Exhibit D* (or such greater
amount as may be approved by FDS).
(e) If the Final Write-off Statement indicates that Write-offs
for the New Interim Period (net of late fee and returned check fee write-offs)
exceeded the Target Write-offs (as defined below) for the New Interim Period,
then GE Capital shall promptly pay to FDS an amount equal to 25% of such excess.
"Target Write-offs" means total projected Net Write-offs for the New Interim
Period which has been agreed to by the parties and is set forth in Exhibit E*.
2.5. Discount Adjusters.For purposes of this Agreement, the Discount
Adjusters set forth in Section 4.2 of the Program Agreements shall not be in
effect during the New Interim Period.
3. Confidentiality; Other. The parties acknowledge and agree that the
confidentiality provisions set forth in Section 14.1 of the Consumer Agreement
shall be applicable with respect to all information, documentation, technology
or methodology provided by the parties hereunder, including without limitation
any such items regarding
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* Exhibits D and E have been omitted.
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budgeted or actual expenses or revenues, other prices or costs, staffing or
compensation, information systems, business processes, vendor relationships or
other client relationships. The parties agree that, as necessary, each shall
take appropriate actions to ensure compliance with all applicable antitrust
laws, including without limitation, limitations as to which employees of which
party may receive confidential cost information.
4. No Other Amendments. Except to the extent specifically modified
hereby, the Program Agreements shall remain unchanged and in full force and
effect.
5. Amendment. This Agreement may not be amended except by a written
instrument signed by both GE Capital and FDS.
6. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without regard to the
conflicts of laws provisions thereof.
7. Entire Agreement. This Agreement is the entire agreement of the
parties with respect to the subject matter hereof and supersedes all other prior
understandings and agreements between the parties with respect to the subject
matter hereof, whether written or oral (although the Prior Interim Agreement
shall not be superseded by this Agreement with respect to matters covered
thereby).
8. Multiple Counterparts. This Agreement may be executed in any number
of multiple counterparts, all of which shall constitute but one and the same
original.
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IN WITNESS WHEREOF, GE Capital and FDS have caused this
Agreement to be executed by their respective officers thereunto duly authorized
as of the date first above written.
FEDERATED DEPARTMENT
STORES, INC.
By: /s/ Dennis J. Broderick
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Name: Dennis J. Broderick
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Title: Sr. Vice President and General Counsel
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GENERAL ELECTRIC CAPITAL
CORPORATION
By: /s/ Kevin Knight
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Name: Kevin Knight
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Title: Attorney-in-fact
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