SERVICING AGREEMENT

EXHIBIT 10.3

 

SERVICING AGREEMENT

 

between

 

THE NEIMAN MARCUS GROUP, INC.

 

and

 

HSBC BANK NEVADA, N.A.

 

Dated as of [              ], 2005

TABLE OF CONTENTS

 

 

i

 

SCHEDULES

 

 

ii

SERVICING AGREEMENT

 

This Servicing Agreement (as amended from time to time, this “ Agreement ”), dated as of [              ], 2005, is between The Neiman Marcus Group, Inc., a Delaware corporation (“ Servicer ”), and HSBC Bank Nevada, N.A., a national credit card bank (“ Bank ”).

 

WHEREAS, Servicer and certain of its subsidiaries (together, “ Sellers ”) have entered into a Purchase, Sale and Servicing Transfer Agreement with Bank and HSBC Finance Corporation, a Delaware corporation (“ Bank Parent ”), dated as of [              ], 2005 (as amended from time to time, the “ Purchase Agreement ”), pursuant to which Sellers will sell, and Bank will purchase, specified assets related to Sellers’ consumer private label credit card business;

 

WHEREAS, Servicer and certain of its subsidiaries (together, the “ NMG Companies ”) are entering into a Program Agreement, dated as of [              ] (as amended from time to time, the “ Program Agreement ”), with Bank and Household Corporation, a Delaware corporation (“ Primary Servicer ”, and together with Bank, the “ Household Companies ”) which shall govern the operation of such credit card business and the rendering of marketing and other services by the parties thereto; and

 

WHEREAS, Bank wishes to retain Servicer to provide, and Servicer wishes to provide, certain servicing and administration activities relating to the Accounts and the Program, all pursuant to the terms and conditions set forth herein.

 

NOW, THEREFORE, in consideration of the mutual agreements set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:

 

ARTICLE I

 

DEFINITIONS AND INTERPRETATION

 

Section 1.01. Defined Terms . Wherever used in this Agreement, unless the context otherwise requires, the following terms shall have the meanings set forth below. Capitalized terms used but not defined in this Agreement shall have the meanings given them in the Program Agreement.

 

“ Agreement ”: As defined in the preamble hereof.

 

“ Bank ”: As defined in the preamble hereof.

 

“ Bank Parent ”: As defined in the recitals hereof.

 

“ Credit Card Production Services ”: The Services set forth in paragraph 2 of Section I of Schedule 1.01(a).

 

“ Confidential Information ”: As defined in Section 8.01(a)(i) hereof.

 

“ Damages ”: As defined in Section 7.01(a) hereof.

“ Data Processing Services ”: The Services set forth in paragraph 4 of Section I of Schedule 1.01(a).

 

“ Deductible Amount ”: As defined in Schedule 7.04.

 

“ Disclosing Party ”: As defined in Section 8.01(a)(iv) hereof.

 

“ Documentation Services ”: The Services set forth in paragraph 1 of Section I of Schedule 1.01(a).

 

“ Household Companies ”: As defined in the recitals hereof.

 

“ Initial Penalty Amount ”: As defined in Schedule 5.02.

 

“ Late Stage Collection Services ”: The Services set forth in paragraph 3 of Section I of Schedule 1.01(a).

 

“ NMG Companies ”: As defined in the recitals hereof.

 

“ Non-Starred SLAs ”: Any SLA on Schedule 2.04(a) that is not a Starred SLA.

 

“ Other Services ”: The Services set forth in Section II of Schedule 1.01(a).

 

“ Party ”: When used in the singular, either Servicer or Bank or, when used in the plural, both Servicer and Bank.

 

“ Primary Servicer ”: As defined in the recitals hereof.

 

“ Program Agreement ”: As defined in the recitals hereof.

 

“ Purchase Agreement ”: As defined in the recitals hereof.

 

“ Receiving Party ”: As defined in Section 8.01(a)(iv) hereof.

 

“ Regulatory Failure ”: As defined in Section 5.01(b) hereof.

 

“ Regulatory SLA ”: As defined in Section 5.01(b) hereof.

 

“ Securitization Documents ”: As defined in the Purchase Agreement.

 

“ Sellers ”: As defined in the recitals hereof.

 

“ Servicer ”: As defined in the preamble hereof.

 

“ Servicer Default ”: As defined in Section 5.01 hereof.

 

“ Servicer Event of Default ”: The occurrence of any one of the events listed in Section 6.02.

 

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“ Services ”: As defined in Section 2.02(a) hereof.

 

“ Significant Failure ”: As defined in Section 5.01(a) hereof.

 

“ SLA ”: Each individual performance standard set forth on Schedule 2.04(a).

 

“ Solvent ”: When used with respect to any Person, that (a) the present fair salable value of such Person’s assets exceed the total amount of its liabilities, (b) such Person is able to pay its debts as they become due and (c) such Person does not have unreasonably small capital to carry on its business as theretofore operated and all business in which such Person is about to engage.

 

“ Starred SLA ”: On Schedule 2.04(a), SLA number 1 of Section A, SLA number 1 of Section B, SLA number 6 of Section C and SLA numbers 2 and 6 of Section D.

 

“ Subsequent Failure ”: As defined in Section 5.02(b) hereof.

 

“ Subsequent Penalty Amount ”: As defined in Schedule 5.02.

 

“ Term ”: As defined in Section 6.01 hereof.

 

“ Transaction Document ”: The Purchase Agreement, the Program Agreement and this Agreement and the agreements, instruments, schedules and other documents to be delivered pursuant thereto and hereto.

 

Section 1.02. Certain Interpretive Matters . As used herein: (a) all references to the plural number shall include the singular number (and vice versa); (b) all references to “herein,” “hereunder,” “hereof” or like words shall refer to this Agreement as a whole and not to any particular section, subsection or clause contained in this Agreement; (c) all references to “include,” “includes” or “including” shall be deemed to be followed by the words “without limitation”; (d) all references to “$” or “dollars” shall be deemed references to United States dollars; and (e) all references to a particular agreement, instrument or document shall include all renewals, extensions, modifications, amendments and restatements of such agreement, instrument, or document.

 

ARTICLE II

 

SERVICING

 

Section 2.01. Appointment . Subject to the terms and conditions of this Agreement, Bank hereby appoints Servicer as of the Effective Date as the servicer of the Accounts (excluding Non-Store Accounts associated with Dual-Line Credit Cards) and Cardholder Indebtedness and Servicer hereby accepts such appointment.

 

Section 2.02. Servicer Compensation . As compensation for provision of the Services hereunder, Servicer shall receive payment of the payment calculated by reference to the Servicing Fee Percentage as set forth in Schedule 9.1(a)(i) of the Program Agreement. Upon transfer of any of the Services to Primary Servicer in accordance with Section 2.03(b), the

 

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amount payable to Servicer set forth in Schedule 9.1(a)(i) shall be adjusted as set forth in Schedule 9.1(a)(i) in order to reflect the reduction of Services being performed by Servicer and the assumption of the performance of such Services by Primary Servicer.

 

Section 2.03. Services .

 

(a) Commencing on the Effective Date and continuing until the date, if any, upon which any listed type of Service enumerated below is transferred to Primary Servicer as provided in this Agreement, Servicer shall perform the following services (collectively, the “ Services ”): (i) the Documentation Services; (ii) the Late Stage Collection Services; (iii) the Credit Card Production Services; (iv) the Data Processing Services; and (v) the Other Services, in each case in accordance with this Agreement and the Risk Management Policies and Operating Procedures. Servicer shall service the Accounts in compliance with Applicable Law, in such a way as to not disparage or embarrass the Household Companies or either of their names, with a level of service to Cardholders and with no less care and diligence than the degree of service, care and diligence employed by Servicer prior to the Effective Date. Notwithstanding anything to the contrary contained herein, Bank shall be solely responsible for monitoring legal developments applicable to the operation of the Credit Card Business, although Servicer shall promptly apprise Bank of any such legal developments of which it becomes aware.

 

(b) Servicer may elect upon not less than thirty (30) days’ written notice to Bank to transfer (i) any one or more type of Services referenced in clauses (i) through (iv) of Section 2.03(a) or (ii) following conversion to the Bank Systems, all of the Services being performed hereunder, to Primary Servicer, in which event Primary Servicer shall accept appointment as servicer with respect to such Services and shall be required to comply with the provisions of the Program Agreement in connection with the performance of such Services, including the requirement to meet the SLAs applicable to Primary Servicer for such Service set forth in Schedule 7.3(a) of the Program Agreement. Upon the date of the foregoing transfer, Servicer shall be released from any further obligation with respect to the performance of such Services.

 

(c) Notwithstanding Section 2.03(b), Bank and Servicer agree that the Documentation Services shall be transferred to Primary Servicer as soon as practicable after the date hereof and, upon such transfer, Primary Servicer shall be required to comply with the provisions of the Program Agreement in connection with the performance of such Services, including the requirement to meet the SLAs applicable to the Documentation Services set forth in Schedule 7.3(a) of the Program Agreement.

 

(d) Servicer shall maintain records relating to its performance of the Services in accordance with the record retention policies set forth on Schedule 4.4(f) of the Program Agreement. Records may be kept in either paper or electronic form. Servicer shall retrieve, reproduce and deliver to Bank any records reasonably requested from time to time by Bank for the purpose of providing customer assistance or resolving customer disputes, and Bank shall compensate Servicer on demand for the reasonable costs and expenses associated with such retrieval, reproduction and delivery.

 

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(e) Within fifteen (15) days after the end of each Fiscal Month, Servicer shall provide to Bank the reports specified in Schedule 2.03(e) and such other reports as are mutually agreed to by the Parties from time to time.

 

(f) Bank shall train personnel of Servicer on Bank’s systems and processes that are related to or that interface with, but that are not components of, the Services to the extent necessary for Servicer to perform the Services. Servicer shall train personnel of Bank on Servicer’s systems and processes that are related to the Services being provided under this Agreement.

 

(g) Bank shall cooperate, and shall ensure that each of its Affiliates shall cooperate, with Servicer in all matters relating to Servicer’s performance of the Services at Servicer’s reasonable request. Such cooperation shall be provided at the expense of Bank and shall include providing Servicer with reasonable access to the personnel, records, systems, technology and information of the Household Companies and their Affiliates relating to the Accounts. Servicer shall obtain all licenses and authorizations necessary to perform the Services that it provides hereunder.

 

Section 2.04. Service Level Standards .

 

(a) Servicer shall perform the applicable Services in accordance with the SLAs set forth on Schedule 2.04(a).

 

(b) Servicer shall report to Bank monthly, in a mutually agreed upon format, Servicer’s performance under each of the SLAs set forth on Schedule 2.04(a). If Servicer fails to meet any SLA, Servicer shall (i) immediately report to the Management Committee the reasons for the SLA failure(s); and (ii) promptly take commercially reasonable action to correct and prevent recurrence of such failure(s).

 

Section 2.05. Use of Subservicers . Servicer shall have the right to perform any portion of the Services through one or more subservicers; provided that (i) any subservicer that is not an Affiliate of Servicer shall be subject to approval pursuant to Article III of the Program Agreement and (ii) Servicer shall remain fully responsible to Bank for the portion of the Services performed by any such subservicer(s) (including its Affiliates). Notwithstanding the foregoing, to the extent Servicer subcontracts or outsources to any third party any Services as of the date hereof, Servicer may continue to subcontract or outsource such Services to such third party.

 

Section 2.06. Disaster Recovery . For as long as Servicer is providing services hereunder, Servicer shall continue to maintain the disaster recovery plan in effect on the Effective Date. Servicer shall be prepared to and have the ability to implement such plan if necessary. Servicer shall provide Bank with access to review such plan upon request. Servicer shall test the plan annually and shall promptly implement such plan upon the occurrence of a disaster or business interruption. Servicer shall be excused from its failure to meet any applicable SLAs that result directly from the failure of any of the Bank Systems. If in the event of a disaster or severe business interruption Servicer fails to take reasonable steps to respond to such disaster or severe business interruption, Bank shall have reasonable access to Servicer’s systems, technical personnel and disaster recovery resources, so as to ensure continuity of business and systems required to service the Accounts.

 

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Section 2.07. Inventory . The Parties hereby agree that all paper, envelopes and plastic reasonably required for production and mailing of Cardholder Documentation and Loyalty Cards will be either (i) purchased by Servicer in consultation with Bank, in which case Servicer shall invoice Bank directly for such purchases and Bank shall pay Servicer for such invoices (including shipping and taxes), or (ii) purchased by Bank in consultation with Servicer at Bank’s sole cost and expense, provided that material qualities and quantities must be reasonably satisfactory to Servicer.

 

Section 2.08. Securitization .

 

(a) As part of the Services hereunder, Servicer hereby agrees to continue and to have its Subsidiaries continue to perform for the benefit of Bank and Bank Parent on a subservicing basis, the servicing functions set forth under the Securitization Documents with respect to the Accounts and receivables generated thereunder that are subject to such Securitization Documents, from and after the Closing Date, including the execution and delivery of all certificates and reports as required by such Securitization Documents, which certificates and reports shall be addressed to HSBC Finance Corporation, a Delaware corporation as the Servicer.

 

(b) Servicer hereby acknowledges and agrees that HSBC Finance Corporation shall be entitled to rely on such reports and certificates as a basis for issuing any of its own reports and certificates under the Securitization Documents. In addition, Servicer hereby agrees to use commercially reasonable efforts to cause Servicer’s independent public accountants to issue the reports required by the Securitization Documents and deliver such reports to HSBC Finance Corporation for the period starting October 31, 2004 and ending on the Closing Date, such reports to be delivered by such independent public accounting firm on or before October 31, 2005.

 

(c) Servicer shall cooperate with Bank and Bank Parent to correct any errors or deficiencies discovered in any of the reports referred to in this Section 2.08.

 

ARTICLE III

 

REPRESENTATIONS AND WARRANTIES

 

Section 3.01. Representations and Warranties of Servicer . Servicer represents and warrants to Bank as follows:

 

(a) Organization . Servicer (i) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, (ii) is duly licensed or qualified to do business and is in good standing as a foreign corporation in all jurisdictions in which the conduct of its business or the activities in which it is engaged makes such licensing or qualification necessary, except to the extent that its non-compliance would not reasonably be expected to have, individually or in the aggregate, a material adverse effect on its ability to

 

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perform its obligations hereunder, and (iii) has all necessary licenses, permits, consents or approvals from or by, and has made all necessary filings and registrations with, all governmental authorities having jurisdiction, to the extent required for the ownership, lease or conduct and operation of its business, except to the extent that the failure to obtain such licenses, permits, consents or approvals or to make such filings or registrations would not reasonably be expected to have, individually or in the aggregate, a material adverse effect on its ability to perform its obligations under this Agreement.

 

(b) Capacity; Authorization; Validity . Servicer has all necessary corporate power and authority to (i) execute and enter into this Agreement, and (ii) perform its obligations hereunder and the other documents, instruments and agreements relating to this Agreement executed by it pursuant hereto. The execution and delivery by Servicer of this Agreement and all documents, instruments and agreements executed and delivered by Servicer pursuant hereto, and the consummation by Servicer of the transactions specified herein, have been duly and validly authorized and approved by all necessary corporate actions of Servicer. This Agreement (i) has been duly executed and delivered by Servicer, (ii) constitutes the valid and legally binding obligation of Servicer, and (iii) is enforceable in accordance with its terms (subject to applicable bankruptcy, insolvency, reorganization, receivership or other laws affecting the rights of creditors generally and by general equity principles including those respecting the availability of specific performance).

 

(c) Conflicts; Defaults; Etc . The execution, delivery and performance of this Agreement by Servicer, its compliance with the terms hereof, and consummation of the transactions specified herein will not (i) conflict with, violate, result in the breach of, constitute an event which would, or with the lapse of time or action by a third party or both would, result in a default under, or accelerate the performance required by, the terms of any contract, instrument or agreement to which Servicer is a party or by which it is bound, or to which any of the assets of Servicer is subject; (ii) conflict with or violate the articles of incorporation or by-laws of Servicer; (iii) breach or violate any Applicable Law or Applicable Order, in each case, applicable to Servicer; (iv) require the consent or approval of any other party to any contract, instrument or commitment to which Servicer is a party or by which it is bound; or (v) require any filing with, notice to, consent or approval of, or any other action to be taken with respect to, any Governmental Authority, except, in the cases of clauses (i) and (iii)-(v), for such conflicts, breaches, defaults, violations or failures to obtain such consents or approvals or make or obtain such filings, notices, consents and approvals as would not reasonably be expected to have, individually or in the aggregate, a material adverse effect upon Servicer’s ability to perform its obligations under this Agreement.

 

(d) Litigation . No action, claim, litigation, proceeding, arbitration or investigation is pending or, to the Knowledge of Servicer, threatened against Servicer or any of its Subsidiaries, at law, in equity or otherwise, by or before any Governmental Authority, to which Servicer or any of its Subsidiaries is a party, which would reasonably be expected to have, individually or in the aggregate, a material adverse effect on the ability of Servicer to perform its obligations under this Agreement.

 

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(e) Facilities and Equipment . Servicer has all necessary facilities, equipment, supplies and such other resources as are reasonably necessary to provide the Services under this Agreement.

 

(f) Solvency . Servicer is Solvent.

 

Section 3.02. Representations and Warranties of Bank . Bank represents and warrants to Servicer as follows:

 

(a) Organization . Bank (i) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, (ii) is duly licensed or qualified to do business and is in good standing as a foreign corporation in all jurisdictions in which the conduct of its business or the activities in which it is engaged makes such licensing or qualification necessary, except to the extent that its non-compliance would not reasonably be expected to have, individually or in the aggregate, a material adverse effect on its ability to perform its obligations hereunder, and (iii) has all necessary licenses, permits, consents or approvals from or by, and has made all necessary filings and registrations with, all governmental authorities having jurisdiction, to the extent required for the ownership, lease or conduct and operation of its business, except to the extent that the failure to obtain such licenses, permits, consents or approvals or to make such filings or registrations would not reasonably be expected to have, individually or in the aggregate, a material adverse effect on its ability to perform its obligations under this Agreement.

 

(b) Capacity; Authorization; Validity . Bank has all necessary corporate power and authority to (i) execute and enter into this Agreement, and (ii) perform its obligations hereunder and the other documents, instruments and agreements relating to this Agreement executed by it pursuant hereto. The execution and delivery by Bank of this Agreement and all documents, instruments and agreements executed and delivered by Bank pursuant hereto, and the consummation by Bank of the transactions specified herein, have been duly and validly authorized and approved by all necessary corporate actions of Bank. This Agreement (i) has been duly executed and delivered by Bank, (ii) constitutes the valid and legally binding obligation of Bank, and (iii) is enforceable in accordance with its terms (subject to applicable bankruptcy, insolvency, reorganization, receivership or other laws affecting the rights of creditors generally and by general equity principles including those respecting the availability of specific performance).

 

(c) Conflicts; Defaults; Etc . The execution, delivery and performance of this Agreement by Bank, its compliance with the terms hereof, and consummation of the transactions specified herein will not (i) conflict with, violate, result in the breach of, constitute an event which would, or with the lapse of time or action by a third party or both would, result in a default under, or accelerate the performance required by, the terms of any contract, instrument or agreement to which Bank is a party or by which it is bound, or to which any of the assets of Bank is subject; (ii) conflict with or violate the articles of incorporation or by-laws of Bank; (iii) breach or violate any Applicable Law or Applicable Order, in each case, applicable to Bank; (iv) require the consent or approval of any other party to any contract, instrument or commitment to which Bank