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 APRIL 30, 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 number 0-15194
SOUND ADVICE, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 59-1520531
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
1901 TIGERTAIL BOULEVARD, DANIA BEACH, FLORIDA 33004
(Address of principal executive offices) (Zip Code)
(954) 922-4434
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
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), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES __X__ NO _____
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S
CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICAL DATE.
COMMON STOCK, PAR VALUE $.01 PER SHARE - 3,733,894 SHARES OUTSTANDING AS OF JUNE
4, 1999.
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SOUND ADVICE, INC. AND SUBSIDIARY
INDEX
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PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets (Unaudited)
April 30, 1999 and January 31, 1999 3
Condensed Consolidated Statements of Income (Unaudited)
for the Three Months Ended April 30, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows (Unaudited)
for the Three Months Ended April 30, 1999 and 1998 5
Notes to Condensed Consolidated Financial Statements 6-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-12
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
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SOUND ADVICE, INC. AND SUBSIDIARY
Condensed Consolidated Balance Sheets (Unaudited)
April 30, 1999 and January 31, 1999
APRIL 30, JANUARY 31,
1999 1999
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ASSETS
Current Assets:
Cash $ 80,384 $ 1,384,051
Receivables:
Vendors 5,020,397 5,376,641
Trade 948,368 868,378
Employees 381,635 339,451
------------ ------------
6,350,400 6,584,470
Less allowance for doubtful accounts (511,200) (440,900)
------------ ------------
5,839,200 6,143,570
Inventories 31,720,995 30,987,826
Prepaid and other current assets 474,048 472,122
Deferred tax assets -- --
------------ ------------
Total current assets 38,114,627 38,987,569
Property and equipment, net 15,491,557 16,006,704
Deferred tax assets, net 245,000 --
Other assets 112,924 115,040
Goodwill, net 101,616 107,729
------------ ------------
$ 54,065,724 $ 55,217,042
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Borrowings under revolving credit facility $ 16,345,528 $ 13,775,936
Accounts payable 9,116,401 12,310,092
Accrued liabilities 6,584,227 7,671,639
Current maturities of long-term debt 421,315 467,483
------------ ------------
Total current liabilities 32,467,471 34,225,150
Capital lease obligation 795,152 797,180
Other liabilities and deferred credits 4,124,836 4,136,776
------------ ------------
37,387,459 39,159,106
------------ ------------
Shareholders' Equity:
Common stock, $.01 par value; authorized
10,000,000 shares; issued and outstanding
3,733,894 shares at April 30, 1999
and January 31, 1999 37,339 37,339
Additional paid-in capital 11,067,455 11,067,455
Retained earnings 5,573,471 4,953,142
------------ ------------
Total shareholders' equity 16,678,265 16,057,936
Commitments and contingencies
------------ ------------
$ 54,065,724 $ 55,217,042
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See accompanying notes to condensed consolidated financial statements.
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SOUND ADVICE, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Income (Unaudited)
For the Three Months Ended April 30, 1999 and 1998
1999 1998
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Net sales $39,027,363 $33,648,350
Cost of goods sold 25,440,170 21,803,311
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Gross profit 13,587,193 11,845,039
Selling, general and administrative
expenses 12,626,737 11,238,430
----------- -----------
Income from operations 960,456 606,609
Other income (expense):
Interest expense (349,542) (378,130)
Other, net 9,415 17,445
----------- -----------
Income before income taxes 620,329 245,924
Income taxes -- 129,000
----------- -----------
Net income $ 620,329 $ 116,924
=========== ===========
Common and common equivalent
per share amounts:
Basic net income per share $ 0.17 $ 0.03
=========== ===========
Diluted net income per share $ 0.15 $ 0.03
=========== ===========
Weighted average number of shares
outstanding - basic 3,733,894 3,728,894
=========== ===========
Weighted average number of shares
outstanding - diluted 4,057,594 3,783,567
=========== ===========
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See accompanying notes to condensed consolidated financial statements.
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SOUND ADVICE, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows (Unaudited)
For the Three Months Ended April 30, 1999 and 1998
1999 1998
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Cash Flows From Operating Activities:
Net income $ 620,329 $ 116,924
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization 871,833 814,085
Gain on disposition of assets (6,986) --
Deferred income taxes (245,000) --
Changes in operating assets and liabilities:
Decrease (increase) in:
Receivables 304,370 1,073,032
Inventories (733,169) 1,383,932
Prepaid and other current assets (1,926) (81,383)
Other assets (2,384) 22,634
Increase (decrease) in:
Accounts payable (3,193,691) (7,914,706)
Accrued liabilities (1,087,412) (1,909,549)
Other liabilities & deferred credits (11,940) (184,613)
------------ ------------
Net cash (used in) operating activities (3,485,976) (6,679,644)
------------ ------------
Cash Flows From Investing Activities:
Capital expenditures (351,087) (666,377)
Proceeds from disposition of assets 12,000 --
------------ ------------
Net cash used in investing activities (339,087) (666,377)
------------ ------------
Cash Flows From Financing Activities:
Borrowings on revolving credit facility 46,625,700 43,219,476
Repayments on revolving credit facility (44,056,108) (37,455,987)
Net repayments of long-term debt (46,168) (43,567)
Increase in cash overdraft -- 290,225
Reductions in capital lease obligation (2,028) (1,677)
------------ ------------
Net cash provided by financing activities 2,521,396 6,008,470
------------ ------------
Decrease in cash (1,303,667) (1,337,551)
Cash, beginning of period 1,384,051 1,421,392
------------ ------------
Cash, end of period $ 80,384 $ 83,841
============ ============
Supplemental disclosures of cash flow information:
Interest paid $ 264,289 $ 303,364
============ ============
Income taxes paid, net of refunds $ 550,000 $ 475,000
============ ============
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See accompanying notes to condensed consolidated financial statements.
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SOUND ADVICE, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.) BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in conformity with instructions to Form 10-Q and therefore do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. Certain items included
in these statements are based on management estimates. In the opinion of
management, the accompanying financial statements contain all adjustments,
consisting of normal, recurring accruals, necessary to present fairly the
financial position of the Company at April 30, 1999 and January 31, 1999 and the
statements of income for the three month periods ended April 30, 1999 and 1998
and statements of cash flows for the three month periods ended April 30, 1999
and 1998. The results of operations for the three months ended April 30, 1999
are not necessarily indicative of the operating results expected for the fiscal
year ending January 31, 2000. These financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
contained in the Company's annual report on Form 10-K for the year ended January
31, 1999.
2.) EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income available
to common shareholders by the weighted-average number of common shares
outstanding during the period. Diluted earnings per share is computed by
dividing income available to common shareholders by the weighted-average number
of common shares outstanding during the period increased to include the number
of additional common shares that would have been outstanding if the diluted
potential common shares had been issued. The diluted effect of outstanding
options is reflected in diluted earnings per share by application of the
treasury stock method.
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3.) SEASONALITY
Historically, the Company's net sales are greater during the holiday
season than during other periods of the year. Net sales by fiscal quarters and
their related percentages for the trailing four quarters ended April 30, 1999
and 1998 are as follows:
TRAILING FOUR QUARTERS ENDED APRIL 30,
(Dollars in Thousands)
QUARTERLY SALES
1999 1998
---- ----
AMOUNT % AMOUNT %
First Quarter $39,027 24.4% $33,648 22.1%
(February - April)
Fourth Quarter 53,002 33.1 48,808 32.1
(November - January)
Third Quarter 34,423 21.5 36,282 23.8
(August - October)
Second Quarter 33,518 21.0 33,347 22.0
(May - July) -------- ---- -------- ----
SALES FOR TRAILING TWELVE $159,970 100% $152,085 100%
MONTHS ENDED APRIL 30, ======== ==== ======== ====
1999 AND 1998, RESPECTIVELY
4.) PROPERTY AND EQUIPMENT, NET
Property and equipment, net, consists of the following:
APRIL 30, 1999 JANUARY 31, 1999
-------------- ----------------
Land $ 521,465 $ 521,465
Building 1,119,605 1,119,605
Furniture and equipment 9,867,951 9,664,424
Leasehold improvements 19,182,448 19,100,481
Display fixtures 7,233,133 7,183,697
Vehicles 1,059,418 1,097,490
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Total 38,984,020 38,687,162
Less accumulated depreciation (23,492,463) (22,680,458)
------------- --------------
Property and equipment, net $ 15,491,557 $ 16,006,704
=============== ===============
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5.) PROVISION FOR INCOME TAXES
The Company recorded a deferred tax asset of approximately $245,000 as
a result of a change in the valuation reserve for deferred taxes. The income tax
provision for the quarter ended April 30, 1998, includes an amount for taxes
payable on pretax operating income and an increase in the valuation reserve for
deferred tax assets.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company's net sales for the quarter ended April 30, 1999 increased
$5,379,000 or 16.0% to $39,027,000 compared to $33,648,000 in the corresponding
period in the prior fiscal year. The increase in sales is attributable to the
increase in comparable store sales and the addition of two new full size stores
in November 1998 and two Bang & Olufsen concept stores in February 1998 and
December 1998. Sales increases were recorded in each of the major sales
categories of audio, video and mobile electronics. The cell phone category,
which has been deemphasized in the product mix, was the only category with a
significant sales reduction of approximately $795,000 from the prior year.
Comparable store net sales increased 7.0% in the quarter ended April 30, 1999 as
compared to the corresponding quarter in the prior year. The comparable store
sales were adjusted to exclude the new stores opened in November and December
1998. The Company's operations, in common with other retailers in general, are
subject to seasonal influences. Historically, the Company has realized greater
sales and profits during the holiday selling season.
Gross profit increased by $1,742,000 or 14.7% in the quarter ended
April 30, 1999 compared to the corresponding quarter in the prior fiscal year.
The gross profit percentage was 34.8% in the quarter ended April 30, 1999 as
compared to 35.2% in the quarter ended April 30, 1998. The increase in gross
profit is directly related to the increased sales and the reduction of the gross
profit percentage is directly related to the Company's sales mix.
Selling, general and administrative expenses ("SG&A") increased by
$1,388,000 or 12.4% in the quarter ended April 30, 1999 over the corresponding
period in the prior year. The increase in SG&A expense is related to increased
sales commissions resulting from the increase in gross margin and expenses
associated with the addition of the new stores. SG&A as a percentage of net
sales decreased to 32.4% in the quarter ended April 30, 1999 as compared to
33.4% in the corresponding period in the prior year. This percentage decrease is
related to the increase in net sales for the period.
Interest expense for the quarter ended April 30, 1999 was $350,000, a
decrease of $29,000 from the corresponding period in the prior fiscal year. The
decrease was primarily reflective of a lower effective interest rate under the
Company's revolving credit facility on an increased level of borrowing as
compared to the comparable period in the prior fiscal year.
The Company recorded a deferred tax asset of approximately $245,000 as
a result of a change in the valuation reserve for deferred taxes. The income tax
provision in the 1998 period includes an amount for taxes payable on pretax
operating income and an increase in the valuation reserve for deferred tax
assets. The Company recorded an income tax provision of $129,000 for the quarter
ended April 30, 1998.
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Net Income for the quarter ended April 30, 1999 was $620,000 or $.17
per share (basic) compared to net income of $117,000 or $.03 per share (basic)
for the same quarter in the previous fiscal year. The increase in net income in
the quarter ended April 30, 1999 is a direct result of the increase in the
Company's net sales and gross profit over the comparable period in the prior
fiscal year.
FINANCIAL CONDITION
Net cash used in operating activities was approximately $3,486,000 for
the quarter ended April 30, 1999 primarily due to decreases in the Company's
accrued liabilities and accounts payable and the increase in the Company's
inventory since January 31, 1999. The Company had working capital of
approximately $5,647,000 at April 30, 1999, as compared to the $4,762,000 in
working capital at January 31, 1999 for an overall increase of $885,000. The
reduction in current assets of $873,000 during the three month period was
primarily related to the $1,304,000 reduction in cash. The reduction in current
assets was offset by a corresponding decrease of $1,758,000 in current
liabilities. The net decrease in current liabilities resulted primarily from an
increase in borrowings under the revolving credit facility of $2,570,000, which
was offset by the decreases in the Company's accounts payable and accrued
liabilities of $3,194,000 and $1,087,000, respectively.
The Company currently believes that funds from the Company's operations
combined with borrowings available under its revolving credit facility and
vendor credit programs will be sufficient to satisfy its currently projected
operating cash requirements during fiscal 2000. However, in order to fully
complete the store expansion program currently planned in fiscal 2000, the
Company may need to seek additional financing sources. In that regard, the
Company is exploring additional financing sources in connection with the
expansion program. The Company has signed a lease for the relocation of one of
its stores in Tampa, Florida. The Company may also need to seek additional
sources of financing (debt and/or equity or a combination thereof) in order to
proceed with any expansion program beyond fiscal 2000.
The Company's ownership of its former Fort Lauderdale store is
encumbered by a first mortgage loan from a bank in the amount of $640,000, with
a balance of approximately $410,000 at April 30, 1999. This property is
currently under contract for sale.
YEAR 2000 ISSUE
The year 2000 issue is primarily the result of computer programs being
written using two digits rather than four to define the applicable year. Such
programs may be unable to interpret dates beyond the year 1999, which could
cause a system failure or other computer errors, including possible
miscalculations, and a disruption in the operation of such systems. This is
commonly referred to as the year 2000 issue.
The Company has been executing a plan to identify and address any
possible business issues related to the impact of the year 2000 problem on both
its information technology ("IT") and non-IT systems (e.g., embedded
technology). This plan addresses the year 2000 issue in multiple phases,
including (i) determining an initial inventory of the
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Company's systems, equipment, vendors, customers and third party administrators
that may be vulnerable to system failures or processing errors as a result of
year 2000 issues, (ii) assessment and prioritization of inventoried items to
determine risks associated with their failure to be year 2000 compliant, (iii)
testing of systems and equipment to determine year 2000 compliance, (iv)
remediation and implementation of systems and equipment, and (v) contingency
planning to assess reasonably likely worst case scenarios. The initial inventory
and assessment of the Company's systems has been completed. Action plans are
being developed to address systems and equipment that are currently
non-compliant. Implementation of the required changes is expected to be complete
by October 1999.
Incremental costs, which include costs associated with internal
resources to modify existing systems in order to achieve year 2000 compliance
are charged to expense as incurred. The Company does not expect the cost of
making the required system changes to exceed $150,000. The anticipated cost of
the project and the dates on which the Company believes it will complete the
year 2000 modifications and assessments are based on management's best
estimates, which were derived utilizing numerous assumptions of future events,
including the continued availability of certain resources. There can be no
guarantee that these estimates will be achieved and actual results could differ
materially from those anticipated. Specific factors that might cause such
material differences include, but are not limited to, the availability and cost
of personnel trained in this area and the ability to locate and correct all
relevant systems.
With respect to the Company's suppliers and vendors, the Company is in
the process of contacting suppliers and vendors to assess the potential impact
on operations if such third parties are not successful in ensuring that their
systems and operations are year 2000 complaint in a timely manner. The Company's
year 2000 issues and any potential business interruptions, costs, damages or
loses related thereto, are also dependent upon the year 2000 compliance of other
third parties. To date, the Company is unable to determine whether it will be
materially affected by the failure of any of its suppliers, vendors, or other
third parties to be year 2000 compliant. The Company believes that its
compliance efforts have and will reduce the impact on the Company of such
failures. Failures of any third parties with which the Company interacts to
achieve year 2000 compliance could have a material adverse effect on the
Company's business, financial condition and results of operations.
Risk assessment, readiness evaluation, action plans and contingency
plans related to the Company's suppliers, vendors and other third parties are
expected to be completed by October 1999. The Company's risk management program
includes emergency backup and recovery procedures to be followed in the event of
failure of a business critical system. These procedures will be expanded to
include specific procedures for the potential year 2000 issue. Contingency plans
to protect the Company from the year 2000 related interruptions are also being
developed and are expected to be completed by October 1999. These plans will
include development of backup procedures, identification of alternate suppliers,
possible increases in inventory levels and other appropriate measures.
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There can be no assurance, however, that the Company's systems are
"Year 2000" compliant or that the systems of other companies on which the
Company's systems and operations rely, or companies with whom the Company
conducts business, will be timely converted to address the "Year 2000 Issue," or
that a failure to convert by another company, or a conversion that is
incompatible with the Company's systems, would not have a material adverse
effect on the Company's business, operations, results and financial position.
For this reason, the Company continues to work towards ensuring that all systems
associated with the processes of the Company are Year 2000 compliant by the end
of 1999.
FORWARD-LOOKING STATEMENTS
This Form 10-Q contains forward-looking statements (within the meaning
of Section 21E. of the Securities Exchange Act of 1934, as amended) representing
the Company's current expectations, beliefs, estimates or intentions concerning
the Company's future performance and operating results, its products, services,
markets and industry, and/or future events relating to or effecting the Company
and its business and operations. When used in this Form 10-Q, the words
"believes," "estimates," "plans," "expects," "intends," "anticipates," "Year
2000" and similar expressions as they relate to the Company or its management
are intended to identify forward-looking statements. The actual results or
achievements of the Company could differ materially from those indicated by the
forward-looking statements because of various risks and uncertainties related to
and including, without limitation, the effectiveness of the Company's business
and marketing strategies, the product mix sold by the Company, customer demand,
availability of existing and new merchandise from and the establishment and
maintenance of relationships with suppliers, price competition for products and
services sold by the Company, management of expenses, gross profit margins, the
opening of additional stores, availability and terms of financing to refinance
or repay existing financings or to fund capital and expansion needs, the
continued and anticipated growth of the retail home entertainment and consumer
electronics industry, a change in interest rates, exchange rate fluctuations,
the seasonality of the Company's business and the other risks and factors
detailed in this Form 10-Q and in the Company's other filings with the
Securities and Exchange Commission. These risks and uncertainties are beyond the
ability of the Company to control. In many cases, the Company cannot predict the
risks and uncertainties that could cause actual results to differ materially
from those indicated by the forward-looking statements.
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PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. The following exhibits are filed with this report:
EXHIBIT NO. DESCRIPTION
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10.17 Merchant Agreement - Household Bank (SB), N.A.
27. Financial Data Schedule (filed herewith).
(b) Reports on Form 8-K. No reports on Form 8-K were filed by the
Company.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SOUND ADVICE, INC.
(Registrant)
Date JUNE 11, 1999 /S/ PETER BESHOURI
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Peter Beshouri, Chairman of the
Board, President and Chief
Executive Officer
Date JUNE 11, 1999 /S/ KENNETH L. DANIELSON
-------------- ----------------------------------
Kenneth L. Danielson, Chief
Financial and Accounting Officer
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EXHIBIT INDEX
EXHIBIT DESCRIPTION
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10.17 Merchant Agreement - Household Bank (SB), N.A.
27 Financial Data Schedule
EXHIBIT 10.17
[ ] Where this symbol appears information has been deleted and filed separately
with the Commission.
MERCHANT AGREEMENT
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BANK: Household Bank (SB), N.A. MERCHANT: Sound Advice, Inc.
1111 Town Center Drive 1901 Tigertail Boulevard
Las Vegas, Nevada 89134 Dania Beach, Florida 33004
Facsimile No. (954) 926-4389
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This Merchant Agreement ("AGREEMENT") is made and entered into as of the 8th day
of March, 1999 ("EFFECTIVE DATE"), by and between Household Bank (SB), N.A.
(herein "HOUSEHOLD") and Sound Advice, Inc., a Florida corporation (herein
"MERCHANT"). In consideration of the mutual promises, covenants, and agreements
set forth below and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Merchant and Household agree as
follows:
SECTION 1. DEFINITIONS. In addition to the words and phrases defined above and
elsewhere in this Agreement, the following words and phrases shall have the
following meanings:
a. "ACCOUNT" means an account resulting from the issuance of a Card. An
Account may have more than one Card issued for it. Each Account shall
be owned by, and deemed to be the property of, Household.
b. "AFFILIATE" means any entity that is owned by, owns or is under common
control with Household or Merchant or its ultimate parent.
c. "APPLICABLE LAW" means collectively or individually any applicable law,
rule, regulation or judicial, governmental or administrative order,
decree, ruling, opinion or interpretation.
d. "AUTHORIZATION" means permission from Household to make a Card Sale.
e. "AUTHORIZATION CENTER" means the facility designated by Household as
the facility at which Card Sales are authorized.
f. "BUSINESS DAY" means any day except Saturday or Sunday or a day on
which banks are closed in the State of Nevada.
g. "CARD" means the private label credit card issued by Household for the
Program.
h. "CARDHOLDER" means (i) the person in whose name an Account is opened,
and (ii) any other authorized users of the Account and Card.
i. "CARD SALE" means any sale of Goods that Merchant makes to a Cardholder
pursuant to this Agreement that is charged to an Account.
j. "CHARGEBACK" means the return to Merchant and reimbursement to
Household of a Sales Slip or Card Sale for which Merchant was
previously paid.
k. "CREDIT SLIP" means evidence of a credit in a paper or electronic form
for Goods purchased from Merchant.
l. "GOODS" means the products described in SECTION 2 below, certain
warranties expressly authorized by Household, and related services
sold by Merchant in the ordinary course of Merchant's business to
consumers for individual, family, personal or household use.
m. "LIBOR" shall mean the daily average of the one (1) year London
Interbank Offered Rate as published by BLOOMBERG FINANCIAL MARKETS. For
purposes of this Agreement "Base LIBOR" shall be %.
n. "MONTH" means a calendar month unless used in connection with a Credit
Promotion.
o. "OPERATING INSTRUCTIONS" means the Regulatory Guidelines and operating
instructions and/or procedures designated by Household and provided to
Merchant from time to time concerning the Program. Household shall
provide Merchant with reasonable written notice of any changes to the
Operating Instructions.
p. "PROGRAM" means the private label revolving credit card program
associated with Merchant whereby Accounts will be established and
maintained by Household, Cards issued by Household to qualified
consumers purchasing Merchant's Goods, and Card Sales funded all
pursuant to the terms of this Agreement.
q. "PROGRAM YEAR" means any consecutive twelve (12) month period
commencing with the first day of funding of any Accounts after the
Effective Date and each subsequent twelve (12) month period.
r. "SALES SLIP" means evidence of a Card Sale in paper or electronic form
for Goods purchased from Merchant.
s. "TERMINAL" means an electronic terminal or computer capable of
communicating by means of an on-line or dial-up electronic link with
an Authorization Center.
SECTION 2. SCOPE AND PURPOSE. Merchant engages in the sale of consumer
electronics and other related products and related services, and Merchant
desires to make financing available to consumers purchasing Goods and services
from Merchant and to participate in the Program in accordance with the terms and
conditions set forth in this Agreement. Household, a credit card bank in the
business of providing revolving credit financing pursuant to a credit card, has
agreed
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provide such financing under the Program to individual qualified consumers
purchasing Merchant's Goods pursuant to the terms and conditions set forth in
this Agreement.
a. FORMS AND CARDS. Household will provide to Merchant standard
application/agreements, Sales Slips, Credit Slips, and other forms from
time to time for use by Merchant in the Program, which documents may be
changed from time to time by Household. Merchant shall be charged a fee
for nonstandard forms requested by Merchant and for forms in excess of
normal usage. The design of the Card will be done by the Merchant
subject to Household's approval and the content of the Cards and
billing statements and the terms and conditions of Accounts and
application/agreements shall be determined by Household and are subject
to change by Household from time to time.
b. CREDIT REVIEW; OWNERSHIP OF ACCOUNTS. All completed applications for
Accounts submitted by Merchant to Household whether mailed, telephoned
or otherwise electronically transmitted will be processed and approved
or declined in accordance with such credit criteria and procedures
established from time to time by Household, with Household having and
retaining all rights to reject or accept such applications. Household
will only accept applications for revolving credit pursuant to the
credit card it issues for individual, personal, family or household
use. Household or its Affiliates shall own the Accounts, including the
Cardholder names and addresses associated with the Accounts, and shall
bear the risk for such Accounts; however, upon request Household will
provide the Cardholder names and addresses to Merchant for the purpose
of soliciting accounts for the Program up to 30 days prior to
termination. Except as otherwise provided in this Agreement, Merchant
acknowledges and agrees that it shall have no ownership interest in the
Accounts. Household shall not be obligated to take any action under an
Account, including making future advances or credit available to
Cardholders. Household shall not be obligated to accept applications
for a Card or to approve any Card Sale for consumers that do not have
their principal residence and billing address in the Continental United
States.
c. CARD PROMOTIONS, SERVICES AND ENHANCEMENTS. Household and Merchant may
from time to time mutually agree to offer to existing or potential
Cardholders special credit promotions, additional services and/or
enhancements. The terms of such promotions, services and enhancements
shall be mutually agreed upon by Household and Merchant and are subject
to change upon mutual agreement of the parties or discontinuance by
Household upon notice to Merchant. In consideration of Household's
providing special credit promotions and to compensate Household for
such promotions, Merchant agrees to pay to Household for the period
agreed upon by Household and Merchant such rates, discounts and amounts
as may be agreed upon by Household and Merchant. Household may deduct
amounts owed to it hereunder from amounts owed to Merchant under this
Agreement.
SECTION 3. FEES, DISCOUNTS, CHARGES, RATES AND FUNDING.
a. CONSUMER RATE. The annual percentage rate ("APR") to be charged on
purchases with the Card shall be a variable APR of the Prime Rate plus
[ ] percentage points, or plus [ ] percentage points for the default
APR ("Spread"). The Prime Rate shall be determined based upon the
highest Prime Rate published in THE WALL STREET JOURNAL "Money Rates"
on the first Tuesday of January, April, July and October, and will take
effect on the first day of the billing cycle for February, May, August
and November. The APR shall not be lower than [ ] during the Initial
Term of this Agreement. The APR shall not exceed the maximum interest
rate allowable by Applicable Law, rule, regulation or statute and shall
be subject to change from time to time by Household upon notice to
Merchant. The initial APR shall be [ ]
b. MERCHANT. Merchant agrees to pay Household the following nonrefundable
fees, charges and discounts (some of which are more fully described in
this Agreement):
(i) "DISCOUNT": [ ] of the amount of each non-credit promotion
Sales Slip accepted and funded by Household.
(ii) "CREDIT PROMOTION DISCOUNT FEE": Household shall make certain
deferred payment and/or deferred interest credit promotions
("Credit Promotions") available to Merchant. Each Sales Slip
generated pursuant to each Credit Promotion shall be subject
to a Credit Promotion discount fee ("Discount Fee") as set
forth herein. During the term of this Agreement, the
percentage of total annual dollar volume of Card Sales
generated by the [ ] months or longer Credit Promotions ("[ ]
months or longer Credit Promotions") shall not exceed percent
([ ]) of the 12 month average dollar volume of promotional and
non promotional Card Sales (" months or longer Credit
Promotions Volume Maximum") during each Program Year. The
initial Credit Promotion Discount Fees shall be as follows:
CREDIT PROMOTION (SAME AS CASH) DISCOUNT FEE SAC MAXIMUM
------------------------------- ------------ -----------
Non Promotional Card Sales [ ] [ ]
90 Day Same as Cash/Without Payments [ ] [ ]
6 Months Same as Cash/With Payments [ ] [ ]
6 Months Same as Cash/Without Payments [ ] [ ]
9 Months Same As Cash/With Payments [ ] [ ]
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9 Months Same As Cash/Without Payments [ ]
12 Months Same as Cash/With Payments [ ]
12 Months Same as Cash/Without Payments [ ]
CREDIT PROMOTION DISCOUNT FEE PROMO MAXIMUM
---------------- ------------ -------------
Non Promotional Card Sales [ ]
90 Day No Interest/Without Payments [ ]
6 Months No Interest/With Payments [ ]
6 Months No Interest/Without Payments [ ]
9 Months No Interest/With Payments [ ] [ ]
9 Months No Interest/Without Payments [ ] [ ]
12 Months No Interest/With Payments [ ] [ ]
12 Months No Interest/Without Payments [ ] [ ]
The Credit Promotion Discount Fees set forth in this
Subsection 3b (ii) shall be reviewed and adjusted under the
following circumstances: (A) in accordance with any increase
in LIBOR as set forth below; (B) in the event Household
determines that any [ ] Month or longer Credit Promotions
exceeded [ ] for any Program Year during the term of this
Agreement as set forth in Schedule A below; (C) in accordance
with the provisions of SECTION 6 B (vi) if Household
determines that Fraud Losses (as defined in SECTION 6 B (vi))
will exceed the percentage set forth therein during the term
of this Agreement.
Any adjustment in the Discount Fees based upon changes from
Base LIBOR shall be made semi-annually at the end of each
Program Year on the anniversary of the Effective Date and six
months thereafter (the "Adjustment Dates"), and shall be equal
to the result ("Adjustment") of (i) the Credit Promotion
duration divided by 12; multiplied by (ii) the difference, if
any, in the LIBOR determined as of the Adjustment Date
("Current LIBOR") from Base LIBOR ("LIBOR Spread"). The
Current LIBOR shall be determined by the average LIBOR for the
thirty-day period prior to the applicable Adjustment Date. The
new Discount Fee shall be effective as to all promotional
volume accepted and funded by Household for the next six
Months starting after the applicable Adjustment Date. The
Credit Promotion Discount Fee shall be determined by adding to
the Adjustment the initial Discount Fee for each Credit
Promotion. For example: if the Current LIBOR on the
anniversary of the Effective Date is [ ] for that Adjustment
Date and the Base LIBOR is [ ], the Discount Fee for a "[ ]
Month Same As Cash With Payments" promotion would be
calculated as follows: [ ] (Credit Promotion duration) divided
by [ ] =1 ("Multiplier"); [ ] (Current LIBOR) minus [ ] (Base
LIBOR) = [ ] basis points (LIBOR Spread); 1 (Multiplier) times
basis points (LIBOR Spread) = [ ] basis points (Adjustment). [
] ([ ] Month SAC With Payments Initial Discount Fee) plus [ ]
basis points (Adjustment) = [ ] (New Discount Fee for Month
SAC With Payments). The Discount Fees shall never be reduced
by more than basis points from the initial Discount Fees as a
result of any decrease in the Current LIBOR below Base LIBOR.
Any change in the Discount Fee for [ ] month or longer Credit
Promotions based upon Merchant exceeding the months or longer
Credit Promotions Volume Maximum shall be determined at the
end of each Program Year as set forth in Schedule A below.
Household will charge Merchant the additional Discount Fee set
forth below on the aggregate dollar amount of the [ ] month or
longer Credit Promotion Volume for that Program Year.
Household shall bill Merchant for the additional Discount Fee
within 30 days of the end of such Program Year and Merchant
shall pay Household the additional Discount Fee within 30 days
of billing.
SCHEDULE A
MONTHS OR LONGER CREDIT PROMOTION VOLUME ADDITIONAL DISCOUNT FEE
AS A % OF TOTAL CARD SALE VOLUME
.01% to 0%
[0.01%]to [0%] [ ]
[0.01%]to [0%] [ ]
[0.01%]to [0%] [ ]
[0.01%]to [0%] [ ]
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(iii) "CONVENIENCE USAGE CHARGE": [ ] of all finance charges that
would otherwise be paid by the Cardholder but for the payment
in full of the outstanding Account balance during any grace
period or promotional period and which have not been
previously paid to Household as a discount. (Under the
Program, Household may permit Cardholders to pay the entire
outstanding balance due without finance charges during any
applicable grace period or promotional period).
(iv) "RETURNED MERCHANDISE CHARGE": [ ] of the accrued finance
charges on Accounts with respect to Goods that are returned
and a credit is not applied prior to the end of the billing
cycle period in which the Card Sale was made. Household will
return to Merchant a pro rata portion of the Credit Promotion
Discount Fee applicable to Goods that are returned as stated
in Household's Operating Instructions.
(v) "START-UP FEE": [ ]
(vi) "FORMS FEE": [ ]
(vii) "APPLICATION FEE": [ ] per Cardholder application presented to
Household under the Program.
The rate, fees, discounts and charges described above in this SECTION 3 are
subject to change by Household in accordance with the terms and conditions as
set forth in this SECTION 3 upon prior written notice to Merchant.
c. ACCEPTANCE, OFFSET & FUNDING. Subject to the terms, conditions,
warranties and representations in this Agreement and provided that
Merchant has satisfied all of the conditions set forth in this
Agreement, including, without limitation, SECTIONS 4, 5, AND 7,
Household agrees to pay to Merchant the amount of each valid and
authorized Sales Slip presented to Household during the term of this
Agreement, less the amount of the fees, charges, and discounts
described above in this SECTION 3, outstanding Account balances for
Sales Slips subject to Chargeback, reimbursements, refunds, customer
credits and any other amounts owed to Household by Merchant under this
Agreement. Household may also offset or recoup said amounts from future
amounts owed to Merchant under this Agreement. Any amounts owed by
Merchant to Household which cannot be paid by the aforesaid means shall
be due and payable by Merchant on demand. Any payment made by Household
to Merchant shall not be final but shall be subject to subsequent
review and verification by Household and Merchant. Merchant shall
electronically submit Sales Slips to Household for funding Monday
through Friday. Transmissions received prior to 7:30 a.m. Central Time
shall be funded by Household the same Business Day. Household's
liability to Merchant with respect to the funding or processing of any
Card Sale, Sales Slip or Credit Slip shall not exceed the amount on the
Sales Slip or Credit Slip in connection with such transaction. In no
event shall Household be liable for any incidental or consequential
damages or for failure to fund transactions on the next Business Day.
Funding of Sales Slips by Household to Merchant shall be made by wire
transfer.
SECTION 4. MERCHANT RESPONSIBILITIES CONCERNING CONSUMER TRANSACTIONS. Merchant
covenants and agrees that Merchant shall:
a. Honor all valid Cards without discrimination, when properly presented
by Cardholders for payment of Goods.
b. Not require, through an increase in price or otherwise, any Cardholder
to pay any surcharge at the time of sale or pay any part of any charge
imposed by Household on Merchant.
c. Not establish minimum or maximum charge amounts without Household's
prior written approval; except for credit promotion card sales.
d. Prominently display at each of its locations, if appropriate,
advertising and promotional materials relating to the Card, including
without limitation take-one applications for the Card and use or
display such materials in accordance with any specifications provided
by Household. Such materials shall be used only for the purpose of
soliciting accounts for the Program. Any solicitation, written
material, advertising or the like relating to the Program or the
products offered pursuant to the Program shall be prepared or furnished
by Household or shall receive Household's prior written approval.
Household will charge Merchant and Merchant agrees to pay the actual
and reasonable costs for any such advertising and promotional materials
as may be requested by Merchant. Any such materials shall not be used
by Merchant following termination of this Agreement.
e. Use only the form of, or modes of transmission for,
application/agreements, Sales Slips and Credit Slips as are provided by
Household, and not use any application/agreements, Sales Slips, and
Credit Slips provided by Household other than in connection with an
application for a Card or a Card transaction.
f. With respect to applications for a Card:
(i) Make sure all information requested on the application is
complete and legible;
(ii) obtain the signature on the application of all persons whose
name will appear on the Account or will be responsible for the
Account;
(iii) give the applicant the initial disclosures at the time of
signing the application/agreement prior to the first
transaction under the Account;
(iv) verify the identification of the individual(s) applying for
the Account, which verification may include obtaining driver's
license and social security numbers;
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(v) provide all information required by Household from time to
time for approval of applications by telephone or other
electronic transmission and legibly insert the Account number
on the application in the designated area; and
(vi) send the actual original approved signed application to
Household at Household's address on PAGE ONE above or such
other address designated by Household within fifteen (15)
Business Days of approval of the application by Household.
g. With respect to Sales Slips:
(i) Enter legibly on a single Sales Slip prior to obtaining the
Cardholder's signature (1) a description of all Goods
purchased in the same transaction in detail sufficient to
identify the transaction; (2) the date of the transaction; (3)
the Authorization number; and (4) the entire amount due for
the transaction (including any applicable taxes;
(ii) REQUEST AUTHORIZATION FROM HOUSEHOLD'S AUTHORIZATION CENTER
UNDER ALL CIRCUMSTANCES. (Household may refuse to accept or
fund any Sales Slip that is presented to Household for payment
more than one hundred twenty (120) days after the date of
Authorization of the Card Sale). Merchant agrees not to divide
a single transaction between two or more Sales Slips or
between a Household Sales Slip and a sales slip for another
credit provider who could validly claim a security interest in
the Goods. If Authorization is granted, legibly enter the
Authorization number in the designated area on the Sales Slip.
If Authorization is denied, do not complete the transaction
and follow any instructions from the Authorization Center.
Merchant shall use reasonable efforts, by reasonable and
peaceful means, to retain or recover a Card:
(a) if Merchant is advised to retain the Card in response
to an Authorization request; or
(b) if Merchant has reasonable grounds to believe that
the Card is counterfeit, fraudulent, or stolen. The
obligation to retain or recover a Card imposed by
this Section does not authorize a breach of the peace
or any injury to persons or property, and Merchant
will hold Household harmless from any claim arising
from any injury to person or property or other breach
of the peace.
(iii) if applicable, imprint legibly on the Sales Slip the embossed
legends from the Card and from Merchant's imprinter plate or
if the transaction is to be completed electronically or
otherwise without a Card imprint, then enter legibly on the
Sales Slip sufficient information to identify the Cardholder
and Merchant, including at least, Merchant's name and address,
and Cardholder's name, Account number.
(iv) check the effective date, if any, on the Card;
(v) obtain the signature of the Cardholder on the Sales Slip, and
compare the signature on the Sales Slip with the signature
panel of the Card and if identification is uncertain or if
Merchant otherwise questions the validity of the Card, contact
Household's Authorization Center for instructions;
(vi) IDENTIFICATION OF THE CARDHOLDER IS THE RESPONSIBILITY OF
MERCHANT;
(vii) not present the Sales Slip to Household for funding until all
Goods are delivered (if delivery is to be more than ten (10)
days from the date of sale) and all the services are performed
to the Cardholder's reasonable satisfaction. If the Card Sale
is canceled or the Goods or services canceled or returned in
accordance with the Merchant's reasonable and posted or
published merchandise return policy as established from time
to time by Merchant, the Sales Slip is subject to Chargeback;
(viii) enter the Card Sale into the Terminal; and
(ix) deliver a true and completed copy of the Sales Slip to the
Cardholder at the time of the Card Sale.
h. CREDIT SLIPS. If Goods are returned, any Card Sale or services are
terminated or canceled, or Merchant allows any price adjustment, then
Merchant shall not make any cash refund, but shall complete and deliver
promptly to Household a Credit Slip evidencing the refund or adjustment
and deliver to the Cardholder a true and complete copy of the Credit
Slip at the time the refund or adjustment is made. Merchant shall date
each Credit Slip and include thereon a brief description of the Goods
returned, services terminated or canceled, refund or adjustment made,
the date of the original Card Sale, Cardholder's name, address and
Account number, and the date and amount of the credit, all in
sufficient detail to identify the transaction. Merchant shall imprint
or legibly reproduce on each Credit Slip the embossed legends from the
Card and from Merchant's imprinter plate. The amount of the Credit Slip
cannot exceed the amount of the original transaction as reflected on
the Sales Slip. Merchant shall issue Credit Slips only in connection
with previous bona fide Card Sales and only as permitted hereunder.
i. Not receive any payments from a Cardholder for charges included on any
Sales Slip resulting from the use of any Card, nor receive any payments
from a Cardholder to prepare and present a Credit Slip for the purpose
of effecting a credit to the Cardholder's Account.
j. CARDHOLDER COMPLAINTS. Merchant shall within ten (10) Business Days of
receipt provide Household with a copy of any written complaint from any
Cardholder concerning his/her Account.
k. Satisfy all other requirements designated in any Operating Instructions
or as may be required from time to time by Household upon reasonable
notice to Merchant. In the event there is any inconsistency between any
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Operating Instructions and this Agreement, this Agreement shall govern
unless otherwise expressly indicated by Household in any Operating
Instructions.
SECTION 5. REPRESENTATIONS AND WARRANTIES.
Merchant represents and warrants to Household as of the Effective Date
and throughout the term of this Agreement the following:
(i) That each Card Sale will arise out of a bona fide sale of
Goods and/or services by Merchant and will not involve the use
of the Card for any other purpose.
(ii) That to the best of Merchant's knowledge each Card Sale will
be to a consumer for personal, family, or household purposes.
(iii) That Cardholder applications will be available to the public
(i) without regard to race, color, religion, national origin,
sex, marital status, or age (provided the applicant has the
capacity to enter into a binding contract) and (ii) not in any
manner which would discriminate against an applicant or
discourage an applicant from applying for the Card.
(iv) That it has full corporate or other power and authority to
enter into this Agreement; that all corporate or other action
required under any organization documents to make this
Agreement binding and valid upon Merchant according to its
terms has been taken; and that this Agreement is and will be
binding, valid and enforceable upon Merchant according to its
terms.
(v) Neither (A) the execution, delivery and performance of this
Agreement, nor (B) the consummation of the transactions
contemplated hereby will constitute a violation of law or a
violation or default by Merchant under its articles of
incorporation, bylaws or any organization documents, or any
material agreement or contract and no authorization of any
governmental authority is required in connection with the
performance by Merchant of its obligations hereunder.
(vi) That dates after December 31, 1999 will be properly recognized
and date related calculations will be correctly made in the
operation of computer systems and functions material to the
operation of the Program, and that Merchant has undertaken
procedures to address Year 2000 ("Y2K") computer issues.
(vii) Merchant has and will retain all licenses required by local or
state law to conduct its business and to perform its
obligations under this Agreement.
SECTION 6. CHARGEBACKS TO MERCHANT. Merchant agrees as follows:
a. CHARGEBACKS. Any Sales Slip or Card Sale is subject to Chargeback under
any one or more of the following circumstances, and thereupon the
provisions of SECTION 6.C. below shall apply:
(i) The application or any information on the application or the
Sales Slip or any required information on the Sales Slip (such
as the account number, description of Merchant or Goods
purchased, transaction amount or date) is illegible or
incomplete, or the Sales Slip or application is not executed
by the Cardholder; or Authorization is not obtained from
Household's Authorization Center, or a valid Authorization
number is not correct, in any material respect, and legibly
written or recorded on the Sales Slip; or the Sales Slip is a
duplicate of an item previously paid, or the price of the
Goods or services shown on the Sales Slip differs from the
amount shown on the Cardholder's copy of the Sales Slip;
(ii) Household reasonably determines that (1) Merchant has breached
or failed to satisfy, any material term, condition, covenant,
warranty, or other provision of this Agreement, including,
without limitation, SECTIONS 4 AND 5 above, or of the
Operating Instructions, in connection with a Sales Slip, Card
Sale or the transaction to which it relates, or an application
for a Card or the opening of an Account; or (2) the Sales
Slip, application/agreement or Card Sale is fraudulent or is
subject to any bona fide claim of illegality, cancellation,
rescission, avoidance or offset for any reason whatsoever,
including, without limitation, negligence, fraud,
misrepresentation, or dishonesty on the part of the customer
(except as provided in Section 6b.) or Merchant or its agents,
employees, licensees, or franchisees, or that the related
transaction is not a bona fide transaction in Merchant's
ordinary course of business;
(iii) the Cardholder, in good faith, disputes or denies the Card
Sale or other Card transaction, the execution of the Sales
Slip or application/agreement, or the delivery, quality, or
performance of the goods, services or warranties purchased, or
the Cardholder has not authorized the Card Sale, or alleges in
good faith that
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a credit adjustment was requested and refused or that a credit
adjustment was issued by Merchant but not posted to the
Account in violation of Merchant's disclosed policy or
Applicable Law; or
(iv) Merchant fails to deliver to Household the Sales Slip, Credit
Slip, application or other records of the Card transaction
within the times required in this Agreement and such failure
to deliver in any way impairs Household's ability to meet its
obligations under Applicable Law (including its obligations
under the Fair Credit Billing Act) or otherwise to respond to
questions, disputes, complaints, lawsuits, counterclaims or
claims concerning Accounts or requests from Cardholders, or to
enforce any rights Household may have against a Cardholder,
including, without limitation, litigation by or against
Household, collection efforts and bankruptcy proceedings.
b. FRAUD CHARGEBACK EXCEPTION. Notwithstanding anything to the contrary in
this SECTION 6, Household and Merchant agree that where Merchant
follows the procedures and provides the information set forth below, an
application, Card Sale, Sales Slip or other Card transaction reasonably
determined by Household to be the result of customer fraud ("Fraud
Chargeback") shall not be subject to Chargeback under this SECTION 6 if
the following conditions have been met by Merchant:
(i) For applications, Merchant shall provide verification of the
applicant's identity and current address by (1) witnessing the
signature on the application of each person whose name will
appear on the Account or who will be responsible for the
Account; and (2) obtaining a copy of one of the following: an
unexpired in-state driver's license containing the applicant's
photo and current residence as listed on the application, or a
current in-state identification card containing the
applicant's photo and current residence as listed on the
application, or a valid US Government issued military
identification, or a valid United States Passport containing
the applicant's photo and reviewing such identification to
ensure that the applicant substantially resembles the person
described thereon; and (3) reviewing an unexpired major credit
card (e.g. American Express, VISA, MasterCard, Sears, Discover
or major department store or oil company credit card) and
comparing the signature on such credit card with the signature
on the application and/or Sales Slip; and (4) recording on the
application where designated the drivers license number or the
card type, account number (where permissible) and expiration
date of such credit card identification.
(ii) If the address on the photo identification does not match the
address on the application, Merchant must obtain a photocopy
of other identification showing the applicant's current
address such as a utility bill, bank statement or car
registration.
(iii) Within fifteen (15) Business Days of receipt of Household's
request, or such earlier time as may be required by Household,
Merchant shall provide to Household a copy of the
identification described in 6b(i) and (ii) above to meet its
obligations under Applicable Law or otherwise to respond to
questions, disputes, inquiries, investigations, complaints,
lawsuits, counterclaims or other claims concerning Accounts or
requests from Cardholders or to enforce any rights Household
may have against a Cardholder.
(iv) For add on sales after the initial Card Sale, Merchant shall
compare and verify the signature on the Card with the
signature on the Sales Slip and also swipe the Card or take an
impression of the Card.
(v) In the event Merchant fails to comply with the foregoing
provisions with respect to any application to open an Account,
any Card Sale or Sales Slip for which Household reasonably
determined the transaction to be the result of customer fraud,
Household reserves the right to Chargeback such Account, Card
Sale or Sales Slip under the terms set forth herein.
(vi) Household shall review the amount of Fraud Chargebacks after
each six Months this Agreement is in effect. In the event
losses to Household resulting from Fraud Chargebacks ("Fraud
Losses") exceed [ ] (on an annualized basis) of the average
receivables outstanding, Household may adjust only the
Discount Fees set forth in Section 3 b (iii) above. The
increase in the Discount Fees under this subsection shall be
basis point for each basis point increase in Fraud Losses
above [ ] and shall be in effect for the next six Months.
c. RESOLUTION AND PAYMENT. Merchant is required to resolve any dispute or
other of the circumstances described above in (a) of this SECTION 6 to
Household's reasonable satisfaction within fifteen (15) days of notice
of Chargeback or Merchant shall pay to Household the full amount of
each such Sales Slip or Card Sale subject to Chargeback or the portion
thereof designated by Household, as the case may be, plus the finance
charges thereon, any attorney fees incurred by Household, and other
fees and charges provided for in the Cardholder agreement not otherwise
recovered by Household. Upon Chargeback to Merchant of a Sales Slip or
Card Sale, Merchant shall bear all liability and risk of loss or right
of recovery associated with such Sales Slip or Account, or the
applicable portion thereof, without warranty by, or recourse or
liability to, Household. Household may deduct amounts owed to Household
under this Section from any amounts owed to Merchant under this
Agreement.
d. The terms and provisions of this SECTION 6 shall survive the
termination of this Agreement.
SECTION 7. TAPE OR ELECTRONIC TRANSMISSION & RECORDS. Data, records and
information shall be transmitted and maintained as described below.
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a. TRANSMISSION OF DATA. In lieu of forwarding paper Sales Slips and
Credit Slips to Household, Merchant shall transmit to Household, by
electronic transmission or other form of transmission designated by
Household all data required by this Agreement to appear on Sales Slips
and Credit Slips. All data transmitted shall be in a medium, form and
format designated by Household and shall be presorted according to
Household's instructions. Any errors in such data or in its
transmission shall be the sole responsibility of Merchant. The means of
transmission indicated above in this Section shall be the exclusive
means utilized by Merchant for the transmission of Sales Slip or Credit
Slip transaction data to Household.
b. RECEIPT OF TRANSMISSION. Upon successful receipt of any transmission,
Household shall accept such transmission and pay Merchant in accordance
with this Agreement, subject to subsequent review and verification by
Household and to all other rights of Household and obligations of
Merchant as set forth in this Agreement. If data transmission is by
tape, Merchant agrees to deliver upon demand by Household a duplicate
tape of any prior tape transmission, if such demand is made within
forty-five (45) days of the original transmission.
c. RECORDS. Merchant shall maintain the actual paper Sales Slips, Credit
Slips, and other records pertaining to any transaction covered by this
Agreement for such time and in such manner as Household or any law or
regulation may require, but in no event less than two (2) years after
the date Merchant presents each transaction data to Household, and
Merchant shall make and retain for at least seven (7) years legible
copies of both sides of such actual paper Sales Slips, Credit Slips or
other transaction records. Within fifteen (15) days, or such earlier
time as may be required by Household, of receipt of Household's
request, Merchant shall provide to Household the actual paper Sales
Slips, Credit Slips or other transaction records, any other documentary
evidence available to Merchant and reasonably requested by Household to
meet its obligations under law (including its obligations under the
Fair Credit Billing act) or otherwise to respond to questions,
complaints, lawsuits, counterclaims or claims concerning Accounts or
requests from Cardholders, or to enforce any rights Household may have
against a Cardholder, including, without limitation, litigation by or
against Household, collection efforts and bankruptcy proceedings, or
for any other reason. In the event Merchant fails to comply in any
respect with the provisions of this Section, Household may process a
Chargeback for each Card Sale involved pursuant to SECTION 6 above.
In lieu of Merchant promptly providing Household upon termination with all
original and microfilm copies of documents required to be retained under this
Agreement, Merchant agrees to provide Household upon request original or
microfilm copies of document(s) in order that Household may meet its obligations
under Applicable Law (including its obligations under the Fair Credit Billing
Act) or otherwise to respond to questions, disputes, complaints, lawsuits,
counterclaims or claims concerning Accounts or requests form Cardholders, or to
enforce any rights Household may have against a Cardholder, including without
limitation, litigation by or against Household , collection efforts and
bankruptcy proceeding. Merchant agrees to deliver promptly to Household the
requested documentation within ten (10) business days, and if Household does not
receive the documentation within ten (10) business days the full account
balance(s) shall be charged back to Merchant.
SECTION 8. PAYMENTS BY CARDHOLDER AND ENDORSEMENT. Merchant agrees that
Household has the sole right to receive payments on any Sales Slip or Card Sale
funded by Household. Unless specifically authorized in writing by Household,
Merchant agrees not to make any collections on any such Sales Slip or Card Sale.
Merchant agrees to hold in trust for Household any payment received by Merchant
of all or part of the amount of any such Sales Slip or Card Sale and to deliver
promptly the same in kind to Household as soon as received together with the
Cardholder's name, Account number, and any correspondence accompanying the
payment and deliver same promptly within five (5) days of receipt by Merchant.
Merchant agrees that Merchant shall be deemed to have endorsed any Sales Slip,
Credit Slip, or Cardholder payments by check, money order, or other instrument
made payable to Merchant that a Cardholder presents to Household in Household's
favor, and Merchant hereby authorizes Household to supply such necessary
endorsements on behalf of Merchant.
SECTION 9. MERCHANT CREDIT INFORMATION. Household may annually review Merchant's
financial stability. To assist Household in doing this and upon Household's
request, Merchant shall deliver to Household no later than 120 days after the
end of each fiscal year, an audited financial statement including, without
limitation, all footnotes, and supporting materials with sufficient detail to
accurately portray the financial condition of Merchant. Merchant warrants and
represents that its credit application and financial statements submitted to
Household by or on behalf of Merchant are true and accurate and Merchant agrees
to supply such additional credit information as Household may reasonably request
from time to time. Any information provided by Merchant pursuant to this SECTION
9 shall be subject to the confidentiality provisions of SECTION 19 below.
Merchant understands that Household may verify the information on any financial
statement or other information provided by Merchant and, from time to time, may
seek credit and other information concerning Merchant from others and may
provide financial and other information regarding the portfolio to its
Affiliates or to others for purposes of its asset securitizations and sales.
8
<PAGE>
SECTION 10. MERCHANT BUSINESS PRACTICES. Merchant agrees to provide adequate
services in connection with each Card Sale pursuant to standard customs and
trade practices and any applicable manufacturer's warranty service provided by
Merchant and to provide such repairs, service and replacements and take such
other corrective action as may be required by law or any applicable warranty.
SECTION 11. CARDHOLDER ACCOUNT INFORMATION. Merchant shall not sell, purchase,
provide, or exchange Account information in the form of imprinted Sales Slips,
carbon copies of imprinted Sales Slips, mailing lists, tapes or other media
obtained by reason of a Card transaction to any third party other than to
Merchant's agents for the purpose of assisting Merchant in its business with
Household or pursuant to a government request.
SECTION 12. CHANGES IN MERCHANT. Merchant agrees to send Household at least (30)
days prior written notice of any change in Merchant's name or location, any
change in control of Merchant's business or any change in Sales Slip or Credit
Slip information concerning Merchant. For purposes of this Section, a change in
control shall be deemed to have occurred at such time as a "person" or "group"
(within the meaning of Sections 13(d) and 14(d)(2) of the Securities Exchange
Act or 1934) other than the president and chairman of the Merchant, the senior
vice president and director of the Merchant, or any mutual fund that currently
owns percent ([ ]) of the outstanding stock normally entitled to vote in the
election of directors of the Merchant becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Securities Exchange Act of 1934), directly or
indirectly, of more than percent ([ ]) of the total voting power of all classes
of stock then outstanding of Merchant normally entitled to vote in the election
of directors.
SECTION 13. INDEMNIFICATION.
a. INDEMNIFICATION BY MERCHANT. Merchant shall be liable to and shall
indemnify and hold harmless Household and its Affiliates and their
respective officers, employees, agents and directors from any losses,
damages, claims or complaints incurred by Household or any Affiliate of
Household or their respective officers, employees, agents and directors
arising out of: (i) Merchant's failure to comply with this Agreement or
any of the Operating Instructions; (ii) any claim, dispute, complaint
or setoff made by a Cardholder in good faith with respect to anything
done or not done by Merchant in connection with Card Sales or credits;
(iii) anything done or not done by Merchant in connection with the
furnishing of any goods, warranties or services purchased by
Cardholders; (iv) the death or injury to any person or the loss,
destruction or damage to any property arising out of the design,
manufacture or furnishing by Merchant of any goods, warranties or
services purchased by Cardholders; (v) any claim or complaint of a
third party or governmental agency made in good faith in connection
with Merchant's advertisements and promotions relating to the Card
which have not been reviewed or approved by Household; (vi) any illegal
or improper conduct of Merchant or its employees or agents in
connection with any of the transactions contemplated by this Agreement;
and (vii) any claim or complaint by a consumer or governmental agency
made in good faith that Merchant has violated the Equal Credit
Opportunity Act, Truth in Lending Act, or any other related Applicable
Laws and regulations. Household may bill any amounts incurred by
Household under this Section from any amounts owed Merchant under this
Agreement.
b. INDEMNIFICATION BY HOUSEHOLD. Household shall be liable to and shall
indemnify and hold harmless Merchant and its subsidiaries or affiliates
and their respective officers, employees, agents and directors from any
losses, damages, claims or complaints incurred by Merchant or any
parent, subsidiary or affiliate of Merchant or their respective
officers, employees, agents and directors arising out of (i)
Household's failure to comply with this Agreement or any of the
Operating Instructions; (ii) any claim, dispute or complaint by a
Cardholder made in good faith resulting from anything done or not done
by Household in connection with such Cardholder's Account; (iii) any
illegal or improper conduct of Household, or its employees or agents
with respect to the Card, a Card Sale, an Account or any other matters
relating to the Program; (iv) any claim, dispute, complaint or set off
by a consumer or governmental agency made in good faith resulting from
a violation by Household, with respect to the application/agreement, of
the Equal Credit Opportunity Act, Truth in Lending Act or any other
related Applicable Laws and regulations; and (v) any claim, dispute or
complaint of any third party or governmental agency made in good faith
in connection with advertisements and promotions prepared by Household
relating to the Card. Notwithstanding the foregoing, the
indemnification by Household shall not apply to any claim or complaint
relating to the failure of Merchant to resolve a billing inquiry or
dispute with a Cardholder made in good faith relating to Goods or
services purchased on the Card where such failure was not caused by
Household.
c. NOTICE OF CLAIM & SURVIVAL. In the event that Household or Merchant
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, 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 with counsel
satisfactory to indemnified party at the indemnifying party's expense.
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. The terms of
this SECTION 13 shall survive the termination of this Agreement.
9
<PAGE>
SECTION 14. NONWAIVER. Merchant's liability under this Agreement, including,
without limitation, its liability under SECTION 6 above, shall not be affected
by any settlement, extension, forbearance, or variation in terms that Household
may grant in connection with any Sales Slip or Account or by the discharge or
release of the obligations of the Cardholder(s) or any other person by operation
of law or otherwise. Merchant hereby waives any failure or delay on Household's
part in asserting or enforcing any right that Household may have at any time
under this Agreement or under any Account.
SECTION 15. TERM AND TERMINATION.
a. TERM. This Agreement shall be effective as of the Effective Date when
executed by authorized officers of each of the parties and shall remain
in effect for five (5) years ("INITIAL TERM") and shall thereafter be
renewed for successive one year terms (the "RENEWAL TERM(S)") or other
term in excess of one year as agreed upon by Household and Merchant
unless and until terminated as provided herein. 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 be terminated:
(i) By Household or Merchant at the end of the Initial Term or the
end of any Renewal Term upon not less than one hundred eighty
(180) days prior written notice to the other prior to the end
of the Initial Term or the Renewal Term; or
(ii) by Household or Merchant upon written notice to the other in
the event the other party shall elect to wind up or dissolve
its operation or is wound up and dissolved; becomes insolvent
or repeatedly fails to pay its debts as they become due; makes
an assignment for the benefit of creditors; files a voluntary
petition in bankruptcy, or for reorganization or is
adjudicated as bankrupt or insolvent; or has a liquidator or
trustee appointed over its affairs; or
(iii) by Household upon notice (a) if there occurs any material
change in ownership of Merchant or if a change occurs in
Merchant's financial condition as determined by Household in
Household's sole discretion or if Merchant suspends or goes
out of business or substantially reduces its business
operations or sends a notice of a proposed bulk sale of all or
part of its business; or (b) in the event Merchant materially
breaches its obligations or any warranty or representation
under this agreement or in any Operating Instructions; or (c)
if Household has reasonable cause to believe that Merchant
will not be able to perform its obligations under this
Agreement, or if Household receives a disproportionate number
of Cardholder inquiries, disputes, or complaints; or (d) if in
Household's judgment, any Applicable Law requires that this
Agreement or either party's rights or obligations hereunder be
amended, modified, waived or suspended in any respect,
including, without limitation, the amount of finance charges
or fees that may be charged or collected or the consumer rate
that may be charged on purchases with the card.
(iv) by Household upon written notice (a) if Household has
reasonable cause to believe that Merchant, its agents or
employees have engaged in any fraudulent activity in
connection with any of the transactions contemplated by this
Agreement; or (b) if Household receives a disproportionate
number of Cardholder inquiries, disputes, or complaints. For
purposes of this SUBSECTION B (IV) (B) a "disproportionate
number" shall exist when and if the average number of
Cardholder inquiries, disputes and complaints received by
Household each month over any six (6) month period equals or
exceeds 15% of the total number of active debit and credit
balance Accounts (Household to notify Merchant after 3
months); or (c) if in Household's reasonable legal judgment,
any Applicable Law requires that this Agreement or either
party's rights or obligations hereunder be amended, modified,
waived or suspended in any material respect, including,
without limitation, the amount of finance charges or fees that
may be charged or collected or the consumer rate that may be
charged on purchases with the Card.
c. DUTIES AND RIGHTS UPON TERMINATION. Upon termination of this Agreement,
Merchant will provide Household records, data and information as
provided in SECTION 7 of this Agreement. Household is not liable to
Merchant for any direct or consequential damages that Merchant may
suffer as a result of Household's termination of this Agreement. In the
event this Agreement is terminated for any reason or notice of
termination is given by either party, Household may take such other
reasonable actions including but not limited to establishing and
maintaining a reserve from payments otherwise payable to Merchant to
protect Household's rights under this Agreement and to cover Chargeback
amounts and other amounts owing to Household. The provisions of this
subsection shall survive the termination of this Agreement.
d. PURCHASE REQUIREMENT Upon termination of this Agreement, Merchant shall
purchase or arrange to purchase by a third party, the Accounts, without
recourse to Household and without representations or warranty, express
or implied or pay a liquidation fee as described below. The purchase
price will be [ ] of the full amount of all the outstanding Account
balances, including accrued finance charges on promotions, plus accrued
interest from the last billing cycle through the date of sale. The
purchase to occur not later than ninety (90) days after the effective
date of termination of the Agreement and to be under such terms and
conditions as are reasonably
10
<PAGE>
acceptable to Merchant and Household. In any event beginning on the
effective date of termination of this Agreement, Merchant shall pay
Household on a monthly basis, within ten (10) days of Household's
request, a liquidation fee in the amount of [ ] per active Account per
month, (i) until such time as the purchase is complete and Household is
paid the purchase price in full, or (ii) if no purchase occurs, until
such time as the outstanding Account balances/receivables are
liquidated and paid in full.
SECTION 16. STATUS OF THE PARTIES. In performing their responsibilities pursuant
to this Agreement, Household and Merchant are in the position of independent
contractors, and in no circumstances shall either party be deemed to be the
agent or employee of the other. This Agreement is not intended to create, nor
does it create and shall not be construed to create, a relationship of principal
and agent, partner or joint venture or an association for profit between
Household or Merchant. Any amounts ever owing by Merchant pursuant to this
Agreement represent contractual obligations only and are not a loan or debt.
SECTION 17. FORCE MAJEURE. Neither party to this Agreement shall be liable to
the other by reason of any failure in performance of this Agreement in
accordance with its terms if such failure arises out of a cause beyond the
control and without the fault or negligence of such party. Such causes may
include but are not limited to acts of God, of the public enemy or of civil or
military authority, unavailability of energy resources, system or communication
failure, delay in transportation, fires, strikes, 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.
SECTION 18. LIMITED LICENSE. Merchant hereby authorizes Household for purposes
of this Agreement to use Merchant's name, logo, registered trademarks and
servicemarks (if any) and any other proprietary designations ("PROPRIETARY
MATERIALS") on the Cards, applications, periodic statements, billing statements,
collection letters or documents, promotional or advertising materials and
otherwise in connection with the Program, subject to Merchant's periodic
reasonable review of such use and to such reasonable specifications of Merchant.
Merchant represents and warrants that it has obtained appropriate federal and/or
state trademark registrations to protect its interest in the use and ownership
of the Proprietary Materials. Merchant shall, indemnify, defend and hold
Household harmless from any loss, damage, expense or liability arising from any
claims of alleged infringement of the Proprietary Materials (including
reasonable attorneys' fees and costs). Merchant may not use any name or service
mark of Household or any of its Affiliates in any manner without the prior
written consent of Household.
SECTION 19. CONFIDENTIALITY. Merchant will keep confidential and not disclose to
any person or entity (except employees, officers, partners or directors of
Merchant who are engaged in the implementation and execution of the Program or a
regulatory entity that may require information from a public company) all
information, software, systems and data, that Merchant receives from Household
or from any other source, relating to the Program and matters which are subject
to the terms of this Agreement, including, but not limited to, Cardholder names
and addresses or other Account information, and shall use, or cause to be used,
such information solely for the purposes of the performance of Merchant's
obligations under the terms of this Agreement. Household will keep confidential
and not disclose to any person or entity (except employees, officers, agents or
directors of Household, its subsidiaries or affiliates who are engaged in the
implementation and execution of the Program) any information that Household
receives from Merchant which is designated confidential by Merchant. All
financial statements, business plans, sales results and similar information
provided to Household by Merchant are hereby deemed to be confidential. In the
event Household sells or assigns the Accounts or any portion of the Accounts
under the Program or Merchant purchases or arranges the purchase of the Accounts
by a third party pursuant to SECTION 15.D. above, Household or Merchant may
disclose any information under this provision reasonably necessary or required
to effectuate such sale, assignment or purchase. The provisions of this SECTION
19 shall survive the termination of this Agreement.
SECTION 20. ADDITIONAL PRODUCTS & SERVICES. Household and/or any of its
Affiliates may at any time, whether during or after the term of this Agreement
and whether the Accounts are owned by Household, solicit Cardholders for any
other credit cards or other types of accounts or financial or insurance services
or products offered by Household and/or any of its Affiliates.
SECTION 21. NOTICES. All notices required or permitted by this Agreement shall
be in writing and shall be sent to the respective parties as follows: if to
Household, to the Attention of President, (with a copy to the Attention of
General Counsel, HRS USA Law Department, 2700 Sanders Road, Prospect Heights,
Illinois 60070); if to Merchant, to the Attention of Chief Financial Officer at
their respective addresses set forth on page one of this Agreement or such other
addresses as each party may designate to the other by notice hereunder. Said
notices shall be deemed to be received when sent to the above addresses (i) upon
three (3) Business Days after deposit in the U.S. first class mail with postage
prepaid, (ii) upon personal delivery, or (iii) upon receipt by telex, facsimile,
or overnight/express courier service or mail.
11
<PAGE>
SECTION 22. AMENDMENTS AND SUPPLEMENTARY DOCUMENTS. Household may amend this
Agreement upon ten (10) days' prior written notice to Merchant if such
modification is reasonably determined by Household to be required by any state
or federal law, rule, regulation, governmental or judicial order, opinion,
interpretation or decision; provided, however, Merchant may terminate this
Agreement upon ninety (90) days prior written notice to Household if such
modification or amendment results in a material adverse change in the financial
expectations of Merchant under this Agreement; provided further, however,
Merchant waives the right to terminate this Agreement under this SECTION 22 if
such notice is not provided to Household within sixty (60) days after receiving
notice from Household of a modification or amendment. Reference herein to "this
Agreement" shall include any schedules, appendices, exhibits, and amendments
hereto. Any amendment or modification to this Agreement must be in writing and
signed by a duly authorized officer of Household and Merchant to be effective
and binding upon the parties; no oral amendments or modifications shall be
binding upon the parties.
SECTION 23. ASSIGNMENT. This Agreement is binding upon the parties and their
successors and to Household assigns. Notwithstanding, Merchant may not assign
this Agreement without the prior written consent of Household; any purported
assignment without such consent shall be void. Household may without Merchant's
consent assign this Agreement or any of the rights or obligations hereunder only
to any Affiliate of Household at any time. In the event of such assignment, the
assignee shall have the same rights and remedies as Household under this
Agreement.
SECTION 24. NONWAIVER AND EXTENSIONS. Neither party shall by any act, delay,
omission, or otherwise be deemed to have waived any rights or remedies
hereunder. Either party's failure to enforce any of its rights under this
Agreement shall not affect any other right of such party or the same right in
any other instance.
SECTION 25. RIGHTS OF PERSONS NOT A PARTY. This Agreement shall not create any
rights on the part of any person or entity not a party hereto, whether as a
third party beneficiary or otherwise.
SECTION 26. SECTION HEADINGS. The headings of the sections of this Agreement are
for reference only, are not a substantive part of this Agreement and are not to
be used to affect the validity, construction or interpretation of this Agreement
or any of its provisions.
SECTION 27. INTEGRATIONS. This Agreement contains the entire agreement between
the parties. There are merged herein all prior oral or written agreements,
amendments, representations, promises and conditions in connection with the
subject matter hereof. Any representations, warranties, promises or conditions
not expressly incorporated herein shall not be binding on the parties.
SECTION 28. GOVERNING LAW/SEVERABILITY. This Agreement shall be governed by and
construed in accordance with the laws of the State of Illinois. If any provision
of this Agreement is contrary to Applicable Law, such provision shall be deemed
ineffective without invalidating the remaining provisions hereof.
(THIS SPACE LEFT BLANK INTENTIONALLY.)
12
<PAGE>
SECTION 29. JURISDICTION. ANY SUIT, COUNTERCLAIM, ACTION OR PROCEEDING ARISING
OUT OF OR RELATING TO THIS AGREEMENT MUST BE BROUGHT BY MERCHANT IN THE COURTS
OF THE STATE OF ILLINOIS OR IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN
DISTRICT OF ILLINOIS; AND THE MERCHANT HEREBY IRREVOCABLY SUBMITS TO THE
EXCLUSIVE JURISDICTION OF SUCH COURTS AND ANY APPELLATE COURTS THEREOF FOR THE
PURPOSE OF ANY SUCH SUIT, COUNTERCLAIM, ACTION, PROCEEDING OR JUDGMENT (IT BEING
UNDERSTOOD THAT SUCH CONSENT TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS WAIVES
ANY RIGHT TO SUBMIT ANY DISPUTES HEREUNDER TO ANY COURTS OTHER THAN THOSE
ABOVE).
SECTION 30. WAIVER OF JURY TRIAL. HOUSEHOLD AND MERCHANT HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION,
SUIT, PROCEEDING OR COUNTERCLAIM CONCERNING ANY RIGHTS UNDER THIS AGREEMENT, ANY
RELATED DOCUMENT OR UNDER ANY OTHER DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY
IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH, OR ARISING FROM
ANY RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT, AND AGREE THAT ANY
SUCH ACTION, SUIT, PROCEEDING OR COUNTERCLAIM SHALL BE TRIED BEFORE A COURT AND
NOT BEFORE A JURY; THIS PROVISION IS A MATERIAL INDUCEMENT FOR HOUSEHOLD AND
MERCHANT ENTERING INTO THIS AGREEMENT.
IN WITNESS WHEREOF, Household and Merchant have caused their duly authorized
representatives to execute this Merchant Agreement as of the date set forth
above.
<TABLE>
<CAPTION>
BANK: MERCHANT:
<S> <C>
HOUSEHOLD BANK (SB), N.A. SOUND ADVICE, INC.
By: _____________________________________ By:______________________________________
Print Name: _____________________________ Print Name:___________________________________
Title: __________________________________ Title: ____________________________________
ATTESTED OR WITNESSED
By: _____________________________________
Print Name: ______________________________
Title: ____________________________________
Merchant's Federal Tax ID #: 59-1520531
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE REGISTRANT'S
FINANCIAL STATEMENTS AS OF AND FOR THE THREE MONTH PERIOD ENDED APRIL 30, 1999,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-START> FEB-01-1999
<PERIOD-END> APR-30-1999
<CASH> 80,384
<SECURITIES> 0
<RECEIVABLES> 6,350,400
<ALLOWANCES> 511,200
<INVENTORY> 31,720,995
<CURRENT-ASSETS> 38,114,627
<PP&E> 38,984,020
<DEPRECIATION> 23,492,463
<TOTAL-ASSETS> 54,065,724
<CURRENT-LIABILITIES> 32,467,471
<BONDS> 795,152
0
0
<COMMON> 37,339
<OTHER-SE> 16,640,926
<TOTAL-LIABILITY-AND-EQUITY> 54,065,724
<SALES> 39,027,363
<TOTAL-REVENUES> 39,027,363
<CGS> 25,440,170
<TOTAL-COSTS> 25,440,170
<OTHER-EXPENSES> 12,626,737
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 349,542
<INCOME-PRETAX> 620,329
<INCOME-TAX> 0
<INCOME-CONTINUING> 620,329
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 620,329
<EPS-BASIC> .17
<EPS-DILUTED> .15
</TABLE>
