EXHIBIT 10.3
SERVICE AGREEMENT
This AGREEMENT is dated as of this 1st day of September, 1996, by and
between SPS PAYMENT SYSTEMS, INC., a Delaware corporation ("SPS"), and NOVUS
SERVICES, INC., a Delaware corporation ("Company").
WITNESSETH:
WHEREAS, SPS provides an accounts receivable system (the "SPS System") and
credit services, including credit review, credit card processing,
authorization, collection and other appropriate services ("Services") to
clients; and
WHEREAS, COMPANY desires to have SPS provide access to the SPS System and
perform certain of such Services for Company.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
1. Term. The term of this Agreement shall commence as of the date first
written above, and shall continue until September 1, 1999, if the minimum
volume of 369,051 Gross Active Accounts ("Minimum Volume") is achieved during
the first year of the Agreement ("Initial Term"), provided that if such Minimum
Volume is not achieved during the first year, the period of the Initial Term
will be extended to a date which is two (2) years after the Minimum Volume is
first achieved. For purposes of this Agreement, a "Gross Active Account"
means any account serviced which at any time during a billing cycle had a
balance or a debit or credit activity. Thereafter, this Agreement shall
continue in effect for additional one (1) year periods ("Subsequent Term(s)")
unless either party shall give written notice of termination to the other party
at least ninety (90) days' prior to the expiration of the Initial Term or any
Subsequent Term(s). SPS' Services will be provided for Company's portfolios of
accounts ("Programs"). Company may remove Accounts or Programs from the SPS
System after the Minimum Volume has been sustained for at least two (2) years.
Both parties shall use their best efforts, and will exercise good faith, to
ensure that the deconversion of Programs from the SPS System occurs in a
gradual and orderly manner so as not to unduly affect the operations of either
party. It is agreed that certain assets which are integral to any Program
which are listed on Exhibit B, shall be assigned to Company without any payment
for such assignment. During the first three (3) years of this Agreement,
without Company's consent, such consent not to be unreasonably withheld, SPS
will not provide Services for Programs for any third party direct competitor of
Company, as long as Company meets the original Annual Projected Volumes of
Ending Gross Active Accounts set forth in Exhibit H.
2. Services. During the Term, SPS, through its employees or any
independent contractor SPS may retain, shall provide Services by performing, in
accordance with applicable federal and state laws, rules and regulations, the
Services described in subparagraphs A through F of this Paragraph 2 and Exhibit
A as the Company may request. Further, SPS shall provide system support and
development services requested by Company to modify the SPS System to
accommodate certain applications and enhancements. The price for development
services and the scope of such work shall be agreed to by the parties prior to
SPS' initiation of any development work. The Company is solely responsible for
the contents of any required cardholder disclosures and the determination of
all credit service charges, including but not limited to, any finance charge
rates and minimum amounts, delinquency charges, collection charges, attorneys'
fees, insurance premiums, or any other charges or fees associated with the
granting of credit by the Company to its customers, except for system
calculation of Company's required credit service charges. SPS agrees that it
shall perform the Services in accordance with the applicable performance
standards described in the Service Level Agreement as Exhibit C which is
attached hereto and incorporated herein.
A. General Services
(i) Create and maintain in coordination with Company, a
policy and procedures manual relating to Services to be provided ("Policy and
Procedures Manual").
(ii) Provide real time updates to Company's own authorization
system in order to enable Company to utilize its own system to obtain
authorizations.
(iii) Process transactions made by Company's cardholders.
(iv) Receive sales, returns, and payment data from Company in
a mutually agreed upon format for updating the accounts receivable.
(v) Pass an account activity file to Company, in a form
satisfactory to the Company and consistent with SPS' program parameters, which
will enable Company to prepare monthly statements. The file may vary according
to the specifications required for each Program.
(vi) Provide monthly updates of the status of the Company's
customer accounts to up to four (4) credit bureaus which are designated in
writing by the Company.
(vii) Provide SPS' standard daily, weekly and monthly reports
as set forth in Exhibit D. From time to time, Company may request that SPS
develop custom reports for Company. SPS shall provide Company with the price
for development of such custom reports and Company shall provide to SPS written
authorization to develop such reports prior to initiation of SPS development.
▇.▇▇▇▇▇▇ Approval Services
(i) Provide and implement a procedure by which customer credit
approval or rejection decisions for pending applications would normally be made
by SPS in accordance with Company guidelines within two (2) days of receipt
from Company, incorporating in such procedures a mechanism for review of
rejected accounts in accordance with guidelines developed by the Company.
(ii) Utilize point scoring systems or models developed by SPS
and approved by Company or provided by Company or their agents, on which the
credit approval or rejection decision is based.
(iii) Based on information from applications, SPS will create an
embossing file including the name of the accountholder, the joint accountholder
and any authorized users of the account, and any other mutually agreed upon
information.
(iv) Any credit cards provided by SPS to Company's
accountholders shall be delivered in accordance with Company's fraud prevention
procedures mutually agreed upon between Company and SPS.
C. Collection Services
Provide collection services utilizing SPS' standard collection
procedures as set forth in Exhibit F as may be amended from time to time upon
agreement of the parties. Collection services shall be provided in accordance
with the policies and procedures as set forth in the Service Level Agreement.
Notwithstanding the above, SPS shall be responsible for violations of
applicable federal or state debt collection laws, except to the extent that
such violations resulted from policies or procedures required by or
specifically approved in writing by NOVUS.
D. Customer Services
(i) Provide telephone service for and handle cardholder
inquiries and requests with respect to account activity twenty-four (24) hours
per day, seven (7) days per week, which occurs on or after the date as of which
SPS commences the performance of Services hereunder.
(ii) Handle customer inquiries in accordance with mutually
agreed upon procedures and standards as set forth in the Service Level
Agreement.
E. Fraud Investigation Services
Provide fraud investigation services utilizing mutually agreed
upon policies and procedures.
F. Information Technology Support Services
Provide Information Technology Support Services as set forth in
Exhibit G.
3. Service Standards and Penalties.
A. Service Standards
The parties acknowledge that the terms of this Agreement shall
be supplemented by the Service Level Agreement.
B. Penalties - Three Consecutive Months
If SPS fails to comply with the requirements contained in the
Service Level Agreement with regard to a Service, the following
shall apply:
(i) beginning the fourth consecutive calendar month of SPS' failure
to comply, the price of the Service for the non-complying Service shall be
reduced by ten percent (10%), retroactive to the first month of the non-
compliance; and
(ii) beginning the fifth consecutive calendar month of SPS' failure
to comply, the price of the Service for the non-complying Service that month
shall be reduced by twenty percent (20%); and
(iii)beginning the sixth consecutive calendar month of SPS' failure
to comply, the price of the Service for the non-complying Service shall be
reduced by thirty percent (30%) for the sixth calendar month and all subsequent
months of non-compliance; and
(iv) beginning the seventh consecutive calendar month of SPS' failure
to comply, Company, in its sole discretion, shall have the right, upon prior
written notice to SPS, to do either or both of the following: (a) continue to
apply the penalty pricing as described in subsection 3(B) above, and/or (b)
remove the Service. The penalty price described above shall continue to apply
until Company removes the Service described in the preceding sentence or until
SPS cures the non-compliance as described in Section 3(C) below. Company and
SPS may mutually agree upon the return of such Service to SPS.
C. Cure
If SPS cures its non-conformance with the Service Level Agreement
during the calendar month following the imposition of a penalty as described in
subsection 3(B) above, then beginning with such calendar month, the price, as
set forth in Exhibit A attached hereto, shall again apply for the Service which
complies with the Service Level Agreement. However, if the Service that was
cured, again becomes non-complying during the calendar month immediately
following the month in which the non-compliance was cured, it shall be deemed
that no cure occurred and the penalty in effect previously shall resume at its
prior level.
D. Penalties - Six of Twelve Months
If SPS fails to comply with the requirements contained in the Service
Level Agreement with regard to any Service, as set forth in subsection (B)
above, for six (6) months during any rolling twelve (12) month period, Company,
in its sole discretion, shall have the right, upon prior written notice to SPS,
to remove the Service. Company and SPS may mutually agree upon the return of
such Service to SPS.
E. Penalty - Critical Error
(i) SPS acknowledges and agrees that a Critical Error by SPS in
the provision of certain Services may be highly detrimental to Company's
relationship with Company's external client(s). The term "Critical Error" as
used herein shall mean any failure by SPS to comply with the critical function
requirements ("Critical Function Requirements") as described in the Service
Level Agreement.
(ii) SPS and Company agree that if a Critical Error occurs and
if SPS, or its agents, had exclusive control over the factors causing such
Critical Error, then Company, in its sole discretion, shall have the right,
upon written notice to SPS to (a) remove the affected Service or an entire
Program, if Company reasonably determines that such removal is necessary; or
(b) withhold payment from SPS for that portion of the Service that failed to
comply with the Critical Function Requirements.
F. Right of Offset
In the event SPS fails after fifteen (15) days written notice to
reimburse Company for the amount of the applicable penalties, as set forth in
this Section 3, then Company may offset or reduce any future amounts to SPS by
the amount of the applicable penalty.
G. Variances in Projections
The foregoing penalties other than for Critical Errors as described
above shall not apply to the extent that the failure to comply with the Service
Level Agreement is caused by variations in excess of twenty percent (20%) in
projected volumes required to be provided under Section 4 hereunder.
H. Volume Projections
Each month Company shall provide to SPS projections for the next
three (3) months of each item listed in Exhibit I. Any projections requiring
incremental increases of more than 50,000 Gross Active Accounts in a given
month will require at least ninety (90) days advance notice. Further, at least
ninety (90) days prior to each calendar year of this Agreement, or as soon as
Company's annual business plan is finalized, Company shall provide to SPS a
projection of each item listed in Exhibit E. In the event Company has not
achieved the Minimum Volume prior to the end of the third year of this
Agreement, the monthly projected volumes beginning month thirty-seven (37) and
thereafter throughout the Initial Term of this Agreement shall be no less than
the Minimum Volume.
4. Fees and Payments.
A. Services and Supply Fees
During the contract year which commences September 1, 1996, the fees
for the Services which SPS will provide directly, as well as the fees charged
to SPS for the related services and supplies SPS will procure from other
providers and for which the Company will reimburse SPS shall be the amounts set
forth opposite the description of each service or supply in the attached
Exhibit A designated "Pricing For Services and Supplies," which is hereby made
a part of this Agreement. Each month during the term of the Agreement, SPS
shall charge Company the fee for the actual volume of Services in accordance
with Exhibit A. If the actual number of Gross Active Accounts as of month-end
is at least 80% of the number of Gross Active Accounts projected for such
month-end on Exhibit I, no additional fees relating to Gross Active Accounts
will be charged for such month. If the actual number of Gross Active Accounts
is less than 80% of the projected number of Gross Active Accounts, an
additional fee will be charged under the following formula:
[(The fee for actual volume of services divided by the
number of actual Gross Active Accounts as of month-end)
times 66%] times [(80% of the number of Gross Active
Accounts projected for such month-end) minus the number of
actual Gross Active Accounts as of month-end]
During any subsequent contract year, SPS may increase the fees for
Services which SPS will provide directly as of the beginning of a contract year
(i) to account for differences between actual experience and the assumptions
set forth in Attachments I and II to Exhibit A which are attached hereto and
incorporated herein, and (ii) for Active Account Handling fees, Collection
Account fees and Cardmember Inquiry fees set forth on Exhibit A only to the
extent of sixty-six (66%) of the actual percentage increases in the Employment
Cost Index for the preceding twelve (12) month period as reported by the U.S.
Department of Labor, Bureau of Labor Statistics. SPS will provide Company
sixty (60) days' prior written notice of any such increase in fees.
Subject to ten (10) days' prior written notice to the Company, SPS may
at any time increase the fees for the reimbursable services or supplies SPS
procures on behalf of the Company by the amount of any increase in the charge
for such Services. SPS shall provide notice of such price increases to Company
within ten (10) days after SPS receives notice of a price increase from the
servicer or supplier of such reimbursable services or supplies. Before SPS
procures any of the services or supplies described in Exhibit A for which the
Company must reimburse SPS, SPS shall notify the Company in writing of the
prices at which such services or supplies are to be procured and, if the
Company does not desire to have SPS procure such services or supplies at the
quoted prices, the Company must so advise SPS in writing within thirty (30)
days after the date of the SPS notice. SPS shall provide evidence of its costs
for reimbursable services or supplies.
SPS may, without prior notice, charge the Company additional amounts
incurred by SPS due to increases in U.S. postal rates.
B. Payment
SPS shall ▇▇▇▇ the Company on a monthly basis for Services rendered in
the previous month. Each invoice shall be accompanied by appropriate
supporting detail as agreed upon by SPS and the Company. The Company shall pay
such invoice within thirty (30) days of the date of such invoice. In the event
Company has a bona fide dispute concerning any item contained on an invoice,
Company shall advise SPS in writing of the basis for the dispute within twenty
(20) days after receipt of the invoice. The parties will then meet in an
attempt to resolve the dispute prior to the payment due date.
C. Most-Favored Nations Pricing
The Fee for each of the Services set forth in Section I of Exhibit A
shall be no greater than those fees charged to other Third Party clients of SPS
for similar services taking in account similar volumes, assumptions and
economics. For purposes of this Agreement, "Third Parties" shall mean a party
that is not controlled by SPS or is not a corporate affiliate or subsidiary of
either Company or SPS.
5. Internal Control Review Report and Company's Operations and Regulator
Review. At Company's request, but no more frequently than annually, SPS shall
provide Company with a report prepared by its firm of independent certified
public accountants in accordance with applicable audit reporting standards, on
the internal accounting controls of SPS. Such review shall be completed at
SPS' expense and shall be performed in accordance with the AICPA Audit Guide on
Audits of Service-Center-Produced Records. Further, Company employees may,
upon reasonable request as to scope and frequency, visit SPS Operation centers
to review applicable records and observe the Services performed for Company by
SPS. Further, upon reasonable notice, SPS shall permit appropriate federal or
state regulators to review applicable Company records and observe the Services
performed for Company by SPS.
6. Force Majeure. SPS shall not be liable to the Company nor the Company
to SPS for any failure, inability, or delay in performing its obligations
hereunder if such failure, inability, or delay arises for reasons beyond the
control and without the fault of the other party. By way of example, but not
limitation, such causes may include acts of war, strike, fire, explosion,
sabotage, accident, or casualty.
In the event of a delay in performance or non-performance at one or more
of SPS' processing units, SPS shall provide a backup service at another SPS
processing unit, and SPS shall be responsible for any additional telephone
charges incurred.
7. Warranties and Representations.
A. The Company represents and warrants that it is free, as of the
date it signs this Agreement, or will be free, as of the date of commencement
of the Term, of any contractual obligation that would prevent the Company from
entering into this Agreement, and that SPS' offer to provide Services in no way
caused or induced the Company to breach any contractual obligations.
B. SPS represents and warrants that it has the right to provide
Services to the Company under the provisions of this Agreement.
C. SPS makes no representations, warranties or guarantees, express or
implied, including without limitation any warranties of merchantability or
fitness for intended use, other than the express representations, warranties
and guarantees contained in this Agreement.
8. Liability and Indemnification.
A. SPS shall protect, defend, hold harmless and indemnify the Company
from and against any and all claims, actions, liabilities, losses, costs and
expenses arising out of SPS', its employees', agents', and contractors'
negligence performance of the obligations called for by this Agreement,
provided, that SPS' obligation to indemnify the Company for such negligent
performance shall be limited to:
(i) The actual cost of processing or reprocessing to correct
any such negligent performance;
(ii) The actual income lost by the Company resulting directly
from the negligent performance; and
(iii) Third party claims arising from SPS acts or omissions in
providing Services hereunder to the extent such claims do not involve acts or
omissions of Company, or obligations and responsibilities of Company under this
Agreement.
In no event shall SPS' liability to Company exceed the amount of
insurance that would be paid under the general liability insurance or other
policies in effect for actions or omissions of SPS under such policy. For
matters not covered under such policies, SPS' entire liability to Company under
this Agreement will not exceed one million ($1,000,000) dollars.
In addition, SPS shall not be liable to the Company or its customers
for any claims, damages, losses or expenses arising out of the performance of
the Services called for by this Agreement to the extent such claims, damages,
losses or expenses are due to causes that are in whole or in part beyond the
control of SPS.
B. SPS shall not be liable for and the Company shall protect,
defend, hold harmless and indemnify SPS, its employees, agents and contractors
from and against any and all claims, actions, liabilities, losses, costs and
expenses that may arise out of SPS' performance of the Services called for in
this Agreement, to the extent such loss, damage, action, liability, expense or
claim is caused by the negligence of the Company, its employees, agents or
subcontractors, or the Company's customers except to the extent such loss,
damage or expense is caused by the negligence of SPS or otherwise beyond the
control of Company.
9. Contingency Planning.
Services will be implemented in accordance with the SPS Contingency
Plan, a copy of which will be provided to Company.
10. Notice. Any notice required to be given hereunder by either party to
the other shall be given in writing by personal delivery or certified mail,
return receipt requested, and shall be effective when received. Every such
notice shall be addressed, if to SPS, to:
SPS Payment Systems, Inc.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: Controller
with a copy to:
SPS Payment Systems, Inc.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: President
and, if to the Company, to:
NOVUS Services, Inc.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: Vice President and Controller
11. Confidential Nature of Data.
A. SPS recognizes the confidentiality of all data and documents
related to Services provided hereunder to the Company and its customers and
agrees to exercise the same standard of care in the protection of said
information as it uses to protect its own confidential information. SPS shall
provide and take all necessary or appropriate security precautions to ensure
that access to such data and documents shall be available only to those persons
required to perform the Services hereunder and only to the extent necessary for
them to perform their work. SPS shall be authorized to release any information
concerning such data and documents to any independent contractor SPS shall
retain in connection with SPS' performance with this Agreement but only to the
extent necessary for such contractors to perform work hereunder and only to
those independent contractors which are under similar obligations of
confidentiality. SPS shall not sell any such data and documents or disclose
the information contained therein, except as expressly provided herein. SPS
shall comply with any and all file safekeeping, recordkeeping, and data back-up
procedures that may be required by applicable law or the Company in connection
with its performance of this Agreement. Neither SPS not its agents or
employees shall divulge or communicate to any unauthorized third party any
information concerning such data and documents unless so required by law or so
directed by an authorized officer of the Company.
B. The Company recognizes the confidentiality of all confidential
information regarding SPS' business practices designated as confidential by SPS
that it may learn as a result of this Agreement and agrees to exercise the same
standard of care in the protection of said information as it uses to protect
its own confidential information. The Company shall comply with any and all
file safekeeping, recordkeeping, and back-up procedures that may be required by
applicable law in connection with its performance of this Agreement.
C. Upon termination of this Agreement, SPS shall promptly return to
the Company, if requested, the following Company data, which shall be and
remain the property of the Company:
(i) Cardholder master tape files;
(ii) Merchant master tape files;
(iii) Agent master tape files; and
(iv) Computer-produced reports which reflect activity during the
ninety (90) day period immediately prior to termination of the Agreement or the
written request.
SPS shall cooperate with the Company to transfer the Company accounts
receivable processing back to the Company or to a new servicing organization.
Upon the return of any such Company data, and the transfer of processing, SPS
shall submit an invoice to the Company for the cost incurred by SPS in
returning such Company data and coordinating the transfer. Such cost will be
limited to reasonable out of pocket expenses and direct time and materials
cost. The Company shall pay any such invoice within thirty (30) days of the
date of such invoice.
12. Independent Contractor Relationship. SPS shall perform all services
hereunder as an independent contractor, and nothing contained herein shall be
deemed to create any association, partnership, joint venture or relationship of
principal and agent, or employer and employee, between the parties hereto or to
provide any party with the right power or authority, whether express or
implied, to create any such duty or obligation on behalf of the other party.
13. Change in Control. Notwithstanding any other provision of this
Agreement, Company may terminate this Agreement upon ninety (90) days' prior
written notice if SPS is no longer controlled by ▇▇▇▇ ▇▇▇▇▇▇, Discover & Co.
and controlling interest of SPS is assumed by a competitor of Company. For
purposes of this Agreement, the term "competitor" shall mean an entity which
issues bank cards, charge cards or affinity card which are for universal
acceptance and general use (e.g., not private label cards).
14. General Conditions.
A. The validity, construction and performance of this Agreement
shall be governed by the laws of the State of Illinois.
B. All provisions contained in this Agreement shall extend to and be
binding upon the parties and their respective successors and assigns. This
Agreement can be modified only in writing and may not be assigned by either
party without the prior written consent of the other party, which consent will
not be unreasonably withheld.
C. Each paragraph and provision of this Agreement is severable from
the entire Agreement, and if one provision thereof is declared invalid, the
remaining provisions shall nevertheless remain in effect.
D. This document constitutes the entire Agreement between SPS and
the Company with respect to the Services to be performed by SPS, and no
representation or statement not contained in this Agreement shall be binding
upon SPS as a warranty or otherwise. This Agreement may not be amended,
changed, modified or altered except in writing, signed by both parties. This
Agreement constitutes the entire understanding between the parties and
supersedes all previous Agreements and negotiations, whether written or oral,
respecting the subject matter thereof.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the date first above written.
SPS PAYMENT SYSTEMS, INC. NOVUS SERVICES, INC.
By:/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ By:/s/ ▇▇▇▇▇▇▇ ▇. ▇'▇▇▇▇
Title: President Title: Sr. Vice President