Privacy & APRs

A new study suggests that proposed opt-in privacy regulations could drive credit card interest rates higher. The study says the intense rate competition over the past decade was driven, in part, by information-based strategies used by card issuers, particularly non-bank issuers, such as MBNA and Capital One. The study’s authors, Michael Staten of Georgetown University’s McDonough School of Business and Fred Cate of Indiana University School of Law, say the percent of credit card balances being charged an interest rate of 18.0% or more plummeted from 70% to 44% in just 12 months during 1991-1992. This was the time when the national credit card market was first absorbing the impact of competition from MBNA, Capital One, and other information-based credit card issuers. The Staten/Cate study examined the likely consequences of “opt-in” privacy regulations, which have been proposed at the federal and state level. The regulations would require explicit consent before identifying information — such as name, address and household income — could be shared. The professors said each of the three types of proposed opt-in regulations would have the effect of choking off competition, raising costs, and possibly increasing the number of mailings required to achieve the same level of return. The authors also found that privacy regulations would have the unintended effect of restricting the industry’s antifraud protections. The study was sponsored by the Privacy Leadership Initiative.

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eFunds Product Manager

eFunds Corporation says that Mick Spilsbury, formerly of Union Bank of California, will join the company as SVP of Product Management on June 1. A 25-year veteran of the banking industry, Spilsbury has served eFunds for the past several months in a consulting capacity. Before joining eFunds Spilsbury was Executive Vice President of eCommerce and Operations/Customer Service at Union Bank of California. Prior to that he served as Executive Vice President, Internal Services and Senior Vice President Strategic Planning and Marketing at The Bank of California.

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Credit Stress

Consumers who stay on a debt management program for 18 months increase their level of satisfaction with their current financial situation by 25%. FL-based InCharge Institute of America says clients of its non-profit Profina Debt Solutions reported decreases in the incidence of financial stressors such as receiving overdue notices (down 55%), telephone calls from creditors (down 54%), calls from bill collectors (down 60%), and writing a check with insufficient funds (down 43%). InCharge also found a 74% decrease in the incidence of cash advances on credit cards as well as a 66% decrease in using a cash advance to pay another creditor. Active clients also reported a 44% reduction in writing bad checks with insufficient funds in their accounts. The population for the study was 4,000, the sample was 1,800, and the return rate for the sample was 25 percent. Over 70% of the people participated in the panel study for 18 months. Sixty percent were females and 40 percent were males. Most were within the age grouping of 26 to 39 years. The average monthly income for Profina clients is $2,300, average age is 37, average number of unsecured credit accounts is 7, and the average unsecured debt enrolled in the program is $13,000.

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Laggard USA

Security Sciences International says the USA will trail Asia-Pacific in smart cards for at least 10 years. The research firm says the U.S. market is plagued with customer and vendor misconceptions about the cost-benefits and unbreakable security technologies inherent in smart card designs. However, Asian government agencies, corporations, and end-users have shown a greater willingness to adopt smart card technologies. For example, the Philippines, where 22 million new smart card drivers’ licenses have been issued, and Taiwan, where advanced smart cards are being used at Starbucks locations, where customers receive a 20% discount on purchases through a smart stored-value card. Singapore, China, and South Korea have all implemented smart card transportation systems that can be used on trains, buses, or subways. SSI says these smart card systems have increased transportation revenue by 40%, reduced the number of inspectors required, and curtailed fare fraud.

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iDine Investor

iDine Rewards Network reported last week that Samstock, L.L.C. has acquired 858,892 shares of its common stock. As reported in a Form 4 filed on May 10, 2002, Samstock, L.L.C. obtained the shares by means of a cashless net exercise of warrants for 858,892 shares of common stock. Earlier published reports that Samstock, L.L.C. sold 638,717 shares of common stock were incorrect.

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IRS Partnership

Concord EFS announced this morning it is joining forces with Link2Gov Corp. to provide electronic payment processing services to federal taxpayers for the 2002 tax year. Link2Gov and Official Payments Corporation were selected by the IRS to accept annual balance due and quarterly estimated tax payments beginning January 2003, with the potential for annual contract extensions through 2007. Concord will provide the electronic payment authorization and settlement for tax payments made through Link2Gov’s transaction interface, available via telephone and the Internet. The IRS has set a short-term goal of receiving 40% of payments electronically by 2003, with a long-term strategic goal of receiving 80% of payments electronically by 2007. Link2Gov provides services in 10 states and over 600 counties.

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REAL-PRICE ESLS

NCR Corporation announced that Casino Group, an international retailer, is piloting NCR RealPrice electronic shelf labels in a supermarket and a hypermarket near Lyon, France.

NCR RealPrice ESLs are wireless digital tags that attach to shelves or other store fixtures. They display the price of merchandise or food items in large, clear characters and provide other information to shoppers or store personnel. Because ESLs are linked to the same computer file used by the store’s point-of-sale system, price discrepancies between shelf and checkout are eliminated.

Approximately 10,000 NCR shelf labels have been installed in a Casino supermarket in Bron, and another 25,000 labels are being installed in a Geant Casino hypermarket in Chasse sur Rhone.

“ESLs hold great promise for further improving the shopping experience, as well as for enhancing operating efficiency,” said Olivier Champailler, project manager for Casino Group. “During this trial period, we also will be evaluating the potential of the technology for implementing effective promotional and price optimization strategies at the shelf edge.”

The first company to offer a wireless system, NCR is a global leader in ESL technology, with nearly 1.5 million tags installed or on order at more than 160 sites in 11 countries.

“This decision by a leading global retailer is an important milestone,” said Pete Bartolotta, vice president and general manager, NCR RealPrice. “It gives further credence to ESLs as a key technology with clearly measurable benefits to stores as well as consumers.”

About Casino Group

With almost 7,000 hypermarkets, supermarkets and superettes in France and Worldwide (in the United States, Poland, Argentina, Uruguay, Brazil, Columbia, Venezuela, Thailand and Taiwan), the Casino Group is a global retail leader. The company employs approximately 100,000 people and reported sales of 31 billion euros in 2001. Consult the Casino Web site for further information:
www.groupe-casino.fr.

About NCR Corporation

NCR Corporation (NYSE:NCR) is a leader in providing Relationship Technology(TM) solutions to customers worldwide in the retail, financial, communications, manufacturing, travel and transportation, and insurance markets. NCR’s Relationship Technology solutions include privacy-enabled Teradata(R) warehouses and customer relationship management (CRM) applications, store automation and automated teller machines (ATMs). The company’s business solutions are built on the foundation of its long-established industry knowledge and consulting expertise, value-adding software, global customer support services, a complete line of consumable and media products, and leading edge hardware technology. NCR employs 30,300 in more than 100 countries, and is a component stock of the Standard & Poor’s 500 Index. More information about NCR and its solutions may be found at
www.ncr.com.

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CyberSource & Quova

CyberSource is integrating Quova’s GeoPoint service into its fraud screen and export compliance services. Quova’s GeoPoint service enables Web sites to identify, in real- time, the geographic location of their customers, from the country down to the city level. Comparing this location with the billing or shipment information provided by a purchaser, as well as other factors, can help detect potentially fraudulent behavior. GeoPoint is designed to respect individual privacy rights, as the system does not use cookies, profiles, registration data, click-stream data or any other means to identify or track individuals.

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MONDO-CARD

Mondopolitan, Inc., an international provider of debit and credit cards to emerging markets, today announced that the debit card program for global payment systems to its Australian based client World Games, Inc.
(www.worldgamesinc.com) has been fully implemented. Mondopolitan’s development department has begun full automation and integration of its proprietary application, information management and card issuance software program (AI2 Version 1.6).

The next step for the company will be the launching of a customized version of a cardholder community website which will offer free secure cardholder email accounts and a host of value added services including discount e-commerce, all conveniently debited from the cardholder accounts.

Mondopolitan’s Chairman, J. Louis Zabaleta says, “We are all very pleased to see the organizational aspects of AI2 to be functioning as it will serve as the template for all future clients, thus enabling the company to enroll new customers in a more accelerated and secure method.”

About Mondopolitan

Mondopolitan, Inc., through its majority owned subsidiary MondoCard, Ltd. and global banking partners, provides MasterCard, Maestro, Cirrus and other private network based global debit and credit cards to emerging markets. These innovative products are held in U.S. dollar denominated accounts, which will benefit millions of consumers and businesses around the globe who are subject to volatile currency fluctuations. MondoCard products offer convenient global cash access to consumers and corporations around the world. The products also enable the cardholders to coordinate global cash access with relatives, independent contractors or employees anywhere in the world at virtually no cost.

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OPC Signs Allentown

Official Payments Corporation announced that Allentown, PA will be offering the company’s electronic payment options to citizens who owe personal property/real estate taxes and utility bills starting next month. The agreement will enable citizens to make these payments with their Visa, American Express, MasterCard, and Discover cards. Official Payments will charge citizens a convenience fee to cover the cost of the service. Citizens using credit cards with bonus rewards programs may, depending on their card’s program, earn rewards, points, and airline frequent flyer miles or cash back for paying their taxes and utility bills.

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HUDSON

Hudson’s Bay Company announced that sales and revenue in the first quarter ended April 30, 2002, grew 1.1% to
$1.53 billion from $1.51 billion in the same period last year. Sales and
revenue at the Bay, including Home Outfitters increased 1.9% and at Zellers
increased 0.5%. Comparable store sales declined 2.2% at the Bay and increased
1.1% at Zellers.

Operating income for the quarter after excluding a gain on the transfer
of receivables of $2.3 million was $4.6 million compared to $0.3 million last
year. The loss per share (excluding the $0.02 gain on the transfer of
receivables) improved to $0.17 from $0.20 last year. The key contributors to
the increase in operating income were the significant improvement in the Bay’s
operating margin and lower interest costs. Zellers operating profit declined
due to lower apparel sales as a result of unseasonable weather, the calendar
shift of Easter and less clearance sales.

“We are generally pleased with the quarter and the numerous improvements
on several fronts,” said George Heller, President and CEO, Hudson’s Bay
Company. “The considerable improvements in operating margins at the Bay
coupled with significantly reduced inventory levels, especially in apparel,
are very encouraging. HBC in total saw sales increase, in-stock rise to over
95%, while inventory dropped by 9%. Cost reduction initiatives resulted in
lower operating costs than in the first quarter last year and the Company
successfully installed Retek at the Bay and a financial ERP system at Zellers.
Apparel sales in Zellers continued to be a challenge in the first quarter and
we are resolving the issues. Hardlines at Zellers continued to gain momentum
with a 7.3% comp store increase. We remain confident in our ability to achieve
our previously stated targets for the remainder of the year.”

The Company continued to strengthen its financial position and balance
sheet. Total debt including securitized receivables declined $231 million
(excluding future income taxes) from last year. Working capital usage for the
quarter improved by $192 million versus the comparable quarter last year.
Return on assets employed (12 month rolling average) increased to 5.9% from
5.7% at January 31, 2002.

The Company continues to anticipate normalized earnings per share of
$1.10 to $1.20 in fiscal 2002, the majority of the increase being realized in
the second half of the year. The Company also expects to generate
approximately $200 million in free cash flow this fiscal year.

MANAGEMENT’S DISCUSSION AND ANALYSIS – Q1 2002

New Developments

On April 1, 2002, the Company’s 7.0% equity subordinated debentures and
6.25% series C debentures matured. The Company made an aggregate cash payment
of $199 million for the $196 million principal amount of 7.0% equity
subordinated debentures outstanding at maturity. The Company also paid $92
million for the 6.25% series C debentures. The net proceeds of $194 million
from the issuance in November 2001 of the 7.5% convertible unsecured
subordinated debentures and the funds realized from working capital
improvements were used to fund debenture redemptions.

Standard and Poor (S&P) and Dominion Bond Rating Service (DBRS) rate the
Company’s debt. During the first quarter of 2002, credit reviews were held
with both rating agencies. The credit ratings for the Company were lowered as
shown in the financing section of the Management’s Discussion and Analysis
(MD&A).

Effective February 1, 2002, the Company adopted the new Canadian
Institute of Chartered Accountants accounting standards on Goodwill and Other
Intangible Items and on Stock-Based Compensation and Other Stock-Based
Payments. The only impact on the Company of adopting the two new accounting
standards is the absence of goodwill amortization for the first quarter of
2002 compared to $2.7 million (or $0.04 per share) of goodwill amortization in
Q1 2001.

Consolidated Results

Highlights of the consolidated results reported for the first quarter of
2002 were:

Sales and revenue in Q1 2002 of $1,530 million increased slightly over
1% from the Q1 2001 level of $1,513 million.
Earnings before interest expense and income taxes (EBIT) for the first
quarter of 2002 were $6.9 million or $6.6 million above EBIT in Q1
2001 of $0.3 million.
Net loss for the first quarter of 2002 was $6.1 million compared to a
net loss of $11.4 million in Q1 2001.
After deducting dividends for equity subordinated debentures and
convertible unsecured subordinated debentures, loss per share in Q1
2002 of $0.15 was $0.05 better than the Q1 2001 loss per share of
$0.20.

Operating results for the first quarter of 2002 were impacted by a net
gain of $2.3 million for securitized credit card receivables due to an
accounting change in July 2001 to comply with new rules issued by the Canadian
Institute of Chartered Accountants. To provide a more meaningful comparison of
Q1 2002 results to prior year’s results, all further discussions, including
the operating segment discussion, will be based on the Company’s operating
results excluding the net gain on sale of securitized credit card receivables.
Of the $2.3 million net gain, the Bay and Zellers recognized a loss of $0.1
million and a gain of $2.4 million, respectively.

Retail EBIT in Q1 2002 of $11.3 million improved $10.1 million from last
years’ EBIT of $1.2 million and is discussed under the Bay and Zellers
commentary sections. “Other” EBIT includes unallocated corporate expenses and
miscellaneous profits and losses from the various ongoing and non-recurring
secondary retail and other activities. Other EBIT in Q1 2002 was a loss of
$6.7 million or $5.8 million above the Q1 2001 loss of $0.9 million reflecting
mainly lower net revenues on rental properties, reduced pension credits, the
inclusion of costs related to the customer relationship management program,
and the absence of one-time credits recorded in Q1 2001.

Interest expense in the first quarter of 2002 of $12.5 million was $1.9
million below last year’s level of $14.4 million. The decrease in interest
expense reflected the impact of lower interest rates, lower debt levels and
improving working capital management.

In the first quarter of 2002, the Company’s effective income tax rate was
lower than the effective tax rate in the first quarter of 2001 reflecting the
benefit of federal and provincial income tax rate reductions.

Canadian Retail Environment

Department store sales continued to report high single-digit growth in
the first quarter of 2002. For the three months ended March 31, 2002,
DSS(Department Store Sales) increased 9.5%. Sales increases at the broader
group, DSTM stores (Department Store Type Merchandise) is expected to continue
reporting lower growth compared to the DSS group, and should end the first
quarter in the mid-single digits. Hbc expects that growth will slowly increase
throughout the year.

Review of Operations

The Bay (including Home Outfitters)

Sales and revenue in Q1 2002 increased 1.9% from last year’s level of
$539.8 million. EBIT in the first quarter of 2002 was $8.3 million compared to
an EBIT loss of $6.0 million reported in Q1 2001.

Sales and revenue in Q1 2002 increased 1.9% to $550.2 million compared to
$539.8 million in Q1 2001. The sales increase occurred mainly in major home
fashion and Home Outfitters offset partly by sales declines in most other
product groups, particularly apparel sales due partly to unseasonable spring
weather. Home Outfitters sales increase reflects mainly the opening of 16 new
stores in 2001.

EBIT in Q1 2002 of $8.3 million improved $14.3 million from last years’
EBIT loss of $6.0 million due mainly to increased gross margins reflecting the
impacts of more focused promotional activity and a reduced level of markdowns
resulting from inventory levels that are lower and more current. The improved
gross margin rate was offset partly by increased sales of the lower margin
home fashion business.

Operating Highlights for Q1 2002

During the first quarter, the Bay executed a number of key activities in
support of its strategy, including:

The continued expansion of Everyday priced programs (Bay Value,
Outline, Market Square), which deliver stylish products and strong
value for the customer.
The refinement of Home Outfitters’ operational model in anticipation
of opening up to 17 new stores by year-end.
The successful launch of the Retek merchandising system and the
enhancement of operational processes which will significantly improve
the Bay’s merchandising and inventory capabilities.
Enhancing the seasonal modeling of inventories, which allows improved
inventory and markdown planning.

Zellers

Sales and revenue in the first quarter of 2002 of $960.3 million
increased 0.5% from Q1 2001 reflecting increased hardline and consumable
sales, offset partly by continued weakness in apparel sales. EBIT for Q1 2002
of $3.0 million was $4.2 million below the EBIT level in the same period of
2001.

Comparable store sales in Q1 2002 were up 1.1% compared to the
corresponding period in 2001. This marks the seventeenth consecutive quarter
of sales and revenue increases for Zellers. Retail sales increased 0.3% due
entirely to a 4.5% growth in hardlines, offset partly by a decline in
softlines. Hardline sales in Q1 2002 were up mainly in home entertainment,
pharmacy and consumables. Softline sales were down reflecting continued
weakness in most apparel groups due to unseasonable weather, an early Easter
in 2002, and lower clearance sales.

EBIT in Q1 2002 of $3.0 million decreased $4.2 million from EBIT in Q1
2001 of $7.2 million. Included in Q1 2002 were store closure costs of $1.4
million compared to $6.8 million in the first quarter of 2001. Due to a change
in the accounting policy for goodwill as mentioned in the new developments
section of the MD&A, Q1 2002 EBIT does not include goodwill amortization
compared to $2.7 million of goodwill amortization in Q1 2001. EBIT was
unfavourably impacted by a change in the blend of sales as lower margin
hardline sales increased, while the higher margin softline product sales
declined.

Operating Highlights for Q1 2002

During the first quarter, Zellers executed a number of key activities
supporting its strategy, including:

The implementation of everyday low pricing (EDLP) in the areas of
sporting goods, lawn and garden and stationery. More than half of
Zellers’ total merchandise offering is now EDLP.
Significantly lowering overall inventory levels while maintaining an
in-stock position exceeding 95%.
The closure of four underperforming stores and the expansion of two
stores to its new prototype format.
The launch of a new media advertising campaign “Better and better”,
communicating Zellers commitment to continual improvements in the
shopping experience offered to Canadian Moms.

Financial Services

Revenue and earnings of Hbc’s Financial Services division are included
with the results of the major retail divisions, the Bay and Zellers. Financial
Services’ revenue of $82.0 million in Q1 2002 improved by $6.4 million
compared to Q1 2001 of $75.6 million.

EBIT in the first quarter of 2002 increased to $43.9 million or $7.3
million above the earnings level in the same period of 2001 of $36.6 million.
The EBIT increase was due mainly to a growth in revenue and lower
securitization costs.

Financial performance for the first quarters of 2002 and 2001 is shown in
the following table:

Sales on Hbc’s credit card in the first quarter of 2002 represented 27.5%
of total retail sales of the major retail divisions compared to 26.8% in Q1
2001. At April 30, 2002, there were 3.0 million active customer accounts in
the combined credit card portfolios for the Bay and Zellers, approximately 1.5
million Bay cardholders and 1.5 million Zellers cardholders. Credit card
receivables amounted to $392.4 million or 5.9% below April 30, 2001’s
receivable balance of $417.1 million. Excluding the adjustment to account for
the securitization of credit card receivables and the impact of securitizing
an additional $100 million of receivables during the second quarter of 2001,
the receivable balance at April 30, 2002 increased 5.8% from the April 30,
2001 level and decreased 23% from the 2001 year-end level.

The quality of the credit card portfolio at April 30, 2002 was similar to
the position at January 31, 2002 and April 30, 2001. 94.9% of the portfolio
was classified as 30 days past due or less which was slightly better than the
aging at April 30, 2001. Gross write-offs in the first quarter of 2002 of
$25.4 million were higher than Q1 2001 level by $2.4 million reflecting the
impact of the personal bankruptcy levels in the Canadian economy. Net bad debt
expense in Q1 2002 of $17.6 million was $2.1 million higher than the Q1 2001
level reflecting in part the continued shortfall in recoveries from collection
agencies.

Operating Highlights for Q1 2002

In Q1 2002, Financial Services executed the following key initiatives
supporting its strategy:

Continued the roll-out of the Hudson’s Bay Company credit card,
promoting cross-shopping within the Hbc family of stores.
Implemented a collection agency auditing program resulting in improved
results.

Net Assets

The following summary shows details of Hbc’s net assets as financed by
debt and equity for April 30, 2002 and 2001 and January 31, 2002:

Total net assets at April 30, 2002 of $3,181 million were 7.5% below last
year’s net asset level and higher than the January 2002 year-end level by $79
million. The net assets increase from January 31, 2002 reflected higher
inventories. Due to the seasonal nature of the retail business, it is normal
that inventories in April are higher than in January, which marks the end of
the holiday selling period. Compared to April 30, 2001, net assets at April
30, 2002 decreased by $257 million reflecting the impact of the increased
focus on working capital management. Inventories at April 30, 2002 decreased
from last year’s inventory level by $161 million due mainly to improved
inventory management processes.

Cash Flows

Cash and cash equivalents at April 30, 2002 amounted to $20.0 million,
compared to $15.1 million at April 30, 2001. Cash and cash equivalents
represent short-term deposits.

The following table provides an analysis of Hbc’s cash flows for the
first quarters of 2002 and 2001:

Cash outflow before financing activities for Q1 2002 totalled $98 million
compared to a cash outflow of $351 million for Q1 2001. For the first quarter
of 2002, the cash outflow from operating activities of $127 million was $206
million better than the Q1 2001 cash outflow of $333 million. The improvement
in cash flow from operating activities was due largely to lower working
capital requirements reflecting mainly lower inventories of $161 million and
lower credit card receivables. Lower inventories reflect the impact of better
inventory management processes and the use of new technologies.

For the 2002 full year, capital expenditures, including software
expenditures, are forecasted to be about $165 million.

Cash and cash equivalents decreased by $312 million due mainly to $291
million paid to debenture holders upon the maturity on April 1, 2002 of the
7.0% equity subordinated debentures and the 6.25% series C debentures, a cash
outflow before financing activities of $98 million, and dividend payments in
Q1 2002 of $13 million. The cash reductions were offset partly by increased
bank borrowings of $90 million.

Financing Activities

At April 30, 2002, the Company’s total debt of $756 million, after
deducting $52 million in investments and short-term deposits, was $331 million
below the debt level at April 30, 2001, and $299 million above the January 31,
2002 net debt level of $457 million. Included in the April 30, 2002 debt level
was $779 million of long-term debt, including $151 million due within one
year.

Compared to January 31, 2002, the debt level at April 30, 2002 increased
due mainly to the normal seasonal change in inventory levels and the impact of
redeeming the 7.0% equity subordinated debentures. The debt level at April 30,
2002 was below last year’s debt level by $331 million reflecting mainly the
results of improved inventory management processes, and the $100 million of
credit card securitization financing executed in Q2 2001.

At April 30, 2002, the Company had drawn $90 million on its committed
$480 million (to August 2003) credit operating facility, compared to a $255
million utilization of the facility at April 30, 2001. The utilization of the
committed credit operating facility was lower during Q1 2002 compared to Q1
2001 reflecting the impact of improved inventory management processes and
credit card receivables securitization financing completed in 2001.

On April 1, 2002, the Company paid $199 million upon the maturity of the
7.0% equity subordinated debentures and $92 million for the 6.25% series C
debentures.

Under the syndicated bank loan agreement, the Company must comply with
two financial ratios on a quarterly basis. The following table shows these
financial ratios for Hbc in the first quarter of 2002 which are better than
the required levels as indicated therein.

Foreign exchange and floating rate interest rate risks are managed by
forward hedges, swaps and caps under guidelines established and reviewed
periodically by the Board of Directors. At April 30, 2002, the Company had
U.S. $60 million of forward foreign exchange contracts and $150 million of
interest rate swaps.

The Company’s debt is rated by S&P and by DBRS. During the first quarter
of 2002, credit reviews were held with both rating agencies. S&P and DBRS have
issued new credit ratings which are lower than the previous credit ratings
resulting in the Company’s debt being classified as non-investment grade. A
summary of the Company’s ratings is provided in the following table:

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@pos Signs DataScan

Houston-based DataScan has become a certified VAR for @pos’ POS terminals. DataScan will be selling and marketing the full line of @pos signature capture products, including PenWare 1500, iPOS 3100, TX.C, and iPOS TC terminals, smart card readers, and application software. Value-added services such as installation/integration services to customers and answering technical support and other customer questions will be handled directly by DataScan.

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