Zale Corp. said Monday that it has received written notice that Citigroup Inc.'s Canadian unit plans to terminate its credit card agreement with the jeweler in that country as of June 30.

The struggling Zale said it has started discussions with other card vendors to arrange new financing arrangements for Canadian customers.

Zale said last week that Citi's U.S. card unit gave it a 30-day extension, to April 30, to pay a roughly $6 million fine for not having enough credit card sales.

In a March 30 filing with the Securities and Exchange Commission, Zale said it was "evaluating the available alternatives" to determine whether it will pay the $6 million.

Zale added in the filing that if it doesn't pay Citi the $6 million, the retailer risks an end in three months to the deal that provides financing for 40% of its U.S. purchases.

If Zale lost the sales financed through Citi-backed private-label cards, "the adverse consequences would be material and would likely impact our ability to continue to operate," the filing said.

Citi previously had said it will stop financing Zale credit cards when its agreement ends in March 2011. It threatened to advance the end date by six months in a letter to Zale two weeks ago. Citi in February had advised Zale that it was tightening certain customer criteria and closing certain high-risk accounts.

Zale has said its projected 2010 cash flow may not provide sufficient liquidity to meet its operating needs.

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