REFUND ANTICIPATION LOAN PARTICIPATION AGREEMENT
THIS REFUND ANTICIPATION LOAN PARTICIPATION AGREEMENT (this
"Agreement"), dated as of July 19, 1996, is made by and among BLOCK FINANCIAL
CORPORATION, a Delaware corporation ("BFC"), BENEFICIAL NATIONAL BANK, a
national banking association ("BNB"), and Beneficial Tax Masters, Inc., a
Delaware corporation ("Tax Masters").
Recitals:
A. BNB and Tax Masters are parties to that certain Refund
Anticipation Loan Operations Agreement with Beneficial Franchise Company, Inc.,
H&R Block Tax Services, Inc. ("Tax Services") and HRB Royalty, Inc. ("Royalty")
of even date herewith (the "RAL Operations Agreement"), pursuant to which BNB is
to make refund anticipation loans to customers of both Tax Services and its
affiliates and certain franchisees of Royalty and its affiliates.
B. The parties hereto desire to enter into certain agreements
relating to the purchase by BFC (or an affiliate banking institution) of a
participation in refund anticipation loans made by BNB, and refund anticipation
checks issued by BNB, to customers of both Tax Services and its affiliates and
certain franchisees of Royalty and its affiliates.
The parties hereto, intending to be legally bound, hereby
agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1. Definitions. As used in this Agreement, the
following terms shall have the meaning set forth below:
"Accrual Period" shall have the meaning set forth in Section
2.4(b) of this Agreement.
"Adjustment Date" shall have the meaning set forth in Section
2.4(c).
"Affiliate" of any Person shall mean any other Person
controlling, controlled by or under common control with such Person.
"Applicable Percentage" shall mean percentage set forth in for
a particular Tax Period in Section 2.5.
"Applicable Tax Period" shall mean any of the ten consecutive
Tax Periods commencing with and including the Tax Period beginning January 1,
1997 and ending with and including the Tax Period beginning January 1, 2006.
"Average Refund Balance" shall have the meaning set forth in
Section 2.4(b) of this Agreement.
"BFC" shall mean Block Financial Corporation, a Delaware
corporation.
"BNB" shall mean Beneficial National Bank, a national banking
association.
"Base Purchase Price" shall have the meaning set forth in
Section 2.3(a).
"Block Office" shall mean an office that operates under the
"H&R Block" name and is open to the public for the preparation of tax returns.
"Budget Period" shall mean, with respect to any Tax Period,
the period from January 1 before the commencement of such Tax Period to and
including the following December 31.
"Business Day" shall mean any day other than a Saturday, a
Sunday or a day on which banking institutions in Wilmington, Delaware are
authorized or obligated by law or executive order to be closed.
"CPI" shall mean the index known as United States Department
of Labor, U.S. Bureau of Labor Statistics, Consumer Price Index, United States
City Average, All Items (1982-84=100), or if discontinued, the successor index
that most closely approximates the foregoing index.
"Claim" shall have the meaning set forth in Section 6.2.
"Closing Date" shall mean with respect to a Participation
Interest, the date on which such Participation Interest is sold to BFC pursuant
to this Agreement.
"Collections" shall mean (i) all finally collected funds
received by BNB or Tax Masters and applied to the Participated Pool RALs,
whether such finally collected funds arise from receipt of cash, checks, wire
transfers, ATM transfers, exercise of rights of offset or other form of payment,
(ii) promissory notes and/or other evidence of indebtedness accepted by BNB or
Tax Masters from or on behalf of Obligors in payment of Participated Pool RALs
(in which case such Collection shall be deemed to be received by BNB or Tax
Masters for purposes of this Agreement on the Business Day on which such
promissory note or evidence of indebtedness was received by BNB or Tax Masters)
and (iii) all fees charged by BNB to customers of Block Offices for issuing Pool
RACs (in which case such Collection shall be deemed to be received by BNB for
purposes of this Agreement on the Business Day on which such RAC is delivered to
the customer).
"Corporate Pool RAL" shall have the meaning given such term in
the definition of "Pool RAL."
= "Corporate Satellite" shall mean a Person authorized directly
by Tax Services (or an Affiliate of Tax Services) pursuant to a satellite
franchise agreement to operate a Block Office. "Corporate Satellite" does not
include a Person authorized by a
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Major Franchise Agreement with Block (or an Affiliate of Block) to operate a
Block Office and subfranchise others to operate a Block Office within a
specified territory.
"Defaulted Pool RAL" shall mean each Participated Pool RAL
with respect to which, in accordance with the RAL Guidelines and BNB's and Tax
Masters' customary and usual servicing procedures for refund anticipation loans,
BNB or Tax Masters has charged off as uncollectible.
"Eligible RAL" shall mean each Pool RAL:
(a) that was created in compliance on the part of BNB, in all
material respects, with the RAL Operations Agreement (or a Major
Franchisee RAL Agreement, as the case may be) and the federal Equal
Credit Opportunity Act, 15 U.S.C. xx.xx. 1691 et. seq.;
(b) (i) as to which any blank preprinted form of disclosure
statement supplied by BNB to the tax preparation office at which such
Pool RAL was originated for use in connection with the origination of
such Pool RAL complied, as to form (subject to proper completion), with
the requirements of the federal Truth-in-Lending Act, 15 U.S.C. xx.xx.
1601 et seq. ("TILA") (it being understood that the foregoing shall not
be deemed a warranty by BNB that such form has been properly completed)
and (i) that was created in compliance with the other requirements of
TILA; and
(c) as to which, at the time of the sale of the Participation
Interest in such Pool RAL to BFC, BNB or Tax Masters had good and
marketable title thereto free and clear of all Liens arising under or
through BNB or any of its Affiliates.
"Excluded RAL" shall have the meaning set forth in Section
5.2.
"Governmental Authority" shall mean the United States of
America, any state or other political subdivision thereof and any entity
exercising executive, legislative judicial, regulatory or administrative
functions pertaining to government.
"Ineligible RAL" shall have the meaning set forth in Section
4.4(c).
"Initial Periodic Servicing Fee Percentage" shall mean the
Periodic Servicing Fee Percentage initially determined for a particular Budget
Period pursuant to Section 2.4(a)(iii).
"Initial Purchase Price" shall mean the initial purchase price
for a Participation Interest to be paid by BFC to BNB as calculated pursuant to
Section 2.3 of this Agreement.
"Lien" shall mean any pledge, hypothecation, assignment,
encumbrance, security interest, lien (statutory or other) or other security
agreement of any kind or nature whatsoever, including (without limitation) any
conditional sale or other title retention agreement having substantially the
same economic effect as any of the foregoing.
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"Major Franchisee" shall mean the Person authorized by a major
franchise agreement with Tax Services (or an Affiliate of Tax Services) to
operate a Block Office and to subfranchise others to operate a Block Office
within a specified territory.
"Major Franchisee Pool RAL" shall have the meaning given such
term in the definition of "Pool RAL."
"Major Franchisee RAL Agreement" shall mean an agreement from
time to time between BNB (and/or any one or more Affiliates of BNB) and a Major
Franchisee pursuant to which BNB may make refund anticipation loans to customers
of Block Offices of such Major Franchisee or its subfranchisees, as the same may
be amended, modified or supplemented from time to time.
"Notifying Party" shall have the meaning set forth in Section
5.2.
"Obligor" shall mean, with respect to any RAL, the Person or
Persons obligated to make payments to BNB (or an Affiliate of BNB) with respect
to such RAL.
"Origination Fee Adjustment" shall have the meaning set forth
in Section 2.3(b) of this Agreement.
"Origination Fees" shall mean the license fees paid or payable
to Tax Services, a Corporate Satellite, a Major Franchisee or a subfranchisee of
a Major Franchisee as a result of the making of a Pool RAL or a Pool RAC, which
are paid or payable contemporaneously with or shortly after the making of such
RAL or Pool RAC.
"Originator Party" shall mean any Person or entity through
whom Pool RALs or Pool RACs are made or serviced, and any other Person or entity
that prepares or arranges for the preparation of a tax return for a Pool RAL or
Pool RAC customer, or that files, makes or transmits or assists or arranges for
the filing, making or transmission of any such tax return, refund request or
Pool RAL or Pool RAC or request, or that acts as a network or service bureau in
connection with any of the foregoing, or that owns, distributes, licenses or
otherwise has an interest in any software or other intellectual property used in
connection with any of the foregoing or in any trademark, service xxxx or brand
name under which Pool RALs or Pool RACs are promoted.
"Participated Pool RAL" shall mean any Pool RAL in which a
Participation Interest has been sold to BFC pursuant to Section 2.1 and has not
been reassigned to BNB or Tax Masters or repurchased by BNB or Tax Masters
pursuant to this Agreement.
"Participation Interest" shall have the meaning set forth in
Section 2.1 of this Agreement.
"Periodic Servicing Compensation" for a Budget Period shall be
equal to (i) the sum, for all Participated Pool RALs made during the
corresponding Tax Period, of the Servicing Adjustments paid by BFC for the
Participation Interests corresponding to
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such Participated Pool RALs, plus (ii) any amount paid by BFC to BNB during such
Budget Period pursuant to Section 2.4(c)(i), minus (iii) any amount paid by BNB
to BFC during such Budget Period pursuant to Section 2.4(c)(i).
"Periodic Servicing Fee Percentage" shall mean the Required
Servicing Compensation for a Tax Period, divided by the aggregate Principal
Amount of Participated Pool RALs made in such Tax Period, as determined
initially pursuant to Section 2.4(a) and adjusted from time to time pursuant to
Section 2.4(b).
"Person" shall mean any legal person, including any
individual, corporation, partnership, joint venture, association, joint-stock
company, trust, unincorporated organization, governmental entity or other entity
of similar nature.
"Pool RAC" shall mean any RAC issued by BNB through a Block
Office owned by Tax Services, a Corporate Satellite, a Major Franchisee (or a
subfranchisee of a Major Franchisee) or any of their Affiliates.
"Pool RAL" shall mean (a) any RAL made by BNB through a Block
Office owned by Tax Services, a Corporate Satellite or either of their
Affiliates, pursuant to or under color of (i) the RAL Operations Agreement or
(ii) a referral to BNB by Tax Services, such Corporate Satellite or such
Affiliates of an Obligor whose federal income tax return was filed
electronically by Tax Services, such Corporate Satellite or such Affiliates
pursuant to a contractual electronic filing arrangement with any other Person (a
RAL described in this subclause (a) may hereinafter be referred to as a
"Corporate Pool RAL") and (b) any RAL made during any Tax Period that is a RAC
Service Period, through a Block Office owned by a Major Franchisee or a
subfranchisee of a Major Franchisee, pursuant to or under color of (i) a Major
Franchisee RAL Agreement or (ii) a referral to BNB by a Major Franchisee (or a
subfranchisee of such Major Franchisee) of an Obligor whose federal income tax
return was filed electronically by such Major Franchisee (or subfranchisee of
such Major Franchisee) pursuant to a contractual electronic filing arrangement
between such Major Franchisee (or subfranchisee) and any other Person (a RAL
described in this subclause (b) may hereinafter be referred to as a "Major
Franchisee Pool RAL").
"Principal Amount" of a RAL shall have the meaning given that
term in the definition of "RAL."
"Qualified Expenses" shall mean all direct expenditures
incurred in good faith by BNB or any of its Affiliates in connection with
ordinary and routine origination and servicing of Participated Pool RALs and
Pool RACs or the performance of BNB's and Tax Masters' obligations hereunder
(other than the cost of repurchasing Participation Interests as required by
Sections 4.3 or 4.4) or the RAL Operations Agreement (or a Major Franchisee RAL
Agreement, as the case may be), including (without limitation) fees and amounts
paid or payable to Originator Parties, salaries, employee benefits, data
processing costs, depreciation, equipment rent, equipment maintenance, space
rent, maintenance, credit reports, legal forms and supplies, non-litigation
legal expenses, telephone and telegraph, postage, delivery charges, travel,
purchased services and systems, professional and consulting, external staff
training and other personnel-related expenses, advertising, sales promotion,
collection, systems,
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systems development, check clearing, cash management, software purchase,
licensing or development, fees of licensing service marks, trademarks or other
intellectual property, the costs of obtaining the accountant's report obtained
pursuant to Section 2.4(f) and data processing expenses; provided, however, that
Qualified Expenses shall not include (i) any bad debt expense pertaining to any
Participated Pool RAL, (ii) Origination Fees, to the extent duplicative of
amounts as to which BFC has paid its proportionate share pursuant to the
Origination Fee Adjustment, (iii) any allocated expenses not related directly to
the origination of Participated Pool RALs or the making of Pool RACs, the
ordinary and routine servicing of Participated Pool RALs or the performance by
BNB or any of its Affiliates of BNB's and Tax Masters' obligations under this
Agreement or the RAL Operations Agreement (or a Major Franchisee RAL Agreement,
as the case may be), whether such expenses are allocated internally by BNB or
allocated to BNB by any of its Affiliates, (iv) interest expense incurred by BNB
or any of its Affiliates in connection with funding the portion of Participated
Pool RALs that was not sold to, and purchased by BFC, (v) any expenses
pertaining to BNB's fraud service bureau to the extent BNB receives
reimbursement of such expenses by Persons other than BFC or its Affiliates, (vi)
collection costs or expenses with respect to delinquent Participated Pool RALs
with respect to which BNB (or any Affiliate of BNB) receives a collection fee
pursuant to Section 3.4, (vii) allocations of corporate overhead expenses
(including, without limitation, corporate management salaries and benefits and
depreciation of general plant and equipment not specifically related to the
origination and servicing of Participated Pool RALs), (viii) any cost or expense
for which BNB or its Affiliates are reimbursed by a third party (other than an
Affiliate of BNB) (including, without limitation, costs or expenses for which
BNB is reimbursed by Tax Services pursuant to the indemnification provisions of
the RAL Operating Agreement) or (ix) any expenditures for goods or services
procured by BNB or any of its Affiliates that are not related directly to the
origination of Participated Pool RALs, the making of Pool RACs or the
performance by BNB or any of its Affiliates of its obligations under this
Agreement or the RAL Operations Agreement (or a Major Franchisee RAL Agreement,
as the case may be).
In the event any expenditure that pertains to more than one
Budget Period or should be capitalized and amortized or depreciated over more
than one Budget Period in accordance with generally accepted accounting
principles, such expenditure shall be capitalized and included in Qualified
Expenses for a Budget Period only to the extent that such capitalized
expenditure is (or should be) amortized or depreciated during such Budget Period
in accordance with generally accepted accounting principles.
Qualified Expenses shall be allocated to Participated Pool
RALs for a Budget Period on the following basis (it being understood that, to
the extent that the operating unit of BNB or its Affiliates that originates and
services RALs and makes RACs also deals with other electronic filing derivative
products, BNB shall allocate as Qualified Expenses only the expenses of such
unit that are otherwise Qualified Expenses) as it estimates in good faith are
allocable to RALs and RACs and not to other electronic filing derivative
products): (x) all permitted expenses as described above of BNB and its
Affiliates for RALs and RACs of all types (whether or not Pool RALs or Pool
RACs) during a Budget Period shall be aggregated, (y) the result shall be
divided by the total number of RALs and RACs of all types made by BNB and its
Affiliates during the
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corresponding Tax Period (except that RACs shall not be part of this denominator
with respect to a Tax Period that is not a RAC Service Period), and (z) the
result shall be multiplied by the number of RALs and RACs made by BNB and its
Affiliates during such Tax Period that are Participated Pool RALs and Pool RACs
(and such result shall be deemed the Qualified Expenses allocable to
Participated Pool RALs and Pool RACs for such Budget Period). An illustrative
example of the allocation of Qualified Expenses to Participated Pool RALs and
Participated Pool RACs is set forth in Exhibit B attached hereto.
"RAC" means a check issued by BNB and delivered to a taxpayer
pursuant to the Refund Anticipation Check Service.
"RAC Service Period" shall have the meaning set forth in
Section 2.5.
"RAL" shall mean any refund anticipation loan from time to
time made by BNB.
(a) The "Principal Amount" of a RAL shall mean the aggregate
amount paid or payable by BNB to or for the account of an Obligor in
connection with a RAL, and shall in any event include (i) the amount of
any check issued or authorized to be issued by BNB to the order of any
such Obligor, and (ii) any amounts paid or payable by BNB for the
account of Obligor to any Originator Party, the Internal Revenue
Service or any other Person (whether or not BNB has a right, contingent
or otherwise, to withhold or retain any portion of such amount). The
"Principal Amount" of a RAL shall not include the financing fee payable
by such Obligor to BNB for such RAL. Each of the foregoing elements of
a RAL shall be deemed to be made for purposes of this Agreement on the
Business Day on which BNB deposits funds into the bank account used by
BNB for the disbursement of RALs for such RAL and such fact has been
recorded in the computer files BNB uses for administering RALs.
(b) "RAL" and "Principal Amount" of a RAL, shall also include
any payment made at any time by BNB on any lost, altered or stopped
check issued by or on behalf of BNB in connection with a RAL described
in paragraph (a) (the "Underlying RAL") as well as any payment by BNB
on any replacement item issued in connection with any such lost or
stopped check (or issued in connection with any such replacement item).
Payments on any RAL described in this paragraph (b) shall be deemed to
be made for purposes of this Agreement on the Business Day when payment
is made by BNB on such item and such fact has been recorded in the
computer files BNB uses for administering RALs.
"RAL Operations Agreement" shall have the meaning set forth in
Recital A of this Agreement.
"RAL Guidelines" shall mean BNB's policies and procedures from
time to time relating to the operation of its refund anticipation loan business,
including (without limitation) the policies and procedures for determining the
credit worthiness of refund anticipation loan customers, the extension of credit
to refund anticipation loan customers and relating to the collection and charge
off of refund anticipation loans.
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"Reassignment Amount" shall have the meaning set forth in
Section 4.3.
"Reassignment Date" shall have the meaning set forth in
Section 4.3.
"Refund Anticipation Check Service" shall mean a service
pursuant to which a check in the amount of a taxpayer's federal income tax
refund (less the sum of (i) fees charged for the making of the check, (ii) tax
preparation and electronic filing fees and (iii) other properly withheld
amounts) is delivered to a taxpayer on account of a direct deposit refund (other
than in connection with a RAL made in advance of receipt of the related refund).
"Refund Anticipation Check Service" includes the delivery of a direct deposit
refund check to a taxpayer in connection with such taxpayer's denied RAL
application).
"Repurchase Value" of a Participated Pool RAL at any time
shall mean the Principal Amount of such Participated Pool RAL less any
Collections received with respect to such Participated Pool RAL.
"Required Servicing Compensation" means the amount of
compensation BNB is entitled to receive for originating and servicing
Participated Pool RALs and Pool RACs for a particular Budget Period as computed
pursuant to Section 2.4(a)(iv).
"Servicing Adjustment" shall have the meaning set forth in
Section 2.3(c) of this Agreement.
"Tax Period" for any year shall mean the period from and
including January 1 of such year to and including August 15 of such year.
"Tax Services" shall mean H&R Block Tax Services, Inc., a
Missouri corporation.
"UCC" shall mean the Uniform Commercial Code, as amended from
time to time, as in effect in any specified jurisdiction.
"Underlying RAL" shall have the meaning given that term in the
definition of "RAL."
Section 1.2 Other Definitional Provisions. Unless the context
of this Agreement otherwise clearly requires, references to the plural include
the singular, the singular the plural and the part the plural. The words
"hereof," "herein" and "hereunder" and words of similar import when used in this
Agreement shall refer to this Agreement as a whole and not to any particular
provision of this Agreement; and Section and subsection references contained in
this Agreement are references to Sections and subsections in this Agreement
unless otherwise specified.
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ARTICLE II
PURCHASE AND SALE OF INTERESTS IN POOL RALS; PURCHASE PRICE
Section 2.1. Purchase and Sale of Participation Interests in
Pool RALs.
(a) Purchase and Sale. Subject to the conditions set forth in
this Agreement, BNB and Tax Masters agree to sell to BFC, and BFC agrees to
purchase from BNB and Tax Masters, from time to time, an undivided ownership
interest in, and in an amount equal to the Applicable Percentage of, all of
BNB's and Tax Masters' right, title and interest in and to each Pool RAL
hereafter created, including all monies due or to become due with respect
thereto and all Collections pertaining thereto and other proceeds (as defined in
the UCC as in effect in the State of Delaware) thereof (a "Participation
Interest"). Subject to the conditions set forth herein BFC agrees to pay for,
purchase and accept all Participation Interests from time to time as provided
herein. Except for the representations and warranties expressly made by BNB in
this Agreement, Participation Interests (and acquisition thereof by BFC) shall
be without recourse to, or representation or warranty by, BNB and Tax Masters.
(b) The conveyance by BNB and Tax Masters to BFC of a
Participation Interest in a Pool RAL shall be deemed to occur at the time when
BNB receives in full payment from BFC of the Initial Purchase Price in respect
to such Participation Interest corresponding to such Participated Pool RAL and
all other Participated Pool RALs of BNB arising on the same day. Upon such
conveyance, BFC shall be considered to be the owner, to the extent of the
Applicable Percentage, of a Participation Interest in such Pool RAL. The parties
intend that if and to the extent that any conveyance of a Participation Interest
in a Pool RAL is not deemed a sale of a Participation Interest, BNB and Tax
Masters shall be deemed to have granted to BFC a security interest in the
Participation Interest that was purportedly conveyed and that this Agreement
shall constitute a security agreement under applicable law. BNB and Tax Masters
agree to execute such financing and continuation statements, for filing in the
State of Delaware as BFC may from time to time reasonably request with respect
to Participation Interests hereafter created or arising.
Section 2.2. Procedure. Each Business Day not later than 9:00
a.m., Wilmington time, BNB shall give notice to BFC (which notice may be by
telephone) of the number and Principal Amount of Pool RALs made by BNB on the
preceding Business Day (it being understood that, for such purpose, a Pool RAL
shall be deemed to be made at the time set forth in the definition of "RAL" in
this Agreement), together with the Initial Purchase Price for the Participation
Interest corresponding to such Pool RALs. Not later than 4:00 p.m., Wilmington
time, on such Business Day, BFC shall pay to BNB the full amount of such Initial
Purchase Price. Such payment shall be made to BNB at such domestic account
designated by BNB by notice to BFC from time to time, in United States dollars
and in funds immediately available at such office at such time, without setoff,
withholding, counterclaim or other deduction of any nature whatsoever.
Section 2.3. Initial Purchase Price. The Initial Purchase
Price for a Participation Interest shall be equal to the sum of:
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(a) {CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH
THE SEC}
(b) {CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH
THE SEC}
(c) {CONFIDENTIAL PORTIIONS OMITTED AND FILED SEPARATELY WITH
THE SEC}
An illustrative example of the Initial Purchase Price Formula
is set forth in Exhibit A attached hereto. The purchase price for Participation
Interests shall be adjusted as provided in this Agreement, including Sections
2.4(b) through (d) of this Agreement.
Section 2.4. Determination and Adjustment of Periodic
Servicing Fee Percentage; Adjustment of the Purchase Price.
(a) Determination of Initial Periodic Servicing Fee
Percentage. The Initial Periodic Servicing Fee Percentage shall be determined in
the following manner:
(i) Preparation of Annual Budget and Initial Periodic
Servicing Fee Percentage Calculation. BNB shall, after consultation
with BFC, not later than September 15 before the beginning of each Tax
Period, provide BFC with written notice of (A) its best preliminary
estimate of the aggregate Principal Amount of Pool RALs and the number
of Pool RACs to be made by BNB during such forthcoming Tax Period, (B)
a budget of Qualified Expenses (which shall take into account the
estimated Pool RAL volume and Pool RAC volume) and (C) a preliminary
calculation of the Required Servicing Compensation and the Initial
Periodic Servicing Fee Percentage (each of which shall be calculated
pursuant to Sections 2.4(a) (iii) and (iv) and shall be based upon the
estimate and budget referred to in this subclause (i)). The budget of
Qualified Expenses shall list in reasonable detail by category
Qualified Expenses it expects to incur during the Budget Period
relating to such Tax Period in connection with BNB's origination,
making and/or ordinary and routine servicing of the Pool RALs and Pool
RACs expected by BNB to be made during such Tax Period. An illustrative
example of the allocation of Qualified Expenses to Participated Pool
RALs and Participated Pool RACs is set forth in Exhibit B attached
hereto.
(ii) Review of Annual Budget by BFC. BFC shall have the right,
for a period of 45 days from and after the date it has received from
BNB the items referred to in Section 2.4(a)(i), to review such items
and suggest subcontracting specified servicing functions contemplated
by the budget that, in the belief of BFC, may be performed more
economically that is contemplated by such budget. In such event, BFC
and BNB shall solicit three bids from qualified subcontractors of
nationally recognized standing selected by BNB and BFC to perform such
functions. BNB shall either engage the subcontractor that submits the
lowest bid or perform such function at the cost of the average of the
three bids submitted by such subcontractors. BNB shall revise such
budget accordingly.
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(iii) Calculation of Initial Servicing Fee Percentage. The
Initial Servicing Fee Percentage for a Tax Period shall be equal to (A)
{CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH THE SEC}
An illustrative example of the Initial Servicing Fee Percentage
Formula is set forth in Exhibit C attached hereto.
(iv) Calculation of Required Servicing Compensation. The
Required Servicing Compensation for a Budget Period shall be equal to
the sum of
(A) {CONFIDENTIAL PORTIONS OMITTED AND FILED
SEPARATELY WITH THE SEC}
(B) {CONFIDENTIAL PORTIONS OMITTED AND FILED
SEPARATELY WITH THE SEC}
The adjustment referred to in subclause (A) of the preceding sentence
for each Tax Period beginning on or after January 1, 1998 shall be made
as follows: for such Tax Period, in lieu of $2.00, the amount referred
to in clause (A) of the preceding sentence shall be $2.00 times a
fraction, the numerator of which shall be the average CPI for the June,
July and August preceding the beginning of such Tax Period, and the
denominator of which shall be the average CPI for the months of June
July and August 1996.
For all purposes of calculating the Required Servicing Compensation,
only RALs of the type described in paragraph (a) of the definition of
RAL shall be counted as Participated Pool RALs and each Pool RAL in
which a Participation Interest was purchased and sold pursuant to this
Agreement during a Tax Period shall be counted as a Participated Pool
RAL made during such Tax Period.
An illustrative example of the Required Servicing Compensation Formula
is set forth in Exhibit D attached hereto.
(b) Periodic Adjustment of the Servicing Fee Percentage. At
any time and from time to time during a Budget Period, BNB may in its
discretion, and shall at the reasonable request of BFC, review its then-current
estimate of its Qualified Expenses for such Budget Period and of the volume of
Participated Pool RALs during the related Tax Period. Following such review, BNB
shall, by notice to BFC, increase or reduce the Periodic Servicing Fee
Percentage, effective two Business Days after the giving of such notice, by such
amount as BNB in good faith estimates is appropriate to reduce the next
forthcoming settlement referred to in Sections 2.4(c)(i) or 2.4(c)(ii), as the
case may be, to as small an amount as possible. If such adjustment results in a
refund payable to BFC pursuant to Sections 2.4(c)(i) or 2.4(c)(ii) in an amount
in excess of $100,000, BNB shall pay BFC interest on the Average Refund Balance
at a rate of interest equal to BNB's prime rate of interest, fluctuating daily,
in effect during the period commencing on the later of January 15 of the related
Tax Period or the date of the most recent adjustment of the Periodic Servicing
Fee Percentage pursuant to this Section 2.4(b) and ending on the date such
refund is paid to BFC (the "Accrual Period"). Such interest shall accrue during
the term of the Accrual Period. As used herein, "Average Refund
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Balance" shall mean an average weighted daily balance of the amount by which
such refund exceeds $100,000, assuming such excess accrues ratably during the
term of the Accrual Period. An illustrative example of the Periodic Adjustment
of the Servicing Fee Percentage is set forth in Exhibit E attached hereto.
(c) Adjustment of Servicing Compensation to Required Servicing
Compensation.
(i) Interim Servicing Compensation Adjustment. On a date (the
"Adjustment Date") selected by BNB, such Adjustment Date being not
later than 30 days after the end of each Tax Period, BNB shall
calculate and provide to BFC, in reasonable detail and, to the extent
possible, in a format consistent with that used to prepare the annual
budget, a calculation of BNB's Qualified Expenses accrued through the
end of such Tax Period. BNB shall also calculate and provide to BFC
notice of the Required Servicing Compensation accrued through the end
of such Tax Period (calculated as if such Budget Period had ended on
such date) and the Periodic Servicing Compensation paid through the end
of such Tax Period. If such Required Servicing Compensation is greater
than such Periodic Servicing Compensation, BFC shall pay the excess to
BNB. If such Required Servicing Compensation is less than such Periodic
Servicing Compensation, BNB shall pay the excess to BFC. An
illustrative example of the foregoing adjustment is set forth in
Exhibit F attached hereto.
(ii) Final Servicing Compensation Adjustment. Not later than
December 15 following any Budget Period, BNB shall calculate and
provide to BFC, in reasonable detail and, to the extent possible, in a
format consistent with that used to prepare the annual budget, a
calculation of BNB's Qualified Expenses for the preceding Budget
Period. BNB shall also calculate and provide to BFC notice of the
Required Servicing Compensation for such Budget Period and the Periodic
Servicing Compensation for such Budget Period. If such Required
Servicing Compensation is greater than such Periodic Servicing
Compensation, BFC shall pay the excess to BNB. If such Required
Servicing Compensation is less than such Periodic Servicing
Compensation, BNB shall pay the excess to BFC. An illustrative example
of the foregoing adjustment is set forth in Exhibit G attached hereto.
(d) Float Adjustment. Concurrently with the payment of the
settlement referred to in Section 2.4(c)(i), BNB shall pay to BFC an amount
equal to the product of $.50 times the number of Pool RACs (other than Pool RACs
issued through a Block Office owned by a Major Franchisee or a subfranchisee of
a Major Franchisee) issued during the Tax Period with respect to which such
settlement relates. Such amount shall be offset against the amount, if any, owed
by BFC to BNB under Section 2.4(c)(i) so that only a net amount shall be owed
under such Section 2.4(c)(i) and this Section 2.4(d).
(e) General Adjustment Payment Provisions. Payments under
Sections 2.4(c) and 2.4(d) shall be due and payable by wire transfer not later
than 2:00 p.m., Wilmington time, five Business Days after notice from BNB
setting forth such calculations, and such payment shall be deemed an adjustment
to the purchase price of the Participation Interests relating to Pool RALs made
during the foregoing Tax Period.
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(f) Accountants' Report. At the request of BFC (but no more
often than annually), on or before June 30 of each year, BNB shall obtain from
its independent certified public accountants a special report (in such form and
subject to such assumptions, limitations and qualifications as such accountants
generally require for special reports of such type) that shall, in effect state
that the amounts calculated for the previous Tax Period under clause (c)(ii)
above are in compliance with this Agreement or stating the nature of any
variance from this Agreement.
(g) Information About Servicing Costs. BNB shall provide BFC
with all information reasonably requested by BFC from time to time about BNB's
cost accounting methods pertaining to the making of RACs and the servicing and
collection of Pool RALs and other RALs, and about the costs and expenses
incurred by BNB from time to time pertaining to the servicing and collection of
Pool RALs and other RALs. BFC shall have the right from time to time, at its
expense, upon reasonable advance notice, to cause a firm of nationally
recognized independent accountants selected by it to examine and verify such
information.
(h) Arbitration. Any dispute or controversy between BFC and
BNB involving the determination and/or the calculation of the Servicing
Adjustment, the Initial Periodic Servicing Fee Percentage, the Required
Servicing Compensation, the Periodic Servicing Fee Percentage, Periodic
Servicing Compensation and/or Qualified Expenses, or any other dispute or
controversy or relating to the calculations or determinations made pursuant to
this Section 2.4, shall be submitted to, and settled by, arbitration in
accordance with the provisions of this paragraph (h) and the rules of the
American Arbitration Association (except as herein specifically otherwise stated
or amplified). The arbitrator in the arbitration provided for in this paragraph
(h) shall be an independent public accounting firm of nationally recognized
standing that (A) is qualified under the rules of the American Arbitration
Association, (B) has not provided audit services to either BFC, BNB or any of
their Affiliates during the immediately preceding two calendar years and (C) has
not been engaged by either BFC or BNB to provide audit services for the current
fiscal current year of either party. BFC shall select two independent public
accounting firms that qualify under the preceding sentence and shall submit the
name of such firms to BNB, which in turn designate one of such firms as the
arbitrator. The decision of the arbitrator shall be final, binding, conclusive
and nonappealable. Each party shall make such records available to the
arbitrator as shall be necessary for such arbitrator to render a decision. Other
than attorneys' fees and expenses (which shall be borne by the party incurring
the same), the costs of the arbitration shall be borne equally by BFC and BNB.
Section 2.5. Applicable Percentages. The Applicable Percentage
for Corporate Pool RALs shall be 40%; provided, however, the Applicable
Percentage for Corporate Pool RALs shall be 49.999999% for each Tax Period
during which BNB (or any of its Affiliates) is the exclusive provider of a
Refund Anticipation Check Service to customers of Block Offices owned by Tax
Services, its Corporate Satellites and any of their respective Affiliates (a
"RAC Service Period"). The Applicable Percentage for Major Franchisee Pool RALs
shall be 25% or such lesser percentage amounts provided for by Section 7.2 (it
being understood that the Applicable Percentage for Major Franchisee Pool RALS
may vary by Major Franchisee). Notwithstanding the foregoing
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provisions of this Section 2.5, any Applicable Percentage for a particular Tax
Period may be such lesser percentage as specified by BFC by giving written
notice to BNB on or before the September 1 immediately prior to such Tax Period
(it being understood that (i) such lesser percentage shall pertain only to the
applicable Tax Period and (ii) if no such notice is given for a particular Tax
Period, the Applicable Percentages shall be the percentages as set forth in this
Section 2.5).
ARTICLE III
SERVICING, ADMINISTRATION AND COLLECTION OF POOL RALS
Section 3.1. Servicing and Administration of Participated Pool
RALs. BNB shall underwrite, service and administer the Participated Pool RALs
and shall collect payments due under the Participated Pool RALs in accordance
with its customary and usual servicing procedures for servicing refund
anticipation loans made by BNB through Block Offices and in accordance with the
RAL Guidelines. BNB shall, subject to the terms of this Section 3.1, have full
power and authority, acting alone or through any party properly designated by it
hereunder, to do any and all things in connection with such servicing and
administration that it may deem necessary or desirable. Without limiting the
generality of the foregoing, BNB is hereby authorized and empowered to execute
and deliver, on behalf of BFC, any and all instruments of satisfaction or
cancellation, or of partial or full release or discharge, and all other
comparable instruments, with respect to the Participated Pool RALs and, after
the delinquency of any Participated Pool RAL and to the extent permitted under
and in compliance with applicable law and regulations, to commence enforcement
proceedings with respect to such Participated Pool RALs. In addition, without
limiting the generality of the foregoing, BNB is hereby authorized and
empowered, in the ordinary course of collecting any Defaulted Pool RAL, to sell
or transfer such Defaulted Pool RAL free and clear of any interest of BFC
(proceeds of such sale or transfer being treated as Collections for purposes of
Section 3.2). BFC shall furnish BNB with any documents necessary or appropriate
to enable BNB to carry out its servicing and administrative duties hereunder.
BNB shall not be obligated to use servicing procedures, offices, employees or
accounts for servicing the Participated Pool RALs that are separate from the
procedures, offices, employees and accounts used by BNB in connection with
servicing other refund anticipation loans.
Section 3.2. Collections. On each Business Day not later than
4:00 p.m., Wilmington time, BNB shall distribute the Applicable Percentage in
all Collections with respect to each Participated Pool RAL received by BNB (or
any of its Affiliates) on the preceding Business Day (less collection fees
payable by BFC to BNB or BNB's Affiliates pursuant to Section 3.4). Such
distribution shall be made to BFC at such domestic account designated by BFC by
notice to BNB from time to time, in United States dollars and in funds
immediately available at such office at such time, without setoff, withholding,
counterclaim or other deduction of any nature whatsoever and regardless of the
form of Collection received by BNB (or any of its Affiliates).
Section 3.3. Reports and Records for BFC.
(a) Daily Reports. On each Business Day during an Applicable
Tax Period, BNB shall prepare and forward to BFC a report setting forth (i) the
aggregate
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amount of Collections processed by BNB (or any of its Affiliates) with respect
to Participated Pool RALs on the preceding Business Day and BFC's share thereof,
(ii) the number of, and aggregate outstanding amount of, Participated Pool RALs
as of the close of business on the preceding Business Day and BFC's share
thereof and (iii) the number of Pool RACs made by BNB on the preceding Business
Day and BFC's share of RAC fees pertaining thereto. BNB shall at all times
maintain its computer files with respect to Pool RACs and Participated Pool RALs
in such a manner so that Pool RACs and Participated Pool RALs may be
specifically identified.
(b) Monthly Reports. On the 8th day of each calendar month, or
if such day is not a Business Day, the immediately preceding Business Day, BNB
shall forward to BFC a report setting forth (i) the aggregate amount of
Collections processed with respect to Participated Pool RALs during the
preceding calendar month and BFC's share thereof, (ii) the aggregate amount of
Participated Pool RALs outstanding as of the end of the last day of the
preceding calendar month and BFC's share thereof, (iii) an aging of Participated
Pool RALs outstanding as of the end of the last day of the preceding calendar
month, (iv) the aggregate Defaulted Pool RALs as of the end of the last day of
the preceding calendar month and BFC's share thereof, (v) the number of Pool
RACs made during the preceding calendar month and BFC's share of Collections
pertaining thereto and (vi) the aggregate Participated Pool RALs that are not
Defaulted Pool RALs but with respect to which payment has not been received
within 30 days after such Participated Pool RALs were made by BNB and BFC's
share thereof. Such report shall be accompanied by an Officer's Certificate,
stating that to the best of such officer's knowledge such report is complete and
accurate.
(c) Independent Accountants' Reports. BFC may cause a firm of
nationally recognized independent accountants (who may also render services to
BNB) to furnish, at the expense of BFC, a report to BFC and BNB to the effect
that such firm has made a study and evaluation of BNB's internal accounting
controls relative to the making of Pool RACs and servicing of Participated Pool
RALs under this Agreement, and that, on the basis of such study and evaluation,
such firm is of the opinion (assuming the accuracy of any reports generated by
BNB's third party agents) that the system of internal accounting controls in
effect on the date set forth in such report relating to servicing procedures
performed by BNB pursuant to the terms of this Agreement, taken as a whole, was
sufficient for the prevention and detection of errors for such exceptions,
errors or irregularities as such firm shall believe to be immaterial to the
financial statements of BNB and such other exceptions, errors or irregularities
as shall be set forth in such report.
Section 3.4. Collection Fee for Defaulted Pool RALs. BFC shall
pay to BNB a collection fee in amount equal to the Applicable Percentage with
respect to a Defaulted Pool RAL, times 25% of the Principal Amount of each
Defaulted Pool RAL collected by collection offices of BNB or any of its
Affiliates. Such fee shall be paid in the form of a deduction from Collections
remitted to BNB (or an Affiliate of BNB) pursuant to Section 3.2 pertaining to
such Participated Pool RAL.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.1. General Representations and Warranties of BNB and
Tax Masters. BNB and Tax Masters each hereby represents and warrants to BFC as
of the date hereof (which representations and warranties shall survive any
purchase and sale of Participation Interests pursuant to this Agreement):
(a) Organization and Good Standing. BNB is a national banking
association duly organized and validly existing under the laws of the
United States with its principal banking office located in the State of
Delaware and has full corporate power and authority to own its
properties and conduct its business as such properties are presently
owned and such business is presently conducted, and to execute, deliver
and perform its obligations under this Agreement. Tax Masters is a
corporation duly organized and validly existing under the laws of the
State of Delaware and has full corporate power and authority to own its
properties and conduct its business as such properties are presently
owned and such business is presently conducted, and to execute, deliver
and perform its obligations under this Agreement.
(b) Due Authorization. The execution and delivery of this
Agreement and the consummation of the transactions provided for in this
Agreement have been duly authorized by BNB and Tax Masters by all
necessary corporate action on their part and this Agreement will
remain, from the time of its execution, an official record of BNB.
(c) No Conflict. The execution and delivery of this Agreement,
the performance of the transactions contemplated by this Agreement and
the fulfillment of the terms hereof will not conflict with, result in
any breach of the material terms and provisions of, or constitute (with
or without notice or lapse of time or both) a material default under,
any indenture, contract, agreement mortgage, deed of trust, or other
instrument to which BNB or Tax Masters is a party or by which either of
them or any of their properties are bound.
(d) BNB's Deposit Accounts. Deposits in BNB's deposit accounts
are insured to the limits provided by law by the Bank Insurance Fund
administered by the Federal Deposit Insurance Corporation.
Section 4.2. Representations and Warranties of BNB and Tax
Masters Relating to the Participated Pool RALs. BNB and Tax Masters each hereby
represents and warrants to BFC as of each Closing Date (which representations
and warranties shall survive any purchase and sale of Participation Interests
pursuant to this Agreement):
(a) Eligible RAL. Each Participated Pool RAL is an Eligible
RAL as of the Closing Date relating to the Participation Interest sold
to BFC with respect to such Participated Pool RAL.
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(b) Title. Each sale of a Participation Interest by BNB and
Tax Masters to BFC on such Closing Date constitutes either (i) a valid
transfer, assignment, set over and conveyance to BFC of all right,
title and interest of BNB and/or Tax Masters in and to such
Participation Interest (and the Applicable Percentage in the underlying
Pool RAL), free and clear of any Lien of any Person claiming through or
under BNB, Tax Masters or any of their Affiliates or (ii) a grant of a
security interest (as defined in the UCC as in effect in the State of
Delaware) in each Participation Interest purportedly conveyed pursuant
to such sale. Neither BNB or Tax Masters nor any Person claiming
through or under BNB or Tax Masters shall have any claim to or interest
in such Participation Interest, except for the interest of BNB and/or
Tax Masters therein as a debtor for purposes of the UCC as in effect in
the State of Delaware.
(c) Principal Office. BNB is a national banking association
duly organized and validly existing under the laws of the United States
with its principal banking office located in the State of Delaware.
Section 4.3. Reassignment of Trust Portfolio. In the event of
a breach of any of the representations and warranties set forth in Section 4.1,
BFC may by notice then given in writing to BNB direct BNB and/or Tax Masters to
accept reassignment of the Participation Interests within 30 days of such notice
(or within such longer period as may be specified in such notice but in no event
later than 120 days), and BNB and/or Tax Masters shall be obligated to accept
reassignment of the Participation Interests on a date specified by BNB (the
"Reassignment Date") occurring within such applicable period on the terms and
conditions set forth below; provided, however, that no such reassignment shall
be required to be made if, at any time during such applicable period, the
representations and warranties contained in Section 4.1 shall then be true and
correct in all material respects. In connection with such reassignment, BNB
and/or Tax Masters shall remit to BFC on the Reassignment Date an amount equal
to the aggregate of the respective Applicable Percentages of the Repurchase
Values of each Participated Pool RAL (the "Reassignment Amount"). Such
remittance shall be made to BFC at such domestic account designated by BFC by
notice to BNB, in United States dollars and in funds immediately available at
such office at such time, without setoff, withholding, counterclaim or other
deduction of any nature whatsoever. Except as provided in Section 5.1, the
obligation of BNB and/or Tax Masters to purchase the Participation Interests in
accordance with this Section 4.3 shall constitute the sole remedy respecting any
breach of the representations and warranties set forth in Section 4.1 available
to BFC.
On the date on which the Reassignment Amount has been paid to
BFC, the Participation Interests in the uncollected Participated Pool RALs, all
monies due or to become due with respect thereto and all proceeds thereof shall
be released to BNB and/or Tax Masters, or their designee or assignee, and BFC
shall execute and deliver such instruments of transfer or assignment, in each
case without recourse, representation or warranty (except only for the warranty
that since the date of sale by BNB to BFC, BFC has not sold, transferred or
encumbered any such Participated Pool RALs or interest therein), as shall be
reasonably be requested by BNB or Tax Masters to vest in BNB or Tax Masters, or
their designee or assignee, all right, title and interest
17
of BFC in and to the Participation Interests in the uncollected Participated
Pool RALs, all monies due or to become due with respect thereto and all proceeds
thereof.
Section 4.4. Transfer of Ineligible RALs.
(a) Repurchase. In the event of a breach with respect to a
Participated Pool RAL of any representations and warranties set forth in Section
4.2(b)(i), or in the event that a Participated Pool RAL is not an Eligible RAL
as a result of the failure to satisfy the conditions set forth in clause (c) of
the definition of Eligible RAL, and as a result of such breach of event such
Participated Pool RAL is charged off as uncollectible or BFC's rights in, to or
under the Participation Interest therein are materially impaired, then, upon the
earlier to occur of the discovery by BFC of such breach or event by BNB or
receipt by BNB of written notice from BFC of such breach or event given by BFC,
BFC may by notice then given in writing to BNB direct BNB and/or Tax Masters to
repurchase the Participation Interest in each such Participated Pool RAL within
30 days of such notice (or within such longer period as may be specified in such
notice but in no event later than 120 days) on a date specified by BNB occurring
within such applicable period on the terms and conditions set forth in Section
4.4(c).
(b) Repurchase After Cure Period. In the event of a breach of
any of the representations and warranties set forth in Section 4.2, other than a
breach or event as set forth in Section 4.4(a), and as a result of such breach
any Participated Pool RAL becomes a Defaulted Participated Pool RAL or BFC's
rights in, to or under the Participated Pool RAL or its proceeds are materially
impaired, then, upon the expiration of 60 days (or such longer period as may be
agreed to by BFC, but in not event later than 120 days) from the earlier to
occur of the discovery of any such event by BNB or receipt by BNB of written
notice of any such event given by BFC, BFC may by notice then given in writing
to BNB direct BNB and/or Tax Masters to repurchase the Participation Interest in
each such Participated Pool RAL within 30 days of such notice (or within such
longer period as may be specified in such notice but in no event later than 120
days) on the terms and conditions set forth in Section 4.4(c); provided,
however, that no such repurchase shall be required to be made if, on any day
prior to such repurchase, such representations and warranties (other than those
contained in Section 4.2(c)) with respect to such Participated Pool RAL shall
then be true and correct in all material respects as if such Participated Pool
RAL had been created on such day.
(c) Procedures for Repurchase. When the provisions of Sections
4.4(a) or 4.4(b) require repurchase of a Participation Interest in a
Participated Pool RAL (such Participated Pool RAL being hereinafter referred to
as an "Ineligible RAL"), BNB and/or Tax Masters shall accept reassignment of
such Participation by remitting to BFC an amount equal to the Applicable
Percentage of the Repurchase Value of the Ineligible RAL as of the date of such
repurchase. Such remittance shall be made to BFC at such domestic account
designated by BFC by notice to BNB, in United States dollars and in funds
immediately available at such office at such time, without setoff, withholding,
counterclaim or other deduction of any nature whatsoever. Upon such remittance,
BFC shall automatically and without further action be deemed to transfer,
assign, set over and otherwise convey to BNB and/or Tax Masters, without
recourse, representation or warranty (except for the warranty that since the
date of conveyance by BNB and/or Tax Masters to BFC, BFC has not sold,
transferred or encumbered any such Participation
18
Interest) all right, title and interest of BFC in and to such Participation
Interest. BFC shall execute such documents and instruments of transfer or
assignment and take other actions as shall reasonably be requested by BNB to
evidence the conveyance of such Participation Interest in the Ineligible RALs,
all monies due or to become due with respect thereto and all proceeds thereof
pursuant to this Section 4.4(c). The obligation of BNB and/or Tax Masters to
repurchase Participation Interests in Ineligible RALs in accordance with this
Section 4.4(c) shall constitute the sole remedy respecting any breach of the
representations and warranties set forth in Section 4.1 available to BFC.
(d) Impairment. For the purposes of Sections 4.4(a) and (b)
above, proceeds of a Participated Pool RAL shall not be deemed to be impaired
hereunder solely because such proceeds are held by BNB and/or Tax Masters for
more than the applicable period under Section 9-306(3) of the UCC as in effect
in the State of Delaware.
ARTICLE V
TERM
Section 5.1. Termination of Purchase and Sale Obligations. The
obligations of BNB and Tax Masters to sell Participation Interests in Pool RALs
that are RALs described in paragraph (a) of the definition of "RAL" in this
Agreement pursuant to Section 2.1, and the obligations of BFC to purchase
Participation Interests in such Pool RALs pursuant to Section 2.1, may be
terminated:
(a) by the mutual written agreement of BFC and BNB and Tax
Masters;
(b) by either party, if the RAL Operations Agreement has been
terminated;
(c) by BNB and Tax Masters, if (i) there is a failure by BFC
to perform or observe any material term, covenant or agreement
contained in this Agreement, and any such failure shall remain
unremedied for 10 days after written notice of such failure shall have
been given to BFC by BNB, (ii) there is an order or decree restraining,
enjoining, prohibiting, invalidating or otherwise preventing the
transactions contemplated by this Agreement or BNB's and Tax Masters'
performance of any of their material obligations under this Agreement,
(iii) there shall be pending, or any Governmental Authority shall have
notified BNB or Tax Masters of its intention to institute, any action,
suit or proceeding against BNB and/or Tax Masters to restrain, enjoin,
prohibit, invalidate or otherwise prevent the transactions contemplated
by this Agreement or BNB's and/or Tax Masters' performance of any of
their material obligations under this Agreement, (iv) any Participated
Pool RAL, or any purchase or sale of a Participation Interest in a
Participated Pool RAL, or BNB's or Tax Masters' performance of any of
their material obligations under this Agreement would be illegal (in
the opinion of counsel for BNB), and there are no reasonable steps that
BNB and/or Tax Masters could take to prevent such illegality; or (v)
there is a dissolution, termination of existence, insolvency,
appointment of a receiver of any part of the property of, or assignment
for the benefit of creditors by, or the commencement
19
of any proceeding by or against BFC or Tax Services under any
bankruptcy or insolvency law; and
(d) by BFC, if (i) there is a failure by BNB and/or Tax
Masters to perform or observe any material term, covenant or agreement
contained in this Agreement and any such failure shall remain
unremedied for 10 days after written notice of such failure shall have
been given to BNB by BFC, (ii) there is an order or decree restraining,
enjoining, prohibiting, invalidating or otherwise preventing BFC's
performance of any of its material obligations hereunder, (iii) there
shall be pending, or any Governmental Authority shall have notified BFC
of its intention to institute, any action, suit or proceeding against
BFC to restrain, enjoin, prohibit, invalidate or otherwise prevent
BFC's performance of any of its material obligations hereunder, (iv)
BFC's performance of any of its material obligations hereunder would be
illegal (in the opinion of counsel for BFC), and there are no
reasonable steps that BFC could take to prevent such illegality; or (v)
there is a dissolution, termination of existence, insolvency,
appointment of a receiver of any part of the property of, or assignment
for the benefit of creditors by, or the commencement of any proceeding
by or against BNB and/or Tax Masters under any bankruptcy or insolvency
law.
(e) by BFC, if as of any September 15, any representation or
warranty of BNB and/or Tax Masters set forth in Section 4.1 would not
be true, if repeated as of such date; provided that BFC gives notice of
such termination not later than the September 30 next following such
September 15.
BNB and Tax Masters or BFC shall exercise a right of termination provided above
by written notice to the other party. Upon such termination, all obligations of
BNB and Tax Masters to sell Participation Interests pursuant to Section 2.1 with
respect to Participation Pool RALs that are RALs described in paragraph (a) of
the definition of "RAL" in this Agreement, and the obligations of BFC to
purchase Participation Interests pursuant to Section 2.1 with respect to such
Participated Pool RALs shall automatically cease and BFC shall have no further
obligation to purchase additional Participation Interests corresponding to such
Participated Pool RALs. Termination pursuant to this Section shall not otherwise
affect the rights or obligations of the parties hereto under this Agreement.
Without limitation, such termination shall not affect the obligation of BNB to
sell Participation Interests pursuant to Section 2.1 with respect to Pool RALs
that are RALs described in paragraph (b) of the definition of "RAL" in this
Agreement to the extent that the Underlying RAL is itself a Participated Pool
RAL with respect to which a Participation Interest was sold to BFC prior to such
termination, and shall not affect the obligation of BFC to purchase a
Participation Interest with respect to such Pool RAL.
Section 5.2. Right to Exclude Certain RALs. If, from time to
time, BFC or BNB believes in good faith that any specified RALs (of the type
described in paragraph (a) of the definition of "RAL" in this Agreement) that
otherwise would constitute Pool RALs may violate or conflict with any
requirement of law in any jurisdiction, such party (the "Notifying Party") may
give notice to the other party of such fact, specifying the applicable
jurisdictions, and specifying such further actions on the part of BFC, Tax
Services, BNB, Originator Parties or other Persons, if any, as would in the
opinion of the Notifying Party prevent such violation or conflict. Unless such
steps have been taken
20
within seven days after receipt of such notice, then, effective from and after
such seventh day such RALs made after such day in such specified jurisdiction
shall not constitute Pool RALs. (such RALs being hereinafter referred to as
"Excluded RALs"). If such steps subsequently are taken, and the other party
gives notice to the Notifying Party of such fact, then the Notifying Party
shall, as promptly as practicable after such notice, by further notice to such
other party, revoke its earlier designation of such RALs as Excluded RALs, and
RALs of the specified type made after the date of such revocation shall not
constitute Excluded RALs (and hence shall constitute Pool RALs).
ARTICLE VI
CERTAIN RIGHTS OF BNB
Section 6.1. Certain Rights of BNB.
(a) Rescission. If any payment received or application of
funds made by BNB on account of any Participated Pool RAL shall be rescinded or
otherwise shall be required (or if BNB believes in good faith that is or may be
required) to be returned or paid over by BNB at any time, BFC, promptly upon
notice from BNB, shall pay to BNB an amount equal to the Applicable Percentage
of the amount so rescinded or returned or paid over, together with the
Applicable Percentage of any interest or penalties payable with respect thereto.
(b) Payover. If BFC receives any payment or makes any
application on account of its Participation Interest in any Participated Pool
RAL, BFC shall promptly pay over to BNB the amount in excess of the Applicable
Percentage of the amount so received or applied, and until so paid over, the
same shall be held by BFC in trust for BNB.
Section 6.2. Indemnification. Immediately upon BNB's demand
therefor, BFC shall reimburse and indemnify BNB for and against the Applicable
Percentage of share of any and all liabilities, obligations, losses, damages,
penalties, action, judgments, suits, costs, expenses and disbursements of every
kind and nature whatsoever that may be imposed upon, incurred by or asserted
against BNB, acting pursuant hereto, or in any way relating to or arising out of
this Agreement or any Participated Pool RAL or origination or servicing thereof,
or any action taken or omitted by BNB under this Agreement or any Participated
Pool RAL, including, without limitation, any amounts payable by BNB pursuant to
the RAL Operations Agreement (pursuant to indemnification provisions thereof or
otherwise), and any amounts that BNB shall be required to pay or repay to any
statutory representative of any Obligor or Originator Party or to creditors of
any such Obligor or Originator Party acting as such statutory representative
(all of the foregoing being referred to collectively as "Claims"); provided,
however, that BFC shall not be liable under this Section 6.2 for its Applicable
Percentage of (i) any obligation of BNB to repurchase Participation Interests in
accordance with Sections 4.3 and 4.4, (ii) any out-of-pocket expenses of BNB on
account of origination of ordinary and routine servicing of Participated Pool
RALs, to the extent duplicative of amounts as to which BFC has paid its
Applicable Percentage share pursuant to Article II, (iii) attorneys' fees and
related litigation expenses incurred by BNB with respect to Claims (it being
understood that each party shall be responsible for its own attorneys fees and
related litigation expenses with respect to Claims) (iv) any Claim
21
attributable to a Participated Pool RAL failing to be an Eligible RAL, (v) any
Claim attributable to a breach by BNB and/or or Tax Masters of an express
obligation of BNB and/or Tax Masters under this Agreement, or (vi) any Claim
attributable to the gross negligence or willful misconduct of BNB or Tax
Masters.
Nothing in this Section 6.2 shall be construed to make BFC
liable for (i) any portion of any liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses and disbursements imposed
upon, incurred by or asserted against BNB or any of its Affiliates relating
solely to or arising solely from any RAL other than a Participated Pool RAL or a
RAC other than a Pool RAC or (ii) any Claim with respect to which BNB is
indemnified by any third party (including, without limitation, Tax Services, any
Major Franchisee or any other Originator Party). BNB shall remit to BFC the
Applicable Percentage of any amount received by BNB as indemnification from a
third party to the extent such indemnification pertains to (i) a Claim for which
BFC previously indemnified BNB pursuant to this Section 6.2 or (ii) an amount
that was included as a Qualified Expense pursuant to this Agreement.
If different Applicable Percentages apply to Pool RALs with
respect to which a Claim arises, then (i) to the extent the Claim is
identifiable to a particular Pool RAL or to Pool RALs made in a particular Tax
Period, the Applicable Percentage applicable to BFC's indemnification obligation
with respect to such Claim shall be equal to the Applicable Percentage
applicable to such particular Pool RAL or to such Tax Period, as the case may be
and (B) otherwise, the Applicable Percentage applicable to BFC's indemnification
obligation with respect to such Claim shall be a weighted average of the
Applicable Percentages applicable to the Pool RALs or the Tax Period with
respect to which such Claim arose.
Section 6.3 Survival. The obligations of BFC under this
Article VI shall survive any termination under Section 5.1 and all other events
and conditions whatever. If and to the extent that any obligation of BFC under
this Article VI is unenforceable for any reason, BFC agrees to make the maximum
contribution to the payment and satisfaction of such obligation which is
permitted under applicable law.
ARTICLE VII
MISCELLANEOUS
Section 7.1. Customer Lists. BNB agrees to provide to BFC (or
any Affiliate of BFC during the term of this Agreement, within a reasonable time
after BFC's (or such Affiliate's) request but not more than twice during any
calendar year, a list of all persons (and their full mailing addresses) to whom
BNB made Pool RALs or Pool RACs during the most recently ended Tax Period. Such
list shall be provided in electronic form and, to the extent reasonably
practicable, in a form typical of mailing lists purchased in the open market.
Neither BFC nor its Affiliates shall use, or permit the use of, such list for
purposes of soliciting customers for credit related products. BFC and such
Affiliates shall take appropriate action by agreement with third parties having
access to such list to prohibit such third parties from using such list for
purposes of soliciting customers for credit related products. BNB shall be
designated a third-party beneficiary in any such agreement for purposes of
enforcing such restricted use of such list.
22
Section 7.2. Major Franchisees. BFC and BNB agree to negotiate
in good faith with each other and with Major Franchisees to enter into an
arrangement with such Major Franchisees whereby (i) such Major Franchisees and
BFC purchase Participation Interests in Major Franchisee Pool RALs made by BNB
through Block Offices owned by such Major Franchisees or their subfranchisees
and (ii) BFC provides financing to such Major Franchisees to enable such Major
Franchisees to purchase such Participation Interests. In connection with such
arrangement, (i) such Major Franchisees may purchase from BNB and/or Tax Masters
up to a 49.999999% undivided ownership interest in the applicable Major
Franchisee Pool RALs and (ii) BFC may purchase from BNB and/or Tax Masters
percentage ownership interests in such Major Franchisee Pool RALs in a
percentage amount equal to 49.999999% minus the percentage ownership interest
purchased by such Major Franchisee in such Major Franchisee Pool RALs; provided,
however, that the percentage ownership interest purchased by BFC in such Major
Franchisee Pool RALs shall not exceed 25% and the combined percentage ownership
interests purchased by such Major Franchisee and BFC in such Major Franchisee
Pool RALs shall not exceed 49.999999%.
Section 7.3. Independent Evaluation. BFC expressly
acknowledges (i) that, except as provided in Sections 4.1 and 4.2, neither BNB
or Tax Masters has made any representation or warranty, express or implied, to
BFC and no act by BNB or Tax Masters heretofore or hereafter taken shall be
deemed to constitute any representation or warranty by BNB or Tax Masters to
BFC; and (ii) that, in connection with its entry into and its performance of its
obligations under this Agreement, BFC has made and shall continue to make its
own independent investigation of the economic and legal risks associated with
the making of RALs and purchase of Participation Interests.
Section 7.4. Notices. All notices required or permitted to be
given under this Agreement shall be in writing and shall be given by registered
or certified mail, return receipt requested, or by nationally recognized
overnight courier, addressed as follows:
If to BFC, to:
Block Financial Corporation
0000 Xxxx Xxxxxx, Xxxxx 000
Xxxxxx Xxxx, Xxxxxxxx 00000
Attention: Xxxxxxx X. Xxxxxxxx
If to BNB or Tax Masters, to:
Beneficial National Bank
One Xxxxxxxxx Centre
000 Xxxxx Xxxxxx Xxxxxx
Xxxxxxxxxx, Xxxxxxxx 00000
Attention: President
23
Any party may change the address to which it desires notices
to be sent by giving the other parties ten (10) days prior notice of any such
change. Any notices shall be deemed given upon its receipt by the party to whom
the notice is addressed.
Section 7.5. Modification; No Waiver. This Agreement shall not
be modified or amended except by an instrument in writing signed by or on behalf
of the parties hereto. No waiver of any breach of, or failure to perform or
observe, any material term, covenant or agreement contained in this Agreement
shall constitute or be construed as a waiver by BFC or BNB or Tax Masters of any
subsequent breach or failure or of any breach of or failure with respect to any
other provisions of this Agreement.
Section 7.6. Prior Understandings. This Agreement supersedes
all prior understandings whether written or oral, between the parties hereto
relating to the transactions provided herein.
Section 7.7. Governing Law. This Agreement shall be governed
by and construed and enforced in accordance with the laws of Delaware, without
regard to choice of law rules thereof.
Section 7.8. Counterparts. This Agreement may be executed in
as many counterparts as may be deemed necessary and convenient, and by the
different parties hereto on separate counterparts, each of which, when so
executed, shall be deemed to be an original, but all such counterparts together
shall constitute by one and the same instrument.
Section 7.9. Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of BNB and BFC and Tax Masters and their
representative successors and assigns and shall not be assigned by either party
hereto without the prior written consent of the other party hereto, and any
purported assignment without such consent shall be void; provided, however, that
nothing herein shall prohibit the transfer by BFC of BFC's rights hereunder to
an Affiliate of BFC.
Section 7.10. Headings. The Article, Section and any other
headings in this Agreement are for convenience of reference only and shall not
be deemed to alter or affect the meaning or interpretation of any of the
provisions hereof.
Section 7.11. Confidentiality. Without limitation of any other
obligations of confidentiality contained in this Agreement, the RAL Operations
Agreement or otherwise arising (but subject to the provisions of Section 7.1),
all information, materials and documents heretofore or hereafter furnished to
BFC (or to its officers, directors, agents, representatives or advisors) by BFC,
by Persons acting on behalf of BNB and/or Tax Masters or at BNB's or Tax
Masters' direction, or otherwise in connection with this Agreement, either
orally, in writing or by inspection, regarding the Obligors, any RAL, any RAC,
this Agreement or the RAL Operations Agreement shall be deemed confidential and,
except to the extent required by law, shall be kept in strict confidence under
appropriate safeguards by BFC and its officers, directors, agents,
representatives and advisors.
24
Section 7.12. Not a Joint Venture. Neither this Agreement nor
the transactions contemplated by this Agreement shall be deemed to give rise to
a partnership or joint venture between BNB and Tax Masters and BFC.
Section 7.13. BNB and Tax Masters Not a Tax Preparer. Nothing
in this Agreement or the RAL Operations Agreement shall be construed to imply
that BNB or Tax Masters at any time is in any way responsible for the
preparation, filing or contents of any tax return of any Obligor under a Pool
RAL, and BFC shall indemnify BNB and/or Tax Masters from and against all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses and disbursements of every kind and nature whatsoever which may
be imposed upon, incurred by or asserted against BNB and/or Tax Masters arising
from any claim, allegation or assertion that BNB and/or Tax Masters are or may
be in any way responsible for the preparation, filing or contents of any such
tax return, or that BNB and/or Tax Masters, by virtue of their participation in
the transactions contemplated by this Agreement, are engaged in an activity that
subjects BNB and/or Tax Masters to any penalty on account of the negotiation of
any tax refund check in violation of the Internal Revenue Code of 1986, as
amended.
25
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto duly authorized
as of the date set forth above.
BLOCK FINANCIAL CORPORATION
By: /s/ Xxxxxxx X. Xxxxxxxx
Xxxxxxx X. Xxxxxxxx, President
BENEFICIAL NATIONAL BANK
By: /s/ Xxxxxxx X. Xxxx
Xxxxxxx X. Xxxx, Senior Vice President
BENEFICIAL TAX MASTERS, INC.
By: /s/ Xxxx X. Xxxxxxxxx, President
Exhibit A
CALCULATION OF INITIAL PURCHASE PRICE
(Section 2.3)
Formula
(A) {CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH THE SEC}
(B) {CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH THE SEC}
(C) {CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH THE SEC}
Example
Assumptions:
{CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH THE SEC}
Calculation:
(A) {CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH THE SEC}
(B) {CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH THE SEC}
(C) {CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH THE SEC}
Exhibit B
ALLOCATION OF QUALIFIED EXPENSES
(Definition of Qualified Expenses; Section 2.4(a)(i))
Formula
(x) {CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH THE SEC}
(y) {CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH THE SEC}
(z) {CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH THE SEC}
Example
Assumptions:
{CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH THE SEC}
Calculation:
Pre-1999 Post-1998
(x) {CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH THE SEC
(y) {CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH THE SEC}
(z) {CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH THE SEC}
Exhibit C
CALCULATION OF INITIAL SERVICING FEE PERCENTAGE
(Section 2.4(a)(iii))
Formula
(A) {CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH THE SEC}
(B) {CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH THE SEC}
Example
Assumptions:
{CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH THE SEC}
Calculation:
(A) {CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH THE SEC}
(B) {CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH THE SEC}
Exhibit D
CALCULATION OF REQUIRED SERVICING FEE COMPENSATION
(Section 2.4(a)(iv))
Formula
(A) {CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH THE SEC}
(B) {CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH THE SEC}
Example for Pre-RAC Service Period
Assumptions:
{CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH THE SEC}
* (CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH THE SEC}
Calculation:
(A) {CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH THE SEC}
(B) {CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH THE SEC}
Example for Post-RAC Service Period
Assumptions:
{CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH THE SEC}
Calculation:
(A) {CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH THE SEC)
(B) {CONFIDENTIAL PORTIONS OMITTED AND FILED SEPARATELY WITH THE SEC}
Exhibit E
PERIODIC ADJUSTMENT OF SERVICING FEE PERCENTAGE
(Section 2.4(b))
Assumptions:
Qualified Expenses Allocable to Participated Pool RALs and
Pool RACs for pre-1999 Tax Period remained the same at $19,812,925, but the
number of Estimated Pool RALs increased to 2,150,000 from 2,097,000 Pool RALs
and the aggregate principal amount of Pool RALs increased to $1,850,000,000 from
$1,800,000,000.
Calculation:
((40% Applicable Percentage x $2.00 x 2,150,000 revised number of Pool
RALs) plus (40% Applicable Percentage x $19,812,925 Qualified Expenses
allocable to Participated Pool RALs)) divided by $1,850,000,000 = .521%
Adjusted Servicing Fee Percentage
Exhibit F
INTERIM SERVICING COMPENSATION ADJUSTMENT
(Section 2.4(c)(i))
Assumptions:
Qualified Expenses Allocable to Participated Pool RALs and
Pool RACs for pre-1999 Tax Period remained the same at $19,812,925, but the
number of Estimated Pool RALs increased to 2,150,000 from 2,097,000 Pool RALs
and the aggregate principal amount of Pool RALs increased to $1,850,000,000 from
$1,800,000,000.
Calculation:
Required Servicing Compensation ((40% Applicable Percentage x $2.00 x
2,150,000 revised number of Pool RALs) + (40% Applicable
Percentage x $19,812,925 Qualified Expenses allocable to
Participated Pool RALs)) $9,645,170
Periodic Servicing Compensation (.533% Periodic Servicing Fee
Percentage x $1,850,000,000 aggregate Principal Amount
of Participated Pool RALs) 9,860,500
Adjustment (payable to BFC) $ (215,330)
============
Exhibit G
FINAL SERVICING COMPENSATION ADJUSTMENT
(Section 2.4(c)(ii))
Assumptions:
Qualified Expenses Allocable to Participated Pool RALs and
Pool RACs for pre-1999 Tax Period increased from $19,812,925 to $20,000,000, but
the number of Estimated Pool RALs remained unchanged from interim adjustment at
2,150,000 Pool RALs.
Calculation:
Required Servicing Compensation ((40% Applicable Percentage x $2.00 x
2,150,000 number of Pool RALs) + (40% Applicable Percentage x
$20,000,000 Qualified Expenses
allocable to Participated Pool RALs)) $ 9,720,000
Periodic Servicing Compensation ((.533% Periodic Servicing Fee
Percentage x $1,850,000,000 aggregate Principal Amount
of Participated Pool RALs) + $(215,330) Interim
Adjustment) 9,645,170
Adjustment (payable to BNB) $ 74,830
==========
