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Sectors: Services
Governing Law: Delaware, View Delaware State Laws
Effective Date: January 01, 2004
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THIRD AMENDED AND RESTATED
REFUND ANTICIPATION LOAN
PARTICIPATION AGREEMENT


THIS THIRD AMENDED AND RESTATED REFUND ANTICIPATION LOAN PARTICIPATION AGREEMENT (this "Agreement"), dated as of January 1, 2004, is made by and among BLOCK FINANCIAL CORPORATION, a Delaware corporation ("BFC"), HOUSEHOLD TAX MASTERS INC., a Delaware corporation ("Tax Masters"), and HOUSEHOLD TAX MASTERS ACQUISITION CORPORATION, a Delaware corporation ("HTMAC").


RECITALS


A. BFC, Tax Masters and Household Bank, f.s.b., a federal savings bank ("HB"), are parties to the Amended and Restated Refund Anticipation Loan Participation Agreement, dated as of January 6, 2003 (the "First Amended and Restated RAL Participation Agreement"), where BFC agreed to purchase from Tax Masters and Tax Masters agreed to sell to BFC a participation interest in refund anticipation loans made to customers of both H&R Block Tax Services, Inc., a Delaware corporation ("Block Tax Services"), and its affiliates and certain franchisees of HRB Royalty, Inc., a Delaware corporation ("Royalty") and their affiliates.


B. HB ceased its operations and in connection therewith, Tax Masters engaged Imperial Capital Bank, a California state-chartered commercial bank ("ICB"), to perform the origination function for Refund Anticipation Loans ("RALs") and issuing function for Refund Anticipation Checks ("RACs") for 2003 and 2004.


C. Tax Masters, HTMAC and ICB entered into an Amended and Restated Sale and Servicing Agreement for RALs and RACs, dated as of January 3, 2003 (the "Sale and Servicing Agreement"), which represents the basic agreement between Tax Masters, HTMAC and ICB regarding the RAL program pursuant to which (i) Tax Masters services the loans originated by ICB under the RAL program, and (ii) HTMAC purchases participation interests in RALs from ICB. Redacted copies of the Sale and Servicing Agreement and all amendments thereto will be delivered by Tax Masters or HTMAC to BFC.


D. H&R Block Services, Inc., a Missouri corporation ("Block Services"), on behalf of itself and its subsidiaries, Block Tax Services, and Royalty (Block Services, Block Tax Services and Royalty are collectively referred to herein as "Block Companies"), Tax Masters and Beneficial Franchise Company, Inc., a Delaware corporation ("Beneficial Franchise") (Tax Masters and Beneficial Franchise are collectively referred to herein as "Household Companies"), and for certain limited purposes, HB, have entered into an Amended and Restated Refund Anticipation Loan Operations Agreement, dated as of January 6, 2003 (the "First Amended and Restated RAL Operations Agreement").


E. Block Companies and Household Companies are parties to a letter agreement, dated November 11, 2002 (the "First ICB Consent Letter"), pursuant to which Block Companies consented to ICB as the RAL originator under the First Amended and Restated RAL


Operations Agreement, subject to the right of Block Companies in their sole discretion, during the ten (10) day period from June 1 through June 10, 2003, to provide written notice to Tax Masters, Beneficial Franchise and ICB that ICB is not acceptable as the RAL originator and RAC issuer for future Tax Periods, in which event Household Companies agree to substitute a financial institution chartered by the Office of Thrift Supervision or the Office of the Comptroller of the Currency (a "Federally Chartered Financial Institution") as the RAL originator and RAC issuer for future Tax Periods (the "Block ICB Termination Right").


F. Block Companies and Household Companies have entered into a Second ICB Consent Letter, dated June 9, 2003 (the "Second ICB Consent Letter"), pursuant to which Block Companies have agreed to refrain from exercising the Block ICB Termination Right for the 2004 Tax Period, on certain terms and conditions, subject to Block Companies' absolute right in their sole discretion during the ten (10) day period from June 1 through June 10 of any year, to provide written notice to Tax Masters, Beneficial Franchise and ICB, that ICB is not acceptable as the RAL originator and RAC issuer for future Tax Periods, in which event Household Companies agree to substitute a Federally Chartered Financial Institution as the RAL Originator and RAC issuer for future Tax Periods, provided that any entity selected by Household Companies (other than an Affiliate of Household Companies that is a Federally Chartered Financial Institution having sufficient capital to fulfill its anticipated obligations with respect to the RAL Program) shall be subject to the consent of Block Companies, which consent shall not be unreasonably withheld.


G. The Block Companies and the Household Companies have entered into a Second Amended and Restated RAL Operations Agreement, dated as of June 9, 2003 (the "Second Amended and Restated RAL Operations Agreement").


H. BFC and Tax Masters are parties to the Second Amended and Restated Refund Anticipation Loan Participation Agreement, dated as of June 9, 2003 (the "Second Amended and Restated RAL Participation Agreement"), which reflected the continuation of ICB as the RAL originator and RAC issuer for the 2004 Tax Period, subject to the terms and conditions of the Second ICB Consent Letter and the Second Amended and Restated RAL Participation Agreement.


I. Pursuant to a Waiver of Rights Under Amended and Restated Refund Anticipation Loan Participation Agreement, dated January 6, 2003, BFC waived its right to purchase Participation Interests with respect to RALs originated from January 1, 2003 to April 30, 2003, therefore, an amendment to the Second Amended and Restated RAL Participation Agreement to reflect the fact that HTMAC (not Tax Masters) is the owner of the Participation Interests being sold to BFC, was not necessary in the past.


J. The parties desire to amend and restate the Second Amended and Restated RAL Participation Agreement as hereinafter set forth to reflect that fact that HTMAC, rather than Tax Masters, is the seller of the Participation Interests to BFC.


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AGREEMENT


NOW, THEREFORE, for and in consideration of the premises and of the agreements of the parties hereto and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, BFC, HTMAC and Tax Masters hereby covenant and agree that the Second Amended and Restated RAL Participation Agreement is hereby amended and restated in its entirety with respect to Participation Interests purchased by BFC and certain other acts and events that occur from and after the effective date hereof, by deleting the provisions of Sections 1.1 through 7.17 as the same now appear and by substituting therefor the following Sections 1.1 through 7.17:


ARTICLE I
DEFINITIONS


Section 1.1. Definitions. As used in this Agreement, the following terms shall have the meaning set forth below:


"Affiliate" of any Person shall mean any other Person controlling, controlled by or under common control with such Person.


"Applicable Percentage" shall mean the percentage set forth 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.


"BFC" shall mean Block Financial Corporation, a Delaware corporation.


"Block Franchise" shall mean an office owned by a franchisee of Block Services or its subsidiaries that operates under the "H&R Block" name that is open to the public for the preparation of tax returns.


"Block ICB Termination Right" shall have the meaning set forth in Recital E.


"Block Office" shall mean (i) an office owned by Block Services or its subsidiaries that operates under the "H&R Block" name and is open to the public for the preparation of tax returns and (ii) a Corporate Franchise.


"Block Services" shall mean H&R Block Services, Inc., a Missouri corporation.


"Block Tax Services" shall mean H&R Block Tax Services, Inc., a Missouri corporation.


"Business Day" shall mean any day other than a Saturday, a Sunday or a day on which banking institutions in Bridgewater, New Jersey are authorized or obligated by law or executive order to be closed.


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"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 Tax Masters as servicer for the RAL Originator and applied to 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 Tax Masters as servicer for the RAL Originator from or on behalf of Obligors in payment of Participated Pool RALs (in which case such Collections shall be deemed to be received by the RAL Originator for purposes of this Agreement on the Business Day on which such promissory note or evidence of indebtedness was received by the RAL Originator) and (iii) all fees charged by the RAL Originator to customers of Block Offices for issuing Pool RACs (in which case such Collections shall be deemed to be received by the RAL Originator 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 Franchise" or "Corporate Franchisee" shall mean a Person authorized directly by Block Services (or an Affiliate of Block Services) pursuant to a corporate franchise agreement to operate a Block Office. Corporate Franchise or Corporate Franchisee does not include a Person authorized by a major franchise agreement between a Major Franchisee and Block Services, or an Affiliate of Block Services, to operate a Block Franchise and to subfranchise others to operate a Block Franchise within a specified territory, or a subfranchisee of a Major Franchisee.


"Defaulted Pool RAL" shall mean each Participated Pool RAL which, in accordance with the RAL Guidelines and Tax Masters' customary and usual servicing procedures for RALs, the RAL Originator has charged off as uncollectible; provided, however, that no Pool RAL originated during any Tax Period shall be classified as a Defaulted Pool RAL prior to January 1 of the following year.


"Eligible RAL" shall mean each Pool RAL:


(a) that was created by the RAL Originator, and is in compliance in
all material respects, with the Second Amended and Restated 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. Sections 1691 et seq.;


(b) (i) as to which any blank preprinted form of disclosure
statement supplied by Tax Masters on behalf of the RAL Originator 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. Sections 1601 et seq. ("TILA") (it being
understood that the foregoing shall not be deemed a warranty by Tax
Masters that such form has


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been properly completed) and (ii) 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, HTMAC had good and marketable title
thereto free and clear of all Liens arising under or through HTMAC or any
of its Affiliates.


"ERA Operations Agreement" shall mean the ERA Operations Agreement as in effect from time to time between BFC, Royalty, Tax Masters and Beneficial Franchise.


"Excluded RAL" shall have the meaning set forth in Section 5.2.


"Federally Chartered Financial Institution" shall have the meaning set forth in Recital E.


"First Amended and Restated RAL Participation Agreement" shall have the meaning set forth in Recital A.


"First ICB Consent Letter " shall have the meaning set forth in Recital E.


"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.


"HB" shall mean Household Bank, f.s.b., a federal savings bank.


"HTMAC" shall mean Household Tax Masters Acquisition Corporation, a Delaware corporation.


"ICB" shall mean Imperial Capital Bank, a California state chartered commercial bank.


"Ineligible RAL" shall have the meaning set forth in Section 4.4(c).


"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.


"Major Franchisee" shall mean, subject to the terms of Section 7.17 hereof, the Person authorized by a major franchise agreement with Block Services, or with an Affiliate of Block Services, to operate a Block Office and to subfranchise others to operate Block Office within a specified territory.


"Major Franchisee Pool RAL" shall have the meaning given such term in the definition of "Pool RAL."


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"Major Franchisee RAL Agreement" shall mean an agreement from time to time between Tax Masters and/or any one or more Affiliates of Tax Masters and a Major Franchisee pursuant to which RALs are made 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.


"No Fee RAL" shall mean any RAL for which no RAL fee is charged to a customer.


"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 the RAL Originator, or an Affiliate of the RAL Originator, with respect to such RAL.


"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 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 mark 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 HTMAC or repurchased by HTMAC pursuant to this Agreement.


"Participation Interest" shall have the meaning set forth in Section 2.1.


"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 the RAL Originator through a Block Office owned by Block Services, a Corporate Franchise, a Major Franchisee, a subfranchisee of a Major Franchisee or any Affiliate of any of the foregoing.


"Pool RAL" shall mean (a) any RAL made by the RAL Originator through a Block Office owned by Block Services, a Corporate Franchise or either of their Affiliates, pursuant to or under color of (i) the Second Amended and Restated RAL Operations Agreement or (ii) a referral to the RAL Originator by Block Services, such Corporate Franchise or such Affiliates pursuant to a contractual electronic filing arrangement with any other Person and (b) any electronic refund advance ("ERA") made by the RAL Originator originated through On-Line Tax Preparation ("OTP") software pursuant to the ERA Operations Agreement (a RAL or ERA described in subclause (a) or (b) may hereinafter be referred to as a "Corporate Pool RAL") and (c) any RAL made during any Tax Period 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


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referral to the RAL Originator by a Major Franchisee, or a subfranchisee or 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 (c) may hereinafter be referred to as a "Major Franchisee Pool RAL"). Notwithstanding the foregoing, "Pool RAL", "Corporate Pool RAL", and "Major Franchisee Pool RAL", shall not include any RAL for which no RAL fee is charged to a customer (a "No Fee RAL").


"Principal Amount" of a RAL, shall mean:


(a) the aggregate amount paid or payable by the RAL Originator 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 properly issued or authorized to
be issued by the RAL Originator to the order of any such Obligor, and (ii)
any amounts paid or payable by the RAL Originator for the account of
Obligor to any Originator Party, the Internal Revenue Service or any other
Person (whether or not the RAL Originator has a right, contingent or
otherwise, to withhold or retain any portion of such amount). The
"Principal Amount" of a RAL shall not include any financing fee or refund
account fee payable by such Obligor to the RAL Originator 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 the RAL check
clears the bank account used by the RAL Originator for the disbursement of
RALs and such fact has been recorded in the computer files the RAL
Originator uses for administering RALs; and


(b) shall also include any payment made at any time by the RAL
Originator with respect to any lost, altered or stopped check issued by or
on behalf of the RAL Originator in connection with a RAL described in
paragraph (a) (the "Underlying RAL"), as well as any payment by the RAL
Originator with respect to any lost, altered or stopped replacement check.
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 the
replacement RAL check clears the bank account used by the RAL Originator
for the disbursement of RALs and such fact has been recorded in the
computer files the RAL Originator uses for administering RALs.


"Purchase Price" shall mean the purchase price for a Participation Interest to be paid by BFC to HTMAC as calculated pursuant to Section 2.3.


"RAC" means a check issued by the RAL Originator and delivered to a taxpayer pursuant to a Refund Anticipation Check Service.


"RAL" shall mean any refund anticipation loan from time to time made by the RAL Originator.


"RAL Guidelines" shall mean the RAL Originator'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


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anticipation loan customers, the extension of credit to refund anticipation loan customers and relating to the collection and charge off of refund anticipation loans.


"RAL Originator" shall mean the insured depository institution engaged by Tax Masters (subject to the Block Companies' rights under the Letter Agreement and the Second ICB Consent Letter) to serve as the originator under the RAL Program.


"RAL Participation Agreement" shall have the meaning set forth in Recital D.


"RAL Program" shall have the meaning assigned to it in the Second Amended and Restated RAL Operations Agreement.


"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 (a) fees charged for the making of the check, (b) tax preparation fees and (c) 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.


"Sale and Servicing Agreement " shall have the meaning set forth in Recital C.


"Second Amended and Restated RAL Operations Agreement" shall have the meaning set forth in Recital G.


"Second Amended and Restated RAL Participation Agreement" shall have the meaning set forth in Recital H.


"Second ICB Consent Letter" shall have the meaning set forth in Recital F.


"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 Masters" shall mean Household Tax Masters, Inc., a Delaware 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 paragraph (b) of the definition of "Principal Amount".


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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.


ARTICLE II
PURCHASE AND SALE OF INTERESTS IN POOL RALS


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, HTMAC agrees to sell to BFC, and BFC agrees to purchase from
HTMAC, from time to time, on a "checks cleared" basis, an undivided
ownership interest in, and in an amount equal to the Applicable Percentage
of, all of HTMAC's 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 HTMAC and Tax Masters in this Agreement,
Participation Interests (and acquisition thereof by BFC) shall be without
recourse to HTMAC. Tax Masters and HTMAC represent and warrant to BFC that
the Pool RALs were originated in compliance with the Final Credit Criteria
and Final RAL and RAC Fees (as defined in the Second Amended and Restated
RAL Operations Agreement) and applicable law, excluding, however, any
failure to comply which results from (i) any misrepresentation or omission
to state a material fact by a RAL Customer, or (ii) action or inaction by
any Block Office, Major Franchisee or subfranchisee of a Major Franchisee
to perform its explicit obligations under this Agreement, or a corporate
franchise agreement between Block Services and a Corporate Franchise, a
Major Franchisee RAL Agreement, or a subfranchisee agreement relating to
the RAL Program between a Major Franchisee and a subfranchisee, as
applicable (except for any action or inaction by such entities due to
changes to the RAL Program required by the RAL Originator or Tax Masters
outside of the deadlines set forth in this Agreement for any such
changes).


(b) Conveyance of Participation Interest. The conveyance by HTMAC to
BFC of a Participation Interest in a Pool RAL shall be deemed to occur at
the time when HTMAC receives full payment from BFC of the Purchase Price
in respect to such Participation Interest corresponding to such
Participated Pool RAL and all other Participated Pool RALs of HTMAC
arising on the same day. Upon such conveyance, BFC shall 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, HTMAC shall be deemed to have granted to BFC
a security interest in the Participation Interest that was purportedly
conveyed and that this


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Agreement shall constitute a security agreement under applicable law.
HTMAC agrees to authorize the filing of financing and continuation
statements as BFC may from time to time reasonably request with respect to
Participation Interests hereafter created or arising.


(c) True Sale and Nonconsolidation Opinions. Upon BFC's request, Tax
Masters and HTMAC agree to use all commercially reasonably efforts to
obtain for BFC (i) a "true sale" opinion of counsel to Tax Masters and
HTMAC with respec
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