<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 26, 1997
REGISTRATION NO. 333-33655
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
BLOCK FINANCIAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 52-1781495
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
</TABLE>
------------------------
4435 MAIN STREET, SUITE 500
KANSAS CITY, MISSOURI 64111
(816) 751-6000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
H&R BLOCK, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
MISSOURI 44-0607856
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
</TABLE>
------------------------
4400 MAIN STREET
KANSAS CITY, MISSOURI 64111
(816) 753-6900
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
JOHN R. COX, ESQ.
DIRECTOR, CONTRACTS AND REGULATORY AFFAIRS
4435 MAIN STREET, SUITE 500
KANSAS CITY, MISSOURI 64111
(816) 751-6000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
Copies to:
LARRY D. IRICK, ESQ. B. ROBBINS KIESSLING
GREGORY G. JOHNSON, ESQ. CRAVATH, SWAINE & MOORE
BRYAN CAVE LLP 825 EIGHTH AVENUE
1200 MAIN STREET, SUITE 3500 NEW YORK, NEW YORK 10019
KANSAS CITY, MISSOURI 64105 (212) 474-1500
(816) 374-3200
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the effective date of this Registration Statement as determined by
market factors and other conditions.
If the only securities being registered on this Form are to be offered
pursuant to dividend or interest reimbursement plans, check the following
box: / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: /x/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: /x/
------------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
Information contained herein is subject to completion or amendment.
A registration statement relating to these securities has been filed
with the Securities and Exchange Commission. These securities may not be
sold nor may offers to buy be accepted prior to the time the
registration statement becomes effective. This prospectus shall not
constitute an offer to sell or the solicitation of an offer to buy nor
shall there be any sale of these securities in any State in which such
offer, solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED SEPTEMBER 26, 1997
PROSPECTUS [LOGO]
BLOCK FINANCIAL CORPORATION
DEBT SECURITIES
UNCONDITIONALLY GUARANTEED BY H&R BLOCK, INC.
Block Financial Corporation (the 'Company' or 'BFC') may offer from time to
time, in one or more series, debentures, notes, bonds or other obligations
('Debt Securities'), which may be senior ('Senior Debt Securities') or
subordinated ('Subordinated Debt Securities') to other indebtedness of the
Company, all having an aggregate initial public offering price not to exceed
$1,000,000,000 or the equivalent thereof in one or more foreign currencies,
foreign currency units or composite currencies, including European Currency
Units. The Debt Securities may be offered in separate series in amounts, at
prices and on terms to be determined at or prior to the time of sale. The Debt
Securities will be direct unsecured obligations of the Company. The payment of
principal, premium, if any, and interest with respect to the Debt Securities
will be unconditionally guaranteed by H&R Block, Inc. (the 'Guarantor' or
'Block'), the indirect parent company of BFC.
The specific terms of the Debt Securities with respect to which this Prospectus
is being delivered will be set forth in one or more supplements to this
Prospectus (each a 'Prospectus Supplement'), together with the terms of the
offering and sale of the Debt Securities, the initial offering price and the net
proceeds to the Company from the sale thereof. Each Prospectus Supplement will
include, among other things, the specific designation, aggregate principal
amount, ranking, authorized denomination, maturity, rate or method of
calculation of interest and dates for payment thereof, any index or formula for
determining the amount of any principal, premium, or interest payment, any
exchange, redemption, prepayment or sinking fund provisions, the currency or
currency unit in which principal, premium, or interest is payable, whether the
securities are issuable in registered form or in the form of global securities,
and the designation of the trustee acting under the indenture. Each Prospectus
Supplement will also contain information, where applicable, about material
United States federal income tax considerations relating to, and any listings on
a securities exchange of, the Debt Securities covered by such Prospectus
Supplement.
The Company may sell the Debt Securities directly to purchasers, through agents
designated from time to time or through underwriters or dealers on terms
determined by market conditions at the time of sale. If any agents,
underwriters, or dealers are involved in the sale of the Debt Securities, the
names of such agents, underwriters or dealers and any applicable commissions or
discounts and the net proceeds to the Company from such sale will be set forth
in the applicable Prospectus Supplement.
THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE SALES OF DEBT SECURITIES UNLESS
ACCOMPANIED BY A PROSPECTUS SUPPLEMENT.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS OR ANY ACCOMPANYING PROSPECTUS
SUPPLEMENT AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE GUARANTOR, OR ANY
UNDERWRITER, AGENT OR DEALER. NEITHER THE DELIVERY OF THIS PROSPECTUS OR ANY
PROSPECTUS SUPPLEMENT NOR ANY SALE MADE THEREUNDER SHALL, UNDER ANY
CIRCUMSTANCE, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY OR THE GUARANTOR SINCE THE DATE HEREOF OR THEREOF. THIS
PROSPECTUS AND ANY RELATED PROSPECTUS SUPPLEMENT DO NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY
IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION IN SUCH JURISDICTION.
The date of this Prospectus is September , 1997.
<PAGE>
AVAILABLE INFORMATION
The Company and the Guarantor have filed with the Securities and Exchange
Commission (the 'Commission') a Registration Statement on Form S-3 (together
with all amendments and exhibits thereto, the 'Registration Statement') under
the Securities Act of 1933, as amended (the 'Securities Act'), for the
registration of the Debt Securities offered hereby. This Prospectus, which
constitutes a part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement, certain items of which are
contained in exhibits and schedules to, or incorporated by reference in, the
Registration Statement as permitted by the rules and regulations of the
Commission. For further information with respect to the Company, the Guarantor
and the Debt Securities offered hereby, reference is made to the Registration
Statement, including the exhibits thereto, and financial statements and notes
filed as a part thereof or incorporated by reference therein. Statements made in
this Prospectus and in the accompanying Prospectus Supplement concerning the
contents of any document referred to herein are not necessarily complete. With
respect to each such document filed with the Commission as an exhibit to, or
incorporated by reference in, the Registration Statement, reference is made to
the exhibit for a more complete description of the matter involved, and each
such statement shall be deemed qualified in its entirety by such reference.
The Guarantor is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the 'Exchange Act'), and in
accordance therewith the Guarantor files reports, proxy statements and other
information with the Commission. Reports, proxy statements and other information
filed by the Guarantor may be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's Regional Offices located at Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade
Center, Suite 1300, New York, New York 10048. Copies of such material can be
obtained at prescribed rates from the Public Reference Section of the Commission
at 450 Fifth Street, N.W., Washington D.C. 20549. The Commission maintains an
Internet Web site at http://www.sec.gov that contains reports, proxy statements
and other information regarding registrants that file electronically with the
Commission. In addition, such material filed by the Guarantor may also be
inspected and copied at the offices of the New York Stock Exchange, Inc., 20
Broad Street, New York, New York 10005, and the Pacific Stock Exchange
Incorporated, 301 Pine Street, San Francisco, California 94104, on which
exchanges the Common Stock of the Guarantor is listed.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Guarantor with the Commission pursuant
to the Exchange Act under File No. 1-6089 are incorporated herein by reference
and shall be deemed to be a part hereof:
1. the Guarantor's Annual Report on Form 10-K for the fiscal year
ended April 30, 1997 (as amended on Forms 10-K/A for such fiscal year);
2. the Guarantor's Current Reports on Form 8-K dated July 2, 1997 (as
amended on Form 8-K/A filed August 14, 1997), September 7, 1997 and
September 25, 1997;
3. the Guarantor's Quarterly Report on Form 10-Q for the fiscal
quarter ended July 31, 1997.
All documents filed by the Company or the Guarantor pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus
and prior to the termination of the offering of the Debt Securities made hereby
shall be deemed to be incorporated by reference into this Prospectus and to be a
part hereof from the date of filing such documents. See 'Available Information.'
Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any subsequently filed document which also is or is deemed to be
incorporated by reference herein or in any Prospectus Supplement modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
2
<PAGE>
This Prospectus incorporates documents by reference which are not presented
herein or delivered herewith, as indicated above. The Company will provide
without charge to each person, including any beneficial owner, to whom a copy of
this Prospectus is delivered, upon the written or oral request of such person, a
copy of any or all of the documents which are incorporated herein by reference
(other than exhibits to such documents unless they are specifically incorporated
by reference into such documents). Requests for such copies should be directed
to Block Financial Corporation, 4435 Main Street, Suite 500, Kansas City,
Missouri 64111, Attention: John R. Cox, telephone (816) 751-6019.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 (the 'Reform Act')
provides a 'safe harbor' for certain forward-looking statements. Certain
statements contained in the sections entitled 'The Company' and 'The Guarantor,'
and certain statements incorporated by reference from documents filed with the
Commission by the Company, are or may constitute forward-looking statements as
defined in the Reform Act. However, the safe harbor does not apply to
forward-looking statements made in connection with an initial public offering.
Since the offering of Debt Securities is an initial public offering by the
Company, the safe harbor would not apply to any such forward-looking statements
concerning the Company. Because such statements are subject to risks and
uncertainties, actual results may differ from those expressed or implied by such
forward-looking statements.
THE COMPANY
BFC is an indirect subsidiary of Block. It was organized in May 1992 for
the purpose of developing and providing tax-related and technology-related
financial services. The principal business activities of BFC include (i) the
origination, purchase, servicing, sale and securitization of nonconforming
residential mortgages, (ii) the purchase of participation interests in refund
anticipation loans ('RALs') made by Beneficial National Bank ('Beneficial') to
Block tax customers, (iii) the offering of credit cards for CompuServe
Corporation ('CompuServe') and WebBank Corporation, a Utah Industrial Loan
Company and wholly-owned subsidiary of BFC, (iv) the development, publishing,
and marketing of software products designed to assist individuals in managing
their personal finances and preparing tax returns, and (v) the offering of
equity lines of credit to Block's tax preparation franchisees. BFC's principal
executive office is located at 4435 Main Street, Suite 500, Kansas City,
Missouri 64111 and its telephone number is (816) 751-6000.
Nonconforming Mortgages. BFC operates a nonconforming mortgage origination
and funding business in which fixed and adjustable-rate mortgages, including
purchase money first mortgages, refinance first mortgages and second mortgages,
are offered to the public. Nonconforming mortgages are those that may not be
offered through government-sponsored loan agencies.
In a strategic initiative to develop a retail nonconforming mortgage
business, BFC and Block formed Block Mortgage Company, L.L.C. ('Block Mortgage')
in August 1995 to offer nonconforming mortgages at H&R Block tax offices. Block
Mortgage is a limited liability company in which a subsidiary of Block owns a
99% membership interest and BFC owns a 1% membership interest. During the 1997
tax season, Block Mortgage offered nonconforming mortgages through 31 tax
offices in Colorado, Indiana, North Carolina and Virginia. Block Mortgage plans
to continue the test of this business in additional tax offices during fiscal
year 1998.
BFC further increased its commitment to the nonconforming mortgage business
with its purchase of Option One Mortgage Corporation ('Option One') from Fleet
Financial Group, Inc. ('Fleet') in June 1997. Option One engages in the
origination, purchase, securitization, sale and servicing of one-to-four family
residential mortgage loans made primarily to sub-prime borrowers who do not
qualify for loans which conform to FNMA and FHLMC guidelines. Option One is
headquartered in Santa Ana, California, and has a network of more than 5,000
mortgage brokers in 46 states. In calendar 1996, Option One originated more than
$1 billion in mortgage loans. BFC believes that Option One will provide BFC with
3
<PAGE>
experienced associates in the nonconforming mortgage business and assist BFC and
Block in handling mortgage applications, processing loans and underwriting
mortgages originated through Block Mortgage.
BFC paid $218.1 million in cash for Option One, consisting of $28.1 million
in adjusted stockholder's equity and a premium of $190 million. In addition, BFC
made a cash payment of $456 million to Fleet to eliminate intercompany loans
made by Fleet to Option One to finance Option One's mortgage loan business. The
$456 million payment was recorded as an intercompany loan from BFC to Option One
and was repaid by Option One on June 30, 1997, when Option One sold mortgage
loans to a third party in the ordinary course of business.
BFC completed its first securitization of nonconforming mortgage loans on
January 30, 1997 through a $102 million asset-backed security issue.
Substantially all of the mortgages involved in this securitization were
mortgages offered through independent mortgage brokers. On July 30, 1997, BFC
completed its second securitization of nonconforming mortgages through a $215
million asset-backed security issue. This securitization included $134 million
of mortgages offered through independent mortgage brokers, $81 million of
mortgages offered by Option One and $10 million of mortgages offered by Block
Mortgage.
Refund Anticipation Loans. In July 1996, BFC announced its agreement with
Beneficial to purchase a participation interest in RALs provided by Beneficial
to Block tax customers. In the 10-year agreement, BFC agreed to purchase an
initial 40% participation interest in such RALs, which interest would be
increased to nearly 50% in specific circumstances. BFC's purchases of
participation interests are financed through short-term borrowings. BFC bears
all of the risks associated with its interests in the RALs. BFC's total RAL
revenue in fiscal year 1997 was approximately $54.5 million, which generated
approximately $8.1 million in pretax profits.
Credit Cards. BFC offers Gold and Classic versions of two types of
co-branded credit cards: CompuServe Visa and WebCard(Service Mark) Visa. The
credit cards are issued under a co-branding agreement between BFC and Columbus
Bank and Trust Company, Columbus, Georgia. Approximately 110,000 CompuServe Visa
credit cards were issued by the end of fiscal year 1997, compared to 113,425
credit cards at the end of fiscal 1996. The number of WebCard(Service Mark) Visa
accounts at April 30, 1997, was 57,223, compared to approximately 6,000 accounts
at the end of fiscal year 1996. The aggregate portfolio for the credit cards
issued by BFC increased from approximately $165 million at the end of fiscal
year 1996 to more than $246 million by the end of fiscal year 1997.
While the aggregate number of BFC's credit cards increased during fiscal
year 1997, bad debt expense associated with such accounts also increased
substantially. The increase in bad debt expense resulted from the increase in
the credit card receivables portfolio and a deterioration in the credit quality
arising from the maturation of the credit card portfolio. Measured as a
percentage of the credit card receivables, the bad debt expense increased 40
basis points, from 5.5% to 5.9% during fiscal 1997. Based on the balance of the
portfolio as of April 30, 1997, every 10 basis point increase in the ratio of
bad debt expense to credit card receivables would result in additional expenses
of $248,000.
BFC developed the CONDUCTOR(Registered) service, a technology that
facilitates the delivery of financial services online through existing
commercial online services, the Internet or directly through leased networks.
CONDUCTOR(Registered) features a national online electronic credit card
statement that provides the cardholder with access to transaction records and
credit availability and the ability to download transactions from the Internet
into a personal financial software program. A similar service that allows
cardholders access online is offered on CompuServe's information service.
The Company is evaluating the possible sale of its credit card operations,
including its receivables portfolio and the CONDUCTOR(Registered) service.
Software Products. BFC's software business develops and markets the
Kiplinger Tax Cut(Registered) tax preparation software package, and markets the
Kiplinger Home Legal Advisor(Service Mark) and Kiplinger Small Business
Attorney(Service Mark) software products. As a result of the increase in sales
of TaxCut's final edition in
4
<PAGE>
fiscal year 1997, BFC's share in the income tax return preparation software
market is now approximately 30%.
Equity Lines of Credit. BFC offers to Block's tax preparation franchisees
lines of credit with reasonable interest rates under a program designed to
better enable the franchisees to refinance existing business debt, expand or
renovate offices or meet off-season cash flow needs. A franchise equity loan is
a revolving line of credit secured by the H&R Block franchise and the underlying
business.
THE GUARANTOR
Block is a diversified services corporation that was organized in 1955
under the laws of Missouri. It is the parent corporation in a two-tier holding
company structure following a 1993 corporate restructuring. The second-tier
holding company is H&R Block Group, Inc., which is the direct owner of (i) all
of the shares of H&R Block Tax Services, Inc. ('Tax Services'), a subsidiary
involved in the business of income tax return preparation, electronic filing of
income tax returns and the performance of other tax related services in the
United States, (ii) approximately 80.1% of the shares of CompuServe, a
corporation that offers worldwide online and Internet access services to
consumers and worldwide network access, management and applications, and
Internet services to businesses, and (iii) all of the shares of BFC. Indirect
subsidiaries of H&R Block Group, Inc. operate income tax return preparation and
related services businesses in Canada, Australia, the United Kingdom and Guam,
and offer H&R Block franchises in other parts of the world as a part of the
operations of H&R Block International. Block's principal executive office is
located at 4400 Main Street, Kansas City, Missouri 64111 and its telephone
number is (816) 753-6900. Block's common stock is listed on the New York Stock
Exchange and Pacific Stock Exchange and is quoted under the symbol 'HRB.'
Tax Services. The income tax return preparation and related services
business is the original core business of Block. These services are provided to
the public through a system of offices operated by Block or by others to whom
Block has granted franchises. Block and its franchisees provide income tax
return preparation services, electronic filing services and other services
relating to income tax return preparation in many parts of the world. For U.S.
returns, Block offers RALs through Beneficial and BFC in conjunction with
Block's electronic filing service. Block also markets its income tax preparation
knowledge through its income tax training schools.
Block's tax operations are divided structurally into three areas, each
targeting specific markets and focusing on new products and services and areas
for expansion. Tax Services focuses on tax business operations in the United
States. H&R Block Premium, a division of Tax Services, competes for those
clients who typically have more complex income tax returns and features meetings
by appointment any time of the year, private offices and more experienced tax
return preparers. H&R Block International focuses on strengthening operations in
current foreign markets, such as Canada and Australia, and identifying and
developing new markets.
CompuServe. CompuServe was incorporated in Delaware on February 16, 1996.
CompuServe is the parent corporation in a holding company structure, and holds
all of the outstanding stock of CompuServe Incorporated. CompuServe Incorporated
was founded in 1969 as a computer timesharing service and introduced its first
online service in 1979. Until April 1996, CompuServe was an indirect
wholly-owned subsidiary of Block. In April 1996, CompuServe completed an initial
public offering of 18,400,000 shares of its common stock. CompuServe's common
stock is quoted on the Nasdaq quotation system under the symbol 'CSRV.'
CompuServe is a worldwide leader in the market for computer-based
interactive services and data communications and a pioneer in the development of
consumer online and Internet access services. CompuServe was the first online
service provider to establish a major international presence, and continues to
be one of the largest global online and Internet service providers. CompuServe
operates what its management believes is the most extensive network in the world
dedicated solely to data transmission.
5
<PAGE>
CompuServe Interactive Service(Service Mark) ('CSi'), CompuServe's flagship
product, offers traditional online services and integrated Internet access.
Through SPRYNET(Service Mark), CompuServe also offers a stand-alone
Internet-access-only service. Management believes consumer online services are a
preferred access vehicle to the Internet for the average user due to the ability
of online services to focus and aggregate content and provide centralized
billing and support. Management also believes CompuServe's business networking
experience and infrastructure position it to be a leader in the
commercialization of the Internet.
On September 7, 1997, the Guarantor entered into an Agreement and Plan of
Merger (the 'Merger Agreement') with H&R Block Group, Inc., CompuServe,
WorldCom, Inc., a Georgia corporation ('WorldCom'), and Walnut Acquisition
Company, L.L.C., a Delaware limited liability company which is wholly-owned by
WorldCom ('WAC'), pursuant to which WorldCom would acquire CompuServe through a
merger of WAC with and into CompuServe (the 'Merger'). At the Effective Time (as
defined in the Merger Agreement) each of the CompuServe Common Shares (as
defined in the Merger Agreement) outstanding as of the Effective Time will be
converted into the right to receive, and there will be paid and issued as
provided in the Merger Agreement in exchange for each of the CompuServe Common
Shares, 0.40625 of a share of WorldCom Common Stock (as defined in the Merger
Agreement), subject to adjustment as provided in the Merger Agreement. Based on
the closing price of WorldCom Common Stock on September 5, 1997, the aggregate
purchase price for CompuServe is approximately $1.2 billion. Consummation of the
Merger is subject to the satisfaction of certain conditions, including, among
others, the expiration or termination of any applicable waiting periods under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and any
foreign competition law or similar law, the receipt of other required regulatory
approvals, and the absence of certain material adverse changes. Consummation of
the Merger is also subject to the approval and adoption of the Merger Agreement
by the holders of the requisite number of CompuServe Common Shares. The
Guarantor has agreed to vote all of the shares directly or indirectly owned by
it in favor of the Merger Agreement and the Merger, which number of shares is
sufficient to approve the Merger Agreement and the Merger. The closing of the
Merger is expected to occur as soon as practicable after the satisfaction of all
the conditions set forth in the Merger Agreement.
In fiscal 1997, CompuServe's revenues and assets represented approximately
45% and 39%, respectively, of Block's consolidated revenues and assets. In
fiscal 1997, the net loss of CompuServe was $96 million and the net earnings of
Block excluding CompuServe were $143.8 million.
The Guarantor believes it is likely that the conditions to the consummation
of the Merger will be satisfied and that the Merger will be consummated.
However, there can be no assurance that all conditions will be satisfied. If the
Merger is not consummated for any reason, the Guarantor will continue to pursue
alternatives to complete the separation of CompuServe.
USE OF PROCEEDS
The Company intends to use the net proceeds from the sale of the Debt
Securities for general corporate purposes which may include acquisitions,
capital expenditures, working capital requirements, repayment of certain
indebtedness or for other business purposes. The specific use of proceeds of
each sale of Debt Securities will be set forth in each Prospectus Supplement.
6
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
THE COMPANY
The following table sets forth the ratio of earnings to fixed charges for
the Company for each of the five years ended April 30.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
----- ----- ---- ----- -----
<S> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges....................... 1.6:1 2.5:1 (a) (b) 6.9:1
(c)
</TABLE>
NOTES TO COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges is calculated by dividing (1) pretax
earnings from continuing operations plus fixed charges by (2) fixed charges.
Fixed charges consist of interest expense and the interest component of rent
expense.
(a) Earnings were insufficient to cover fixed charges for the year ended April
30, 1995 by $5,788.
(b) Earnings were insufficient to cover fixed charges for the year ended April
30, 1994 by $15,644.
(c) Earnings for the year ended April 30, 1994 included a nonrecurring charge of
$25,072 for purchased research and development related to the acquisition of
MECA Software, Inc. as disclosed in the Acquisitions note to the Guarantor's
consolidated financial statements for the year ended April 30, 1996. If such
charges had not occurred, the ratio of earnings to fixed charges would have
been 4.2:1.
THE GUARANTOR
The following table sets forth the ratio of earnings to fixed charges for
the Guarantor on a consolidated basis for each of the five years ended April 30,
which ratios are based on the historical consolidated financial statements of
the Guarantor.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
----- ----- ---- ----- -----
<S> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges........................ 4.8:1 5.9:1 5.0:1 5.5:1(a) 6.2:1
</TABLE>
NOTES TO COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges is calculated by dividing (1) pretax
earnings from continuing operations plus fixed charges by (2) fixed charges.
Fixed charges consist of interest expense and the interest component of rent
expense.
(a) Earnings for the year ended April 30, 1994 included a nonrecurring charge of
$25,072 for purchased research and development related to the acquisition of
MECA Software, Inc. as disclosed in the Acquisitions note to the Guarantor's
consolidated financial statements for the year ended April 30, 1996. If such
charges had not occurred, the ratio of earnings to fixed charges would have
been 6.6:1.
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DESCRIPTION OF DEBT SECURITIES
The following description of the terms of the Debt Securities and
Guarantees sets forth certain general terms and provisions of the Debt
Securities to which any Prospectus Supplement may relate. The particular terms
of the Debt Securities offered by any Prospectus Supplement and the extent, if
any, to which such general provisions may apply to the Debt Securities so
offered will be described in the Prospectus Supplement relating to such Debt
Securities. Accordingly, for a description of the terms of a particular issue of
Debt Securities and Guarantees, reference must be made to both the Prospectus
Supplement relating thereto and to the following description.
The Debt Securities will be general obligations of the Company and may be
Senior Debt Securities or Subordinated Debt Securities. Senior Debt Securities
will rank equally with all other unsubordinated and unsecured indebtedness of
the Company. The Subordinated Debt Securities will be subordinate in right of
payment to 'Senior Indebtedness' (as defined below) of the Company to the extent
set forth in the Prospectus Supplement relating thereto. See 'Description of
Debt Securities--Subordination' below. The Guarantor will irrevocably and
unconditionally guarantee payments of principal, interest and premium, if any,
on the Debt Securities. Debt Securities and Guarantees will be issued under an
indenture (the 'Indenture') to be entered into between the Company, the
Guarantor and Bankers Trust Company (the 'Trustee'). A copy of the form of
Indenture has been filed as an exhibit to the Registration Statement filed with
the Commission. The following discussion of certain provisions of the Indenture
is a summary only and does not purport to be a complete description of the terms
and provisions of the Indenture. Accordingly, the following discussion is
qualified in its entirety by reference to the provisions of the Indenture,
including the definition therein of terms used below with their initial letters
capitalized.
GENERAL
The Indenture does not limit the aggregate principal amount of Debt
Securities that can be issued thereunder. The Debt Securities may be issued in
one or more series as may be authorized from time to time by the Company.
Reference is made to the applicable Prospectus Supplement for the following
terms of the Debt Securities of the series with respect to which such Prospectus
Supplement is being delivered:
(a) The title of Debt Securities of the series;
(b) Any limit on the aggregate principal amount of the Debt Securities
of the series that may be authenticated and delivered under the Indenture;
(c) The date or dates on which the principal and premium, if any, with
respect to the Debt Securities of the series are payable;
(d) The rate or rates (which may be fixed or variable) at which the
Debt Securities of the series shall bear interest (if any) or the method of
determining such rate or rates, the date or dates from which such interest
shall accrue, the interest payment dates on which such interest shall be
payable or the method by which such date will be determined, the record
dates for the determination of Holders thereof to whom such interest is
payable (in the case of Registered Securities), and the basis upon which
interest will be calculated if other than that of a 360-day year of twelve
30-day months;
(e) The Place or Places of Payment, if any, in addition to or instead
of the corporate trust office of the Trustee where the principal, premium,
if any, and interest with respect to Debt Securities of the series shall be
payable;
(f) The price or prices at which, the period or periods within which,
and the terms and conditions upon which Debt Securities of the series may
be redeemed, in whole or in part, at the option of the Company or
otherwise;
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(g) The obligation, if any, of the Company to redeem, purchase, or
repay Debt Securities of the series pursuant to any sinking fund or
analogous provisions or at the option of a Holder thereof and the price or
prices at which, the period or periods within which, and the terms and
conditions upon which Debt Securities of the series shall be redeemed,
purchased, or repaid, in whole or in part, pursuant to such obligations;
(h) The terms, if any, upon which the Debt Securities of the series
may be convertible into or exchanged for other Debt Securities of the
Company and the terms and conditions upon which such conversion or exchange
shall be effected, including the initial conversion or exchange price or
rate, the conversion or exchange period and any other provision in addition
to or in lieu of those described herein;
(i) If other than denominations of $1,000 or any integral multiple
thereof, the denominations in which Debt Securities of the series shall be
issuable;
(j) If the amount of principal, premium, if any, or interest with
respect to the Debt Securities of the series may be determined with
reference to an index or pursuant to a formula, the manner in which such
amounts will be determined;
(k) If the principal amount payable at the stated maturity of Debt
Securities of the series will not be determinable as of any one or more
dates prior to such stated maturity, the amount that will be deemed to be
such principal amount as of any such date for any purpose, including the
principal amount thereof that will be due and payable upon any maturity
other than the stated maturity or that will be deemed to be outstanding as
of any such date (or, in such case, the manner in which such deemed
principal amount is to be determined), and if necessary, the manner of
determining the equivalent thereof in United States currency;
(l) Any changes or additions to the provisions of the Indenture
dealing with defeasance, including the addition of additional covenants
that may be subject to the Company's covenant defeasance option;
(m) The coin or currency or currencies or units of two or more
currencies in which payment of the principal and premium, if any, and
interest with respect to Debt Securities of the series shall be payable;
(n) If other than the principal amount thereof, the portion of the
principal amount of Debt Securities of the series which shall be payable
upon declaration of acceleration or provable in bankruptcy;
(o) The terms, if any, of the transfer, mortgage, pledge or assignment
as security for the Debt Securities of the series of any properties,
assets, moneys, proceeds, securities or other collateral, including whether
certain provisions of the Trust Indenture Act are applicable and any
corresponding changes to provisions of the Indenture as currently in
effect;
(p) Any addition to or change in the Events of Default with respect to
the Debt Securities of the series and any change in the right of the
Trustee or the holders to declare the principal of and interest on, such
Debt Securities due and payable;
(q) If the Debt Securities of the series shall be issued in whole or
in part in the form of a Global Security, the terms and conditions, if any,
upon which such Global Security may be exchanged in whole or in part for
other individual Debt Securities in definitive registered form and the
Depositary for such Global Security;
(r) Any trustees, authenticating or paying agents, transfer agents or
registrars;
(s) The applicability of, and any addition to or change in the
covenants and definitions currently set forth in the Indenture or in the
terms relating to permitted consolidations, mergers, or sales of assets,
including conditioning any merger, conveyance, transfer or lease permitted
by the
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Indenture upon the satisfaction of an Indebtedness coverage standard by the
Company and Successor Company;
(t) The terms, if any, of any Guarantee (other than the Guarantee of
the Guarantor) of the payment of principal of, and premium, if any, and
interest on, Debt Securities of the series and any corresponding changes to
the provisions of the Indenture as currently in effect;
(u) The subordination, if any, of the Debt Securities of the series
pursuant to the Indenture and any changes or additions to the provisions of
the Indenture relating to subordination;
(v) With regard to Debt Securities of the series that do not bear
interest, the dates for certain required reports to the Trustee; and
(w) Any other terms of the Debt Securities of the series (which terms
shall not be prohibited by the Indenture).
The Prospectus Supplement will also describe any material United States
federal income tax consequences or other special considerations applicable to
the series of Debt Securities to which such Prospectus Supplement relates,
including those applicable to (a) Debt Securities with respect to which payments
of principal, premium, or interest are determined with reference to an index or
formula (including changes in prices of particular securities, currencies, or
commodities), (b) Debt Securities with respect to which principal, premium, or
interest is payable in a foreign or composite currency, (c) Debt Securities that
are issued at a discount below their stated principal amount, bearing no
interest or interest at a rate that at the time of issuance is below market
rates ('Original Issue Discount Debt Securities'), and (d) variable rate Debt
Securities that are exchangeable for fixed rate Debt Securities.
Payments of interest on Debt Securities shall be made at the corporate
trust office of the Trustee or at the option of the Company by check mailed to
the registered holders thereof or, if so provided in the applicable Prospectus
Supplement, at the option of a Holder by wire transfer to an account designated
by such Holder.
Unless otherwise provided in the applicable Prospectus Supplement, Debt
Securities may be transferred or exchanged at the office of the Trustee at which
its corporate trust business is principally administered in the United States or
at the office of the Trustee or the Trustee's agent in the Borough of Manhattan,
the City and State of New York, at which its corporate agency business is
conducted, subject to the limitations provided in the Indenture, without the
payment of any service charge, other than any tax or governmental charge payable
in connection therewith.
GUARANTEES
The Guarantor will irrevocably and unconditionally guarantee to each holder
of a Debt Security the due and punctual payment of the principal of, and any
premium and interest on, such Debt Security, when and as the same shall become
due and payable, whether at maturity, upon acceleration, by call for redemption
or otherwise. The Guarantor has (a) agreed that its obligations under the
Guarantees in the event of an Event of Default will be as if it were principal
obligor and not merely surety, and will be enforceable irrespective of any
invalidity, irregularity or unenforceability of any series of the Debt
Securities or the Indenture or any supplement thereto and (b) waived its right
to require the Trustee or the Holders to pursue or exhaust its legal or
equitable remedies against the Company prior to exercising its rights under the
Guarantees.
GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more fully registered global securities (a 'Global Security')
that will be deposited with a depositary (the 'Depositary'), or with a nominee
for a Depositary identified in the Prospectus Supplement relating to such
series. In such case, one or more Global Securities will be issued in a
denomination or aggregate
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denomination equal to the portion of the aggregate principal amount of
outstanding registered Debt Securities of the series to be represented by such
Global Security or Securities. Unless and until it is exchanged in whole or in
part for Debt Securities in definitive registered form, a Global Security may
not be transferred except as a whole by the Depositary for such Global Security
to a nominee of such Depositary or by a nominee of such Depositary to such
Depositary or another nominee of such Depositary or by such Depositary or any
such nominee to a successor of such Depositary or a nominee of such successor.
The specific terms of the depositary arrangement with respect to any
portion of a series of Debt Securities to be represented by a Global Security
will be described in the Prospectus Supplement relating to such series. The
Company anticipates that the following provisions will apply to all depositary
arrangements.
Upon the issuance of a Global Security, the Depositary for such Global
Security will credit, on its book-entry registration and transfer system, the
respective principal amounts of the Debt Securities represented by such Global
Security to the accounts of persons that have accounts with such Depositary
('participants'). The amounts to be credited shall be designated by any
underwriters or agents participating in the distribution of such Debt
Securities. Ownership of beneficial interests in a Global Security will be
limited to participants or persons that may hold interest through participants.
Ownership of beneficial interests in such Global Security will be shown on, and
the transfer of that ownership will be effected only through, records maintained
by the Depositary for such Global Security (with respect to interests of
participants) or by participants or persons that hold through participants (with
respect to interests of persons other than participants). So long as the
Depositary for a Global Security, or its nominee, is the registered owner of
such Global Security, such Depositary or such nominee, as the case may be, will
be considered the sole owner or Holder of the Debt Securities represented by
such Global Security for all purposes under the Indenture. Except as set forth
below, owners of beneficial interests in a Global Security will not be entitled
to have the Debt Securities represented by such Global Security registered in
their names, will not receive or be entitled to receive physical delivery of
such Debt Securities in definitive form and will not be considered the owners or
Holders thereof under the Indenture.
Principal, premium, if any, and interest payments on Debt Securities
represented by a Global Security registered in the name of a Depositary or its
nominee will be made to such Depositary or its nominee, as the case may be, as
the registered owner of such Global Security. None of the Company, the Trustee
or any paying agent for such Debt Securities will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests in such Global Securities or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
The Company expects that the Depositary for any Debt Securities represented
by a Global Security, upon receipt of any payment of principal, premium, or
interest, will immediately credit participants' accounts with payments in
amounts proportionate to their respective beneficial interests in the principal
amount of such Global Security as shown on the records of the Depositary. The
Company also expects that payments by participants to owners of beneficial
interests in such Global Security held through such participants will be
governed by standing instructions and customary practices, as is now the case
with the securities held for the accounts of customers registered in 'street
name', and will be the responsibility of such participants.
If the Depositary for any Debt Securities represented by a Global Security
is at any time unwilling or unable to continue as Depositary and a successor
Depositary is not appointed by the Company within ninety days, the Company will
issue such Debt Securities in definitive form in exchange for such Global
Security. In addition, the Company may at any time and in its sole discretion
determine not to have any of the Debt Securities of a series represented by one
or more Global Securities and, in such event, will
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issue Debt Securities of such series in definitive form in exchange for the
Global Security or Securities representing such Debt Securities.
SUBORDINATION
Debt Securities may be subordinated ('Subordinated Debt Securities') to
senior debt to the extent set forth in the Prospectus Supplement relating
thereto.
Subordinated Debt Securities will be subordinate in right of payment, to
the extent and in the manner set forth in the Indenture and the Prospectus
Supplement relating to such Subordinated Debt Securities, to the prior payment
of all Indebtedness of the Company that is designated as 'Senior Indebtedness'
(as defined in the Indenture) with respect to such Subordinated Debt Securities.
Senior Indebtedness, with respect to any series of Subordinated Debt Securities,
will consist of (a) any and all amounts payable under or with respect to the
Company's Indebtedness to banks and (b) any other Indebtedness of the Company
that is designated in a resolution of the Company's Board of Directors or the
supplemental Indenture establishing such series as Senior Indebtedness with
respect to such series.
Upon any payment or distribution of assets of the Company to creditors or
upon a total or partial liquidation or dissolution of the Company or in a
bankruptcy, receivership, or similar proceeding relating to the Company or its
property, holders of Senior Indebtedness shall be entitled to receive payment in
full in cash of the Senior Indebtedness before holders of Subordinated Debt
Securities shall be entitled to receive any payment of principal, premium, or
interest with respect to the Subordinated Debt Securities, and until the Senior
Indebtedness is paid in full, any distribution to which holders of Subordinated
Debt Securities would otherwise be entitled shall be made to the Holders of
Senior Indebtedness (except that such Holders may receive shares of stock and
any debt securities that are subordinated to Senior Indebtedness to at least the
same extent as the Subordinated Debt Securities).
The Company may not make any payments or principal, premium, or interest
with respect to Subordinated Debt Securities, make any deposit for the purpose
of defeasance of such Subordinated Debt Securities, or repurchase, redeem, or
otherwise retire (except, in the case of Subordinated Debt Securities that
provide for a mandatory sinking fund, by the delivery of Subordinated Debt
Securities by the Company to the Trustee in satisfaction of the Company's
sinking fund obligation) any Subordinated Debt Securities if (a) any principal,
premium, if any, or interest with respect to Senior Indebtedness is not paid
within any applicable grace period (including at maturity) or (b) any other
default on Senior Indebtedness occurs and the maturity of such Senior
Indebtedness is accelerated in accordance with its terms, unless, in either
case, the default has been cured or waived and such acceleration has been
rescinded, such Senior Indebtedness has been paid in full in cash, or the
Company and the Trustee receive written notice approving such payment from the
representatives of each issue of 'Designated Senior Indebtedness' (which will
include the Bank Indebtedness and any other specified issue of Senior
Indebtedness. During the continuance of any default (other than a default
described in clause (a) or (b) above) with respect to any Senior Indebtedness
pursuant to which the maturity thereof may be accelerated immediately without
further notice (except such notice as may be required to effect such
acceleration) or the expiration of any applicable grace periods, the Company may
not pay the Subordinated Debt Securities for a period (the 'Payment Blockage
Period') commencing on the receipt by the Company and the Trustee of written
notice of such default from the representative of any Designated Senior
Indebtedness specifying an election to effect a Payment Blockage Period (a
'Blockage Notice'). The Payment Blockage Period may be terminated before its
expiration by written notice to the Trustee and the Company from the person who
gave the Blockage Notice, by repayment in full in cash of the Senior
Indebtedness with respect to which the Blockage Notice was given, or because the
default giving rise to the Payment Blockage Period is no longer continuing.
Unless the holders of such Senior Indebtedness shall have accelerated the
maturity thereof, the Company may resume payments on the Subordinated Debt
Securities after the expiration of the Payment Blockage Period. Not more than
one Blockage Notice may be given in any period of 360 consecutive days unless
the first
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Blockage Notice within such 360-day period is given by or on behalf of holders
of Designated Senior Indebtedness other than the Bank Indebtedness, in which
case the representative of the Bank Indebtedness may give another Blockage
Notice within such period. In no event, however, may the total number of days
during which any Payment Blockage Period or Periods is in effect exceed 179 days
in the aggregate during any period of 360 consecutive days. After all Senior
Indebtedness is paid in full and until the Subordinated Debt Securities are paid
in full, Holders of the Subordinated Debt Securities shall be subrogated to the
rights of Holders of Senior Indebtedness to receive distributions applicable to
Senior Indebtedness.
All payments by the Guarantor pursuant to any Guarantees of Subordinated
Debt Securities will be subordinated in right of payment to the prior payment in
full of all Senior Indebtedness of the Guarantor.
By reason of such subordination, in the event of insolvency, creditors of
the Company or the Guarantor who are Holders of Senior Indebtedness, as well as
certain general creditors of the Company or the Guarantor, may recover more,
ratably, than the Holders of the Subordinated Debt Securities.
EVENTS OF DEFAULT AND REMEDIES
The following events are defined in the Indenture as 'Events of Default'
with respect to a series of Debt Securities:
(a) Default in the payment of any installment of interest on any Debt
Securities of that series as and when the same shall become due and payable
(whether or not, in the case of Subordinated Debt Securities, such payment
shall be prohibited by reason of the subordination provision described
above) and continuance of such default for a period of 30 days;
(b) Default in the payment of principal or premium with respect to any
Debt Securities of that series as and when the same become due and payable,
whether at maturity, upon redemption, by declaration, upon required
repurchase, or otherwise (whether or not, in the case of Subordinated Debt
Securities, such payment shall be prohibited by reason of the subordination
provision described above);
(c) Default in the payment of any sinking fund payment with respect to
any Debt Securities of that series as and when the same shall become due
and payable;
(d) Failure on the part of the Company or the Guarantor to comply with
the provisions of the Indenture relating to consolidations, mergers and
sales of assets;
(e) Failure on the part of the Company or the Guarantor duly to
observe or perform any other of the covenants or agreements on the part of
the Company or the Guarantor in the Debt Securities of that series, in any
resolution of the Board of Directors of the Company authorizing the
issuance of that series of Debt Securities, in the Indenture with respect
to such series, or in any supplemental Indenture with respect to such
series (other than a covenant or agreement a default in the performance of
which is otherwise specifically dealt with) continuing for a period of 60
days after the date on which written notice specifying such failure and
requiring the Company or the Guarantor to remedy the same shall have been
given to the Company or the Guarantor by the Trustee or to the Company or
the Guarantor and the Trustee by the holders of at least 25% in aggregate
principal amount of the Debt Securities of that series at the time
outstanding;
(f) Indebtedness of the Guarantor or any Subsidiary of the Guarantor
is not paid within any applicable grace period after final maturity or is
accelerated by the Holders thereof because of a default, the total amount
of such indebtedness unpaid or accelerated exceeds $100 million or the
United States dollar equivalent thereof at the time, and such default
remains uncured or such acceleration is not rescinded for 10 days after the
date on which written notice specifying such failure and requiring the
Guarantor to remedy the same shall have been given to the Guarantor by
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the Trustee or to the Guarantor and the Trustee by the Holders of at least
25% in aggregate principal amount of the Debt Securities of that series at
the time outstanding;
(g) The Company or the Guarantor or any of its Restricted Subsidiaries
shall (1) voluntarily commence any proceeding or file any petition seeking
relief under the United States Bankruptcy Code or other federal or state
bankruptcy, insolvency, or similar law, (2) consent to the institution of,
or fail to controvert within the time and in the manner prescribed by law,
any such proceeding or the filing of any such petition, (3) apply for or
consent to the appointment of a receiver, trustee, custodian, sequestrator,
or similar official for the Company or the Guarantor or any such Restricted
Subsidiary or for a substantial part of its property, (4) file an answer
admitting the material allegations of a petition filed against it in any
such proceeding, (5) make a general assignment for the benefit of
creditors, (6) admit in writing its inability or fail generally to pay its
debts as they become due, (7) take corporate action for the purpose of
effecting any of the foregoing, or (8) take any comparable action under any
foreign laws relating to insolvency;
(h) The entry of an order or decree by a court having competent
jurisdiction for (1) relief with respect to the Company or the Guarantor or
any of its Restricted Subsidiaries or a substantial part of any of their
property under the United States Bankruptcy Code or any other federal or
state bankruptcy, insolvency, or similar law, (2) the appointment of a
receiver, trustee, custodian, sequestrator, or similar official for the
Company or the Guarantor or any such Restricted Subsidiary or for a
substantial part of any of their property (except any decree or order
appointing such official of any Restricted Subsidiary pursuant to a plan
under which the assets and operations of such Restricted Subsidiary are
transferred to or combined with another Restricted Subsidiary of the
Guarantor or to the Guarantor), or (3) the winding-up or liquidation of the
Company or the Guarantor or any such Restricted Subsidiary (except any
decree or order approving or ordering the winding-up or liquidation of the
affairs of a Restricted Subsidiary pursuant to a plan under which the
assets and operations of such Restricted Subsidiary are transferred to or
combined with another Restricted Subsidiary or Subsidiaries of the
Guarantor or to the Guarantor), and such order or decree shall continue
unstayed and in effect for 60 consecutive days, or any similar relief is
granted under any foreign laws and the order or decree stays in effect for
60 consecutive days; or
(i) Any other Event of Default provided under the terms of the Debt
Securities of that series.
An Event of Default with respect to one series of Debt Securities is not
necessarily an Event of Default for another series.
If an Event of Default occurs and is continuing with respect to any series
of Debt Securities, unless the principal and interest with respect to all the
Debt Securities of such series shall have already become due and payable, either
the Trustee or the holders of not less than 25% in aggregate principal amount of
the Debt Securities of such series then outstanding may declare the principal of
(or, if Original Issue Discount Debt Securities, such portion of the principal
amount as may be specified in such series) and interest on all the Debt
Securities of such series due and payable immediately.
If an Event of Default occurs and is continuing, the Trustee shall be
entitled and empowered to institute any action or proceeding for the collection
of the sums so due and unpaid or to enforce the performance of any provision of
the Debt Securities of the affected series or the Indenture, to prosecute any
such action or proceeding to judgment or final decree, and to enforce any such
judgment or final decree against the Company or any other obligor on the Debt
Securities of such series. In addition, if there shall be pending proceedings
for the bankruptcy or reorganization of the Company or any other obligor on the
Debt Securities, or if a receiver, trustee, or similar official shall have been
appointed for its property, the Trustee shall be entitled and empowered to file
and prove a claim for the whole amount of principal, premium and interest (or,
in the case of Original Issue Discount Debt Securities, such portion of the
principal amount as may be specified in the terms of such series) owing and
unpaid with respect to the Debt Securities. No Holder of any Debt Securities of
any series shall have any right to institute any action or proceeding upon or
under or with respect to the Indenture, for the appointment of a
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receiver or trustee, or for any other remedy, unless (a) such Holder previously
shall have given to the Trustee written notice of an Event of Default with
respect to Debt Securities of that series and of the continuance thereof, (b)
the Holders of not less than 25% in aggregate principal amount of the
outstanding Debt Securities of that series shall have made written request to
the Trustee to institute such action or proceeding with respect to such Event of
Default and shall have offered to the Trustee such reasonable indemnity as it
may require against the costs, expenses, and liabilities to be incurred therein
or thereby, and (c) the Trustee, for 60 days after its receipt of such notice,
request, and offer of indemnity shall have failed to institute such action or
proceeding and no direction inconsistent with such written request shall have
been given to the Trustee pursuant to the provisions of the Indenture.
Prior to the acceleration of the maturity of the Debt Securities of any
series, the Holders of a majority in aggregate principal amount of the Debt
Securities of that series at the time outstanding may, on behalf of the Holders
of all Debt Securities of that series, waive any past default or Event of
Default and its consequences for that series, except (a) a default in the
payment of the principal, premium, or interest with respect to such Debt
Securities or (b) a default with respect to a provision of the Indenture that
cannot be amended without the consent of each Holder affected thereby. In case
of any such waiver, such default shall cease to exist, any Event of Default
arising therefrom shall be deemed to have been cured for all purposes, and the
Company, the Trustee and the Holders of the Debt Securities of that series shall
be restored to their former positions and rights under the Indenture.
The Trustee shall, within 90 days after the occurrence of a default known
to it with respect to a series of Debt Securities, give to the Holders of the
Debt Securities of such series notice of all uncured defaults with respect to
such series known to it, unless such defaults shall have been cured or waived
before the giving of such notice; provided, however, that except in the case of
default in the payment of principal, premium, or interest with respect to the
Debt Securities of such series or in the making of any sinking fund payment with
respect to the Debt Securities of such series, the Trustee shall be protected in
withholding such notice if it in good faith determines that the withholding of
such notice is in the interest of the Holders of such Debt Securities.
MODIFICATION OF THE INDENTURE
The Company, the Guarantor and the Trustee may enter into supplemental
indentures without the consent of the Holders of Debt Securities issued under
the Indenture for one or more of the following purposes:
(a) To evidence the succession of another person to the Company or the
Guarantor pursuant to the provisions of the Indenture relating to
consolidations, mergers, and sales of assets and the assumption by such
successor of the covenants, agreements, and obligations of the Company or
the Guarantor in the Indenture and in the Debt Securities;
(b) To surrender any right or power conferred upon the Company or the
Guarantor by the Indenture, to add to the covenants of the Company or the
Guarantor such further covenants, restrictions, conditions, or provisions
for the protection of the Holders of all or any series of Debt Securities
as the Board of Directors of the Company or the Guarantor shall consider to
be for the protection of the Holders of such Debt Securities, and to make
the occurrence, or the occurrence and continuance of a default in any of
such additional covenants, restrictions, conditions, or provisions, a
default or an Event of Default under the Indenture (provided, however, that
with respect to any such additional covenant, restriction, condition, or
provision, such supplemental indenture may provide for a period of grace
after default, which may be shorter or longer than that allowed in the case
of other defaults, may provide for an immediate enforcement upon such
default, may limit the remedies available to the Trustee upon such default,
or may limit the right of Holders of a majority in aggregate principal
amount of any or all series of Debt Securities to waive such default);
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(c) To cure any ambiguity or to correct or supplement any provision
contained in the Indenture, in any supplemental indenture, or in any Debt
Securities that may be defective or inconsistent with any other provision
contained therein, to convey, transfer, assign, mortgage, or pledge any
property to or with the Trustee, or to make such other provisions in regard
to matters or questions arising under the Indenture as shall not adversely
affect the interests of any Holders of Debt Securities of any series;
(d) To modify or amend the Indenture in such a manner as to permit the
qualification of the Indenture or any supplemental Indenture under the
Trust Indenture Act as then in effect;
(e) To add or change any of the provisions of the Indenture to change
or eliminate any restriction on the payment of principal or premium with
respect to Debt Securities so long as any such action does not adversely
affect the interest of the Holders of Debt Securities in any material
respect or permit or facilitate the issuance of Debt Securities of any
series in uncertificated form;
(f) To comply with the provisions of the Indenture relating to
consolidations, mergers, and sales of assets;
(g) In the case of Subordinated Debt Securities, to make any change in
the provisions of the Indenture relating to subordination that would limit
or terminate the benefits available to any Holder of Senior Indebtedness
under such provisions (but only if such Holder of Senior Indebtedness
consents to such change);
(h) To add additional Guarantees with respect to the Debt Securities
or to secure the Debt Securities;
(i) To make any change that does not adversely affect the rights of
any Holder;
(j) To add to, change, or eliminate any of the provisions of the
Indenture with respect to one or more series of Debt Securities, so long as
any such addition, change, or elimination not otherwise permitted under the
Indenture shall (1) neither apply to any Debt Securities of any series
created prior to the execution of such supplemental Indenture and entitled
to the benefit of such provision nor modify the rights of the Holders of
any such Debt Security with respect to such provision or (2) become
effective only when there is no such Debt Security outstanding;
(k) To evidence and provide for the acceptance of appointment by a
successor or separate Trustee with respect to the Debt Securities of one or
more series and add to or change any of the provisions of the Indenture as
shall be necessary to provide for or facilitate the administration of the
Indenture by more than one Trustee; and
(l) To establish the form or terms of Debt Securities of any series,
as described under 'Description of Debt Securities--General' above.
With the consent of the Holders of a majority in aggregate principal amount
of the outstanding Debt Securities of each series affected thereby, the Company,
the Guarantor and the Trustee may from time to time and at any time enter into a
supplemental Indenture for the purpose of adding any provisions to, changing in
any manner, or eliminating any of the provisions of the Indenture or of any
supplemental Indenture or modifying in any manner the rights of the Holder of
the Debt Securities of such series; provided, however, that without the consent
of the Holders of each Debt Security so affected, no such supplemental Indenture
shall (a) reduce the percentage in principal amount of Debt Securities of any
series whose Holders must consent to an amendment, (b) reduce the rate of or
extend the time for payment of interest on any Debt Security, (c) reduce the
principal of or extend the stated maturity of any Debt Security, (d) reduce the
premium payable upon the redemption of any Debt Security or change the time at
which any Debt Security may or shall be redeemed, (e) make any Debt Security
payable in a currency other than that stated in the Debt Security, (f) in the
case of any Subordinated Debt Security, make any change in the provisions of the
Indenture relating to subordination that adversely affects the rights of any
Holder under such provisions, (g) release any security that may have been
granted with
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respect to the Debt Securities, or (h) make any change in the provisions of the
Indenture relating to waivers of defaults or amendments that require unanimous
consent.
CERTAIN COVENANTS
Limitation on Liens. The Guarantor may not, and may not permit any of its
Subsidiaries to, directly or indirectly, create or permit to exist any Lien on
any Principal Property, whether owned on the date of issuance of the Debt
Securities or thereafter acquired, securing any obligation unless the Guarantor
contemporaneously secures the Debt Securities equally and ratably with (or prior
to) such obligation. The preceding sentence will not require the Guarantor to
secure the Debt Securities if the Lien consists of the following: (i) Permitted
Liens; or (ii) Liens securing Indebtedness if, after giving pro forma effect to
the Incurrence of such Indebtedness (and the receipt and application of the
proceeds thereof) or the securing of outstanding Indebtedness, all Indebtedness
of the Guarantor and its Subsidiaries secured by Liens on Principal Property
(other than Permitted Liens), at the time of determination does not exceed 10%
of the total consolidated stockholders' equity of the Guarantor as shown on the
audited consolidated balance sheet contained in the latest annual report to
stockholders of the Guarantor.
Ownership of the Company. The Indenture contains a covenant that, so long
as any of the Debt Securities are outstanding and subject to certain rights
described below under 'Consolidation or Merger,' the Guarantor will continue to
own, directly or indirectly, all of the outstanding voting shares of the
Company.
Certain Definitions. The following definitions, among others, are used in
the Indenture. Many of the definitions of terms used in the Indenture have been
negotiated specifically for the purposes of inclusion in the Indenture and may
not be consistent with the manner in which such terms are defined in other
contexts. Prospective purchasers of Debt Securities are encouraged to read each
of the following definitions carefully and to consider such definitions in the
context in which they are used in the Indenture. Capitalized terms used herein
but not defined have the meanings assigned thereto in the Indenture.
'Capitalized Lease Obligation' means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP; and the amount of Indebtedness represented by
such obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
'Currency Exchange Protection Agreement' means, in respect of any Person,
any foreign exchange contract, currency swap agreement, currency option or other
similar agreement or arrangement designed to protect such Person against
fluctuations in currency exchange rates.
'Disqualified Stock' of a Person means Redeemable Stock of such Person as
to which the maturity, mandatory redemption, conversion or exchange or
redemption at the option of the holder thereof occurs, or may occur, on or prior
to the first anniversary of the Stated Maturity of the Debt Securities.
'GAAP' means generally accepted accounting principles in the United States
as in effect as of the date on which the Debt Securities of the applicable
series are issued, including those set forth in the opinions and pronouncements
of the Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity as approved by
a significant segment of the accounting profession. All ratios and computations
based on GAAP contained in this Indenture shall be computed in conformity with
GAAP consistently applied.
'Government Contract Lien' means any Lien required by any contract,
statute, regulation or order in order to permit the Company or any of its
Subsidiaries to perform any contract or subcontract made
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by it with or at the request of the United States or any State thereof or any
department, agency or instrumentality of either or to secure partial, progress,
advance or other payments by the Company or any of its Subsidiaries to the
United States or any State thereof or any department agency or instrumentality
of either pursuant to the provisions of any contract, statute, regulation or
order.
'Hedging Obligations' of any Person means the obligations of such Person
pursuant to any Interest Rate Protection Agreement, Currency Exchange Protection
Agreement or Commodity Price Protection Agreement or other similar agreement.
'Indebtedness' means, with respect to any Person on any date of
determination (without duplication),
(i) the principal of Indebtedness of such Person for borrowed money;
(ii) the principal of obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments;
(iii) all Capitalized Lease Obligations of such Person;
(iv) all obligations of such Person to pay the deferred and unpaid
purchase price of property or services (except Trade Payables);
(v) all obligations of such Person in respect of letters of credit,
banker's acceptances or other similar instruments or credit transactions
(including reimbursement obligations with respect thereto), other than
obligations with respect to letters of credit securing obligations (other
than obligations described in (i) through (iv) above) entered into in the
ordinary course of business of such Person to the extent such letters of
credit are not drawn upon or, if and to the extent drawn upon, such drawing
is reimbursed no later than the third business day following receipt by
such Person of a demand for reimbursement following payment on the letter
of credit;
(vi) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock (but
excluding, in each case, any accrued dividends);
(vii) all Indebtedness of other Persons secured by a Lien on any asset
of such Person, whether or not such Indebtedness is assumed by such Person;
provided, however, that the amount of such Indebtedness shall be the lesser
of (A) the fair market value of such asset at such date of determination
and (B) the amount of such Indebtedness of such other Persons; and
(viii) all Indebtedness of other Persons to the extent Guaranteed by
such Person.
For purposes of this definition, the maximum fixed redemption, repayment or
repurchase price of any Disqualified Stock or Preferred Stock that does not have
a fixed redemption, repayment or repurchase price shall be calculated in
accordance with the terms of such Stock as if such Stock were redeemed, repaid
or repurchased on any date on which Indebtedness shall be required to be
determined pursuant to this Indenture; provided, however, that if such Stock is
not then permitted to be redeemed, repaid or repurchased, the redemption,
repayment or repurchase price shall be the book value of such Stock as reflected
in the most recent financial statements of such Person. The amount of
Indebtedness of any Person at any date shall be the outstanding balance at such
date of all unconditional obligations as described above and the maximum
liability, upon the occurrence of the contingency giving rise to the obligation,
of any contingent obligations at such date.
'Interest Rate Protection Agreement' means, in respect of any Person, any
interest rate swap agreement, interest rate option agreement, interest rate cap
agreement, interest rate collar agreement, interest rate floor agreement or
other similar agreement or arrangement designed to protect such Person against
fluctuations in interest rates.
'Lien' means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
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'Net Amount of Rent' as to any lease for any period means the aggregate
amount of rent payable by the lessee with respect to such period after excluding
amounts required to be paid on account of maintenance and repairs, insurance,
taxes, assessments, water rates and similar charges. In the case of any lease
that is terminable by the lessee upon the payment of a penalty, such net amount
shall also include the amount of such penalty, but no rent shall be considered
as payable under such lease subsequent to the first date upon which it may be so
terminated.
'Permitted Liens' means, with respect to any Person, (a) pledges or
deposits by such Person under worker's compensation laws, unemployment insurance
laws, social security laws or similar legislation, or good faith deposits in
connection with bids, tenders, contracts (other than for the payment of
Indebtedness) or leases to which such Person is a party, or deposits to secure
public or statutory obligations of such Person or deposits of cash or bonds to
secure performance, surety or appeal bonds to which such Person is a party or
which are otherwise required of such Person, or deposits as security for
contested taxes or import duties or for the payment of rent or other obligations
of like nature, in each case incurred in the ordinary course of business; (b)
Liens imposed by law, such as carriers', warehousemen's, laborers',
materialmen's, landlords', vendors', workmen's, operators', factors and
mechanics liens, in each case for sums not yet due or being contested in good
faith by appropriate proceedings; (c) Liens for taxes, assessments and other
governmental charges or levies not yet delinquent or which are being contested
in good faith by appropriate proceedings; (d) survey exceptions, encumbrances,
easements or reservations of or with respect to, or rights of others for or with
respect to, licenses, rights-of-way, sewers, electric and other utility lines
and usages, telegraph and telephone lines, pipelines, surface use, operation of
equipment, permits, servitudes and other similar matters, or zoning or other
restrictions as to the use of real property or Liens incidental to the conduct
of the business of such Person or to the ownership of its properties which were
not incurred in connection with Indebtedness and which do not in the aggregate
materially adversely affect the value of said properties or materially impair
their use in the operation of the business of such Person; (e) Liens existing on
or provided for under the terms of agreements existing on the Issue Date
(including, without limitation, under the Credit Agreement); (f) Liens on
property at the time the Company or any of its Subsidiaries acquired the
property or the entity owning such property, including any acquisition by means
of a merger or consolidation with or into the Guarantor; provided, however, that
any such Lien may not extend to any other property owned by the Guarantor or any
of its Subsidiaries; (g) Liens on any Principal Property, or any shares of stock
or Indebtedness of any Subsidiary, acquired (including by way of merger or
consolidation) after the date of the Indenture by the Company or any Subsidiary
which are created contemporaneously with such acquisition, or within 24 months
thereafter, to secure or provide for the payment or financing of any part of the
purchase price thereof; (h) Liens on any property of CompuServe Corporation or
any of its Subsidiaries, including any shares of stock or Indebtedness of any
such Subsidiaries; (i) Liens arising in connection with the securitization of
any mortgage loans owned by the Company or any of its Subsidiaries; (j) Liens
arising in connection with the sale of any credit card receivables owned by the
Company or any of its Subsidiaries; (k) Liens securing a Hedging Obligation so
long as such Hedging Obligation is of the type customarily entered into for the
purpose of limiting risk; (l) Purchase Money Liens; (m) Liens securing only
Indebtedness of a Subsidiary of the Guarantor to the Guarantor or one or more
wholly owned Subsidiaries of the Guarantor; (n) Liens on any property to secure
Indebtedness Incurred in connection with the construction, installation or
financing of pollution control or abatement facilities or other forms of
industrial revenue bond financing or Indebtedness issued or Guaranteed by the
United States, any state or any department, agency or instrumentality thereof;
(o) Government Contract Liens; (p) Liens securing Indebtedness of joint ventures
in which the Guarantor or a Subsidiary has an interest to the extent such Liens
are on property or assets of, such joint ventures; (q) Liens resulting from the
deposit of funds or evidences of Indebtedness in trust for the purpose of
defeasing Indebtedness of the Guarantor or any of its Subsidiaries; (r) legal or
equitable encumbrances deemed to exist by reason of negative pledges or the
existence of any litigation or other legal proceeding and any related lis
pendens filing (excluding any attachment prior to judgment lien or attachment
lien in aid of execution on a judgment); (s) any
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attachment Lien being contested in good faith and by proceedings promptly
initiated and diligently conducted, unless the attachment giving rise thereto
will not, within 60 days after the entry thereof, have been discharged or fully
bonded or will not have been discharged within 60 days after the termination of
any such bond; (t) any judgment Lien, unless the judgment it secures will not,
within 60 days after the entry thereof, have been discharged or execution
thereof stayed pending appeal, or will not have been discharged within 60 days
after the expiration of any such stay; (u) Liens to banks arising from the
issuance of letters of credit issued by such banks ('issuing banks') on the
following: (i) any and all shipping documents, warehouse receipts, policies or
certificates of insurance and other document accompanying or relative to drafts
drawn under any credit, and any draft drawn thereunder (whether or not such
documents, goods or other property be released to or upon the order of the
Guarantor or any Subsidiary under a security agreement or trust or bailee
receipt or otherwise), and the proceeds of each and all of the foregoing; (ii)
the balance of every deposit account, now or at the time hereafter existing, of
the Guarantor or any Subsidiary with the issuing banks, and any other claims of
the Guarantor or any Subsidiary against the issuing banks; and all property
claims and demands and all rights and interests therein of the Guarantor or any
Subsidiary and all evidences thereof and all proceeds thereof which have been or
at any time will be delivered to or otherwise come into any issuing bank's
possession, custody or control, or into the possession, custody or control of
any bailee for the issuing bank or of any of its agents or correspondents for
the account of the issuing bank, for any purpose, whether or not the express
purpose of being used by the issuing bank as collateral security or for the
safekeeping or for any other of different purpose, the issuing bank being deemed
to have possession or control of all of such property actually in transit to or
from or set apart for the issuing bank, any bailee for the issuing bank or any
of its correspondents acting in its behalf, it being understood that the receipt
at any time by the issuing bank, or any of its bailees, agents or
correspondents, of other security, of whatever nature, including cash, will not
be deemed a waiver of any of the issuing bank's rights or power hereunder; (iii)
all property shipped under or pursuant to or in connection with any credit or
drafts drawn thereunder or in any way related thereto, and all proceeds thereof;
(iv) all additions to and substitutions for any of the property enumerated above
in this subsection; (v) rights of a common owner of any interest in property
held by such Person; (w) any defects, irregularities or deficiencies in title to
easements, rights-of-way or other properties which do not in the aggregate
materially adversely affect the value of such properties or materially impair
their use in the operation of the business of such Person; and (x) Liens to
secure any refinancing, refunding, extension, renewal or replacement (or
successive refinancings, refundings, extensions, renewals or replacements), as a
whole, or in part, of any Indebtedness secured by any Lien referred to in the
foregoing clauses (e) through (p); provided, however, that (i) such new Lien
shall be limited to all or part of the same property that secured the original
Lien (plus improvements on such property) and (ii) the Indebtedness secured by
such Lien at such time is not increased to any amount greater than the sum of
(A) the outstanding principal amount or, if greater, committed amount of the
Indebtedness described under clauses (e) through (l) at the time the original
Lien became a Permitted Lien under this Indenture and (B) an amount necessary to
pay any fees and expenses, including premiums, related to such refinancing,
refunding, extension, renewal or replacement.
'Person' means any individual, corporation, partnership, joint venture,
association, limited liability company, joint stock company, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
'Principal Property' means, as of any date of determination, any property
or assets owned by the Company or any Subsidiary other than any property which,
in the good faith opinion of the Board of Directors of the Company, is not of
material importance to the business conducted by the Company and its
Subsidiaries taken as a whole.
'Purchase Money Lien' means a Lien on property securing Indebtedness
Incurred by the Guarantor or any of its Subsidiaries to provide funds for all or
any portion of the cost of acquiring, constructing, altering, expanding,
improving or repairing such property or assets used in connection with such
property.
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'Redeemable Stock' means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is convertible
of for which it is exchangeable) or upon the happening of any event (i) matures
or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise,
(ii) is convertible or exchangeable for Indebtedness (other than Preferred
Stock) or Disqualified Stock or (iii) is redeemable at the option of the holder
thereof, in whole or in part.
'Subsidiary' of any Person means any corporation, association, partnership
or other business entity of which more than 50% of the total voting power of
shares of Capital Stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by (i) such Person,
(ii) such Person and one or more Subsidiaries of such Person or (iii) one or
more Subsidiaries of such Person.
CONSOLIDATION, MERGER, AND SALE OF ASSETS
Neither the Guarantor nor the Company may consolidate with or merge with or
into any person, or convey, transfer, or lease all or substantially all of its
assets, unless the following conditions have been satisfied:
(a) Either (1) the Guarantor shall be the continuing person in the
case of a merger or (2) the resulting, surviving, or transferee person, if
other than the Guarantor (the 'Successor Company'), shall be a corporation
organized and existing under the laws of the United States, any State, or
the District of Columbia and shall expressly assume all of the obligations
of the Company and the Guarantor under the Debt Securities and the
Indenture;
(b) Immediately after giving effect to such transaction (and treating
any Indebtedness that becomes an obligation of the Successor Company or any
subsidiary of the Guarantor as a result of such transaction as having been
incurred by the Successor Company or such subsidiary at the time of such
transaction), no Default or Event of Default would occur or be continuing;
and
(c) The Guarantor shall have delivered to the Trustee an officers'
certificate and an opinion of counsel, each stating that such
consolidation, merger, or transfer complies with the Indenture.
A disposition by the Guarantor of its ownership interest in CompuServe
Corporation shall not be deemed a transfer or conveyance of substantially all of
the Company's assets.
SATISFACTION AND DISCHARGE OF THE INDENTURE; DEFEASANCE
The Indenture shall generally cease to be of any further effect with
respect to a series of Debt Securities if (a) the Company has delivered to the
Trustee for cancellation all Debt Securities of such series (with certain
limited exceptions) or (b) all Debt Securities of such series not theretofore
delivered to the Trustee for cancellation shall have become due and payable, or
are by their terms to become due and payable within one year or are to be called
for redemption within one year, and the Company shall have deposited with the
Trustee as trust funds the entire amount in the currency in which the Debt
Securities are denominated sufficient to pay at maturity or upon redemption all
such Debt Securities (and if, in either case, the Company shall also pay or
cause to be paid all other sums payable under the Indenture by the Company).
In addition, the Company shall have a 'legal defeasance option' (pursuant
to which it may terminate, with respect to the Debt Securities of the particular
series, all of its obligations under such Debt Securities and the Indenture with
respect to such Debt Securities) and 'covenant defeasance option' (pursuant to
which it may terminate, with respect to the Debt Securities of a particular
series, its obligations with respect to such Debt Securities under certain
specified covenants contained in the Indenture). If the Company exercises its
legal defeasance option with respect to a series of Debt Securities, payment of
such Debt Securities may not be accelerated because of an Event of Default If
the Company exercises its covenant defeasance option with respect to a series of
Debt Securities,
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payment of such Debt Securities may not be accelerated because of an Event of
Default related to the specified covenants.
The Company may exercise its legal defeasance option or its covenant
defeasance option with respect to the Debt Securities of a series only if (a)
the Company irrevocably deposits in trust with the Trustee cash or U.S.
Government Obligations (as defined in the Indenture) for the payment of
principal, premium, and interest with respect to such Debt Securities to
maturity or redemption, as the case may be, (b) the Company delivers to the
Trustee a certificate from a nationally recognized firm of independent
accountants expressing their opinion that the payment of principal and interest
when due and without reinvestment on the deposited U.S. Government Obligations
plus any deposited money without investment will provide cash at such times and
in such amounts as will be sufficient to pay the principal, premium, and
interest when due with respect to all the Debt Securities of such series to
maturity or redemption, as the case may be, (c) 91 days after the deposit is
made and during the 91-day period no default described in clause (g) or (h)
under 'Description of Debt Securities Events of Default and Remedies' above with
respect to the Company or the Guarantor occurs that is continuing at the end of
such period, (d) no Default has occurred and is continuing on the date of such
deposit and after giving effect thereto, (e) the deposit does not constitute a
default under any other agreement binding on the Company or the Guarantor, and,
in the case of Subordinated Debt Securities, is not prohibited by the provisions
of the Indenture relating to subordination, (f) the Company delivers to the
Trustee an opinion of counsel to the effect that the trust resulting from the
deposit does not constitute, or is qualified as, a regulated investment company
under the Investment Company Act of 1940, (g) the Company shall have delivered
to the Trustee an opinion of counsel addressing certain federal income tax
matters relating to the defeasance, and (h) the Company delivers to the Trustee
an officer's certificate and an opinion of counsel, each stating that all
conditions precedent to the defeasance and discharge of the Debt Securities of
such series as contemplated by the Indenture have been complied with.
The Trustee shall hold in trust cash or U.S. Government Obligations
deposited with it as described above and shall apply the deposited cash and the
proceeds from deposited U.S. Government Obligations to the payment of principal,
premium, and interest with respect to the Debt Securities of the defeased
series. In the case of Subordinated Debt Securities, the money and U.S.
Government Obligations so held in trust will not be subject to the subordination
provisions of the Indenture.
THE TRUSTEE
The Company may maintain banking and other commercial relationships with
the Trustee and its affiliates in the ordinary course of business and the
Trustee may own Debt Securities.
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PLAN OF DISTRIBUTION
The Company may sell the Debt Securities in or outside the United States
through underwriters, through or to dealers, directly to one or more purchasers,
or through agents. Each Prospectus Supplement with respect to the Debt
Securities offered hereby will set forth the terms of the offering of applicable
Debt Securities, including the name or names of any underwriters, dealers or
agents, the purchase price of the Debt Securities and the proceeds to the
Company from such sale, any delayed delivery arrangements, any underwriting
discounts and other items constituting underwriters' compensation, the initial
public offering price, any discounts or concessions allowed or re-allowed or
paid to dealers and any securities exchanges on which the Debt Securities may be
listed.
If underwriters are used in the sale, the Debt Securities will be acquired
by the underwriters for their own account and may be resold from time to time in
one or more transactions, including negotiated transactions, at a fixed public
offering price or at varying prices determined at the time of sale. The Debt
Securities may be offered to the public either through underwriting syndicates
represented by one or more managing underwriters or directly by one or more
firms acting as underwriters. The underwriter or underwriters with respect to a
particular underwritten offering of Debt Securities will be named in the
Prospectus Supplement relating to such offering, and if an underwriting
syndicate is used, the managing underwriter or underwriters will be set forth on
the cover of such Prospectus Supplement. Unless otherwise set forth in the
Prospectus Supplement relating thereto, the obligations of the underwriters or
agents to purchase the Debt Securities will be subject to conditions precedent
and the underwriters will be obligated to purchase all the Debt Securities if
any are purchased. The initial public offering price and any discounts or
concessions allowed or re-allowed or paid to dealers may be changed from time to
time.
If dealers are used in the sale of Debt Securities with respect to which
this Prospectus is delivered, the Company will sell such Debt Securities to the
dealers as principals. The dealers may then resell such Debt Securities to the
public at varying prices to be determined by such dealers at the time of resale.
The names of the dealers and the terms of the transaction will be set forth in
the Prospectus Supplement relating thereto.
Debt Securities may be sold directly by the Company or through agents
designated by the Company from time to time at fixed prices, which may be
changed, or at varying prices determined at the time of sale. Any agent involved
in the offer or sale of the Debt Securities with respect to which this
Prospectus is delivered will be named, and any commissions payable by the
Company to such agent will be set forth in the Prospectus Supplement relating
thereto. Unless otherwise indicated in the Prospectus Supplement, any such agent
will be acting on a best efforts basis for the period of its appointment.
In connection with the sale of the Debt Securities, underwriters or agents
may receive compensation from the Company or from purchasers of Debt Securities
for whom they may act as agents in the form of discounts, concessions, or
commissions. Underwriters, agents and dealers participating in the distribution
of the Debt Securities may be deemed to be underwriters, and any discounts or
commissions received by them from the Company and any profit on the resale of
the Debt Securities by them may be deemed to be underwriting discounts or
commissions under the Securities Act.
If so indicated in the Prospectus Supplement, the Company will authorize
agents, underwriters, or dealers to solicit offers from certain types of
institutions to purchase Debt Securities from the Company at the public offering
price set forth in such Prospectus Supplement pursuant to delayed delivery
contracts providing for payment and delivery on a specified date in the future.
Such contracts will be subject only to those conditions set forth in such
Prospectus Supplement, and the Prospectus Supplement will set forth the
commission payable for solicitation of such contracts.
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Agents, dealers, and underwriters may be entitled under agreements entered
into with the Company and Block to indemnification by the Company and Block
against certain civil liabilities, including liabilities under the Securities
Act, or to contribution with respect to payments that such agents, dealers, or
underwriters may be required to make with respect thereto. Agents, dealers, and
underwriters may be customers of, engage in transactions with, or perform
services for the Company and Block in the ordinary course of business.
The Debt Securities may or may not be listed on a national securities
exchange. No assurances can be given that there will be a market for the Debt
Securities.
GLOBAL CLEARANCE, SETTLEMENT AND
TAX DOCUMENTATION PROCEDURE
When so provided in the Prospectus Supplement, investors in the Global
Securities representing any of the Securities issued hereunder may hold a
beneficial interest in such Global Securities through DTC, CEDEL or Euroclear
(as defined below) or through participants. The Global Securities may be traded
as home market instruments in both the European and U.S. domestic markets.
Initial settlement and all secondary trades will settle as set forth in the
applicable Prospectus Supplement.
Cedel S.A. ('CEDEL') is incorporated under the laws of Luxembourg as a
professional depository. CEDEL holds securities for its participating
organizations and facilitates the clearance and settlement of securities
transactions between CEDEL participants through electronic book-entry changes in
accounts of CEDEL participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in CEDEL in any of 28
currencies, including United States dollars. CEDEL provides to its participants,
among other things, services for safekeeping, administration, clearance and
settlement of internationally traded securities and securities lending and
borrowing. CEDEL interfaces with domestic markets in several countries. As a
professional depository, CEDEL is subject to regulation by the Luxembourg
Monetary Institute. CEDEL participants are recognized financial institutions
around the world, including underwriters, securities brokers and dealers, banks,
trust companies, clearing corporations and certain other organizations and may
include the underwriters. Indirect access to CEDEL is also available to others,
such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a CEDEL participant, either directly or
indirectly.
The Euroclear System was created in 1968 to hold securities for
participants of the Euroclear System and to clear and settle transactions
between Euroclear participants through simultaneous electronic book-entry
delivery against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Transactions may now be settled in any of 32 currencies, including United
States dollars. The Euroclear System includes various other services, including
securities lending and borrowing, and interfaces with domestic markets in
several countries generally similar to the arrangements for cross-market
transfers with DTC. The Euroclear System is operated by Morgan Guaranty Trust
Company of New York, Brussels, Belgium office (the 'Euroclear Operator' or
'Euroclear'), under contract with Euroclear Clearance System S.C., a Belgian
cooperative corporation (the 'Cooperative'). All operations are conducted by the
Euroclear Operator, and all Euroclear securities clearance accounts and
Euroclear cash accounts are accounts with the Euroclear Operator, not the
Cooperative. The Cooperative establishes policy for the Euroclear System on
behalf of Euroclear participants. Euroclear participants include banks
(including central banks), securities brokers and dealers and other professional
financial intermediaries and may include the underwriters. Indirect access to
the Euroclear System is also available to other firms that clear through or
maintain a custodial relationship with a Euroclear participant, either directly
or indirectly.
The Euroclear Operator is the Belgian branch of Morgan Guaranty Trust
Company of New York ('Morgan') which is a member bank of the Federal Reserve
System. As such, it is regulated and examined by the Federal Reserve Board and
the New York State Banking Department, as well as the Belgian Banking
Commission.
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Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System, and applicable Belgian law
(collectively, the 'Terms and Conditions'). The Terms and Conditions govern
transfers of securities and cash within the Euroclear System, withdrawals of
securities and cash from the Euroclear System, and receipts of payments with
respect to securities in the Euroclear System. All securities in the Euroclear
System are held on a fungible basis without attribution of specific certificates
to specific securities clearance accounts. The Euroclear Operator acts under the
Terms and Conditions only on behalf of Euroclear participants, and has no record
of or relationship with persons holding through Euroclear participants.
Principal, premium, if any, and interest payments with respect to
Securities held through CEDEL or Euroclear will be credited to the cash accounts
of CEDEL participants or Euroclear participants in accordance with the relevant
system's rules and procedures, to the extent received by its depositary. Such
distributions will be subject to tax reporting in accordance with relevant
United States tax laws and regulations as described below. The CEDEL or the
Euroclear Operator, as the case may be, will take any other action permitted to
be taken by a holder under the relevant Indenture on behalf of a CEDEL
participant or Euroclear participant only in accordance with its relevant rules
and procedures and subject to its depositary's ability to effect such actions on
its behalf through the depositary.
INITIAL SETTLEMENT
All Global Securities will be registered in the name of Cede & Co. as
nominee of DTC. Investors' interests in the Global Securities will be
represented through financial institutions acting on their behalf as direct and
indirect participants in the depository. As a result, CEDEL and Euroclear will
hold positions on behalf of their participants through their respective
depositories, Citibank and Morgan, which in turn will hold such positions in
accounts as participants of DTC.
Global Securities held through DTC will follow the settlement practices
described above. Investor securities custody accounts will be credited with
their holdings against payment on the settlement date. Global Securities held
through CEDEL or Euroclear accounts will follow the settlement procedures
applicable to conventional eurobonds, except that there will be no temporary
global security and no 'lock-up' or restricted period. Global Securities will be
credited to the securities custody accounts on the settlement date against
payment.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
participants will be settled using the procedures described above. See
'Description of Debt Securities--Book-Entry Debt Securities.'
Trading between CEDEL and/or Euroclear Participants. Secondary market
trading between CEDEL participants and/or Euroclear participants will be settled
using the procedures applicable to conventional eurobonds.
Trading between DTC Seller and CEDEL or Euroclear Purchaser. When
beneficial interests in the Global Securities are to be transferred from the
account of a DTC participant to the account of a CEDEL participant or a
Euroclear participant, the purchaser will send instructions to CEDEL or
Euroclear through a participant at least one business day prior to settlement.
CEDEL or Euroclear will instruct Citibank or Morgan, respectively, as the case
may be, to receive a beneficial interest in the Global Securities against
payment. Unless otherwise set forth in the Prospectus Supplement, payment will
include interest accrued on the beneficial interest in the Global Securities so
transferred from and
25
<PAGE>
including the last coupon payment date to and excluding the settlement date, on
the basis on which interest is calculated on the Debt Securities. For
transactions settling on the 31st of the month, payment will include interest
accrued to and excluding the first day of the following month. Payment will then
be made by Citibank or Morgan to the DTC participant's account against delivery
of the beneficial interest in the Global Securities. After settlement has been
completed, the beneficial interest in the Global Securities will be credited to
the respective clearing system and by the clearing system, in accordance with
its usual procedures, to the CEDEL or Euroclear participant's account. The
securities credit will appear the next day (European time) and the cash debit
will be back-valued to, and the interest on the beneficial interest in Global
Securities will accrue from, the value date (which would be the preceding day
when settlement occurred in New York). If settlement is not completed on the
intended value date (that is, the trade fails), the CEDEL or Euroclear cash
debit will be valued instead as of the actual settlement date.
CEDEL participants and Euroclear participants will need to make available
to the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to preposition funds for
settlement, either from cash on hand or existing lines of credit, as they would
for any settlement occurring within CEDEL or Euroclear. Under this approach,
they may take on credit exposure to CEDEL, or Euroclear until the Global
Securities are credited to their accounts one day later.
As an alternative, if CEDEL or Euroclear has extended a line of credit to
them, participants can elect not to preposition funds and allow that credit line
to be drawn upon to finance settlement. Under this procedure, CEDEL participants
or Euroclear participants purchasing beneficial interest in Global Securities
would incur overdraft charges for one day, assuming they cleared the overdraft
when the beneficial interests in the Global Securities were credited to their
accounts. However, interest on the beneficial interests in the Global Securities
would accrue from the value date. Therefore, in many cases the investment income
on the Global Securities earned during that one-day period may substantially
reduce or offset the amount of such overdraft charges, although this result will
depend on each participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
participants can employ their usual procedures for sending a beneficial interest
in Global Securities to Citibank or Morgan for the benefit of CEDEL participants
or Euroclear participants. The sale proceeds will be available to the DTC seller
on the settlement date. Thus, to the DTC participant a cross-market transaction
will settle no differently than a trade between two DTC participants.
Trading between CEDEL or Euroclear Seller and DTC Purchaser. Due to time
zone differences in their favor, CEDEL and Euroclear participants may employ
their customary procedures to transactions in which the beneficial interest in
the Global Securities is to be transferred by the respective clearing system,
through Citibank or Morgan, to a DTC participant. The seller will send
instructions to CEDEL or Euroclear through a participant at least one business
day prior to settlement. In these cases, CEDEL or Euroclear will instruct
Citibank or Morgan, as appropriate, to deliver the beneficial interest in the
Global Securities to the DTC participant's account against payment. Payment will
include interest accrued on the beneficial interests in the Global Securities
from and including the last coupon payment date to and excluding the settlement
date on the basis on which interest is calculated on the Global Securities. For
transactions settling on the 31st of the month, payment will include interest
accrued to and excluding the first day of the following month. The payment will
then be reflected in the account of the CEDEL or Euroclear participant the
following day, and receipt of the cash proceeds in the CEDEL or Euroclear
participant's account would be back-valued to the value date (which would be the
preceding day, when settlement occurred in New York). Should the CEDEL or
Euroclear participant have a line of credit with its respective clearing system
and elect to be in debit in anticipation of receipt of the sale proceeds in its
account, the back-valuation will extinguish any overdraft charges incurred over
that one-day period. If settlement is not completed on the intended value date
(that is, the trade fails), receipt of the cash
26
<PAGE>
proceeds in the CEDEL or Euroclear participant's account would instead be valued
as of the actual settlement date.
Finally, day traders that use CEDEL or Euroclear and that purchase
beneficial interests in Global Securities from DTC participants for credit to
CEDEL participants or Euroclear participants should note that these trades would
automatically fail on the sale side unless affirmative action were taken. At
least three techniques should be readily available to eliminate this potential
problem:
(1) borrowing through CEDEL or Euroclear for one day (until the
purchase side of the day trade is reflected in their CEDEL or Euroclear
accounts) in accordance with the clearing system's customary procedures;
(2) borrowing beneficial interests in the Global Securities in the
U.S. from a DTC participant no later than one day prior to settlement,
which would give beneficial interests in the Global Securities sufficient
time to be reflected in the appropriate CEDEL or Euroclear account in order
to settle the sale side of the trade; or
(3) staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase from the DTC participant is at
least one day prior to the value date for the sale to the CEDEL participant
or Euroclear participant.
Although the DTC, CEDEL and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of beneficial interests in Global
Securities among participants of the DTC, CEDEL and Euroclear, they are under no
obligation to perform or continue to perform such procedures and such procedures
may be discontinued at any time.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities, directly or
indirectly, through CEDEL or Euroclear (or through DTC if the holder has an
address outside the U.S.) will be subject to the 30% U.S. withholding tax that
generally applies to payments of interest (including original issue discount) on
registered debt issued by U.S. persons, unless (i) each clearing system, bank or
other financial institution that holds customers' securities in the ordinary
course of its trade or business in the chain of intermediaries between such
beneficial owner and the U.S. entity required to withhold tax complies with
applicable certification requirements, and (ii) such beneficial owner takes one
of the following steps to obtain an exemption or reduced tax rate:
Exemption for non-U.S. persons (Form W-8). Non-U.S. persons that are
beneficial owners (other than a beneficial owner that owns actually or
constructively 10% or more of the total combined voting power of all
classes of stock of the Company entitled to vote or a controlled foreign
corporation that is related to the Company through stock ownership) can
obtain a complete exemption from the withholding tax by filing a properly
completed Form W-8 (Certificate of Foreign Status).
Exemption for non-U.S. persons with effectively connected income (Form
4224). A non-U.S. person, including a non-U.S. corporation or bank with a
U.S. branch, that is a beneficial owner and for which the interest income
is effectively connected with its conduct of a trade or business in the
United States, can obtain an exemption from the withholding tax by filing a
properly completed Form 4224 (Exemption from Withholding of Tax on Income
Effectively Connected with the Conduct of a Trade or Business in the United
States).
Exemption or reduced rate for non-U.S. persons resident in treaty
countries (Form 1001). Non-U.S. persons that are beneficial owners that are
entitled to the benefits of an income tax treaty with the United States can
obtain an exemption or reduced tax rate (depending on the treaty terms) by
filing a properly completed Form 1001 (Ownership, Exemption or Reduced Rate
Certificate). If the treaty provides only for a reduced rate, withholding
tax will be imposed at that rate unless the filer alternatively files Form
W-8. Form 1001 may be filed by the beneficial owner or the beneficial
owner's agent.
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Exemption for U.S. Persons (Form W-9). U.S. persons can obtain a
complete exemption from the withholding tax by filing a properly completed
Form W-9 (Request for Taxpayer Identification Number and Certification).
U.S. FEDERAL INCOME TAX REPORTING, PROCEDURE
The beneficial owner of the Global Security or, in the case of a Form 1001
or a Form 4224 filer, his agent, files by submitting the appropriate form to the
entity through whom it directly holds the Global Security. For example, if the
beneficial owner is listed directly on the books of Euroclear or CEDEL as the
holder of the Debt Security, the IRS Form must be provided to Euroclear or
CEDEL, as the case may be. Each person through which a Debt Security is held
must submit, on behalf of the beneficial owner, the IRS Form (or in certain
cases a copy thereof) under applicable procedures to the person through which it
holds the Debt Security, until the IRS Form is received by the U.S. person who
would otherwise be required to withhold U.S. federal income tax from interest on
the Debt Security. For example, in the case of Debt Securities held through
Euroclear or CEDEL, the IRS Form (or a copy thereof) must be received by the
U.S. depositary of such clearing agency. Applicable procedures include, if a
beneficial owner of the Debt Security provides an IRS Form W-8 to a securities
clearing organization, bank or other financial institution (a 'financial
institution') that holds the Debt Security in the ordinary course of its trade
or business on the owner's behalf, that such financial institution certify to
the person otherwise required to withhold U.S. federal income tax from such
interest, under penalties of perjury, that such statement has been received from
the beneficial owner by it or by a financial institution between it and the
beneficial owner and that it furnish the payor with a copy thereof.
As used in this section on tax documentation requirements, the term 'U.S.
person' means (i) a citizen or resident of the United States, (ii) a corporation
or partnership organized in or under the laws of the United States or any State
thereof or (iii) an estate or trust the income of which is includable in gross
income for U.S. tax purposes, regardless of its source.
This summary does not deal with all aspects of U.S. income tax and
withholding that may be relevant to foreign beneficial owners of the Global
Securities, including special categories of foreign investors who may not be
eligible for exemptions from U.S. withholding tax. Investors are advised to
consult their own tax advisors for specific tax advice concerning their holding
and disposing of beneficial interests in the Global Securities. Any additional
requirements, if applicable, will be set forth in the Prospectus Supplement.
LEGAL MATTERS
Certain legal matters in connection with the Debt Securities and the
Guarantee will be passed upon for the Company and for the Guarantor by Bryan
Cave LLP, Kansas City, Missouri. Certain matters will be passed upon for any
underwriters or agents by a firm named in the Prospectus Supplement relating to
a particular issue of Debt Securities.
EXPERTS
The consolidated financial statements and financial statement schedule
incorporated in this Prospectus by reference from the Guarantor's Annual Report
on Form 10-K/A for the year ended April 30, 1997, have been audited by Deloitte
& Touche LLP, independent auditors, as stated in their reports, which are
incorporated by reference, and have been so incorporated in reliance upon the
reports of such firm given upon their authority as experts in accounting and
auditing.
The financial statements of Option One Mortgage Corporation as of December
31, 1996 and 1995 and for the year ended December 31, 1996 and for the period
March 3, 1995 to December 31, 1995 (Successor period) and from January 1, 1995
to March 2, 1995 (Predecessor period) have been incorporated by reference herein
from the Guarantor's Current Report on Form 8-K/A dated July 2, 1997 (filed on
August 14, 1997) in reliance upon the report of KPMG Peat Marwick LLP,
independent certified
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public accountants, incorporated by reference herein, and upon the authority of
said firm as experts in accounting and auditing.
The report of KPMG Peat Marwick LLP covering the financial statements of
Option Mortgage Corporation as of December 31, 1996 and 1995 and for the year
ended December 31, 1996 and for the period March 3, 1995 to December 31, 1995
(Successor period) and from January 1, 1995 to March 2, 1995 (Predecessor
period) contains an explanatory paragraph that states that effective March 3,
1995, Fleet National Bank, Rhode Island acquired all of the outstanding stock of
Option One Mortgage Corporation in a business combination accounted for as a
purchase. As a result of the acquisition, the financial information for the
periods after the acquisition is presented on a different cost basis than that
for the periods before the acquisition and, therefore, is not comparable.
Effective September 27, 1995, Fleet National Bank, Rhode Island transferred its
investment in the Company to one of its wholly owned subsidiaries, Fleet Holding
Corporation.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses to be incurred by the
Company in connection with the issuance and distribution of the Debt Securities.
<TABLE>
<S> <C>
SEC Filing Fee for Registration Statement.............................. $303,030
Accounting Fees and Expenses........................................... 25,000
Legal Fees and Expenses................................................ 100,000
Printing and Engraving Expenses........................................ 20,000
Blue Sky Fees and Expenses............................................. 10,000
Rating Agency Fees..................................................... 150,000
Trustee and Registrar Fees and Expenses................................ 10,000
Miscellaneous.......................................................... 5,000
--------
Total................................................................ $623,030
--------
--------
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
1. THE COMPANY
(a) Section 145 of the General Corporation Law of the State of Delaware
('Section 145') permits a Delaware corporation to indemnify any person who was
or is a party or is threatened to be made a party to any threatened , pending,
or completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative (other than an action by or in the right of the
corporation) by reason of the fact that such person is or was a director,
officer, employee, or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust, or other enterprise, against
expenses (including attorneys' fees), judgments, fines, and amounts paid in
settlement actually and reasonably incurred by such person in connection with
such action, suit, or proceeding if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe such person's conduct was
unlawful.
In the case of an action by or in the right of the corporation, Section 145
permits the corporation to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that such person is or was a director, officer, employee, or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee, or agent of another corporation, partnership,
joint venture, trust, or other enterprise against expenses (including attorneys'
fees) actually and reasonably incurred by such person in connection with the
defense or settlement of such action or suit if he acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation. No indemnification may be made in respect of any
claim, issue, or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
To the extent that a director, officer, employee, or agent of a corporation
has been successful on the merits or otherwise in defense of any action, suit,
or proceeding referred to in the preceding two
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paragraphs, Section 145 requires that such person be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection therewith.
Section 145 provides that expenses (including attorneys' fees) incurred by
an officer or director in defending any civil, criminal, administrative, or
investigative action, suit, or proceeding may be paid by the corporation in
advance of the final disposition of such action, suit, or proceeding upon
receipt of an undertaking by or on behalf of such director or officer to repay
such amount if it shall ultimately be determined that such person is not
entitled to be indemnified by the corporation as authorized in Section 145.
(b) The Company's Certificate of Incorporation eliminates the personal
liability of the directors of the Company to the Company or its stockholders for
monetary damages for breach of fiduciary duty as directors, except for liability
(i) for any breach of the director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the General Corporation Law of the State of Delaware, or (iv) for any
transaction from which the director derived an improper personal benefit. In
addition, the Company's Certificate of Incorporation provides that the Company
shall indemnify its directors and officers to the fullest extent permitted by
Section 145.
(c) The Guarantor maintains insurance on behalf of the Company's directors,
officers, employees and other agents against any liability which may be asserted
against or expense which may be incurred by such person in connection with the
activities of the Company.
2. THE GUARANTOR
(a) Section 351.355 of The General and Business Corporation Law of Missouri
('Section 351.355') provides that a Missouri corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit, or proceeding, whether civil,
criminal, administrative or investigative, other than an action by or in the
right of the corporation, by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses, including attorneys' fees, judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
A Missouri corporation may also indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure a judgment in
its favor by reason of the fact that he is or was a director, officer, employee
or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses,
including attorneys' fees, and amounts paid in settlement actually and
reasonably incurred by him in connection with the defense or settlement of the
action or suit if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the corporation; except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the corporation unless and only to
the extent that the court in which the action or suit was brought determines
upon application that, despite the adjudication of liability and in view of all
the circumstances
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of the case, the person is fairly and reasonably entitled to indemnity for such
expenses which the court shall deem proper.
To the extent that a director, officer, employee or agent of a corporation
has been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to above or in defense of any claim, issue or matter
therein, he shall be indemnified against expenses, including attorneys' fees,
actually and reasonably incurred by him in connection with the action, suit, or
proceeding. Any indemnification, unless ordered by a court, shall be made by the
corporation only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth
herein. The determination shall be made by the board of directors by a majority
vote of a quorum consisting of directors who were not parties to the action,
suit, or proceeding, or if such a quorum is not obtainable, or even if
obtainable a quorum of disinterested directors so directs, by independent legal
counsel in a written opinion, or by the shareholders. Expenses incurred in
defending a civil or criminal action, suit or proceeding may be paid by the
corporation in advance of the final disposition of the action, suit, or
proceeding as authorized by the board of directors in the specific case upon
receipt of an undertaking by or on behalf of the director, officer, employee or
agent to repay such amount unless it shall ultimately be determined that he is
entitled to be indemnified by the corporation as authorized in Section 351.355.
The indemnification provided by Section 351.355 is not exclusive of any
other rights to which those seeking indemnification may be entitled under the
articles of incorporation or Bylaws or any agreement, vote of shareholders or
disinterested directors or otherwise, both as to action of a person in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such person.
A Missouri corporation has the power to give any further indemnity to any
person who is or was a director, officer, employee or agent, or to any person
who is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, provided such further indemnity is either (i) authorized,
directed, or provided for in the articles of incorporation of the corporation or
any duly adopted amendment thereof or (ii) is authorized, directed, or provided
for in any Bylaw or agreement of the corporation which has been adopted by a
vote of the shareholders of the corporation, and provided further that no such
indemnity shall indemnify any person from or on account of such person's conduct
which was finally adjudged to have been knowingly fraudulent, deliberately
dishonest or willful misconduct.
A Missouri corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him and incurred by him
any such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability under
the provisions of Section 351.355.
(b) The Guarantor's Bylaws provide the Guarantor with the powers set forth
in Section 351.355 to indemnify its directors and officers. In addition, the
Guarantor's Bylaws further provide that the Guarantor may enter into certain
indemnification agreements with each director and officer (or authorize
indemnification of officers to the extent provided in such indemnification
agreements) by vote of or resolution adopted by a majority of a quorum of
disinterested directors. Such indemnification agreements generally provide for
indemnification of the Guarantor's officers and directors to the fullest extent
permitted by law.
(c) The Guarantor maintains insurance on behalf of its directors, officers,
employees and other agents against any liability which may be asserted against
or expense which may be incurred by such person in connection with the
activities of the Guarantor.
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ITEM 16. EXHIBITS
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
3(a) * -- Certificate of Incorporation of the Company
3(b) * -- Bylaws of the Company
4(a) * -- Form of Indenture between the Company and Bankers Trust Company, as trustee (the 'Indenture').
4(b) * -- Conformed copy of Rights Agreement dated as of July 14, 1988 between the Guarantor and Centerre
Trust Company of St. Louis, filed on August 9, 1993 as Exhibit 4(c) to the Guarantor's Registration
Statement on Form S-8 (File No. 33-67170), is incorporated herein by reference.
4(c) * -- Copy of Amendment to Rights Agreement dated as of May 9, 1990 between the Guarantor and Boatmen's
Trust Company, filed as Exhibit 4(b) to the Guarantor's annual report on Form 10-K for the fiscal
year ended April 30, 1995, is incorporated by reference.
4(d) * -- Copy of Second Amendment to Rights Agreement dated September 11, 1991 between the Guarantor and
Boatmen's Trust Company, filed as Exhibit 4(c) to the Guarantor's annual report on Form 10-K for the
fiscal year ended April 30, 1995, is incorporated by reference.
4(e) * -- Copy of Third Amendment to Rights Agreement dated May 10, 1995 between the Guarantor and Boatmen's
Trust Company, filed as Exhibit 4(d) to the Guarantor's annual report on Form 10-K for the fiscal
year ended April 30, 1995, is incorporated by reference.
4(f) * -- Form of Certificate of Designation, Preferences and Rights of Participating Preferred Stock of H & R
Block, Inc., filed as Exhibit 4(e) to the Guarantor's annual report on Form 10-K for the fiscal year
ended April 30, 1995, is incorporated by reference.
4(g) * -- Form of Certificate of Designation, Preferences and Rights of Delayed Convertible Preferred Stock of
H & R Block, Inc., filed as Exhibit 4(f) to the Guarantor's annual report on Form 10-K for the
fiscal year ended April 30, 1995, is incorporated by reference.
5(a) -- Opinion of Bryan Cave LLP.
10(a) * -- Credit Agreement dated as of December 10, 1996 among the Company, the lenders party thereto from
time to time, and Mellon Bank, N.A., as agent (the 'Credit Agreement').
10(b) * -- First Amendment to Credit Agreement dated as of April 10, 1997 among the Company, the lenders party
to the Credit Agreement, and Mellon Bank, N.A., as agent.
10(c) * -- Second Amendment to Credit Agreement dated as of June 6, 1997 among the Company, the lenders party
to the Credit Agreement, and Mellon Bank, N.A., as agent.
10(d) * -- Amended and Restated Loan Purchase Agreement dated as of December 19, 1995 among Companion Mortgage
Corporation, National Consumer Services Corp., L.L.C. and National Consumer Services Corp. II,
L.L.C.
10(e) * -- Credit Agreement dated as of December 19, 1995 between the Company and National Consumer Services
Corp., L.L.C.
10(f) * -- First Amendment to Credit Agreement dated as of January 1, 1996 among the Company, National Consumer
Services Corp., L.L.C. and National Consumer Services Corp. II, L.L.C.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
10(g) * -- Second Amendment to Credit Agreement dated as of November 30, 1996 among the Company, National
Consumer Services Corp., L.L.C. and National Consumer Services Corp. II, L.L.C.
10(h) * -- Third Amendment to Credit Agreement dated as of March 30, 1997 by and among the Company, National
Consumer Services Corp., L.L.C. and National Consumer Services Corp. II, L.L.C.
10(i) -- Refund Anticipation Loan Participation Agreement dated as of July 19, 1996 among the Company,
Beneficial National Bank and Beneficial Tax Masters, Inc.
10(j) -- Affinity Card Agreement dated as of March 1, 1993 between the Company and Columbus Bank and Trust
Company.
10(k) -- Amendment No. 1 to Affinity Card Agreement dated as of December 29, 1995 between the Company and
Columbus Bank and Trust Company.
10(l) * -- Stock Purchase Agreement dated April 14, 1997 among Fleet Financial Group, Inc., Fleet Holding
Corp., the Guarantor and the Company, filed as Exhibit 2.1 to the Guarantor's Current Report on Form
8-K dated July 2, 1997, is incorporated by reference.
10(m) -- Third Amendment to Credit Agreement dated as of September 12, 1997 among the Company, the lenders
party to the Credit Agreement, and Mellon Bank, N.A., as agent.
10(n) -- Amended and Restated Option and Warrant Agreement dated December 19, 1995 by and among W.D. Everitt,
Jr., National Consumer Services Corp., L.L.C., National Consumer Services Corp. II, L.L.C. and the
Company.
12(a) * -- Computation of ratio of earnings to fixed charges of the Company.
12(b) -- Computation of ratio of earnings to fixed charges of the Guarantor.
23(a) -- Consent of Deloitte & Touche LLP.
23(b) -- Consent of KPMG Peat Marwick LLP.
23(c) -- The consent of Bryan Cave LLP is included in Exhibit 5(a).
24(a) * -- Power of Attorney for the Company.
24(b) * -- Power of Attorney for the Guarantor.
25(a) * -- Statement of Eligibility of Trustee on Form T-1 of Bankers Trust Company, as trustee with respect to
the Indenture.
</TABLE>
- ------------------
* Previously filed.
The form or forms of Debt Securities with respect to each particular
offering of securities registered hereunder will be filed as an exhibit to a
Report on Form 8-K and incorporated herein by reference.
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrants hereby undertake:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a) (3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the
II-5
<PAGE>
form of prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the
'Calculation of Registration Fee' table in the effective registration
statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
Provided, however, that paragraphs (a) (1) (i) and (a) (1) (ii) do not
apply if the information required to be included in a post-effective amendment
by those paragraphs is contained in periodic reports filed with or furnished to
the Commission by the Registrants pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(b) The undersigned Registrants hereby undertake that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrants' annual report pursuant to Section 13 (a) or Section 15 (d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrants pursuant to the foregoing provisions, or otherwise, the
Registrants have been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrants of expenses
incurred or paid by a director, officer or controlling person of the Registrants
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrants will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(d) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(e) The undersigned registrant hereby undertakes to file an application for
the purpose of determining the eligibility of the trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act in accordance with the
rules and regulations prescribed by the Commission under Section 305(b)(2) of
the Act.
II-6
<PAGE>
BLOCK FINANCIAL CORPORATION SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
BLOCK FINANCIAL CORPORATION CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE
THAT IT MEETS ALL OF THE REQUIREMENTS FOR FILING A FORM S-3 AND HAS DULY CAUSED
THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY
THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF KANSAS CITY, MISSOURI
ON THE 25TH DAY OF SEPTEMBER, 1997.
BLOCK FINANCIAL CORPORATION
By: /s/ FRANK L. SALIZZONI
----------------------------------
Frank L. Salizzoni
President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------------------- -------------------
<S> <C> <C>
/s/ FRANK L. SALIZZONI President and sole director September 25, 1997
- ------------------------------------------ (principal executive officer and sole
Frank L. Salizzoni director)
* Senior Vice President and Chief September 25, 1997
- ------------------------------------------ Financial Officer
Ozzie Wenich (principal financial officer)
* Treasurer September 25, 1997
- ------------------------------------------ (principal accounting officer)
Patrick D. Petrie
*By: /s/ FRANK L. SALIZZONI
---------------------------
Frank L. Salizzoni,
Attorney-in-Fact
</TABLE>
II-7
<PAGE>
H & R BLOCK, INC. SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, H&R
BLOCK, INC. CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS
ALL OF THE REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS
AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF KANSAS CITY, STATE OF
MISSOURI, ON THE 25TH DAY OF SEPTEMBER, 1997.
H & R BLOCK, INC.
By: /s/ FRANK L. SALIZZONI
----------------------------------
Frank L. Salizzoni
President and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------------------- -------------------
<S> <C> <C>
/s/ FRANK L. SALIZZONI President, Chief Executive Officer and September 25, 1997
- ------------------------------------------ Director
Frank L. Salizzoni (principal executive officer)
* Senior Vice President, Chief Financial September 25, 1997
- ------------------------------------------ Officer and Treasurer
Ozzie Wenich (principal financial officer)
* Vice President and Corporate Controller September 25, 1997
- ------------------------------------------ (principal accounting officer)
Patrick D. Petrie
* Director September 25, 1997
- ------------------------------------------
G. Kenneth Baum
* Director September 25, 1997
- ------------------------------------------
Henry W. Bloch
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------------------- -------------------
<S> <C> <C>
* Director September 25, 1997
- ------------------------------------------
Robert E. Davis
* Director September 25, 1997
- ------------------------------------------
Donna R. Ecton
* Director September 25, 1997
- ------------------------------------------
Henry F. Frigon
* Director September 25, 1997
- ------------------------------------------
Roger W. Hale
* Director September 25, 1997
- ------------------------------------------
Marvin L. Rich
Director September 1997
- ------------------------------------------
Morton I. Sosland
*By: /s/ FRANK L. SALIZZONI
-----------------------------------
Frank L. Salizzoni,
Attorney-in-Fact
</TABLE>
II-9
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------ ------------------------------------------------------------------------------------------------- -----
<S> <C> <C> <C>
3(a) * -- Certificate of Incorporation of the Company
3(b) * -- Bylaws of the Company
4(a) * -- Form of Indenture between the Company and Bankers Trust Company, as trustee (the
'Indenture').
4(b) * -- Conformed copy of Rights Agreement dated as of July 14, 1988 between the Guarantor and
Centerre Trust Company of St. Louis, filed on August 9, 1993 as Exhibit 4(c) to the
Guarantor's Registration Statement on Form S-8 (File No. 33-67170), is incorporated herein
by reference.
4(c) * -- Copy of Amendment to Rights Agreement dated as of May 9, 1990 between the Guarantor and
Boatmen's Trust Company, filed as Exhibit 4(b) to the Guarantor's annual report on Form
10-K for the fiscal year ended April 30, 1995, is incorporated by reference.
4(d) * -- Copy of Second Amendment to Rights Agreement dated September 11, 1991 between the Guarantor
and Boatmen's Trust Company, filed as Exhibit 4(c) to the Guarantor's annual report on Form
10-K for the fiscal year ended April 30, 1995, is incorporated by reference.
4(e) * -- Copy of Third Amendment to Rights Agreement dated May 10, 1995 between the Guarantor and
Boatmen's Trust Company, filed as Exhibit 4(d) to the Guarantor's annual report on Form
10-K for the fiscal year ended April 30, 1995, is incorporated by reference.
4(f) * -- Form of Certificate of Designation, Preferences and Rights of Participating Preferred Stock
of H & R Block, Inc., filed as Exhibit 4(e) to the Guarantor's annual report on Form 10-K
for the fiscal year ended April 30, 1995, is incorporated by reference.
4(g) * -- Form of Certificate of Designation, Preferences and Rights of Delayed Convertible Preferred
Stock of H & R Block, Inc., filed as Exhibit 4(f) to the Guarantor's annual report on Form
10-K for the fiscal year ended April 30, 1995, is incorporated by reference.
5(a) -- Opinion of Bryan Cave LLP.
10(a) * -- Credit Agreement dated as of December 10, 1996 among the Company, the lenders party thereto
from time to time, and Mellon Bank, N.A., as agent (the 'Credit Agreement').
10(b) * -- First Amendment to Credit Agreement dated as of April 10, 1997 among the Company, the
lenders party to the Credit Agreement, and Mellon Bank, N.A., as agent.
10(c) * -- Second Amendment to Credit Agreement dated as of June 6, 1997 among the Company, the
lenders party to the Credit Agreement, and Mellon Bank, N.A., as agent.
10(d) * -- Amended and Restated Loan Purchase Agreement dated as of December 19, 1995 among Companion
Mortgage Corporation, National Consumer Services Corp., L.L.C. and National Consumer
Services Corp. II, L.L.C.
10(e) * -- Credit Agreement dated as of December 19, 1995 between the Company and National Consumer
Services Corp., L.L.C.
10(f) * -- First Amendment to Credit Agreement dated as of January 1, 1996 among the Company, National
Consumer Services Corp., L.L.C. and National Consumer Services Corp. II, L.L.C.
10(g) * -- Second Amendment to Credit Agreement dated as of November 30, 1996 among the Company,
National Consumer Services Corp., L.L.C. and National Consumer Services Corp. II, L.L.C.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------ ------------------------------------------------------------------------------------------------- -----
<S> <C> <C> <C>
10(h) * -- Third Amendment to Credit Agreement dated as of March 30, 1997 by and among the Company,
National Consumer Services Corp., L.L.C. and National Consumer Services Corp. II, L.L.C.
10(i) -- Refund Anticipation Loan Participation Agreement dated as of July 19, 1996 among the
Company, Beneficial National Bank and Beneficial Tax Masters, Inc.
10(j) -- Affinity Card Agreement dated as of March 1, 1993 between the Company and Columbus Bank and
Trust Company.
10(k) -- Amendment No. 1 to Affinity Card Agreement dated as of December 29, 1995 between the
Company and Columbus Bank and Trust Company.
10(l) * -- Stock Purchase Agreement dated April 14, 1997 among Fleet Financial Group, Inc., Fleet
Holding Corp., the Guarantor and the Company, filed as Exhibit 2.1 to the Guarantor's
Current Report on Form 8-K dated July 2, 1997, is incorporated by reference.
10(m) -- Third Amendment to Credit Agreement dated as of September 12, 1997 among the Company, the
lenders party to the Credit Agreement, and Mellon Bank, N.A., as agent.
10(n) -- Amended and Restated Option and Warrant Agreement dated December 19, 1995 by and among W.D.
Everitt, Jr., National Consumer Services Corp., L.L.C., National Consumer Services Corp.
II, L.L.C. and the Company.
12(a) * -- Computation of ratio of earnings to fixed charges of the Company.
12(b) -- Computation of ratio of earnings to fixed charges of the Guarantor.
23(a) -- Consent of Deloitte & Touche LLP.
23(b) -- Consent of KPMG Peat Marwick LLP.
23(c) -- The consent of Bryan Cave LLP is included in Exhibit 5(a).
24(a) * -- Power of Attorney for the Company.
24(b) * -- Power of Attorney for the Guarantor.
25(a) * -- Statement of Eligibility of Trustee on Form T-1 of Bankers Trust Company, as trustee with
respect to the Indenture.
</TABLE>
- ------------------
* Previously filed.
The form or forms of Debt Securities with respect to each particular
offering of securities registered hereunder will be filed as an exhibit to a
Report on Form 8-K and incorporated herein by reference.
<PAGE>
[BRYAN CAVE LLP LETTERHEAD]
September 25, 1997
Block Financial Corporation
4435 Main Street, Suite 500
Kansas City, Missouri 64111
--and--
H&R Block, Inc.
4400 Main Street
Kansas City, Missouri 64111
Re: Shelf Registration of $1,000,000,000
Principal Amount of Debt Securities
Gentlemen:
We have acted as special counsel for Block Financial
Corporation, a Delaware corporation ("BFC") and H & R Block, Inc., a Missouri
corporation ("HRB"), in connection with the registration under the Securities
Act of 1933, as amended (the "Act") (i) by BFC of $1,000,000,000 aggregate
original principal amount of Debt Securities (the "Securities") to be issuable
in one or more series and (ii) by HRB of its guarantee of payment of principal,
premium and interest on the Securities (the "Guarantee"). The Securities and the
Guarantee are being registered under a registration statement on Form S-3 filed
with the Securities and Exchange Commission (the "Commission") on August 14,
1997 (as it may be amended from time to time prior to the effectiveness thereof,
the "Registration Statement"). With respect to the offering of such Securities
from time to time, as set forth in the prospectus contained in the Registration
Statement (the "Prospectus") and as to be set forth in one or more supplements
to the Prospectus (each a "Prospectus Supplement"), you have requested our
opinion with respect to the matters set forth below. Capitalized terms used and
not otherwise defined herein shall have the meanings ascribed to them in the
Registration Statement.
In such capacity, we are familiar with the actions and
proceedings taken and proposed to be taken by BFC and HRB in connection with the
authorization and issuance of the Securities and the Guarantee, respectively,
and for the purposes of this opinion, have assumed such actions and proceedings
will be timely completed in the manner presently proposed. In connection
herewith, we have examined and relied without independent investigation as to
matters of fact upon such certificates of public officials, such statements and
certificates of officers of the Company and such other corporate records,
documents, certificates and instruments as we have deemed necessary in order to
enable us to render the opinions expressed herein. In our examination of the
foregoing, we have assumed the genuineness of all signatures, the legal
competence and capacity of each person executing documents, the authenticity of
all documents submitted to us as originals, and the conformity to original
documents of all documents submitted to us as copies or drafts of documents to
be executed and
<PAGE>
Block Financial Corporation
H&R Block, Inc.
September 25, 1997
Page 2
the due authorization, execution and delivery of all agreements where due
authorization, execution and delivery are a prerequisite to the effectiveness
thereof.
To the extent that it may be relevant to the opinions
expressed herein, we have assumed that the Trustee is duly organized, validly
existing and in good standing under the laws of its jurisdiction of
organization; that the Trustee is duly qualified to engage in the activities
contemplated by the Indenture; that the Indenture has been duly authorized,
executed and delivered by the Trustee and constitutes the legal, valid and
binding obligation of the Trustee, enforceable against the Trustee in accordance
with its terms; that the Trustee is in compliance, generally and with respect to
acting as a trustee under the Indenture, with all applicable laws and
regulations; and that the Trustee has the requisite organizational and legal
power and authority to perform its obligations under the Indenture.
Subject to the foregoing and the other matters set forth
herein, it is our opinion that as of the date hereof:
1. The execution and delivery of the Indenture has been duly
authorized by all requisite action on part of BFC. Upon execution and
delivery of the Indenture by BFC and HRB, and compliance with the
procedures and provisions specified in the Indenture relating thereto,
the issuance of the Securities of the several series will be duly
authorized by BFC. When the Securities of the several series have been
so authorized and executed by BFC, authenticated by the Trustee and
delivered against payment therefor in accordance with the terms of the
Indenture (and any supplemental indentures thereto) and as contemplated
by the Registration Statement and applicable Prospectus Supplement, the
Securities of such series will constitute legally valid and binding
obligations of BFC, enforceable against BFC in accordance with their
terms.
2. The execution and delivery of the Indenture has been duly
authorized by all requisite action on part of HRB. Upon execution and
delivery of the Indenture by HRB and BFC, and compliance with the
procedures and provisions specified in the Indenture relating thereto,
the Guarantee relating to issuance of the Securities of the several
series will be duly authorized by HRB. When the Securities of the
several series have been so authorized and executed by BFC,
authenticated by the Trustee and delivered against payment therefor in
accordance with the terms of the Indenture (and any supplemental
indentures thereto) and as contemplated by the Registration Statement
and applicable Prospectus Supplement, the Guarantee relating to the
Securities of such series will constitute the legally valid and binding
obligation of HRB, enforceable against HRB in accordance with its
terms.
<PAGE>
Block Financial Corporation
H&R Block, Inc.
September 25, 1997
Page 3
These opinions are subject to (i) applicable bankruptcy,
insolvency, reorganization, receivership, moratorium, fraudulent conveyance or
other laws now or hereafter in effect relating to or affecting creditors rights
generally; (ii) general principles of equity (including without limitation,
standards of materiality, good faith, fair dealing and reasonableness), and the
possible unavailability of specific performance, injunctive relief and other
equitable remedies, whether such principles or remedies are considered in a
proceeding in equity or at law; and (iii) public policy limitations of
enforceability of provisions relating to indemnification, contribution and/or
waiver of rights and defenses.
This opinion is not rendered with respect to any laws other
than the law of the States of Missouri and New York and the General Corporation
Law of the State of Delaware as set forth in the latest codification of such
laws available to us on the date hereof. We assume no responsibility as to the
applicability or the effect of the laws, rules, or regulations of any other
domestic or foreign jurisdiction on the subject transactions.
We consent to your filing this opinion as an exhibit to the
Registration Statement and to the reference to our firm contained under the
heading "Legal Matters" in the Prospectus constituting a part of the
Registration Statement.
Very truly yours,
BRYAN CAVE LLP
<PAGE>
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.
<PAGE>
"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
2
<PAGE>
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. ss.ss. 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. ss.ss.
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 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 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
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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
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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
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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
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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
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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.
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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
4435 Main Street, Suite 500
Kansas City, Missouri 64111
Attention: William P. Anderson
If to BNB or Tax Masters, to:
Beneficial National Bank
One Christina Centre
301 North Walnut Street
Wilmington, Delaware 19801
Attention: President
23
<PAGE>
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
<PAGE>
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
<PAGE>
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/ William P. Anderson
William P. Anderson, President
BENEFICIAL NATIONAL BANK
By: /s/ Wheeler K. Neff
Wheeler K. Neff, Senior Vice President
BENEFICIAL TAX MASTERS, INC.
By: /s/ Ross N. Longfield, President
<PAGE>
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}
<PAGE>
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}
<PAGE>
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}
<PAGE>
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}
<PAGE>
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}
<PAGE>
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
<PAGE>
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.
<TABLE>
<S> <C>
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)
============
</TABLE>
<PAGE>
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.
<TABLE>
<S> <C>
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
==========
</TABLE>
<PAGE>
AFFINITY CARD AGREEMENT
THIS AFFINITY CARD AGREEMENT ("Agreement"), made as of the first day of
March, 1993, between COLUMBUS BANK AND TRUST COMPANY, a bank organized under the
laws of the State of Georgia and a wholly owned subsidiary of Synovus Financial
Corp. ("Synovus"), a Georgia corporation with offices at 1148 Broadway,
Columbus, Georgia 31901 (hereinafter referred to as "CB&T"), and BLOCK FINANCIAL
CORPORATION, a corporation organized under the laws of the State of Delaware and
a wholly owned subsidiary of H&R Block, Inc. ("Block"), a Missouri corporation
with offices at 4410 Main Street, Kansas City, Missouri 64111 (hereinafter
referred to as "BFC").
W I T N E S S E T H :
WHEREAS, CB&T is a bank authorized to engage in the business of issuing
to consumers lines of credit, both secured and unsecured, that are accessible by
credit cards;
WHEREAS, CB&T is a licensed principal member of Visa, U.S.A., Inc.
("Visa") and MasterCard International, Inc. ("MasterCard"); and
WHEREAS, BFC has relationships with consumers and is desirous of having
CB&T issue MasterCard and Visa credit cards, both secured and unsecured, to
consumers who are creditworthy under the standards contemplated hereby, and
WHEREAS, on the terms and conditions described herein, CB&T and BFC
desire to enter into a relationship under which, among other things, CB&T will
issue such credit cards and BFC will perform certain services;
WHEREAS, under certain circumstances, in order to assist CB&T in
connection with the funding of receivables, BFC shall purchase certain of the
accounts receivable generated by the use of Credit Cards; and
NOW, THEREFORE, in consideration of the premises and mutual covenants
hereinafter set forth and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, CB&T and BFC agree as follows:
ARTICLE 1.
DEFINITIONS
1.1 Definitions. Except as otherwise specifically indicated, the
following terms shall have the indicated meanings:
"Cardholder" shall mean an individual in whose name a Credit Card
Account is established.
"Cardholder" shall mean an agreement between CB&T and a Cardholder for
the extension of credit in connection with a Credit Card Account.
<PAGE>
"CompuServe Card" shall mean a MasterCard and/or Visa Card issued
hereunder by CB&T and bearing the name or logo "CompuServe" on the front
thereof.
"Credit Card Account" or "Account" shall mean an account, either
secured or unsecured, that is opened by CB&T pursuant to which one or more
Credit Cards are issued to a Cardholder.
"Credit Card Receivables" shall mean all amounts owing to CB&T on the
Accounts including principal balances from outstanding purchases and cash
advances, accrued finance charges, late charges, returned check charges and any
other charges and fees, as of the close of business on a given day, less any
payments and credits received in respect of the Accounts prior to the close of
business on such day.
"H&R Block Value Card" or "Value Card" shall mean a MasterCard and/or
Visa Card issued hereinunder by CB&T bearing the name and/or a logo "H&R Block
Value Card".
"Interim Card" shall mean a MasterCard and/or Visa Card issued
hereunder by CB&T and bearing the name or logo of "Interim" on the front
thereof.
"Program" shall mean the affinity credit card program conducted
pursuant to the terms hereof.
"Program Receivables" shall mean purchases and cash advances made on
the Accounts.
"Solicitation Materials" means any applications, marketing materials,
advertising pieces, sales literature, telemarketing scripts and any other
materials used to induce persons to apply for Credit Cards.
1.2 Construction. Unless the context otherwise clearly indicates, words
used in the singular include the plural and words used in the plural include the
singular.
ARTICLE 2.
ESTABLISHMENT OF CREDIT CARD ACCOUNTS
2.1 Issuance of Credit Cards. CB&T shall issue Credit Cards (either
secured or unsecured) to each applicant for a Card who qualifies for such type
of Card under the Credit Criteria (as defined in Section 2.3 hereof). CB&T shall
extend credit with respect to said Credit Cards, and BFC shall not be considered
a creditor on any Credit Card Account for any purpose whatsoever. Subject to the
Operating Regulations (as defined in Section 2.12 hereof) and the terms of
Section 2.10 herein, each Credit Card shall have the name, logo and/or trademark
of H&R Block Value Card, CompuServe Card or Interim Card on the front thereof
and shall be of a design approved by CB&T, BFC and MasterCard or Visa, as
applicable.
2.2 Solicitation of New Accounts. BFC shall, at its own expense, have
the exclusive right to solicit individuals, corporations, partnerships and other
entities to offer them the opportunity to apply for Credit Cards. BFC shall bear
all marketing expenses incurred in connection with the Program. BFC shall, at
its own expense, create, produce and mail Solicitation Materials to promote the
Program and solicit new Credit Card Accounts. BFC shall provide copies of all
Solicitation Materials to CB&T for its review
<PAGE>
and approval as soon as practicable, but no less than ten business days prior to
their first intended use. CB&T shall not unreasonably withhold or delay its
approval of such materials. The frequency and timing of such solicitations shall
be determined by BFC. In BFC's discretion, solicitations may be conducted by
direct mail, telephone, or other means. BFC shall prepare and include on or with
each solicitation any notices and disclosures required under applicable laws and
regulations, provide such notices and disclosures to CB&T for its review and
shall otherwise conduct all such solicitations in compliance with all applicable
laws and regulations. CB&T shall be identified to Cardholders as the Card issuer
and the lender for loans made on the Credit Card Accounts.
2.3 Applications.
(a) CB&T will require that each person who desires to become a
Cardholder complete a written application or apply for a Credit Card in response
to a telemarketing solicitation. BFC shall ensure that the form of the written
application, the telemarketing script and all Solicitation Materials are in
compliance with all applicable laws and regulations. The credit criteria for
issuing secured and unsecured Credit Cards established by CB&T are attached
hereto and incorporated herein as Exhibit A (the "Credit Criteria"). CB&T will
notify BFC of any changes to the Credit Criteria.
(b) CB&T shall approve an applicant for a Credit Card only if the
applicant meets the applicable Credit Criteria, unless otherwise specifically
approved by CB&T in writing. In the event an applicant for a Card does not meet
the Credit Criteria, BFC shall notify the applicant, in accordance with
applicable laws and regulations. Applicants who do not meet the Credit Criteria
for an unsecured card may be offered an opportunity to apply, or accept a
reapproved offer, for a Credit Card which is secured by funds of the consumer
which are deposited with CB&T.
2.4 Establishment of Credit Card Accounts. upon approval of an
application, CB&T shall establish a Credit Card Account for the applicant. CB&T
shall provide one or more Credit Cards to each approved applicant and shall
automatically issue a renewal card to each Cardholder at each scheduled Credit
Card renewal date, if such Cardholder continues to meet the Credit Criteria. On
CB&T's behalf, BFC will prepare and provide to each Cardholder a Cardholder
Agreement and disclosure statement and such other notices or documents related
to such Cardholder's Credit Card Account as are required from time to time under
applicable laws and regulations. The Cardholder Agreement and disclosure
statement and other documents shall provide, as appropriate, that they are
governed by Georgia law and federal law. BFC shall be responsible for preparing
and providing said documents and shall ensure that they comply with all
applicable laws and regulations. In connection with secured Credit Card
Accounts, the Cardholder Agreements provided by BFC shall include appropriate
language that is designed to grant CB&T a valid and enforceable security
interest in the Deposit Accounts.
2.5 Account Terms. CB&T shall determine the financial terms of the
Credit Card Accounts, including by not limited to, the periodic rate, the annual
percentage rate, other account fees, and the credit limits to be made available
to Cardholders. The terms
<PAGE>
and conditions for the Credit Cards applicable to the Credit Card Accounts are
set out in the forms of Cardholder Agreements (both secured and unsecured)
attached hereto as Exhibit B and incorporated herein. BFC shall ensure that the
terms and conditions for the Credit Cards (including, without limitation, the
interest rates, fees and charges) are in compliance with all applicable laws and
regulations. Changes in the Account terms and conditions shall require the
mutual agreement of CB&T and BFC.
2.6 Secured Card Accounts. For each secured Card Account, CB&T shall
hold and maintain the Cardholder's security deposit in a Deposit Account (a
"Deposit Account"). The establishment of a Deposit Account shall be a condition
precedent to issuance of a secured Credit Card by CB&T to each such Cardholder.
CB&T shall be responsible for creating and maintaining the Deposit Accounts and
shall take such steps as BFC shall direct that may be necessary under the laws
of Georgia to perfect a security interest in the Deposit Accounts. CB&T shall
enforce the terms of the security agreement. BFC shall prepare and CB&T shall
deliver any notices and disclosures regarding the Deposit Accounts which may be
required by law. During the term of this Agreement, CB&T will not modify any
provisions of or waive any of its rights under, or terminate, any such security
agreements, except to exercise its rights upon the Cardholder's default in
accordance with the security agreement or as may be required by applicable law.
2.7 Account Administration. Except as otherwise provided herein, or in
the agreements referred to in Section 2.9 hereof, CB&T will perform or provide
for the performance of all services that may be required in order to establish
and maintain the Credit Card Accounts, including, but not limited to: credit
approval, issuance of Credit Cards, making of credit card loans, receipt of
payments from Cardholders, and establishing and maintaining the Deposit Accounts
for Carholders who have secured Credit Card Accounts. All such services shall be
provided by CB&T in accordance with the terms of the Solicitation Materials and
Cardholder Agreements, the Operating Regulations and this Agreement. CB&T may
subcontract with a third party to provide any service required to be provided by
CB&T hereunder, provided that BFC shall approve such third party and the terms
of any agreement with said party.
2.8 Credit Card Enhancements and Solicitations.
(a) BFC shall, at its own expense and at no cost to CB&T, arrange for
third parties to provide enhancements to Cardholders in connection with the
Program.
(b) BFC shall be entitled, at its own expense, to solicit Cardholders
for goods and services, including, without limitation, insurance products, and
to place solicitation or promotional materials in communications by CB&T to
Cardholders. BFC shall provide copies of all such solicitation and promotional
materials to CB&T for its review and approval as soon as practicable, but no
less than ten business days prior to their first intended use. CB&T shall not
unreasonably withhold or delay its approval of such documents. BFC shall meet
all applicable standards and requirements of "TSYS" (as defined in Section
2.9(i) hereof) in connection with inserts in periodic statements and shall
comply with applicable laws and regulations in connection therewith. BFC shall
be
<PAGE>
entitled to retain all income and fees, if any, resulting from such
solicitations and promotions.
2.9 Ancillary Agreements.
(a) The following additional agreements shall be or shall have been
entered into in connection with the Program:
(i) a processing agreement by and among CB&T, Total System
Services, Inc. ("TSYS") and BFC (the "Processing Agreement"), under which TSYS
will provide certain data processing, authorization, settlement and related
services with respect to the Accounts; and
(ii) a data processing agreement between CB&T and Synovus Data
Corp. ("SDC") (the "SDC Agreement"), under which SDC will provide certain data
processing services with respect to the Accounts.
(b) In connection with the Program, the following additional agreements
shall be or shall have been entered into by the parties:
(i) a servicing agreement ("Servicing Agreement") by and among
CB&T, BFC and a servicing company that will provide application processing,
collections, customer service, security and the other services specified the
respect to the Accounts;
(ii) a remittance processing agreement ("Remittance
Agreement") by and among CB&T, BFC and a processing company that will provide
remittance processing services with respect to payments received on the
Accounts.
(c) The parties will use all reasonable efforts to have the agreements
referred to in (b) above entered into on or before February 15, 1994.
Neither CB&T nor BFC shall modify any provisions of or waive any of its
rights under, or terminate, any such agreement without the written consent of
the other party.
2.10 Use of Names and Trademarks
(a) BFC hereby authorizes CB&T, during the term of this Agreement, on a
non-exclusive, nonassignable basis, to use Block's name and such trademarks of
Block as may be used in connection with the Credit Card Accounts (the "Block
Credit Card Marks") in the form and formats approved by BFC: (i) on Credit
Cards, and (ii) on periodic statements, Cardholder Agreements and other
communications to Cardholders with respect to the Credit Card Accounts. BFC
represents and warrants to CB&T that BFC has the power and authority to provide
the authorization herein granted. It is expressly agreed that CB&T is not
acquiring any right, title or interest in the name "H&R Block" or any trade
names, trademarks, logos or service marks of Block or the Credit Card design,
all of which shall be the property of Block. CB&T shall make no use of any
tradenames, trademarks, logos or service marks of Block, or of the Credit Card
design without BFC's prior written consent, except as specifically authorized in
this Section 2.10.
(b) CB&T hereby authorizes BFC, during the term of this Agreement, on a
non-exclusive, nonassignable basis, to use CB&T's name and such trademarks of
CB&T as may be used in connection with the Credit Card Accounts (the "CB&T
Credit Card Marks"), in the forms and formats approved by CB&T, in
communications to
<PAGE>
Cardholder's with respect to the Credit Card Accounts made by BFC pursuant to
its obligations under this Agreement. It is expressly agreed that BFC is not
acquiring any right, title or interest in the names "Columbus Bank and Trust
Company" or "CB&T" or any trade names, trademarks, logos or service marks of
CB&T, all of which shall be the property of CB&T. BFC shall make no use of the
names "Columbus Bank and Trust Company" or "CB&T", or of any tradenames,
trademarks, logos or service marks of CB&T, without CB&T's prior written
consent, except as specifically authorized in this Section 2.10.
(c) Use of Name and Trademarks. Except as otherwise provided herein,
neither party shall use the registered trademarks, service marks, logo, name or
any other proprietary designations of the other party without that party's prior
written consent. Each party shall submit to the other party for prior approval
any advertising or promotional materials referring to or describing the Credit
Card Program in which such trademarks are to be used, which approval shall not
unreasonably be withheld or delayed.
2.11 Cooperation. Each party hereto agrees to cooperate fully with the
other party hereto in furnishing any information or performing any action
reasonably requested by such party that is needed by the requesting party to
perform its obligations under this Agreement or to comply with applicable laws
and regulations. Each party agrees that it shall furnish the other party with
true, accurate and complete copies of such records and all other information
with respect to the Credit Card Accounts and the Program as such party or its
authorized representatives may reasonably request, provided however that neither
party shall be required to divulge any records to the extent prohibited by
applicable law.
2.12 Visa and MasterCard Membership. At all times during the term of
this Agreement, CB&T shall use its best efforts to maintain its membership in
Visa and MasterCard. CB&T shall be responsible for making all reports to Visa
and MasterCard which may be required by its membership therein. CB&T will comply
with the operating rules and regulations of Visa and MasterCard ("Operating
Regulations") in connection with the Program.
2.13 Other Activities.
(a) Non-exclusive Arrangement. There shall be no restriction on
CB&T's right to issue credit cards independent of the Program and to perform
credit card services on its own behalf or for other parties or affinity groups.
(b) Ownership of Account Relationships. During the term hereof, CB&T
shall not, directly or indirectly, transfer, sell or disclose to any other
person or entity any list (whether in written or other form) containing the
names, addresses and/or telephone numbers of Cardholders that exists by reason
of those persons being Cardholders (a "Cardholder List"). CB&T shall not,
directly or indirectly, solicit Cardholders by using a Cardholder List, in whole
or in part, for any other credit card, or for any other purpose, without the
prior written consent of BFC, This Section 2.13(b) shall not prohibit any
transfer, sale or disclosure of the name, address or telephone number of, or any
<PAGE>
solicitation of, any person of whose existence CB&T has or obtains knowledge
otherwise than by reason of CB&T's participation in this Agreement.
ARTICLE 3.
FINANCIAL TERMS
3.1 Co-Branding Fee. CB&T shall pay to BFC a co-branding fee
calculated as provided in this Section 3.1.
(a) Definitions. For purposes of this Section 3.1, the following
terms shall have the following meanings:
(i) "Program Revenues" shall mean the sum of : net interchange
fees received by CB&T in respect of Accounts, finance charges, annual fee, cash
advances fees, return check fees, over-limit fees, past due fees, and all other
income received in respect of the Credit Card Accounts during the applicable
month of the term hereof, reduced by all charge-offs and other credit losses
(including, without limitation, fraud losses and other losses related to
fraudulent use of credit cards) in respect of the Accounts in the applicable
month.
(ii) "Servicing Costs" shall mean all amounts (including,
without limitation, termination fees and other penalties)paid by CB&T during the
applicable month of the term hereof under the Servicing Agreement.
(iii) "Processing Costs" shall mean all amounts paid by CB&T
during the applicable month of the term hereof to TSYS under the Processing
Agreement, to a remittance processor under the Remittance Agreement, and to SDC
under the SDC Agreement.
(iv) "CB&T Cost" shall mean, with respect to each month during
the term hereof, the sum of (a) $3,000 for the H&R Block Value Card program and
such other amount as maybe mutually agreed upon by the parties with respect to
the Interim Card and CompuServe Card programs, (b) the "Out-of-Pocket Expenses"
(as defined below) incurred by CB&T during such month, (c) CB&T's cost of
funding the average daily Credit Card Receivables on its balance sheet during
such month (it being understood that CB&T's cost of funds shall include a pro
rata share of the costs of deposit insurance and reserves on the Deposit
Accounts and the "Deposit" (as defined in Section 3.2 herein) (after Credit Card
receivables exceed $4,000,000)), and (d) interest expense incurred by CB&T
payable on the Deposit Accounts. For purposes of the calculation of the
foregoing clause (c), the average daily Credit Card Receivables on CB&T's
balance sheet shall be reduced by the average daily balance of the Deposit and
the aggregate average daily balance of the deposits in the Deposit Accounts for
the secured Credit Cards. CB&T's cost of funding shall be its average rate on
interest bearing funds as reported in its monthly Spread Analysis report, which
will be provided to BFC by CB&T, each month for such month when applied to the
average daily Credit Card Receivables as determined pursuant to this Section.
(v) "Out-of-Pocket Expenses" shall mean all necessary and
reasonable amounts paid by CB&T to third parties during the applicable month of
the term hereof (and not otherwise included in Servicing Costs or the Processing
Costs for such month) that are directly related to the Program, including but
not limited to (i) all fees and
<PAGE>
assessments paid to MasterCard and Visa; provided, however, that amounts paid in
excess of $500 (other than MasterCard and Visa fees and assessments) shall not
be Out-of-Pocket Expenses unless approved in advance by BFC; and (ii) outside
legal fees and expenses incurred in connection with reviewing Credit Card
marketing materials and Cardholder documentation and the like, to the extent
such review is conducted in the normal course of CB&T's business by its outside
counsel.
(vi) "CB&T Value Card Return" shall mean with respect to a
particular month such dollar amount which, when divided by the daily average of
: (x) Credit Card Receivables owned by CB&T on Value Card Accounts during such
month, and (y) 10% of the Credit Card Receivables owned by BFC during such
month, will produce a quotient of the decimal equivalent (when carried two
places to the right of the decimal point) of ht percentage that, when reduced by
the tax rate to which Synovus is subject, which tax rate shall be fixed for each
monthly period, will produce an annual return of 1.5%, provide, however, that if
the CB&T Value Card Return for each six-month period ending on August 31 or
February 28 is less than $50,000, the CB&T Value Card Return shall be increased
to $50,000 for such period. As of December 31, 1993, such amount is $10,458.59
and was calculated as indicated on Exhibit C to this Agreement.
(vii) "CB&T CompuServe Card and Interim Card Return" shall
mean with respect to a particular month such dollar amount which, when divided
by the daily average of: (x) Credit Card Receivables owned by CB&T on Interim
Card and CompuServe Card Accounts during such month, and (y) 10% of the Credit
Card Receivables owned by BFC during such month, will produce a quotient of the
decimal equivalent (when carried two places to the right of the decimal point)
of the percentage that, when reduced by the tax rate to which Synovus is
subject, which tax rate shall be fixed or each monthly period, will produce an
annual return of 1.5%. Commencing two years from the issuance of the first
CompuServe Card or Interim Card or such date on which BFC notifies CB&T to cease
issuing CompuServe or Interim Cards, in the event the CB&T CompuServe and
Interim Return on the Credit Card Receivables arising from CompuServe and
Interim Cards has not resulted in a CB&T Return of at least $100,000 on an
annualized basis, BFC shall pay to CB&T the difference between $8,333 times the
number of months since the first full month in which CompuServe and/or Interim
Cards were issued hereunder and the actual CB&T CompuServe and Interim Return on
the Credit Card Receivables arising from the CompuServe and Interim Cards in
that period.
(viii) "Program Costs" for the applicable month during the
term hereof means the sum of the Servicing Costs, the Processing Costs, the CB&T
Cost, the CB&T Value Card Return and the CB&T CompuServe and Interim Card
Return.
(ix) "Co-Branding Fee" for the applicable month during the
term hereof shall mean the Program Revenues for such month less the Program
Costs for such month, but not less the zero.
(b) Payment of Fee. On or before the 10th business day of each month
during the term hereof, CB&T shall pay BFC, by deposit to a designated account
of BFC at CB&T, the Co-Branding Fee calculated according to this section. If the
Program Costs for any month would exceed Program Revenues for such month, CB&T
shall so notify BFC and (i) no Co-Branding Fee shall be payable to BFC for such
month, and (ii) BFC shall pay any Program Costs that exceed Program Revenues
directly to the persons to
<PAGE>
which such costs are due or shall, promptly upon demand, reimburse CB&T for any
such costs paid by CB&T.
3.2 Deposit. Throughout the term of this Agreement, BFC shall
maintain at CB&T a non-interest
bearing deposit of $5,000,000 (the "Deposit").
ARTICLE 4.
PURCHASE AND SALE OF RECEIVABLES AND ACCOUNTS
4.1 Purchase and Sale of Receivables.
(a) At any time when outstanding Program Receivables exceed $5,000,000,
CB&T shall thereafter sell to BFC and BFC shall thereafter purchase from CB&T,
on a daily basis, 100% of the Program Receivables in excess of $5,000,000. For
purposes hereof, the purchase price for the Program Receivables shall be the
actual amount (net of Account credits) which TSYS is obligated to pay on any day
to Visa and MasterCard in settlement of cash advances and purchases on the
Accounts, without taking into account the credit given by Visa and MasterCard
for interchange fees. Payments from Cardholders on Credit Card Receivables
allocated to BFC shall be the property of BFC and shall be held in trust by CB&T
until such time as said funds are applied to settle amounts owed to Visa and
MasterCard for interchange fees. Payments from Cardholders on Credit Card
Receivables allocated to BFC shall be the property of BFC and shall be held in
trust by CB&T until such time as said funds are applied to settle amounts owed
to Visa and MasterCard or otherwise transferred to BFC. Payments received from
Cardholders shall be applied first to Credit Card Receivables owned by Block
and, to the extent such payments exceed the amount o Credit Card Receivables
owned by Block, such excess shall be allocated to CB&T. No later than : p.m.
(central time) on each business day, CB&T shall notify the Assistant Vice
President, Finance, at BFC of the amount of Program Receivables to be purchased
by BFC that day. Payment by BFC of the Program Receivable amount due that day
shall be made by wire transfer no later than 2:00 p.m. (central time), unless
CB&T us late in notifying BFC of the amount due that day, in which case, BFC
shall use all reasonable efforts to send the wire transfer within the time
period set forth above or as soon thereafter as possible. In the event BFC has
reason to dispute the accuracy of the amount requested by CB&T for Program
Receivables being purchased on any day, BFC shall promptly so notify CB&T. CB&T
shall promptly notify the Assistant Vice President, Finance, at BFC if any such
required payment is not made when due. If BFC fails on any day to pay the amount
CB&T indicates is the amount required to purchase the Program Receivables, as
provided hereunder, even in the event BFC disputes such amount, and such failure
is not cured within five (5) business days, CB&T may (but need not), upon notice
to BFC, sell to any third party any interest in the Program Receivables that BFC
failed to purchase. In the event it is determined that BFC was correct in
disputing the accuracy of the amount due for the purchase of Program
Receivables, CB&T shall promptly refund to BFC the amount of any such
overpayment, with interest thereon computed on a daily basis at CB&T's cost of
funding.
(b) CB&T shall remain the owner of all Credit card Accounts,
notwithstanding any sale of any Program Receivables to BFC, or a third party,
under this
<PAGE>
Section 4.1. BFC shall no be deemed to have assumed any obligations of CB&T with
respect to the Credit Card Accounts by virtue of any purchase of an interest in
Program Receivables hereunder. Except as otherwise provided herein, CB&T shall
not sell any Credit Card Receivables or any interests therein to any third party
(other than a wholly-owned subsidiary of Synovus) without the prior written
consent of BFC.
(c) The sale of receivables contemplated in (a) hereof shall occur upon
payment therefor by BFC and no additional documents shall be required by the
parties to effect any such sale. Notwithstanding the foregoing, if, in the
reasonable judgment of either party, in connection with any such purchase and
sale, any additional instrument, document, or certificate is required to further
evidence such purchase and sale, the other party shall execute and deliver any
such document.
4.2 Sale of Accounts.
(a) Except as provided in this Agreement, CB&T shall not sell or
transfer any Credit Card Account created under the Program, or any interest
therein, to any unaffiliated party without the prior written consent of BFC.
(b) Upon expiration or termination of this Agreement, BFC shall have
the right, exercisable by providing written notice to CB&T no later than sixty
(60) days after notice of termination is provided by a party hereunder, to
purchase, at par value, the Accounts and all Credit Card Receivables then owned
by CB&T or to arrange for said purchase by a financial institution designated by
BFC. The terms of Section 8.1(e) hereof shall apply to any such purchase. At
BFC's request, upon any transfer of the Credit Card Accounts, CB&T shall assign
to BFC or its designee, as the case may be, the Processing Agreement, the
Servicing Agreement, the Remittance Agreement and the SDC Agreement.
4.3 Convenant of CB&T. During the term of this Agreement, CB&T shall
take no voluntary action to create any lien, pledge, security interest or other
encumbrance on any of the Credit Card Receivables or Accounts.
ARTICLE 5.
ADDITIONAL PRODUCTS AND SERVICES
5.1 Returned Mail Services. CB&T shall perform certain returned mail
services for BFC in connection with the Program as more specifically described,
and at the prices set forth, on Exhibit D hereto.
5.2 Additional Services. In the event BFC requests CB&T to perform any
additional services in connection with the Cards issued under the Program which
are not already required to be performed under this Agreement by CB&T, and which
would entail additional expense by CB&T, including those services to be
performed by third parties under the agreements referred to in Section 2.9 of
this Agreement, and CB&T agrees to provide such services in connection with
Cards issued hereunder, then the details and the cost of such services shall be
agreed to by BFC and CB&T in writing and shall be attached to this Agreement as
an amendment or set forth in a separate document.
<PAGE>
5.3 New Card Products. In the event BFC desires to launch a new card
product (i.e., a card other than the H&R Block Value Card, Interim Card or
CompuServe Card), BFC shall notify CB&T and subject to the parties reaching
agreement as to the CB&T Cost for such program, cards issued under such program
shall become Credit Cards for purposed of this Agreement. In the event BFC and
CB&T are unable to reach an agreement as to the cost which may be assessed under
3.1 (a) (iv) (a) hereof for any card program, CB&T is not obligated to issue
Credit Cards for such program.
ARTICLE 6.
REPRESENTATIONS AND WARRANTIES
6.1 Representations and Warranties of CB&T. CB&T hereby represents and
warrants to BFC as follows:
(a) Organization. CB&T is a bank duly organized, validly existing and
in good standing under the laws of the State of Georgia.
(b) Capacity; Authority; Validity. CB&T has all necessary corporate
power and authority to enter into this Agreement and to perform all of the
obligations to be performed by it under this Agreement. This Agreement and the
consummation by CB&T of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of CB&T, and this
Agreement has been duly executed and delivered by CB&T and constitutes the valid
and binding obligation of CB&T and is enforceable in accordance with its terms
(except as such enforceability may be limited by equitable limitations on the
availability of equitable remedies and by bankruptcy and other laws affecting
the rights of creditors generally).
(c) Conflicts; Defaults. Neither the execution and delivery of this
Agreement by CB&T nor the consummation of the transactions contemplated herein
by CB&T will (i) conflict with, result in the breach of, constitute a default
under, or accelerate the performance required by, the terms of any contract,
instrument or commitment to which CB&T is a party or by which CB&T is bound,
(ii) violate the articles of incorporation or bylaws, or any other equivalent
organizational document, of CB&T, (iii) result in the creation of any lien,
charge or encumbrance upon any of the Credit Card Receivables, (except pursuant
to the terms hereof), or (iv) require the consent or approval of any other party
to any contract, instrument or commitment to which CB&T is a party or by which
it is bound. CB&T is not subject to any agreement with any regulatory authority
which would prevent the consummation by CB&T of the transactions contemplated by
this Agreement.
(d) Litigation. At the date of this Agreement, there is not pending any
claim, litigation, proceeding, arbitration, investigation or material
controversy before any governmental agency to which CB&T is a party, which
adversely affects any of its assets or the ability of CB&T to consummate the
transactions contemplated hereby, and, to the best of CB&T's knowledge, no such
claim, litigation, proceeding, arbitration, investigation or controversy has
been threatened or is contemplated and no facts exist which would provide a
basis for any such claim, litigation, proceeding, arbitration, investigation or
controversy.
<PAGE>
(e) No Consents, Etc. At the date of this Agreement, no consent of any
person (including without limitation, any stockholder or creditor of CB&T) and
no consent, license, permit or approval or authorization or exemption by notice
or report to, or registration, filing or declaration with, any governmental
authority is required (other than those previously obtained and delivered to
BFC) in connection with the execution or delivery of this Agreement by CB&T, the
validity of this Agreement with CB&T, the enforceability of this Agreement
against CB&T, the consummation by CB&T of the transactions contemplated hereby,
or the performance by CB&T of its obligations hereunder.
(f) FDIC Insurance. CB&T is, and at all times during the term
hereof will remain, a member of the Federal Deposit Insurance Corporation.
6.2 Representations and Warranties of BFC. BFC hereby represents
and warrants to CB&T as follows:
(a) Organization. BFC is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware.
(b) Capacity; Authority; Validity. BFC has all necessary power and
authority to enter into this Agreement and to perform all of the obligations to
be performed by it under this Agreement. This Agreement and the consummation by
BFC of the transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action on the part of BFC, and this
Agreement has been duly executed and delivered by BFC and constitutes the valid
and binding obligation of BFC and is enforceable in accordance with its terms
(except as such enforceability may be limited by equitable limitations on the
availability of equitable remedies and by bankruptcy and other laws affecting
the rights of creditors generally).
(c) Compliance. All aspects of the Program, all terms of the Accounts
and the Cardholder Agreements, and all Solicitation Materials and other
documents, materials and agreements supplied or communicated in any form to
Cardholders, prospective Cardholders or others in connection with the Program
(except with respect to creating and maintaining the Deposit Accounts, as
provided in Section 2.6 hereof), comply and will comply in all respects with
applicable law and regulations.
(d) Conflicts; Defaults. Neither the execution and delivery of this
Agreement by BFC nor the consummation of the transactions contemplated herein by
BFC will (i) conflict with, result in the breach of, constitute a default under,
or accelerate the performance provided by the terms of any contract, instrument
or commitment to which BFC is a party or by which it is bound, (ii) violate the
certificate of incorporation or bylaws, or any other equivalent organizational
document, of BFC, (iii) require any consent or approval under any judgment,
order, writ, decree, permit or license, to which BFC is a party or by which it
is bound, or (iv) require the consent or approval of any other party to any
contract, instrument or commitment of which BFC is a party or by which it is
bound. BFC is not subject to any agreement with any regulatory authority which
would prevent the consummation by BFC of the transactions contemplated by this
Agreement.
(e) Litigation. There is no claim, or any litigation, proceeding,
arbitration, investigation or controversy pending, to which BFC is a party and
by which it is bound,
<PAGE>
which adversely affects BFC's ability to consummate the transactions
contemplated hereby and, to the best of BFC's knowledge and information, no such
claim, litigation, proceeding, arbitration, investigation or controversy has
been threatened or is contemplated; to the best of BFC's knowledge, no facts
exist which would provide a basis for any such claim, litigation, proceeding,
arbitration, investigation or controversy.
(f) No Consents, Etc. No consent of any person (including without
limitation, any stockholder or creditor of BFC) and no consent, license, permit
or approval or authorization or exemption by notice or report to, or
registration, filing or declaration with, any governmental authority is required
(other than those previously obtained and delivered to CB&T) in connection with
the execution or delivery of this Agreement by BFC, the validity or
enforceability of this Agreement against BFC, the consummation of the
transactions contemplated thereby, or the performance by BFC of its obligations
thereunder.
ARTICLE 7.
CONFIDENTIAL INFORMATION
7.1 Confidential Information. All material and information supplied by
one party to the other party in the course of the negotiation of this Agreement
and its performance hereunder, including, but not limited to, information
concerning either party's marketing plans; technological developments,
objectives and results; and financial results are confidential and proprietary
to the disclosing party ("Confidential Information"). Confidential Information
does not include any information that was (I) known to the receiving party at
the time of disclosure or developed independently by such party without
violating the terms herein; (ii) in the public domain at the time of disclosure
or enters the public domain following disclosure through no fault of the
receiving party; or (iii) disclosed to the receiving party by a third party that
is not prohibited by law r agreement from disclosing the same. Notwithstanding
the foregoing, but without limiting the effect of the last sentence of Section
2.13 (b) hereof, each Cardholder List shall be deemed Confidential Information
owned by BFC.
7.2 Protection of Confidential Information. Confidential Information
shall be used by each party solely in the performance of its obligations
pursuant to this Agreement. Each party shall receive Confidential Information in
confidence and not disclose Confidential Information to any third party, except
as may be necessary to perform its obligations pursuant to this Agreement and
except as may be required by law or agreed upon in writing by the other party.
Each party shall take all reasonable steps to safeguard Confidential Information
disclosed to it so as to ensure that no unauthorized person shall have access to
any Confidential Information. Each party shall, among other safeguards which it
may consider necessary, require its employees, agents, and subcontractors having
access to Confidential Information to enter into appropriate confidentiality
agreements containing such terms as are necessary to satisfy its obligation
herein. Each party shall promptly report to the other party any unauthorized
disclosure or use of any Confidential Information of that party of which it
becomes aware. Upon request or upon termination of this Agreement, each party
shall return to the other party
<PAGE>
all Confidential Information in its possession or control. No disclosure by a
party hereto of Confidential Information of such party shall constitute a grant
to the other party of any interest or right whatsoever in such Confidential
Information, which shall remain the property solely of the disclosing party.
Nothing contained herein shall limit a party's rights to use its Confidential
Information in any manner whatsoever.
7.3 Survival. The terms of this Article 7 shall survive the
termination of this Agreement.
ARTICLE 8.
MISCELLANEOUS
8.1 Term and Termination.
(a) Term. this Agreement shall commence on the date first above written
and shall continue in full force and effect until June 30, 1995 (the "Initial
Term"), unless otherwise terminated as provided in Section 8.1 (b) or (c)
herein. After the Initial Term, this Agreement shall be extended for renewal
terms of one (1) year each ("Renewal Term"), unless one party notifies the other
party of its intent to terminate this Agreement at least 180 days prior to the
end of the Initial Term or any Renewal Term. The termination of this Agreement
shall not terminate, affect or impair any rights, obligations or liabilities of
either party hereto that may accrue prior to such termination or that, under the
terms of this Agreement, continue after the termination.
(b) Termination. Either party to this Agreement may terminate this
Agreement, reserving all other remedies and rights hereunder in whole or in
part, upon the following conditions:
(i) Event of Default. Subject to the terms of Section 8.1 (f)
hereof, upon the occurrence of an Event of Default caused by one party, the
nondefaulting party may terminate this Agreement by giving ten (10) business
days' notice (five business days in the case of BFC's failure to purchase Credit
Card Receivables pursuant to Section 4.1 hereof) prior written notice to the
defaulting party of its intent to terminate this Agreement. For purposes of this
Agreement, an "Event of Default" hereunder shall occur in the event either party
defaults in the performance of any of its material duties or obligations under
this Agreement and fails to correct the default, to the reasonable satisfaction
of the other party, within a 30-day cure period (which cure period shall be five
(5) business days for BFC's failure to purchase Credit Card Receivables pursuant
to Section 4.1 hereof) commencing upon receipt of notice from the other party.
Notwithstanding the foregoing, except in the case of an Event of Default
consisting of a failure by BFC t purchase Credit Card Receivables pursuant to
Section 4.1 hereof, notice of termination may not be sent until the party
seeking to terminate has followed the provisions of Section 8.1 (f) hereof.
(ii) Bankruptcy. Either party may terminate this Agreement, at
any time upon notice to the other party, after the filing by the other party of
any petition in bankruptcy or for reorganization or debt consolidation under the
federal bankruptcy laws or under any comparable law, or upon the other party's
making of an assignment of its
<PAGE>
assets for the benefit of creditors, or upon the application of the other party
for the appointment of a receiver or trustee of its assets.
(iii) Termination for Force Majeure or Changes in Laws or
Regulations. This Agreement may be terminated by either party on or after the
ninetieth (90th) day following the giving of notice by the other party that such
notice-giving party's performance is: (A) prevented or delayed by a force
majeure event listed in Section 8.7 hereof, if the failure to perform has not
been cured at the end of such ninety (90) day period, or (B) rendered (through
no act or omission of such party) illegal or impermissible for that party or its
ultimate parent corporation due to changes in laws or regulations applicable to
the terminating party.
(iv) Termination of Processing Agreement. This Agreement may
be terminated by either party if the Processing Agreement expires and is not
renewed. BFC may terminate this Agreement if the Processing Agreement is
terminated as a result of a breach by TSYS of its responsibilities thereunder.
CB&T may terminate this Agreement if the Processing Agreement is terminated as a
result of a breach by BFC of its responsibilities thereunder.
(v) Failure to Execute Agreements. This Agreement may be
terminated by CB&T, upon thirty (30) days prior written notice to BFC, if BFC
has not entered into a Servicing Agreement with a third party servicing company
and a Remittance Agreement with a third party payments processor prior to
February 15, 1994 provided however that this section shall not permit
termination for failure to enter into such an agreement if CB&T and BFC have
determined that the responsibilities under such agreement are to be performed by
BFC or CB&T, or a subsidiary of either party, but have been unable to reach
agreement on a definitive document.
(c) Ownership of a Bank by BFC. If BFC receives approval to establish
or obtain control of any bank, thrift or industrial loan company, upon notice to
CB&T, BFC may terminate this Agreement and exercise its rights under section (e)
hereof to purchase the Accounts and , to purchase at par, any credit card
receivables then owned by CB&T or an affiliate of CB&T, with such sale to occur
at a mutually agreed upon date.
(d) Duties After Termination. Upon termination of this Agreement, in
order to preserve the goodwill of Cardholders both parties shall cooperate in
order to ensure a smooth and orderly termination of their relationship and a
transition of Cardholder Accounts. In the event CB&T terminates this Agreement,
CB&T shall continue to maintain and service the Accounts and fulfill all of its
obligations hereunder for a period of up to 180 days after the termination, in
order to allow BFC to convert the Accounts to an alternative credit card issuer
or processor, provided, however, that if the termination results from a failure
of BFC to purchase Credit Card Receivables under the terms of Section 4.1
hereof, and such unpurchased Credit Card Receivables equal or exceed $50
million, CB&T, upon one (1) day's prior notice to BFC, may refuse to authorize
any new charges on the Accounts.
(e) Purchase of Accounts.
(i) Upon the expiration or termination of this Agreement, (A)
BFC shall have the right, exercisable by providing written notice to CB&T, to
purchase, and (B) CB&T shall have the right, exercisable by providing written
notice to BFC, to cause BFC to purchase, all of the Credit Card Accounts and (to
the extent not previously
<PAGE>
purchased by BFC) all of the Credit Card Receivables as of the date of such
purchase. BFC may fulfill such obligation by arranging for said purchase to be
made by a third party designated by BFC. The purchase price in the event of a
purchase and sale under this Section 8.1(e) shall be the full face amount of the
Credit Card Receivables being purchased plus an out-of-pocket expenses
reasonably incurred by CB&T in connection with such sale. CB&T shall transfer to
BFC or a financial institution designated by BFC the Deposit Accounts held as
security by CB&T for the Credit Card Accounts and assign to BFC the security
agreements related to the Deposit Accounts.
(ii) CB&T shall transfer to BFC all books and records relating
to the Accounts and each party shall return all property belonging to the other
party which is in its possession or control at the time of termination and shall
discontinue the use of and return to the other party, or at the request of the
other party destroy, all written and printed materials bearing the other party's
name and logo. At BFC's request, upon the transfer of the Accounts, CB&T shall
assign to BFC or its designee, as the case may be, its rights under the
Processing Agreement, the Servicing Agreement, the Remittance Agreement and the
SDC Agreement.
(iii) In the event BFC defaults in its obligation to purchase
the Accounts, CB&T (without limiting any other remedy it may have) may elect to
retain the Accounts, in which case it shall so notify BFC and may repurchase
from BFC its interest in the Credit Card Receivables, at par, or the parties may
mutually agree to sell the Accounts and Credit Card Receivables to an unrelated
purchaser, in which case any premium received on the sale of the Accounts shall
be payable in full to BFC.
(f) Resolution of Disputes. The parties agree that it is their desire
to use their best efforts to resolve amicably any and all disputes or
disagreements that may arise between them with respect to the interpretation of
any provision of this Agreement or with respect to the performance by the
parties under this Agreement, in order to avoid an early termination of this
Agreement. Toward that end, the parties agree that in the event any dispute or
disagreement arises that cannot be resolved at the operating level by employees
of each party having direct responsibility for the performance or operating
function in question, each of the parties will promptly appoint a designated
officer to meet for the purpose of endeavoring to resolve such dispute or
negotiate an adjustment to such provision. Any disputes that, if not resolved,
may lead to an allegation by one party that an Event of Default has occurred by
the other party shall be referred to the Chief Financial Officer of CB&T and the
Chief Financial Officer of H&R Block, Inc., who shall confer and diligently
attempt to find reasonable methods of correcting the condition giving rise to
the anticipated Event of Default. No legal proceedings for the resolution of any
such dispute may be commenced or notice of termination of this Agreement may be
served until such Chief Financial Officers have so conferred, and until either
party concludes, in good faith, that amicable resolution through continued
negotiation of the matter at issue does not appear likely and one party provides
written notice of same to the other party.
8.2 Indemnification.
(a) BFC will indemnify and hold harmless Synovus and CB&T, and their
respective directors, officers, employees, agents and affiliates and permitted
assigns
<PAGE>
("CB&T Indemnified Parties") from and against any and all "Losses" (as herein
defined), except to the extent of any Losses which arise from the direct acts or
omissions of CB&T or an affiliate of CB&T, arising out of (i) any failure of BFC
to comply with any of the terms and conditions of this Agreement, (ii) any
inaccuracy of a representation or warranty made by BFC herein, (iii) any
infringement or alleged infringement of any of the Block Credit Card Marks, or
the use thereof hereunder, on the rights of any third party; and (iv) any acts
or omissions of the remittance processing company or the servicing company prior
to the execution of the Remittance Agreement and the Servicing Agreement,
respectively.
(b) CB&T shall be liable to and shall indemnify and hold harmless BFC
and H&R Block, Inc. and their respective officers, directors, employees, agents,
affiliates, from and against any Losses (as defined below), except to the extent
of any Losses which arise from the direct acts or omissions of BFC, arising out
of the failure of CB&T to comply with any of the terms and conditions of this
Agreement, or the inaccuracy of any representation or warranty made by CB&T
herein.
(c) For the purposes of this Section 8.2, the term "Losses" shall mean
all out-of-pocket costs, damages, losses, and expenses whatsoever, including,
without limitation, (i) outside attorneys' fees and disbursements and court
costs reasonably incurred by the indemnified party; and (ii) costs (including
reasonable expenses and reasonable value of time spent) attributable to the
necessity that any officer or employee (other than in-house attorneys) of any
Indemnified Party spend more than 25% of his or her normal business hours, over
a period of two (2) months, in connection with any judicial, administrative,
legislative, or other proceeding.
8.3 Procedures for Indemnification.
(a) Notice of Claims. In the event any claim is made, any suit or
action is commenced, or any knowledge of a state of facts that, if not
corrected, would give rise to a right of indemnification of a party hereunder
("Indemnified Party") by the other party ("Indemnifying Party") is received, the
Indemnified Party will give notice to the Indemnifying Party as promptly as
practicable, but, in the case of lawsuit, in no event later than the time
necessary to enable the Indemnifying Party to file a timely answer to the
complaint. The Indemnified Party shall make available to the Indemnifying Party
and its counsel and accountants at reasonable times and for reasonable periods,
during normal business hours, all books and records of the Indemnified Party
relating to any such possible claim for indemnification, and each party
hereunder will render to the other such assistance as it may reasonably require
of the other (at the expense of the party requesting assistance) in order to
insure prompt and adequate defense of any suit, claim or proceeding based upon a
state of facts which may give rise to a right of indemnification hereunder.
(b) Defense and Counsel. Subject to the terms hereof, the Indemnifying
Party shall have the right to defend any suit, claim or proceeding. The
Indemnifying Party shall notify the Indemnified Party via facsimile
transmission, with a copy by mail, within ten (10) days of having been notified
pursuant to this Section 8.3 (a) if the Indemnifying Party elects to employ
counsel and assume the defense of any such claim, suit or action. The
Indemnifying Party shall institute and maintain any such defense diligently and
<PAGE>
reasonably and shall keep the Indemnified Party fully advised of the status
thereof. The Indemnified Party shall have the right to employ its own counsel if
the Indemnified Party so elects to assume such defense, but the fees and
expenses of such counsel shall be at the Indemnified Party's expense, unless (i)
the employment of such counsel shall have been authorized in writing by the
Indemnifying Party; (ii) such Indemnified Party shall have reasonably concluded
that the interests of such parties are conflicting such that it would be
inappropriate for the same counsel to represent both parties (in which case the
Indemnifying Party shall not have the right to direct the defense of such action
on behalf of the Indemnified Party), and in either of such events such
reasonable fees and expenses shall be borne by the Indemnifying Party; or (iii)
they Indemnifying Party shall not have employed counsel to take charge of the
defense of such action after electing to assume the defense thereof.
(c) Settlement of Claims. The Indemnifying Party shall have the right
to compromise and settle any suit, claim or proceeding in the name of the
Indemnified Party; provided however, that the Indemnifying Party shall not
compromise or settle a suit, claim or proceeding (i) unless it indemnifies the
Indemnified Party for all Losses arising out of or relating thereto and (ii)
with respect to any suit, claim or proceeding which seeks any non-monetary
relief, without the consent of the Indemnified Party, which consent shall not be
unreasonably withheld. Any final judgment or decree entered on or in, any claim,
suit or action which the Indemnifying Party did not assume the defense of in
accordance herewith, shall be deemed to have been consented to by, and shall
(subject to the other provisions hereof) be binding upon, the Indemnifying Party
as fully as if the Indemnifying Party had assumed the defense thereof and a
final judgment or decree had been entered in such suit or action, or with regard
to such claim, by a court of competent jurisdiction for the amount of such
settlement, compromise, judgment or decree. the Indemnifying Party shall be
subjugated to any claims or rights of the Indemnified Party as against any other
Persons with respect to any amount paid by the Indemnifying Party under this
Section 8.3.
(d) Indemnification Payments. Amounts owing under Section 8.2 shall be
paid promptly upon written demand for indemnification containing in reasonable
detail the facts giving rise to such liability, provided, however, that if the
Indemnifying Party notifies the Indemnified Party within thirty (30) days of
receipt of such demand that it disputes it obligation to indemnify and the
parties are not otherwise able to reach agreement, the controversy shall be
settled by final judgment entered by a court of competent jurisdiction.
(e) Survival. The terms of Sections 8.2 and 8.3 shall survive the
termination of this Agreement provided, however, that a direct claim made by a
party hereto against the other party hereto for breach of any part of this
Agreement other than Sections 8.2 and 8.3 hereof, shall only survive the
termination of this Agreement for a period of five years.
8.4 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Georgia without regard to
its conflict of laws rules.
8.5 Press Releases. Except as may be required by law or regulation or a
court or regulatory authority or any stock exchange, neither CB&T nor BFC, nor
their
<PAGE>
respective parents or affiliates, shall issue a press release or make public
announcement or any disclosure to any third party related to the terms of this
Agreement without the prior consent of the other party hereto, which consent
shall not be unreasonably withheld or delayed.
8.6 Relationship of the Parties. CB&T and BFC agree that in performing
their responsibilities pursuant to this Agreement they are in the position of
independent contractors. This Agreement is not intended to create, nor does it
create and shall not be construed to create, a relationship of partners or joint
ventures or any association for profit between and among CB&T and BFC.
8.7 Force Majeure. In the event that either party fails to perform its
obligations under this Agreement in whole or in part as a consequence of events
beyond its reasonable control (including, without limitation, acts of God, fire,
explosion, public utility failure, accident, floods, embargoes, epidemics, war,
nuclear disaster or riot), such failure to perform shall not be considered a
breach of this Agreement during the period of such disability. In the event of
any force majeure occurrence as set forth in this Section, the disabled party
shall use its best efforts to meet its obligations as set forth in this
Agreement. The disabled party shall promptly and in writing advise the other
party if it is unable to perform due to a force majeure event, the expected
duration of such inability to perform and of any developments (or changes
therein) that appear likely to affect the ability of that party to perform any
of its obligations hereunder in whole or in part.
8.8 Books and Records. Each party shall maintain books of account and
records, in accordance with standard accounting practices and procedures, of all
financial transactions arising in connection with its obligations pursuant to
this Agreement for a period of five years, and after such time the other party
will be offered a reasonable opportunity to take possession of such records at
its expense prior to their destruction. In addition to and notwithstanding the
foregoing, to the extent either party has sole possession of any records
required to be maintained by the other party pursuant to applicable state or
federal laws or regulations, the party with possession shall maintain such
records in such form and for such time periods as are provided for in such laws
and regulations. Subject to the first sentence of this Section, either party
may, at its own expense and upon reasonable prior notice, have full access to
and the right to inspect and copy the books and records of the other party
relating to services performed herein by that party, and during the term of this
Agreement, each party shall furnish to the other party all such information
concerning transactions and services provided by it pursuant to this Agreement
as that party may reasonably request.
8.9 Notices. All notices, requests and approvals required by this
Agreement (i) shall be in writing, (ii) shall be addressed to the parties as
indicated below unless notified in writing of a change in address, and (iii)
shall be deemed to have been given either when personally delivered or, if sent
by mail, in which event it shall be sent postage prepaid, upon delivery thereof,
or, if sent by telegraph, telex, or facsimile, upon delivery thereof. The
addresses of the parties are as follows:
<PAGE>
To CB&T: Columbus Bank and Trust Company
PO Box 120
Columbus, Georgia 31902-0120
Attention: President
To BFC: Block Financial Corporation
4410 Main Street
Kansas City, Missouri 64111
Attention: President
8.10 Modification and Changes. This Agreement, together with any
Exhibits attached hereto, constitutes the entire agreement between the parties
relating to the subject mater herein. This Agreement may only be amended by a
written document signed by both parties. In the course of the planning and
coordination of this Agreement, written documents have been exchanged between he
parties. such written documents shall not be deemed to amend or supplement this
Agreement.
8.11 Assignment. This Agreement and the rights and obligations created
under it shall be binding upon and inure solely to the benefit of the parties
hereto and their respective successors and assigns, and no other person shall
acquire or have any right under or by virtue of this Agreement. Except as
otherwise provided herein, this Agreement shall not be assigned by either party,
except to a wholly-owning parent or to a wholly-owned subsidiary of such parties
wholly-owning parent, without the written consent of the other party, and any
such permitted assignment or delegation shall terminate when such assignee is no
longer a wholly owning parent of such party or a wholly owned subsidiary of such
party or of such party's wholly owning parent.
8.12 Effectiveness. This Agreement shall become effective with it has
been accepted and executed on behalf of CB&T by an authorized officer and on
behalf of BFC by an authorized officer.
8.13 Waivers. Neither of the parties shall be deemed to have waived any
of its rights, powers or remedies hereunder unless such waiver is approved in
writing by the waiving party.
8.14 Severability. If any provision of this Agreement or portion
thereof is held invalid, illegal, void or unenforceable by reason of any rule of
law, administrative or judicial provision or public policy, all other provisions
of this Agreement shall nevertheless remain in full force and effect.
8.15 Headings. The headings contained herein are for convenience of
reference only and are not intended to define, limit, expand or describe the
scope or intent of any provision of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date set forth above.
<PAGE>
COLUMBUS BANK AND TRUST COMPANY BLOCK FINANCIAL CORPORATION
By: /s/ Wade Buford By: /s/ William P. Anderson
-------------------------------- ---------------------------
Title: Vice President Title: President
---------------------------- ---------------------------
<PAGE>
Exhibit C
Calculation of CB&T Required Before Tax Return
As of December 31, 1993
Required before Tax Return = Required Net after Tax Return / (100% (Federal
Income Tax Rate) / (100% (State Income Tax Rate), where:
Required Net after Tax Return = 1.50%
Current Federal Income Tax Rate = 35%
Current State Income Tax Rate = 6%
1.5% / (100% (35%) / (100% (6%) = 2.45%
Current Required before Tax Return = 2.45%
CALCULATION OF CB&T REQUIRED MONTHLY RETURN
As of December 31, 1993
Assumptions:
Total Average Program Receivables for the month $5,289,129.00
# of Days in Month 31
# of Days in Year 365
Total Average Program Receivables for the month $5,289,129.00
First $5 million allocated to CB&T (5,000,000.00)
Balance of Receivables $2,89,129.00
Allocation Percentage 10%
10% above $5 million allocated to CB&T $28,912.90
First $5 million allocated to CB&T $5,000,000.00
Total Allocated to CB&T $5,028,912.90
Total Allocated to CB&T $5,028,912.90
X Required Before Tax Return 2.45%
X # of Days in Period 31
(# of Days in Year 365
= CB&T Guaranteed Return $10,458.59
<PAGE>
EXHIBIT D
H&R BLOCK RETURNED MAIL SERVICES
Procedures
1. CB&T will, on each business day, pick up all undelivered or returned
mail from P.O. Box 2295 located at the main Post Office in Columbus
Georgia.
2. The cards will be delivered to Bankcard Data Entry and logged.
3. Upon receipt of returned mail data Entry will:
Change Address
Update the change of address supplied by the Post Office on the
cardholder's account.
Prepare a label with the new address, place on the old card insert and
place in new envelope.
Overseas Address
Cards with overseas address's and returned for insufficient postage
will be placed in a plain envelope with the correct address and
marked for overseas postage.
Undeliverable Mail
Mail returned as undeliverable will be checked on the system to
verify the address. If the address's are the same the cards will
be destroyed and action taken will be placed in thnotes on the
TSYS system.
4. All mail that is corrected for remailing will be listed on a log
sheet and transported to Card production to be mailed.
Pricing
cards/per month cost/per card/per month
0-100 $7.50
101-250 $5.00
251-1000 $3.00
1001 & up renegotiate
<PAGE>
AMENDMENT NO. 1
TO AFFINITY CARD AGREEMENT
THIS AMENDMENT (this "Amendment") is made this 29th day of
December, 1995, by and between BLOCK FINANCIAL CORPORATION, a Delaware
corporation, and COLUMBUS BANK AND TRUST COMPANY, a bank organized under the
laws of the State of Georgia ("CB&T").
WHEREAS, the parties hereto are parties to that certain
Affinity Card Agreement dated March 1, 1993 (the "Affinity Card Agreement"); and
WHEREAS, the parties hereto desire to amend the Affinity Card
Agreement to, among other things, (i) extend the term thereof, (ii) modify the
purchase and sale of receivables provisions, and (iii) reflect the fact that BFC
has discontinued its H&R Block Value Card and Interim Card programs;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein set forth, the parties hereby agree as follows:
1. All capitalized terms used herein and not otherwise defined
shall have the respective meanings provided such terms in the Affinity Card
Agreement.
2. Section 1 of the Affinity Card Agreement is hereby
amended as follows:
(a) The definition of "Credit Card" or "Card" is deleted
therefrom in its entirety and inserted in lieu thereof is the following:
"`Credit Card' or `Card' shall mean each CompuServe Card or
such other MasterCard and/or Visa Card issued hereunder by CB&T and
bearing such name or logo as requested by BFC and approved by CB&T
pursuant to Section 2.1 herein."
(b) The definitions of "H&R Block Value Card," "Value Card,"
and "Interim Card" are deleted therefrom in their entirety.
3. Section 2.1 of the Affinity Card Agreement is hereby
amended by deleting the last sentence thereof in its entirety and inserting in
lieu thereof the following:
"Subject to the Operating Regulations (as defined in Section 2.12
hereof) and the terms of Section 2.10 herein, each Credit Card shall
have on the front thereof the name, logo and/or trademark of CompuServe
Card or such other name, logo and/or trademark requested by BFC and
approved by CB&T (which approval shall not be unreasonably withheld or
delayed) and shall be of a design approved by CB&T, BFC and MasterCard
or Visa, as applicable."
<PAGE>
4. Section 3.1(a) of the Affinity Card Agreement is hereby
amended as follows:
(a) Subclause (a) of paragraph (iv) is amended by deleting
therefrom the phrase "for the H&R Block Value Card program and such other
amount as may be mutually agreed upon by the parties with respect to the
Interim Card and CompuServe Card programs."
(b) Subparagraphs (vi) and (vii) are deleted therefrom in
their entirety and inserted in lieu thereof is the following:
(vi) "CB&T Return" shall mean with respect to a
particular month such dollar amount which, when divided by the daily
average of: (x) $5,000,000 and (y) 10% of the amount by which the
Credit Card Receivables exceed $5,000,000, will produce a quotient of
the decimal equivalent (when carried two places to the right of the
decimal point) of the percentage that, when reduced by the tax rate
to which Synovus is subject, which tax rate shall be fixed for each
monthly period, will produce an annual return of 1.5%; provided,
however, that if the CB&T Return for each six-month period ending on
August 31 or February 28 or 29 (as the case may be) is less than
$50,000, the CB&T Return shall be increased to $50,000 for such
period. As of December 31, 1993, such amount is $10,485.59 and was
calculated as indicated on Exhibit C to this Agreement.
(c) Subparagraphs (viii) and (ix) are hereby renumbered as
(vii) and (viii) respectively.
5. Section 3.2 of the Affinity Card Agreement is hereby
amended by deleting the amount "$5,000,000" and inserting in lieu thereof the
amount "$1,000,000."
6. Section 4.1(a) of the Affinity Card Agreement is hereby
amended by deleting from the first sentence thereof the amount "$5,000,000" from
each place where it appears therein and inserting in lieu thereof the amount
"$1,000,000."
7. Section 5.3 of the Affinity Card Agreement is hereby
amended by deleting from the first sentence thereof the phrase "H&R Block
Value Card, Interim Card or."
8. Section 8.1(a) of the Affinity Card Agreement is hereby
amended as follows:
(a) The first sentence thereof is amended by deleting the
date "June 30, 1995" and inserting in lieu thereof the date "July 1, 1998."
(b) The second sentence thereof is deleted therefrom in its
entirety and inserted in lieu thereof is the following:
2
<PAGE>
"After the Initial Term, this Agreement shall be executed for renewal
terms of two (2) years each ("Renewal Term"), unless one party
notifies the other party of its intent to terminate this Agreement at
least 270 days prior to the end of the Initial Term or any Renewal
Term."
9. Notwithstanding the provisions of this Amendment that
reflect the fact that BFC has discontinued its H&R Block Value Card and Interim
Card programs, BFC and CB&T hereby agree and confirm that (i) all
representations and warranties made by BFC and CB&T in Article 6 of the Affinity
Card Agreement with respect to the H&R Block Value Card and Interim Card remain
in full force and effect, and (ii) the indemnification obligations of BFC and
CB&T set forth in Article 8.2 of the Affinity Card Agreement with respect to
Losses associated with the H&R Block Value Card and Interim Card remain in full
force and effect.
10. Except as herein modified, the Affinity Card Agreement
shall remain in full force and effect and is hereby confirmed in all respects.
11. This Amendment shall be binding upon and inure to the
benefit of the parties and their respective successors and assigns.
12. This Amendment shall be effective as of the date hereof.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered as of the day and year first above
written.
BLOCK FINANCIAL CORPORATION COLUMBUS BANK AND TRUST
COMPANY
By: /s/ G. Cotter Cunningham By: /s/Russell D. Carreker
------------------------- -----------------------
G. Cotter Cunningham Russell D. Carreker
Vice President, Credit Vice President
Card Operations
<PAGE>
THIRD AMENDMENT TO
CREDIT AGREEMENT
----------------
THIRD AMENDMENT, dated as of September 12, 1997 (this "Third
Amendment"), to Credit Agreement, dated as of December 10, 1996, among BLOCK
FINANCIAL CORPORATION, a Delaware Corporation (the "Borrower"), the Lenders
parties thereto from time to time (individually, a "Lender", and collectively,
the "Lenders") and MELLON BANK, N.A., a national banking association, as agent
for the Lenders (in such capacity, the "Agent") (as amended by that certain
First Amendment to Credit Agreement dated as of April 10, 1997, and by that
certain Second Amendment to Credit Agreement dated as of June 6, 1997, the
"Agreement").
W I T N E S S E T H
-------------------
WHEREAS, the Borrower, the Lenders and the Agent desire to
make certain amendments to the Agreement, including requiring the Consolidated
Net Worth of Guarantor to be at least $325,000,000 at all times and permitting
Borrower to issue certain Indebtedness;
NOW THEREFORE, for and in consideration of the premises herein
contained, and intending to be legally bound, the parties hereto agree as
follows:
ARTICLE I
Amendments
----------
Section 1.01. Section 6.01 of the Agreement is hereby amended
by deleting subsection (a) in its entirety and replacing it with a new
subsection (a), such new subsection (a) to read it in its entirety as follows:
(a) Consolidated Net Worth of Guarantor. At all
times, the Consolidated Net Worth of Guarantor shall not be
less than $325,000,000.
Section 1.02. Schedule 6.05 of the Agreement is hereby further
amended by adding thereto, as a new item 14, the following.
14. Unsecured Indebtedness, evidenced by promissory notes, in
an aggregate principal amount not exceeding $300,000,000, with
a maturity not less than five years after the incurrence
thereof, which promissory notes do not have the benefit of
covenants more favorable to the holders thereof than the
covenants described in the Borrower's preliminary prospectus,
dated August 14, 1997, with respect to such promissory notes,
and the proceeds of the issuance of which is used by Borrower
to repay its commercial paper notes.
<PAGE>
ARTICLE II
Conditions to Effectiveness
---------------------------
Section 2.01. This Third Amendment shall become effective upon
the satisfaction of the following conditions precedent:
(a) This Third Amendment shall have been executed and
delivered by the Borrower, the Agent and the Required Lenders. The Guarantor
shall have executed and delivered the Consent to this Third Amendment in the
form of Exhibit A to this Third Amendment.
(b) The Agent shall have received, with an executed
counterpart for each Lender, certificates from such officers of the Borrower and
the Guarantor as to such matters as the Agent may request.
ARTICLE III
Miscellaneous
-------------
Section 3.01. (a) The Required Lenders hereby authorize and
direct the Agent to enter into this Third Amendment.
(b) Capitalized terms used and not otherwise defined herein
shall have the meanings given such terms in the Agreement. Except as amended
hereby, the Agreement shall remain in full force and effect. This Third
Amendment may be executed in one or more counterparts and all such counterparts
taken together shall constitute one and the same instrument.
(c) THIS THIRD AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA.
(d) The amendments set forth herein shall be limited precisely
as provided for herein and shall not be deemed to be waivers of, amendments to,
consents to or modifications of any term of provision of the Agreement or any
other Loan Document, or instrument referred to therein. The Agreement, as
amended hereby, shall continue in full force and effect.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Third
Amendment to be duly executed as of the day and year first above written.
ATTEST: BLOCK FINANCIAL CORPORATION
By /s/ John R. Cox By /s/ Bret G. Wilson
-------------------------------- -----------------------------------
Title: Secretary Title: Vice President
[Corporate Seal]
MELLON BANK, N.A., as Lender and Swing
Line Lender and as Agent
By /s/ Mellon Bank, N.A.
Title:
THE BANK OF TOKYO-MITSUBISHI,
LTD., CHICAGO BRANCH
By /s/ The Bank of Tokyo-Mitsubishi, Ltd.,
Chicago Branch
Title:
THE CHASE MANHATTAN BANK
By /s/ The Chase Manhattan Bank
Title:
COMERICA BANK
By /s/ Comerica Bank
Title:
COMMERCE BANK, N.A.
By /s/ Commerce Bank, N.A.
Title:
3
<PAGE>
CREDIT LYONNAIS CHICAGO BRANCH
By /s/ Credit Lyonnais Chicago Branch
Title:
THE FIRST NATIONAL BANK OF
CHICAGO
By /s/ The First National Bank of Chicago
Title:
THE FUJI BANK, LIMITED
By /s/ The Fuji Bank, Limited
Title:
THE LONG-TERM CREDIT BANK OF
JAPAN, LTD.
By /s/ The Long-Term Credit Bank of Japan,
Ltd.
Title:
ISTITUTO BANCARIO SAN PAOLO DI
TORINO SPA
By /s/ Istituto Bancario San Paolo Di
Torino SPA
Title:
SOCIETE GENERALE
By /s/ Societe Generale
Title:
4
<PAGE>
TORONTO DOMINION (TEXAS), INC.
By /s/ Toronto Dominion (Texas), Inc.
Title:
THE YASUDA TRUST & BANKING CO.,
LTD.
By /s/ The Yasuda Trust & Banking Co., Ltd.
Title:
5
<PAGE>
Exhibit A
CONSENT WITH RESPECT TO GUARANTY AND SURETYSHIP AGREEMENT
---------------------------------------------------------
Reference is made to the Guaranty and Suretyship Agreement,
dated as of December 10, 1996 (the "Guaranty") made by H & R Block, Inc., a
Missouri corporation (the "Guarantor"), in favor of Mellon Bank, N.A., as Agent
under the Credit Agreement, dated as of December 10, 1996, among Block Financial
Corporation (the "Borrower"), the Lenders party thereto from time to time and
such Agent (as amended, modified or supplemented from time to time, the "Credit
Agreement") and to the Third Amendment to Credit Agreement, dated as of
September 12, 1997 (the "Third Amendment") among such parties. The Guarantor
hereby consents to the Third Amendment.
H & R BLOCK, INC.
By /s/ Frank L. Salizzoni
-----------------------------------
Title President
--------------------------------
6
<PAGE>
AMENDED AND RESTATED OPTION AND WARRANT AGREEMENT
THIS AMENDED AND RESTATED OPTION AND WARRANT AGREEMENT ("this
Agreement") is made this 19th day of December, 1995 by and among W.D. Everitt,
Jr., an individual ("Everitt"), National Consumer Services Corp., L.L.C., a
Georgia limited liability company ("NCS"), National Consumer Services, Corp. II,
L.L.C., a Georgia limited liability company ("NCS II"), and Block Financial
Corporation, a Delaware Corporation ("BFC") and is amended and restated as of
January 1, 1996.
Recitals
A. Pursuant to that certain Operating Agreement for NCS dated
as of September 15, 1995, as amended by the First Amendment to Operating
Agreement of NCS (as amended, the "NCS Operating Agreement"), Everitt owns a
Company Interest (as such term is defined in the NCS Operating Agreement) in NCS
equal to a 66% Percentage Interest (as such term is defined in the NCS Operating
Agreement).
B. Pursuant to that certain Operating Agreement for NCS II
dated as of December 19, 1995 (the "NCS II Operating Agreement"), Everitt owns a
Company Interest (as such term is defined in the NCS II Operating Agreement) in
NCS equal to a 66% Percentage Interest (as such term is defined in the NCS II
Operating Agreement).
C. In reliance upon, and in consideration of, the agreements
of Everitt, NCS and NCS II under this Agreement to grant options to BFC with
respect to the purchase by BFC of a Company Interest in NCS and NCS II, BFC has
agreed to (i) extend certain financial accommodations to NCS and NCS II pursuant
to that certain Credit Agreement by and between NCS, NCS II and BFC dated even
date herewith (the "Credit Agreement") and (ii) purchase certain mortgage loans
from NCS and NCS II pursuant to that certain Loan Purchase Agreement by and
between NCS, NCS II and BFC dated even date herewith.
Agreements
IN CONSIDERATION of the premises, and of the mutual promises,
obligations and agreement contained herein, the receipt and sufficiency of which
is hereby acknowledged, the parties hereto, intending to be legally bound, do
hereby agree as follows:
1. Option. (a) Everitt hereby grants to BFC the
right and option to purchase from Everitt a Company Interest in each of NCS and
NCS II equal to a 40% Percentage Interest in each of NCS and NCS II, at an
aggregate purchase price of $4,000,000 and in the manner and on the terms and
conditions as hereinafter set forth.
(b) The option granted by Everitt to BFC hereunder may be
exercised by BFC at any time during (and only during) the three-year period
commencing on December 19, 1995 (the "Option Period"); provided, however, that
in the event BFC's obligations to make Loans (as such term is defined in the
Credit Agreement ) under the Credit Agreement is terminated for any reason, such
option shall terminate upon the earlier of (i) the expiration of the Option
Period or (ii) the date 90 days after the date on which BFC's obligations to
make Loans under the Credit Agreement is terminated. BFC shall exercise such
right, if at all, by giving Everitt, NCS and NCS II written notice of exercise.
Such notice of exercise shall specify a date for closing of the purchase, which
date shall not be more
<PAGE>
than 15 days after the date of such notice of exercise. Any exercise of the
option granted to BFC hereunder shall be with respect to both NCS and NCS II.
(c) The closing of any purchase and sale of Company Interests
under this Section 1 shall be held at the principal office of NCS (or such other
place as agreed upon by Everitt and BFC) on such date set forth in Section 1 (b)
of this Agreement; provided, however, that if the closing is scheduled for a day
that is not a business day in the State of Georgia, the closing shall occur on
the next business day thereafter. At the closing, the purchase price shall be
paid by federal wire transfer of funds immediately available at such domestic
account designated by Everitt, against delivery of a written instrument of
transfer of the applicable Company Interests executed by Everitt (or his
applicable legal representative) and in form and substance satisfactory to BFC.
2. Restrictions on Transfer. During the period commencing on
the date hereof and ending on the date of the closing of any purchase and sale
of Company Interests under Section 1 of this Agreement, Everitt shall not make,
and NCS and NCS II shall not suffer to occur, any Transfer (as such term is
defined in the NCS Operating Agreement) of Everitt's Company Interests in NCS
and/or NCS II that results in Everitt owning after such Transfer a Percentage
Interest in NCS or NCS II that is less then 40%.
3. Failure to Transfer Company Interest. (a) If Everitt or his
legal representative is not present at the time and place designated for a
closing pursuant to Section 1 of this Agreement, or, if present, fails to
execute and deliver to BFC a written instrument of transfer of the applicable
Company Interests as required by Section 1 of this Agreement, or fails to
satisfy any other obligation to be satisfied at the closing, as aforesaid, for
any reason whatsoever or no reason (any such foregoing events is hereinafter
referred to as a "Closing Failure"), then the purchase price and any document
required of BFC at the closing ( such purchase price and documents are
hereinafter referred to as the "Closing Documentation") shall be deposited with
the Manager of NCS. The foregoing shall constitute valid payment even though
Everitt has attempted to encumber or dispose of any of such Company Interests
contrary to the provisions of this Agreement and irrespective of the fact that
any pledge, transferee or other person may thereby have attempted to acquire an
interest in any of such Company Interests or the fact any of such Company
Interests may have been Transferred to any such person.
(b) If the Closing Documentation is deposited with the Manager
of NCS as provided herein, then from and after the date of such deposit and even
if the written instrument of transfer as required by Section 1 of this Agreement
has not been delivered to BFC, the purchase of such Company Interests shall be
deemed to have been fully effected and all title and interest in and to such
Company Interests shall be deemed to have been vested in BFC, and all rights of
Everitt or of any purported transferee, assignee or any other person purporting
to have an interest therein, as a Member (as defined in the NCS Operating
Agreement and NCS II Operating Agreement, as the case may be) or otherwise,
shall terminate except for the right to receive the Closing Documentation, but
without interest; and the Manager of NCS and the Manager of NCS II, as
attorney-in-fact for and in the name of Everitt, shall cause such applicable
Company Interest to be transferred on the books of NCS and NCS II to BFC.
Everitt does hereby irrevocably appoint and designate the Manager of NCS and the
Manager of NCS II and their successors in office as his attorney-in-fact, for
and on his behalf, to receive, receipt for, hold and collect the Closing
Documentation, and to effect the transfer of the Company Interests on the books
of NCS and NCS II. Everitt shall be entitled to receive the Closing
Documentation upon delivery to NCS of the written instruments of transfer as
required by Section 1 of this Agreement, as aforesaid.
<PAGE>
4. Warrant. (a) NCS and NCS II each hereby agree, that in the
event a Closing Failure occurs and continues until the closing of the purchase
of Company Interest pursuant to this Section 4, BFC shall be entitled to
subscribe for and purchase from NCS and NCS II Company Interests in NCS and NCS
II equal to a 40% Percentage Interest in each of NCS and NCS II, at an aggregate
purchase price of $4,000,000 and in the manner, and on, and subject to, the
terms and conditions set forth in this Section 4 at any time during the one-year
period commencing on the date of deposit of the Closing Documentation with NCS.
(b) BFC shall exercise its right to subscribe for and purchase
Company Interests pursuant to this Section 4, if at all, by giving Everitt, NCS
and NCS II written notice of exercise. Upon receipt of such notice of exercise,
NCS and NCS II shall be entitled to retain (as payment by BFC of the purchase
price for the Company Interests purchase pursuant to this Section 4) the
purchase price deposited with NCS pursuant to Section 3 of this Agreement, and
the closing of the purchase of Company Interests under this Section 4 shall be
deemed to have occurred on the date such notice was received by NCS. NCS and NCS
II hereby agree that the aggregate purchase price shall be remitted by BFC
solely to NCS and that such aggregate purchase price shall be allocated between
NCS and NCS II as determined by NCS and NCS II.
5. Assignments and Transfers; Binding Effect. This Agreement
shall not be assigned by any party hereto without the prior written consent of
the other parties hereto, and the options herein granted shall not be
transferable and shall be exercisable only by BFC and shall not be transferred,
assigned, pledged or hypothecated by BFC; provided, however, that BFC may assign
this agreement or transfer the options herein granted to any Affiliate (as
defined in the NCS Operating Agreement) of BFC. All rights and obligations
pursuant to this Agreement shall adhere to and be binding upon the parties
hereto and their permitted heirs, administrators, executors, successors and
assigns.
6. Entire Agreement; Amendments. This Agreement cancels and
supersedes all previous agreements relating to the subject matter of this
agreement, written or oral, between the parties hereto and contains the entire
understanding of the parties hereto and shall not be amended, modified or
supplemented in any manner whatsoever except as otherwise provided herein or in
writing signed by each of the parties hereto. No waiver or any provision hereof
will be valid or binding on the parties hereto, unless such waiver is in writing
and signed by or on behalf of the parties hereto, and no waiver on one occasion
shall be deemed to be a waiver of the same or any other provision hereof in the
future.
7. NCS and NCS II's Right to Refuse Transfer. NCS and NCS II
are hereby irrevocably authorized by Everitt to refuse to accommodate or
recognize any Transfer of a Company Interest that would not be in accordance
with the terms hereof, and NCS and NCS II and the Manager and the other Members
of NCS and NCS II are hereby released and relieved from any and all liability
that might arise from the refusal to accommodate or recognize such Transfer.
8. Severability. If for any reason any one or more provisions
or parts of a provision hereof shall be determined to be invalid or
unenforceable in any respect, such invalidity or unenforceability shall not
affect any other provision or part of a provision herein, and such provision or
part shall be reformed so that it would be valid, legal and enforceable to the
maximum extent permitted.
<PAGE>
9. 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, by first-class mail, or by facsimile transmission (with confirmation in
writing mailed first-class or sent by such overnight courier) or by personal
delivery, addressed as follows:
If to BFC, to:
Block Financial Corporation
4435 Main Street, Suite 500
Kansas City, Missouri 64111
Attention: Clifford A Davis, Jr.
Facsimile: 816-561-0673
If to Everitt, to:
W.D. Everitt, Jr.
1815 N. Expressway
P.O. Box 149
Griffin, Georgia 30224
Facsimile: (770) 228-0039
If to NCS or NCS II, to:
National Consumer Services Corp., L.L.C.
16 Perimeter Center
Suite 1600
Atlanta, Georgia 30306
Attention: John B. Stanforth
Facsimile: (770) 668-0541
Any party may change the address to which it desires notices
to be sent giving the other party ten (10) days' prior notice of any such
change. Any notices shall be deemed effective on the earliest to occur of
receipt, telephone confirmation of receipt of facsimile transmission, one
business day after delivery to a nationally-recognized overnight courier, or
three business days after deposit in the mail.
10. Law Governing. This Agreement shall be governed by
and construed and interpreted in accordance with the laws of the State of
Missouri applicable to agreements made and to be performed entirely within such
state, including all matters of enforcement, validity and performance.
11. Specific Performance. Everitt, NCS and NCS II each hereby
acknowledge and agree that the remedy at law available to BFC would be
inadequate for any breach of this Agreement whereby (i) a person or his legal
representative would refuse to transfer a Company Interest in NCS or NCS II in
accordance with the terms of this Agreement, or (ii) Everitt would attempt to
transfer a Company Interest in NCS or NCS II not in accordance with the terms of
this Agreement. In recognition of that fact, Everitt, NCS and NCS II each hereby
agree that, in addition to any other available remedies, BFC shall be entitled
to specific performance of all
<PAGE>
affirmative duties with respect to the transfer of a Company Interest in NCS or
NCS II and to an injunction, restraining order or other form of equitable relief
prohibiting violation of any of the restrictive covenants with respect to the
Transfer of Company Interests hereunder.
12. Subrogation of BFC's Rights. In the event BFC exercises
its rights under Section 4 of this Agreement and shall have purchased a Company
Interest from NCS and/or NCS II pursuant to such Section 4, NCS and NCS II, as
the case may be, shall be subrogated as to BFC's right under Sections 1, 2, 3
and 11 of this Agreement and, accordingly, shall be entitled to enforce such
rights against Everitt.
13. Headings Section headings contained in this Agreement are
for Reference purposes only and are in no way intended to define, interpret,
describe or limit the scope, extent or intent of this Agreement or any
provision hereof.
14. Counterparts. This Agreement may be executed in
counterparts, each of which shall for all purposes be deemed an original, and
all of such counterparts shall together constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
/s/ W.D. Everitt, Jr.
- ---------------------------------------
W.D. Everitt, Jr.
BLOCK FINANCIAL CORPORATION
By Clifford A.Davis, Jr.
-----------------------------------
Clifford A.Davis, Jr. Vice President
Finance and Corporate Development
NATIONAL CONSUMER SERVICES
CORP., L.L.C.
By John B. Stanforth
----------------------------------
John B. Stanforth
Manager
NATIONAL CONSUMER SERVICES
CORP. II, L.L.C.
By John B. Stanforth
--------------------------------
John B. Stanforth
Manager
<PAGE>
EXHIBIT 12(B)
H&R BLOCK, INC.
GUARANTOR
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Pretax income from continuing (b)
operations................................ $143,777 $125,089 $ 97,989 $103,052 $126,556
======= ======== ======== ======== ========
FIXED CHARGES:
Interest expense.......................... 11,642 3,969 4,056 3,798 6,579
Interest portion of net rent
expense(a)............................. 26,012 21,821 20,660 19,075 17,965
------- -------- -------- -------- --------
Total fixed charges......................... 37,654 25,790 24,716 22,873 24,544
------- -------- -------- -------- --------
Earnings before income taxes and fixed
charges................................... $181,431 $150,879 $122,705 $125,925 $151,100
======= ======== ======== ======== ========
Ratio of earnings to fixed charges.......... 4.8:1 5.9:1 5.0:1 5.5:1 6.2:1
======= ======== ======== ======== ========
</TABLE>
- ------------------
(a) One-third of net rent expense is the portion deemed representative of the
interest factor.
(b) Included in earnings for 1994 was a nonrecurring charge of $25,072 for
purchased research and development related to the acquisition of MECA
Software, Inc. as disclosed in the Acquisitions note to Block's consolidated
financial statements for the year ended April 30, 1996. If such charges
had not occured, the ratio of earnings to fixed charges would have been
6.6:1.
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Amendment No. 1 to
Registration Statement Nos. 333-33655 and 333-33655-01 of Block Financial
Corporation and H&R Block, Inc. on Form S-3 of our reports dated June 17, 1997,
except for the "Subsequent Events" note to the consolidated financial statements
as to which the date is September 7, 1997 appearing in and incorporated by
reference in Amendment Number 2 to the Annual Report of Form 10-K of H&R Block,
Inc. for the year ended April 30, 1997 and to the reference to us under the
heading "Experts" in the Prospectus, which is part of this Registration
Statement.
Kansas City, Missouri
September 24, 1997
<PAGE>
Independent Auditors' Consent
The Board of Directors
Option One Mortgage Corporation:
We consent to the incorporation by reference in Amendment No. 1 to the
registration statement on Form S-3 of Block Financial Corporation and H&R Block,
Inc. dated September 25, 1997 of our report dated February 18, 1997, with
respect to the balance sheets of Option One Mortgage Corporation as of December
31, 1996 and 1995 and the statements of earnigs, stockholder's equity and cash
flows for the year ended December 31, 1996 and for the period March 3, 1995 to
December 31, 1995 (Successor period) and from January 1, 1995 to March 2, 1995
(Predecessor period), which report appears in the Form 8-K/A of H&R Block, Inc.
dated July 2, 1995 (filed August 14, 1997) and to the reference to our firm
under the heading "Experts" in the Prospectus.
Our report dated February 18, 1997 contains an explanatory paragraph that states
that effective March 3, 1995, Fleet National Bank, Rhode Island acquired all of
the outstanding stock of Option One Mortgage Corporation in a business
combination accounted for as a purchase. As a result of the acquisition, the
financial information for the periods after the acquisition is presented on a
different cost basis than that for the periods before the acquisition and,
therefore, is not comparable. Effective September 27, 1995, Fleet National Bank,
Rhode Island transferred its investment in the Company to one of its wholly
owned subsidiaries, Fleet Holding Corporation.
/S/ KPMG PEAT MARWICK LLP
Orange County, California
September 25, 1997
