UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission file number 0-22324
JACKSON HEWITT INC.
(Exact name of registrant as specified in its charter)
Virginia 54-1349705
(State of organization) (IRS Employer Identification No.)
4575 Bonney Road, Virginia Beach,
Virginia 23462 (Address of
principal executive office)
(757) 473-3300
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the last practicable
date: 6,665,022
JACKSON HEWITT INC.
Quarterly Report on Form 10-Q
Table of Contents
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE
<S><C>
Item 1. Unaudited Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of April 30, 1997 and
October 31, 1997 (unaudited)..............................................................3
Unaudited Condensed Consolidated Statements of Operations for the Three Months
Ended October 31, 1996 and 1997 and the Six Months Ended October 31, 1996 and 1997 ........5
Unaudited Condensed Consolidated Statement of Shareholders' Equity for the Six
Months Ended October 31, 1997....................................................6
Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended
October 31, 1996 and 1997..................................................................7
Notes to Unaudited Condensed Consolidated Financial Statements.............................9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..........13
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 6. Exhibits
</TABLE>
<PAGE>
Condensed Consolidated Balance Sheets
- --------------------------------------------------------------------------------
Jackson Hewitt Inc.
<TABLE>
<CAPTION>
April 30, 1997 October 31, 1997
----------------------- -------------------------
Assets (unaudited)
<S> <C>
Current assets:
Cash and cash equivalents $6,323,586 $25,498,062
Receivables (notes 2 and 7):
Trade accounts 2,861,567 1,199,012
Notes receivable, current portion 4,588,006 4,264,759
Interest 412,064 747,185
Allowance for doubtful accounts (1,203,599) (1,592,389)
----------------------- -------------------------
Total receivables, net 6,658,038 4,618,567
----------------------- -------------------------
Prepaid expenses and supplies 247,778 305,041
Deferred income taxes 644,000 1,561,000
----------------------- -------------------------
Total current assets 13,873,402 31,982,670
----------------------- -------------------------
Property and equipment, at cost:
Property and equipment 4,330,470 4,576,435
Computer software 917,119 1,056,521
----------------------- -------------------------
5,247,589 5,632,956
Less accumulated depreciation and amortization 2,572,084 2,019,844
----------------------- -------------------------
2,675,505 3,613,112
----------------------- -------------------------
Intangible assets, net (note 4):
Customer lists, net 2,006,820 2,217,265
Other, net 444,102 467,372
----------------------- -------------------------
2,450,922 2,684,637
----------------------- -------------------------
Notes receivable, less current portion (notes 2 and 7) 8,759,779 10,599,304
Assets held for sale 54,408 -
Assets held under contractual agreements 313,849 278,092
Other assets 31,912 55,302
----------------------- -------------------------
$28,159,777 $49,213,116
======================= =========================
</TABLE>
<PAGE>
Condensed Consolidated Balance Sheets (continued)
- --------------------------------------------------------------------------------
Jackson Hewitt Inc.
<TABLE>
<CAPTION>
April 30, 1997 October 31, 1997
---------------------- -------------------------
<S> <C>
Liabilities, Redeemable Convertible Preferred Stock (unaudited)
and Shareholders' Equity
Current liabilities:
Current installments of notes payable $606,465 $215,002
Convertible notes 762,750 62,200
Current installments of capital lease obligations 618,385 164,138
Accounts payable and other liabilities 1,924,580 735,066
Accrued payroll and related liabilities 879,996 891,038
Income taxes payable 2,793,027 383,278
Deferred franchise fees 305,370 1,026,597
-------------- -------------------------
Total current liabilities 7,890,573 3,477,320
Notes payable, excluding current installments 1,028,106 122,500
Capital lease obligations, excluding current installments 233,819 76,405
-------------- -------------------------
1,261,925 198,905
Deferred credits:
Income taxes 893,000 693,000
Minority interest 137,690 44,388
-------------- -------------------------
Total liabilities 10,183,188 4,413,613
-------------- -------------------------
SeriesA redeemable convertible preferred stock, no par value; 1,000,000 shares
authorized; 504,950 shares issued and outstanding as of April 30, 1997, no
shares issued and
oustanding at October 31, 1997 (note 6) 3,236,443 -
Shareholders' equity (notes 5, 6 and 8):
Common stock, $.02 par value; 30,000,000 shares authorized; 6,655,505
shares as of October 31, 1997 and 4,589,647 shares
as of April 30, 1997 issued and outstanding 91,793 133,110
Additional capital 7,798,996 38,733,074
Retained earnings 8,125,414 5,933,319
Stock subscription receivable (1,276,057) -
-------------- -------------------------
Shareholders' equity 14,740,146 44,799,503
Commitments, contingencies and subsequent - -
event (note 9)
-------------- -------------------------
$28,159,777 $49,213,116
============== =========================
See accompanying notes to unaudited condensed consolidated financial statements.
</TABLE>
<PAGE>
Unaudited Condensed Consolidated Statements of Operations
- -------------------------------------------------------------------------------
Jackson Hewitt Inc.
<TABLE>
<CAPTION>
Three months ended October 31 Six months ended October 31
-------------------------------------- ------------------------------
1996 1997 1996 1997
--------------------------- -----------------------------
<S> <C>
Revenue $1,216,140 $3,391,088 $2,196,081 $5,553,055
Selling, general and administrative expenses 3,105,800 4,344,401 6,161,593 7,815,617
------------- ------------ ------------- ------------
Loss from operations (1,889,660) (953,313) (3,965,512) (2,262,562)
------------- ------------ ------------- ------------
Other income (expenses):
Interest income 391,428 665,688 850,330 1,170,492
Interest expense (239,961) (36,361) (560,555) (114,058)
Gain (loss) on disposals of intangible assets
and property and equipment, net (64,367) 512,650 (79,578) 753,105
Minority interest (14,852) 3,826 (29,789) (14,190)
------------- ------------ ------------- ------------
72,248 1,145,803 180,408 1,795,349
------------- ------------ ------------- ------------
Income (loss) before income taxes
and extraordinary item (1,817,412) 192,490 (3,785,104) (467,214)
Income tax expense (benefit) (808,976) 62,892 (1,454,791) (174,000)
------------- ------------ ------------- ------------
Net income (loss) before extraordinary item (1,008,436) 129,598 (2,330,313) (293,214)
Extraordinary item - - (1,248,388) -
------------- ------------ ------------- ------------
Net income (loss) (1,008,436) 129,598 (3,578,701) (293,214)
Dividends and accretion accrued on Series A redeemable
convertible preferred stock (103,970) - (207,036) -
Charge for induced conversion of Series A redeemable
convertible preferred stock (note 6) - - - (1,898,881)
------------- ------------ ------------- ------------
Net income (loss) attributable to common
shareholders ($1,112,406) $129,598 ($3,785,737) ($2,192,095)
============= ============ ============= ============
Net income (loss) per common share:
Net income (loss) before extraordinary item ($0.24) $0.02 ($0.56) ($0.36)
============= ============ ============= ============
Net income (loss) ($0.24) $0.02 ($0.83) ($0.36)
============= ============ ============= ============
Weighted average shares outstanding 4,545,060 6,633,263 4,476,558 5,733,109
============= ============ ============= ============
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
<PAGE>
Consolidated Statements of Shareholders' Equity (Unaudited)
- --------------------------------------------------------------------------------
Jackson Hewitt Inc.
Six months ended October 31, 1997
<TABLE>
<CAPTION>
Common Stock
----------------------------------------
Shares Amount
---------------------------------------------------
<S> <C>
Balance at April 30, 1997 4,589,647 $91,793
---------------------------------------------------
Exercise of stock options, including tax benefit
of $266,684 86,396 1,728
Conversion of Series A Redeemable Convertible
preferred stock (note 6) 699,707 13,994
Prepayment of stock subscription receivable (note 5) (82,327) (1,647)
Shares issued through public offering (note 8) 1,322,500 26,450
Shares issued upon conversion of convertible notes 39,582 792
Net loss - -
---------------------------------------------------
Balance at October 31, 1997 6,655,505 $133,110
===================================================
</TABLE>
<TABLE>
<CAPTION>
Stock Total
Additional Retained Subscription Shareholders'
Capital Earnings Receivable Equity
------------------------------------------------------------------
<S> <C>
Balance at April 30, 1997 $7,798,996 $8,125,414 ($1,276,057) $14,740,146
------------------------------------------------------------------
Exercise of stock options, including tax benefit
of $266,684 674,933 - - 676,661
Conversion of Series A Redeemable Convertible
preferred stock (note 6) 5,121,330 (1,898,881) - 3,236,443
Prepayment of stock subscription receivable (note 5) (1,274,410) 1,276,057 -
Shares issued through public offering (note 8) 25,779,705 - - 25,806,155
Shares issued upon conversion of convertible notes 632,520 - - 633,312
Net loss - (293,214) - (293,214)
------------------------------------------------------------------
Balance at October 31, 1997 $38,733,074 $5,933,319 - $44,799,503
==================================================================
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
<PAGE>
Unaudited Condensed Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------
Jackson Hewitt Inc.
<TABLE>
<CAPTION>
Six months ended
1996 1997
----------------------------------------------
<S> <C>
Net Cash used in Operating Activities ($7,176,099) ($7,167,254)
Cash Flows from Investing Activities:
Notes receivable financing of franchisees (7,000) (68,600)
Payments received from franchisees 52,404 477,213
Purchases of customer lists and other assets (74,495) (997,704)
Proceeds from sales of customer lists and other assets 128,378 559,129
Purchases of property and equipment (35,980) (1,688,546)
----------------------------------------------
Net cash provided by investing activities 63,307 (1,718,508)
----------------------------------------------
Cash Flows from Financing Activities:
Net borrowings under lines of credit 5,798,870 -
Repayments of long-term debt (60,549) (1,387,069)
Redemptions of convertible notes - (67,238)
Proceeds from long-term debt 452,500 -
Repayments of obligations under capital leases (298,633) (611,661)
Exercise of stock options, including tax benefit 66,001 676,661
Proceeds from public offering - 25,806,155
Retirement of stock purchase warrant obligation (1,875,967) -
Repayments of notes sold to a commercial bank - (286,000)
Proceeds from sale of notes receivable - 3,929,390
----------------------------------------------
Net cash provided by financing activities 4,082,222 28,060,238
----------------------------------------------
Net increase (decrease) in cash and cash equivalents (3,030,570) 19,174,476
Cash and cash equivalents at beginning of period 3,557,861 6,323,586
---------------- -------------------------
Cash and cash equivalents at end of period $527,291 $25,498,062
================ =========================
</TABLE>
(continued)
Unaudited Condensed Consolidated Statements of Cash Flows (continued)
- --------------------------------------------------------------------------------
Jackson Hewitt Inc.
Supplemental Information Regarding Noncash Investing and Financing Activities:
During the six months ended October 31, 1996 and 1997, the Company acquired
certain assets from franchisees as follows:
<TABLE>
<CAPTION>
1996 1997
--------------------------------------------------
<S> <C>
Fair value of assets purchased $1,649,690 $1,828,274
Receivables forgiven (1,458,892) (734,068)
Notes payable issued (90,335) (90,000)
Lease obligations assumed (25,968) (6,503)
-------------------- -------------------------
Cash paid to seller $74,495 $997,704
==================== =========================
During the six months ended October 31,
1996 and 1997, the Company sold certain
assets to franchisees as follows:
1996 1997
--------------------------------------------------
Book value of assets sold $638,551 $1,303,632
Franchise fee revenue 158,000 351,000
Gain on sale (204,569) 390,424
Deferred gain on sale 120,000 79,091
Notes receivable accepted (583,603) (1,565,017)
-------------------- -------------------------
Cash received $128,378 $559,129
==================== =========================
</TABLE>
During the six months ended October 31, 1996 and 1997, the stock subscription
receivable increased $58,104 and $18,240 respectively, for the accrual of
interest.
On July 31, 1996, the Company acquired all of the outstanding stock of Oden,
Inc., a franchisee, in exchange for 106,501 shares, net of shares retired, of
Jackson Hewitt common stock.
During the six months ended October 31, 1997, the holders of the Company's
Series A Convertible Preferred Stock exchanged all of their preferred stock for
699,707 shares of the Company's common stock.
During the six months ended October 31, 1997, the stock subscription receivable
was repaid with 82,327 shares of the Company's common stock. The shares were
subsequently canceled by the Company.
During the six months ended October 31, 1997, the holders of the convertible
notes converted $633,312 of convertible notes into 39,582 shares of the
Company's common stock.
See accompanying notes to unaudited condensed consolidated financial statements.
<PAGE>
Jackson Hewitt Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
October 31, 1997
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 310 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of adjustments of a normal recurring nature) considered necessary for a fair
presentation have been included. Operating results for the three month and six
month periods ended October 31, 1997 are not necessarily indicative of the
results that may be expected for the year ended April 30, 1998. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Jackson Hewitt Inc. annual report on Form 10-K for the
year ended April 30, 1997.
2. Notes Receivable
At October 31, 1997, the Company had an investment in notes and related interest
receivable of approximately $1,928,000 which had recorded values that exceeded
the fair value of the underlying collateral by approximately $166,000. In
addition, the Company had trade accounts receivable due from these franchisees
of approximately $120,000 at October 31, 1997. The Company has reflected an
allowance of $286,000 for this impairment in the accompanying consolidated
balance sheet. Activity in the allowance for doubtful accounts for the three
months ended October 31, 1997 is summarized as follows:
Year to Date
-----------------
Beginning balance $1,203,599
Additions charged to expense 865,322
Write-offs (476,531)
=================
Ending balance $1,592,389
=================
The Company's average investment in impaired notes receivable during the six
months ended October 31, 1997 was approximately $1,416,000. Interest income
related to these notes of approximately $41,000 has been included in the
accompanying consolidated statements of operations.
3. Net Income (Loss) Per Common Share
Net income (loss) per common share is based on the weighted average number of
shares of common stock outstanding during the period, including the dilutive
effects of stock options and warrants. The Company's convertible notes and
Series A Redeemable Convertible Preferred Stock are excluded from the
calculation of net income (loss) per common share because they do not meet the
definition of common stock equivalents.
<PAGE>
Jackson Hewitt Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
4. Acquisition of Franchise Assets
During the six months ended October 31, 1997, the Company acquired the customer
lists and other assets of 14 Jackson Hewitt franchises for a total purchase
price of $1,828,274. The Company gave the franchise owners cash of $997,704,
canceled notes and accounts receivable of $734,068, gave the previous owners
notes totaling $90,000, and assumed lease obligations totaling $6,502 to
complete these transactions.
The purchase price is allocated among the assets acquired based on the relative
fair value of the underlying assets. The portion allocated to customer lists is
generally based on a percentage of gross revenue generated by the respective
franchises. The purchase price was allocated among the assets purchased as
follows:
2nd Quarter Year to Date
---------------- ----------------
Customer lists $330,599 $1,601,602
Other intangible assets, primarily goodwill 59,740 176,582
Property and equipment 15,090 42,090
Amounts charged against allowance
for doubtful accounts - 8,000
================ ================
Total $405,429 $1,828,274
================ ================
5. Stock Subscription Receivable
The stock subscription receivable reflected in the Company's Consolidated
Financial Statements at April 30, 1997 was due from the Company's former
Chairman of the Board of Directors, John T. Hewitt. Mr. Hewitt had pledged
145,050 shares of the Company's common stock as collateral for the note. On July
14, 1997, Mr. Hewitt prepaid this obligation in full by delivering 82,327 of the
pledged shares to the Company. The closing sale price of the Company's Common
Stock on July 14, 1997 was $15.50 per share. The Company released the remaining
62,723 pledged shares to Mr. Hewitt and canceled the 82,327 shares.
6. Redeemable Convertible Preferred Stock
On July 3, 1997, the Company completed a tax-free recapitalization transaction
with the holders ("Preferred Shareholders") of the 504,950 outstanding shares of
the Company's Series A Convertible Preferred Stock ("Series A Stock"). The
effective date of this transaction was June 18, 1997, the date the parties
substantially agreed to the terms of the transaction. In this tax-free
recapitalization transaction, the Preferred Shareholders exchanged all of their
Series A Stock for 699,707 shares of common stock. The Preferred Shareholders
include Geocapital II, L.P. and Geocapital III, L.P., two affiliated
partnerships which collectively own in excess of 5% of the Company's issued and
outstanding stock, and JMI Equity Fund, L.P., of which Harry Gruner, a director
of the Company, is a general partner.
<PAGE>
Jackson Hewitt Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
7. Sale of Notes Receivable
On July 15, 1997, the Company sold approximately $3.9 million of franchisee
notes receivable to a commercial bank at face value for cash. The Company will
continue to collect all payments on the notes in accordance with the terms and
provisions on the face of the notes and forward all funds to the commercial
bank. The Company will receive a servicing fee of 2% of all amounts collected on
the notes on April 15 of each year. The Company assumes limited recourse on the
notes in the event that a franchisee fails to make payment within 30 days of the
due date of such payment, files bankruptcy or ceases to exist as a franchisee.
8. Public Offering
On August 5, 1997, the Company sold 1,322,500 shares of stock through a public
offering for net proceeds of approximately $26 million. The net proceeds of the
offering eliminated the Company's dependence on its credit facility, which was
canceled in August 1997. The net proceeds will be used for working capital and
general corporate purposes, including possible expansion of Company-owned
offices and possible acquisitions of complementary businesses or product lines.
9. Subsequent Event
On November 19, 1997, the Company executed a definitive agreement with HFS
Incorporated under which HFS would acquire all of the Company's outstanding
stock for $480 million, or $68.00 per common share. The Company's Board of
Directors and its management have unanimously agreed to support the proposed
transaction. The closing of the transaction is subject to customary conditions,
including regulatory approval. The completion of this transaction is to be
effected via a tender offer for the Company's outstanding common stock and is
expected to close on January 5, 1998.
10. Effect of Unadopted Accounting Standard
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share" (Statement
128). Statement 128 supersedes APB Opinion No. 15, "Earnings Per Share," and
specifies the computation, presentation, and disclosure requirements for
earnings per share ("EPS") for entities with publicly held common stock or
potential common stock. Statement 128 was issued to simplify the computation of
EPS and to make the U.S. standard more compatible with the EPS standards of
other countries and that of the International Accounting Standards Committee
(IASC). It will replace Primary EPS and Fully Diluted EPS on the face of the
income statement for all entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the Basic EPS computations to
the numerator and denominator of the Diluted EPS computation.
Basic EPS, unlike Primary EPS, excludes all dilution and is computed by dividing
income available to common stockholders by the weighted average number of common
shares outstanding for the period. Diluted EPS, similar to Fully Diluted EPS,
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the earnings of the
entity.
<PAGE>
Jackson Hewitt Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
10. Effect of Unadopted Accounting Standard (continued)
Statement 128 is effective for financial statements for both interim and annual
periods ending after December 15, 1997. Earlier application is not permitted.
After adoption, all prior period EPS data presented shall be restated to conform
with Statement 128. The following table summarizes the pro forma EPS data of the
Company as if Statement 128 had been adopted for all periods presented.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
October 31, October 31,
1996 1997 1996 1997
----------- ------------ ------------ ----------
<S> <C>
Basic EPS
Income before extraordinary item ($0.25) $0.02 ($0.57) ($0.38)
Extraordinary Item - - ($0.28) -
----------- ------------ ------------ ----------
Net income ($0.25) $0.02 ($0.85) ($0.38)
=========== ============ ============ ==========
Diluted EPS
Income before extraordinary item ($0.25) $0.02 ($0.57) ($0.38)
Extraordinary Item - - ($0.28) -
----------- ------------ ------------ ----------
Net income ($0.25) $0.02 ($0.85) ($0.38)
=========== ============ ============ ==========
</TABLE>
<PAGE>
JACKSON HEWITT INC.
Management's Discussion & Analysis of Financial Condition
& Results of Operations
In addition to historical information, this report contains forward looking
statements that are subject to risks and uncertainties that could cause the
Company's actual results to differ materially from those anticipated in these
forward looking statements as a result of certain factors. Readers are cautioned
not to place undue reliance on these forward looking statements, which reflect
management's analysis only as of the date hereof.
Recent Developments
On November 19, 1997, the Company executed a definitive agreement with
HFS Incorporated under which HFS would acquire all of the Company's outstanding
stock for $480 million, or $68.00 per common share. The Company's Board of
Directors and its management have unanimously agreed to support the proposed
transaction. The closing of the transaction is subject to customary conditions,
including regulatory approval. The completion of this transaction is to be
effected via a tender offer for the Company's outstanding common stock and is
expected to close on January 5, 1998.
Seasonality
Historically, the Company has generated substantially all of its
revenue during January through April of each year. During fiscal 1997, the
Company generated 89% of its revenue during this period. Therefore, the Company
historically operates at a loss during the first three quarters of each fiscal
year, during which it incurs costs associated with preparing for the following
tax season.
Results of Operations
Total revenues. The Company's total revenues for the second quarter of
1998 increased 178.8% to $3.4 million compared to $1.2 million for the second
quarter of 1997. Total revenue for the six months ended October 31, 1997
increased 152.9% to $5.5 million compared to $2.2 million for the first six
months of 1997 (all references in this section of the discussion are to the
Company's fiscal years). The increase in the total revenues for the first two
quarters of 1998 as compared to the corresponding period in 1997 is primarily a
result of a $3.3 million increase in total franchise fee revenue, net of the
allowance for refunds, to $4.5 million for 1998 from $1.2 million during the
same period in 1997. The Company recognized 187 franchise territory sales in the
second quarter of 1998 as compared to 54 during the same period in 1997. The
Company recognized 305 franchise territory sales in the first six months of 1998
compared with the 72 recognized in 1997. This increase resulted primarily from
management's decision to begin the franchise marketing earlier in the year and
to make refinements in its marketing message. The Company believes that demand
for franchise territories has been strengthened in part as a result of the
successful 1997 tax season.
Selling, general and administrative expenses. Selling, general and
administrative ("SG&A") expenses increased 39.9% to $4.3 million for the second
quarter of 1998 compared to $3.1 million for the second quarter of 1997. For the
first six months of 1998 these expenses increased 26.8% or $1.6 million to $7.8
million from $6.2 million in 1997. SG&A expenses increased $1.2 million in
corporate administrative functions primarily due to increased payroll and
franchise sales commissions. Field operations expenses increased $0.4 million in
the first six months of 1998 as a result of the Company's decision to include
tax school advertising in its national advertising budget.
Other income and expenses, net. Other income and expense increased to
$1.1 million in the second quarter of 1998 from $0.1 million in 1997. For the
six months ended October 31, 1997, other income and expense increased $1.6
million to $1.8 million in 1998 from $0.2 million in 1997. The increase year to
date is primarily attributable to a $0.3 million increase in interest income
earned on the proceeds from the public offering completed in August 1998 (the
"Offering"), decreased interest expense of $0.5 million resulting from early
repayment of the Company's long term debt in 1998 and loan discount amortization
recorded in 1997 associated with warrants issued in fiscal 1996 to the Company's
primary lender, and an $0.8 million increase in the gain on sales of intangible
assets and property and equipment in 1998 as compared to 1997.
Net income (loss). The Company reported net income for the three months
ended October 31, 1997 in the amount of $0.1 million, or $.02 per share, as
compared to a net loss of $1.0 million. or ($0.24) per share, for the same
period in 1997. This is the only time in the Company's five year history as a
public company that it has reported net income in its second quarter. Net loss
before extraordinary item for first six months of 1998 was $0.3 million, or
($0.36) per share, down from $2.3 million, or ($0.56) per share, in 1997. During
the first three months of 1998, the Company incurred a $1.9 million charge to
net loss attributable to common shareholders related to a transaction in which
the Company issued 194,754 shares of common stock to induce the conversion of
the Company's Series A Preferred Stock into common stock. The effect of this
non-recurring charge on the net loss per share was ($0.32). Net losses after the
non-recurring charge and extraordinary item were $2.1 million or ($0.36) per
share, in 1998 and $3.8 million or ($0.83) per share, in 1997.
Liquidity and Capital Resources
The Company's revenues have been, and are expected to continue to be,
highly seasonal. Operations in the off-season are primarily focused on the sale
of franchises and preparation for the upcoming tax season. On August 5, 1997,
the Company completed a public offering of 1,322,500 shares of stock resulting
in net proceeds to the Company of approximately $26.0 million. The proceeds are
adequate to fund the Company's off-season cash needs and will enable the Company
to expand its tax preparation business. In July 1997, the Company completed a
sale of approximately $3.9 million in notes receivables to a local bank at face
value. Management has used the proceeds from these transactions to reduce
outstanding indebtedness and has invested the remaining proceeds in short term
investment grade securities.
Cash flows from the Company's operating, investing, and financing
activities for the first six months of fiscal 1998 and 1997 are disclosed in the
accompanying Unaudited Condensed Consolidated Statements of Cash Flows. Cash
flows from the Company's operating activities was unchanged at $7.2 million as
compared to 1997.
The Company used $1.7 million in its investing activities in the first
six months of fiscal 1998 as compared to $0.1 million provided in the same
period in 1997. This fluctuation was primarily attributable to an increase of
approximately $1.7 million in purchases of property and equipment and intangible
assets.
The Company's financing activities for the six months ended October
31, 1997 provided $28.0 million compared with $4.1 million provided in the six
months ended October 31, 1996. During the first six months of 1998 the Company
completed a public offering resulting in net proceeds of approximately $26.0
million, sold $3.9 million of notes receivable and repaid $1.5 million in long
term debt. During the first six months of 1997 the Company borrowed $5.8 million
from banks and repurchased stock purchase warrants from its primary lender for
$1.9 million.
During the six months ended October 31, 1997, the Company acquired
customer lists and other assets from 14 franchisees for a total purchase price
of $1.8 million. As consideration for these acquisitions, the Company paid the
franchisees cash of $1.0 million and issued notes payable of $0.1 million while
canceling receivables of $0.7 million.
Based on the Company's ability to generate working capital through its
operations and the $26.0 million in net proceeds generated by the Offering, the
Company has sufficient liquidity and financial resources to meet its obligations
for fiscal 1998. Management estimates it will require approximately $8.0 million
to fund its fiscal 1998 off-season capital needs.
<PAGE>
Part II Other Information
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Shareholders Meeting of Jackson Hewitt was held on
October 30, 1997 to consider four matters of business. The matters brought
before the shareholders and the voting results are as follows:
1. Approval of an amendment to the Company's Articles of Incorporation
to create a classified Board of Directors:
<TABLE>
<S> <C>
For Against Abstain Broker Non-Votes
3,462,922 1,312,387 33,450 969,606
</TABLE>
This amendment did not pass as it required approval from 2/3
of all outstanding shares.
<TABLE>
<S> <C>
2. Election of Directors:
For Withhold
Class A Director:
Harry S. Gruner 5,677,986 100,378
Class B Directors:
Keith E. Alessi 5,673,386 104,978
William P. Veillette 5,581,243 197,121
Class C Directors:
Harry W. Buckley 5,689,346 89,018
Michael E. Julian, Jr. 5,596,703 181,661
</TABLE>
3. Approval of an amendment to the Company's Articles of Incorporation
to increase the number of shares of Common Stock which the Company is authorized
to issue to thirty million:
For Against Abstain
5,255,398 503,987 18,979
4. Ratification of KPMG Peat Marwick, LLP as independent auditors for
the fiscal year ending April 30, 1998:
For Against Abstain
5,762,348 9,325 6,691
SIGNATURE
In accordance with the requirements of the Securities and Exchange Act
of 1934, the registrant caused this report to be signed by the undersigned,
thereunto duly authorized.
Jackson Hewitt Inc.
By /s/ Christopher Drake
-------------------------
Christopher Drake
Secretary, Treasurer &
Chief Financial Officer
December 11, 1997
<PAGE>
JACKSON HEWITT INC.
Index to Exhibits
<TABLE>
<CAPTION>
Exhibit
Sequential
No. Description
<S> <C>
10.1 County Bank Tax Funding Agreement, dated September 29, 1997
10.2 Santa Barbara Bank & Trust Tax Funding Agreement, dated November 26, 1997
10.3 Santa Barbara Bank Outside Agreement, dated November 24, 1997
10.4 Montgomery Ward Master License Agreement Renewal, dated July 17, 1997
</TABLE>
<PAGE>
TAX REFUND FUNDING AGREEMENT
This Tax Refund Funding Agreement (the "Agreement") is made
this 29th day of September, 1997, by and among First Republic Bank, a
Pennsylvania banking corporation ("First Republic"), Hewfant Inc., a Virginia
corporation ("Hewfant"), and Jackson Hewitt Inc., a Virginia corporation (which,
together with its affiliates and franchisees (each an "Affiliate"), as
applicable, is referred to as "JHTS").
DEFINITIONS
"Addendum No. 1" means an addendum to this Agreement, adopted
by the parties for any Tax Season while this Agreement remains in effect, which
specifies the fees and charges for the Bank Products imposed on Taxpayers during
that Tax Season and the duties and obligations of the parties regarding the
disbursement thereof. The provisions of the Addendum No. 1 applicable to the
current Tax Season are incorporated into this Agreement as if contained herein.
"Application" means the document by which a Taxpayer applies
for an ACR and, at the election of the Taxpayer, a RAL.
"ACR" or "Accelerated Check Refund" means a program offered by
Bank using electronic or other filing by which a Taxpayer requests his or her
federal income tax refund be deposited directly into the Taxpayer's Deposit
Account at Bank.
"ACR Application Fee" means the nonrefundable fee charged by
the local JHTS office for processing an ACR Application.
"ACR Handling Fee" means the fee charged by Bank for opening
the Deposit Account, processing and accounting for the refund to a Taxpayer by
the IRS, disbursing the tax preparation and ACR Application Fees due the local
JHTS office generating the ACR, and providing and processing the ACR check.
"Bank" means First Republic or any other financial institution
that First Republic designates to offer the Bank Products in participation with
First Republic, as indicated in Addendum No. 1.
"Bank Fee" means the finance charge imposed by Bank for making
a Refund Anticipation Loan.
"Bank Products" include the ACRs and/or RALs.
"Business Day" means any day, other than a Saturday, Sunday or
legal holiday, on which the Bank is open for business.
"Delinquent RAL" means an outstanding RAL that has not been
paid in full within 23 days after the date the RAL check was issued.
"Deposit Account" means the deposit account established in
Bank for a Taxpayer by Bank, and into which the IRS will deposit the Taxpayer's
refund.
"Electronic Filing Fee" means the fee charged by the local
JHTS office for electronically filing income tax returns prepared by preparers
other than Jackson Hewitt.
"IRS" means the Internal Revenue Service.
"Program" means the system developed by First Republic, JHTS
and Hewfant to provide ACRs and RALs to Taxpayers.
"RAL" or "Refund Anticipation Loan" means a loan secured by a
Taxpayer's federal income tax refund.
"Reserve Account" means an interest bearing account at Bank
into which Bank will deposit the Bank Fee received when the tax refund is
deposited by the IRS for each RAL issued.
"Hewfant ACR Account" means an interest bearing account at
Bank into which Bank will deposit a sum as specified in the Addendum for each
ACR when the Taxpayer's federal income tax refund is deposited by the IRS into
the Deposit Account.
"Hewfant RAL Account" means an interest bearing account at
Bank into which Bank will deposit a sum as specified in the Addendum for each
RAL when the Taxpayer's federal income tax refund is deposited by the IRS into
the Deposit Account.
"Taxpayer" means a JHTS customer for any of its services. It
refers both to individual taxpayers filing individual returns and to joint
taxpayers filing joint returns.
"Tax Season" in any calendar year means the period from the
first day in that year that the IRS permits electronic filing through April 30th
of that year.
"Tax Preparation Fee" means the fee charged by the local JHTS
office for preparing and electronically filing a tax return.
INTRODUCTION
WHEREAS, JHTS operates a tax preparation business that
features electronic filing of federal and selected state income tax returns;
and,
WHEREAS, First Republic, Hewfant and JHTS have established a
Program through which Taxpayers are offered ACRs and RALs through selected
banks; and,
WHEREAS, Bank desires to be one of the banks to offer ACRs and
RALs to JHTS customers on the terms and conditions provided in this Agreement;
NOW, THEREFORE, in consideration of the mutual promises and
agreements contained in this Agreement, and other good and valuable
consideration, the receipt of which is hereby acknowledged, all of the parties
agree as follows:
AGREEMENT
1. DUTIES OF JHTS AND HEWFANT - ACR PROGRAM
As to each Taxpayer electing to apply for participation in the ACR
Program, Hewfant or JHTS, as applicable, shall have the following obligations:
a. JHTS will complete and have the Taxpayer (and the Taxpayer's spouse
if the return is a joint return) execute: (1) an ACR Application on a form which
Hewfant will have printed at its expense from artwork supplied by Bank and
approved by Hewfant and (2) an IRS Form 8453 (U.S. Individual Income Tax
Declaration for Electronic Filing), which JHTS will execute as the
preparer/transmitter, which Form 8453 JHTS will supply at its expense. Bank's
name and routing transit number shall be preprinted in Part II of Form 8453 and
a depositor account number consisting of a prefix specified by Bank, and a
suffix consisting of the Taxpayer's social security number, which shall be
verified by JHTS (or the social security number of the primary Taxpayer, in the
case of a joint return) shall be inserted by JHTS in Part II in Form 8453.
b. JHTS will inspect one form of signed picture identification, and use
its best efforts to inspect a second form of signed photo identification from
each Taxpayer to verify the identity of the Taxpayer. If joint Taxpayers are
both present, JHTS will inspect one form of picture identification from each.
The identification shall be from among the following:
i. a clearly identifiable school picture ID card;
ii. a valid U.S. Passport;
iii. a valid resident alien card that contains a photograph;
iv. a valid driver's license containing a photo ID;
v. a current military ID card;
vi. a state ID card;
vii. an Indian Affairs card; or
viii. a union membership ID.
c. Hewfant will cooperate with JHTS in submitting the Taxpayer's
federal income tax return to the IRS electronically. JHTS will file the hard
copy of IRS Form 8453 with the IRS in accordance with IRS regulations.
d. After electronically transmitting or mailing the Taxpayer's income
tax return to the IRS and receiving the IRS acknowledgment, JHTS will
electronically transmit to Bank and Hewfant: (1) the Taxpayer's name; (2) the
Taxpayer's address; (3) the Taxpayer's social security number; (4) the amount of
the Taxpayer's federal income tax refund as computed by JHTS; (5) the location
code of the JHTS office at which the Taxpayer applied for an ACR; and (6) the
amount of all fees owing to JHTS and Bank from the Taxpayer which the Taxpayer
authorized Bank to withhold from the Taxpayer's refund and pay to JHTS.
e. Upon receiving notice from Bank that a Taxpayer's refund has been
deposited at Bank, Hewfant shall assist JHTS to prepare an ACR check by
completing a blank cashier's check form supplied by Bank at Bank's expense, and
completing and affixing thereon a laser generated facsimile signature authorized
by Bank. Such check shall be in the amount of the tax refund less the ACR
Handling Fee, the Tax Preparation Fee, the Electronic Filing Fee, if any, the
ACR Application Fee, and any other sum that the Taxpayer authorized Bank to
withhold from the ACR check and pay to third parties. This check shall be made
available to the Taxpayer by JHTS at the JHTS office at which the Taxpayer
applied for the ACR following JHTS's receipt of confirmation from Bank that the
tax refund has been deposited into the Taxpayer's account at Bank.
f. JHTs will retain original ACR Applications for twenty-five (25)
months, and send to Bank copies of ACR Applications within five (5) days of
Bank's request. JHTS will retain copies of such records associated with the ACR
Program, and the electronic filing of the Taxpayer's federal income tax return
as the IRS may from time to time require or direct.
g. JHTS will use its best efforts to retain copies of such records
associated with the ACR Program and the electronic and mail filing of the
Taxpayer's federal income tax return as the IRS may from time to time require or
direct.
2. BANK'S DUTIES - ACR PROGRAM
Bank will have the following duties with respect to each Application
for an ACR transmitted to it by Hewfant or JHTS:
a. At the time Hewfant or JHTS notifies Bank of an application for an
ACR, Bank will open a Deposit Account in the name of Taxpayer in which the
Taxpayer's refund will be deposited by the IRS. Bank shall provide a form to
JHTS to be executed by a taxpayer granting Bank the right to offset such refund
from the Deposit Account when it is electronically deposited by the IRS for all
JHTS fees and Bank's fees.
b. Upon receipt of the Taxpayer's refund from the IRS, Bank shall remit
the Tax Preparation Fee, the Electronic Filing Fee, if any, the ACR Application
Fee, and any other sum that Taxpayer has authorized Bank to pay pursuant to the
ACR Application by: (a) transferring the amount of the Tax Preparation Fee, the
Electronic Filing Fee, if any, and the ACR Application Fee, via ACH, to the
account of the JHTS office that generated the ACR Application; and (b) notifying
Hewfant each day, either electronically or on magnetic diskette, of each tax
refund received for which an ACR check should be issued, together with the name
and social security number of the Taxpayer, the amount of the Tax Preparation
Fee, the Electronic Filing Fee, if any, the ACR Application Fee, and any other
sum remitted for such Taxpayer to a third party, pursuant to the ACR
Application, and the location code of the JHTS office at which the particular
Taxpayer applied for an ACR.
c. While this Agreement is in effect, subject to the approval of
Hewfant and JHTS, Bank will designate, pursuant to the provisions of Paragraph
19.i, the amount of the ACR Handling Fee, which fee shall be provided in the
Addendum and be in effect for one (1) calendar year. Bank may change the ACR
Handling Fee for any subsequent calendar year during the term of this Agreement
by November 1 of the prior calendar year only according to the provisions of
Paragraph 19.i of this Agreement.
3. ALLOCATION OF ACR HANDLING FEES
The ACR Handling Fees shall be allocated and remitted as provided in
Addendum No. 1.
4. DUTIES OF HEWFANT AND JHTS - RAL PROGRAM
As to each Taxpayer electing to apply for participation in the RALs
Program, Hewfant or JHTS, as applicable, will do the following:
a. Perform those duties specified in Subparagraphs 1.a, 1.b and 1.c of
this Agreement.
b. After electronically transmitting the Taxpayer's income tax return
to the IRS and receiving the IRS acknowledgment, JHTS will electronically
transmit to Bank and Hewfant: (1) the Taxpayer's name; (2) the Taxpayer's
address; (3) the Taxpayer's social security number; (4) the amount of the
Taxpayer's federal income tax refund as computed by JHTS; (5) the location code
of the JHTS office at which the Taxpayer applied for a RAL; and, (6) the amount
of all fees owing to JHTS from the Taxpayer which the Taxpayer authorized Bank
to withhold from the RAL proceeds and pay to JHTS. JHTS shall instruct its
Affiliates that, in no instance, may a separate charge be imposed by an
Affiliate related to the application for or processing and disbursement of a RAL
other than the ACR Application, Electronic Filing, if any, and Tax Preparation
Fees and that the ACR Application Fee charged by an Affiliate shall be the same
whether the Taxpayer applies for an ACR alone or an ACR and RAL.
c. On each Business Day during the term of this Agreement, Hewfant will
process each Application for a RAL transmitted to it on that day in accordance
with Bank's program eligibility and credit underwriting standards then in effect
for such RALs and in accordance with an ASCII or other acceptable record of
uncreditworthy persons provided by Bank, and will notify JHTS electronically
within two (2) hours after it receives the application as to whether the RAL
should be made based on Bank's eligibility and credit underwriting standards.
Bank shall independently evaluate each Application for a RAL.
d. Unless notice is received by JHTS from Bank electronically within
two (2) hours after Bank received the Application that a Taxpayer's application
for a RAL has not been approved by Bank, upon receipt of electronic notice from
Hewfant that a Taxpayer's RAL should be made, in accordance with an ASCII or
other acceptable file of ineligible customers to be supplied by Bank, JHTS shall
prepare a disbursement check for the RAL by completing a blank cashier's check
form supplied by Bank at Bank's expense, and completing and affixing thereon a
laser generated facsimile signature authorized by Bank. Such ACR check shall be
for the amount of the RAL less the Bank Fee that the Taxpayer authorized Bank to
withhold from the RAL, and less the Tax Preparation, Electronic Filing, if any,
ACR Application, and ACR Handling Fees, and any other applicable fees that the
Taxpayer authorized Bank to withhold from the RAL and pay to JHTS.
e. JHTS will also complete a Proceeds Disbursement Authorization and
Truth-in-Lending Disclosure and Loan And Security Agreement (the "Disclosure")
on a form which shall be a perforated stub of the blank ACR cashier's check form
supplied by Bank at Bank's expense. JHTS shall then deliver such Disclosure and
check promptly to the Taxpayer and provide Bank with a listing of all checks
issued on a particular Business Day and, if not on that day, JHTS will use every
effort to provide this information as soon as possible. This listing shall
identify ACR checks issued by amount, date issued and check number.
f. If a Taxpayer's RAL Application is denied for any reason, Hewfant
will provide an ASCII or other acceptable record of such Taxpayer, and forward
it to Bank on a regular basis. Hewfant will also complete and send the
appropriate written Notice of Adverse Action in the form prepared or approved by
Bank to Bank, which Bank will review and forward to the Taxpayer. Pursuant to
the Taxpayer's Application, the Taxpayer will then receive an ACR check and
shall have deducted from the refund deposited by the IRS all of the tax
preparation/filing fees of JHTS as well as the ACR Application Fee, ACR Handling
Fee, and sums paid to third parties, but not the Bank Fee.
g. Upon receiving oral or written notice from a Taxpayer that the
Taxpayer no longer desires to obtain a previously approved RAL, JHTS shall not
deliver the Bank ACR check to the Taxpayer or, if the check has already been
delivered or mailed to the Taxpayer, shall advise the Taxpayer to return the ACR
check to JHTS, marked "VOID" as a result of a Taxpayer cancellation. The
Taxpayer shall then be deemed to have applied for an ACR and shall be liable for
the same fees as specified in Paragraph 4.(h) above when the new ACR check is
issued.
h. JHTS will retain original RAL Applications, copies of Disclosures
and Notices of Adverse Action for 25 months, and send individual original
Applications so retained to Bank within five (5) days after Bank's request for
them. JHTS will retain copies of such records associated with the RALs and ACRs
and the electronic filing of Taxpayer's federal income tax return as the IRS may
from time to time require or direct.
i. JHTS and Hewfant will mail up to three letters in the form adopted
by Bank and on Bank's stationary to effect collection of delinquent RALs. All
RALs that are 90 or more days delinquent may be referred by Bank to a collection
agency.
5. BANK'S DUTIES - RALS PROGRAM
Bank will have the following duties with respect to each Application
for a RAL transmitted to it by Hewfant:
a. On each Business Day during the term of this Agreement, Bank will
evaluate each Application for a RAL transmitted to it on that day in accordance
with its underwriting standards then in effect for such RALs and will notify
Hewfant electronically within two hours after it receives the application if the
Application is not approved. Bank will not accept any application from a JHTS
Affiliate if Bank receives notification from the IRS that the Affiliate is under
investigation, or Bank reasonably suspects fraudulent activity originating
through the Affiliate, or if, for any reason, delinquencies on RALs originating
through the Affiliate are considered unacceptable.
b. On the Business Day Bank receives notification, prior to a mutually
agreed upon cut-off time, that a disbursement check, including check number and
amount, has been issued, Bank will remit, via ACH directly to the bank account
of the local JHTS office that generated the fees, the Tax Preparation Fee, the
Electronic Filing Fee, if any, the ACR Application Fee, and any other applicable
fees.
c. To enable Hewfant and JHTS to identify the fees remitted by Bank, on
a daily basis, Bank will also supply to Hewfant electronically with respect to
each fee remitted that day: (a) the name and social security number of each
Taxpayer for whom Bank remitted fees; (b) the amount of the Tax Preparation Fee,
Electronic Filing Fee, if any, ACR Application Fee, and any other applicable fee
remitted for each Taxpayer; and (c) the location code of the JHTS office at
which the particular Taxpayer applied for a RAL.
d. All loan disbursement checks delivered to Taxpayers shall be
cashier's ACR checks drawn on a loan disbursement account established by Bank,
and shall be paid promptly upon presentment, unless Bank reasonably believes
that it has a valid defense to the payment of such check. On a daily basis Bank
will supply to Hewfant electronically a listing of all ACR checks issued in
connection with RALs that have cleared.
e. Bank will open a Deposit Account for each Taxpayer at Bank. Bank
shall have the right to offset such refund when it is electronically deposited
by the IRS against the total of the loan disbursement check previously delivered
to the Taxpayer, plus the Tax Preparation Fee, Electronic Filing Fee, if any,
the RAL Application Fee, the Bank Fee, the ACR Application Fee, the ACR Handling
Fee, and any other applicable fees or deductions authorized by the Taxpayer. If
the Taxpayer's refund exceeds the total of such amounts, Bank will promptly pay
the excess amount to Taxpayer, provided that any such amount is at least $1.00.
f. While this Agreement is in effect, subject to approval of Hewfant
and JHTS, Bank will designate, pursuant to the provisions of Paragraph 19.i.,
the amount of the Bank Fees that are "Finance Charges" (as this term is defined
in Federal Reserve Board Regulation Z), which Bank Fees shall be provided in
Addendum No. 1 and be in effect for one (1) calendar year. Bank may change the
Bank Fees designated by Bank by November 1 of the year before the calendar year
in which the Bank Fees will be effective. Bank agrees to indemnify JHTS and
Hewfant with regard to compliance with law as provided in the Indemnification
Agreement appended hereto as Exhibit "B".
6. BANK FEES AS LOAN LOSS RESERVE
The Bank Fee for the RALs shall be reserved against losses on the RALs,
applied against such loan losses and disbursed as provided in Addendum No. 1.
7. BLANK CHECK STOCK
JHTS will use the blank cashiers' ACR check stock provided by Bank, and
will complete and affix laser generated facsimile signatures thereto only as
authorized by Bank for the purposes described in this Agreement. JHTS shall use
reasonable care to safeguard the blank ACR check stock supplied to it by Bank
until each ACR check form is given to the appropriate Taxpayer, but JHTS shall
not be responsible for any loss that occurs in connection with an ACR check
after it is given to the Taxpayer. If a blank ACR check form should be
discovered to have been lost, stolen or given to a person other than the proper
Taxpayer, JHTS shall promptly report that fact to Bank. Upon termination of the
Agreement, JHTS shall account to Bank for unused blank ACR check stock and
return all unused ACR check stocks to Bank. JHTS shall maintain and transmit to
Bank a record of ACR check stock or number issued to each Affiliate. JHTS shall
also destroy all facsimile specimens.
8. WARRANTIES OF HEWFANT AND JHTS
Hewfant and, as applicable, JHTS, warrant and continue to warrant to
Bank that:
a. JHTS will maintain such computer software as is necessary to
facilitate the Program, including error checking and fraud detection routines.
b. Hewfant will use its best efforts to provide Bank with at least the
number of Bank Products for each Tax Season as specified in the Addendum for
that Tax Season, which shall be about fifty percent (50%) of the Bank Products
provided by JHTS to all of its participating RAL lenders in that Tax Season.
c. For Application data transmitted by JHTS to Hewfant, the data
originates from bona fide Program Applications actually signed and submitted by
the named applicants, copies of which along with copies of the RAL Disclosure
were provided to the Taxpayers at the time of application.
d. With respect to each Application, JHTS has obtained the required
forms of identification, signatures and certifications from each Taxpayer and
has no knowledge that any Taxpayer has provided inaccurate data.
e. Hewfant and JHTS are not aware of any reason why any Taxpayer's
income tax refund would not be made in the amount submitted by JHTS to Hewfant
and Bank.
f. All charges and sums which Hewfant or JHTS authorizes Bank to deduct
from the proceeds of an ACR or RAL made under the Program are owed to JHTS or
others by the appropriate Taxpayer and the Taxpayer has authorized deduction of
the charges or others from the ACR or RAL proceeds.
g. All ACR checks completed by JHTS and other funds received from Bank
for payment to Taxpayers will be delivered or mailed by JHTS to the appropriate
Taxpayer.
h. JHTS has complied and will continue to comply with all applicable
laws, regulations, procedures and interpretations thereof relating to the
payment of federal income tax and the preparation of federal income tax returns
and has complied and will continue to comply with all applicable laws and
regulations relating to the arranging for RALs in anticipation of the receipt of
federal income tax refunds and the marketing and advertising of such
arrangements. This warranty does not extend to those laws and regulations as to
which First Republic has given its warranty under Section 9.
i. The blank loan disbursement ACR check stock and facsimile specimen
provided by Bank to JHTS will be used only as authorized by Bank for purposes
described in this Agreement and the blank ACR check stock will be returned, if
unused, by September 1 of the calendar year for which those ACR checks have been
prepared for use.
j. These warranties shall survive the termination of this Agreement.
9. WARRANTIES OF FIRST REPUBLIC
First Republic warrants to Hewfant and, as applicable, to JHTS, that
(i) the evaluation and processing of Program Applications, the making and
documentation of RALs to Taxpayers under the Program and the fees charged by
Bank for such RALs will comply with all applicable state and federal laws and
regulations, including without limitation, the federal Truth-In-Lending Act (15
U.S.C. 1601 et seq.), but excepting those laws and regulations as to which JHTS
has given its warranty under Paragraph 8.h, and (ii) it has sufficient capital
to fund the RALS provided by Hewfant to it in any Tax Season. These warranties
shall survive the termination of this Agreement.
10. GUARANTY OF RALS
To induce First Republic, either itself or through a designee Bank, to
make RALs to Taxpayers referred by JHTS and Hewfant pursuant to this Agreement,
Hewfant and JHTS, jointly and severally, agree to enter into the Suretyship
Agreement appended hereto as Exhibit "A."
11. TERM AND TERMINATION
a. The term of this Agreement shall begin on the date first written
above and shall terminate on October 31, 1999, unless extended as provided
below.
b. Any party may terminate this Agreement upon written notice to the
others as provided in this Agreement. Such notice, to be effective, must be
given during the period of April 1st to June 30th of any calendar year, and
shall be effective to terminate this Agreement as of the then applicable
termination date as it may have been extended and reextended. If this Agreement
is not terminated during the period of April 1st to June 30th in any calendar
year, the termination date of this Agreement shall automatically be extended by
one year. Otherwise, this Agreement may be terminated by any party upon fifteen
(15) days written notice if: (a) applicable laws, regulations, or IRS procedures
governing the making of RALs and ACRs make (or are claimed by an enforcement
authority to make) the continued operation of the Program of questionable
legality, either generally or in any area; or (b) the IRS ceases to permit JHTS
to file income tax returns electronically or the Treasury Department ceases to
deposit income tax refunds directly into accounts of Taxpayers with Bank.
However, this Agreement may not be so terminated if either ACRs or RALs may
still lawfully be offered to Taxpayers by Bank.
c. Performance of duties which by their terms contemplate performance
after the date of termination shall be completed in accordance with this
Agreement. Such duties include, but are not limited to, collection of
delinquencies, dispersal of proceeds, payments, and the like.
12. OWNERSHIP OF LOANS
Bank, Hewfant and JHTS agree that Bank will be sole owner of the RALs
made under the Program. First Republic, in consultation with Hewfant, will set
credit underwriting standards to evaluate applications for Program loans from
time to time. First Republic may supply Hewfant no later than December 31 prior
to any Tax Year, with an ASCII record of the names and social security numbers
of all Taxpayers for which it will not authorize any RAL for that Tax Year,
provided that this record is not excessive in size as determined by JHTS and
Hewfant. 13. LOAN LIMITS
The maximum and minimum RAL loan amounts shall be as provided in the
Addendum.
14. JHTS FRANCHISEES (AFFILIATES)
a. JHTS may from time to time arrange for independently owned offices
franchised by or affiliated with JHTS ("Affiliates") to participate in the
Program without such Affiliates having a direct agreement with Bank.
b. JHTS agrees that such Affiliates will execute agreements requiring
them to perform the duties and make the representations and warranties of
Hewfant and JHTS to Bank with respect to RAL and ACR Applications submitted
through and processed by them.
c. Each Affiliate is responsible for any and all blank check forms
which are provided to that Affiliate pursuant to this Program. In the event that
blank ACR check forms that have been forwarded to an Affiliate have been or are
presumed to have been lost, stolen or given to a person other than the proper
Taxpayer, the Affiliate is responsible for any and all resultant loss, and the
Affiliate will indemnify the Bank against such loss. If the Affiliate is unable
or unwilling to indemnify Bank within 60 days of receipt of Bank's demand for
indemnification, JHTS agrees that it shall be responsible for the actions of
such Affiliates with respect to this Agreement and such Affiliates shall be
deemed to be offices owned by JHTS for all purposes hereof, including without
limitation the warranties of JHTS hereunder and JHTS shall indemnify the Bank
for such loss.
15. PARTICIPATION
First Republic may, from time to time, sell and assign one or more
participation interests in the ACRs and RALs generated under the Program, and
the participants to whom participation interests are sold may sell
sub-participation interests; provided, however, that any financial institution
purchasing a participation interest of more than 25% in any Program RALs shall
act as a continuing surety and indemnitor of all of Bank's obligations under
this Agreement.
16. MARKETING AND OTHER MATERIALS
a. Hewfant will develop marketing materials in connection with the
Program. First Republic will have the right to review promptly and approve all
marketing materials produced by Hewfant in connection with the Program, provided
that First Republic's approval is not unreasonably withheld. First Republic will
develop certain other written materials (including collection letters and loan
denial letters) for use in connection with the Program. Hewfant and JHTS will
have the right to promptly review and approve such materials if they are meant
for external use, provided that Hewfant's and JHTS's approvals are not
unreasonably withheld.
b. Each party hereto owns and may use in connection with the Program
certain trade and service marks. No party shall use the other's marks in any
manner except to the extent and in the manner expressly authorized in writing by
the other.
17. CONFIDENTIAL INFORMATION
Each party hereto shall safeguard all data and other information made
available to it by the other parties which is of a confidential nature, taking
reasonable precautions to withhold the same from disclosure to the same extent
that it would safeguard its own confidential information and data. Such
confidential information shall not include information which is otherwise
generally available to the public, or rightfully obtained by or from third
parties. Upon the termination of this Agreement, the parties shall return all
such confidential information and certify in writing that no copies are
retained. The undertakings of this Paragraph 17 shall survive the termination of
this Agreement.
18. INDEMNIFICATION
Hewfant and Jackson Hewitt, jointly and severally on the one part, and
First Republic individually on the other (herein, each an "Indemnitor"), shall
indemnify the other against any liabilities and expenses, including legal fees,
incurred by the other in connection with any claims, disputes, controversies or
litigation arising out of (a) the failure of such Indemnitor to perform its
duties and responsibilities under this Agreement, as it may be extended,
renewed, modified or amended or (b) any breach of the Indemnitor's warranties
made under this Agreement, as it may be extended, renewed, modified or amended.
The indemnifying party shall have the right to control any action for which
indemnity is required herein, through knowledgeable and experienced counsel of
its choice; provided, however, that at the indemnitee's option, the indemnitee
may participate in and contribute to such action and appoint its own counsel at
any time, all of which shall be at such indemnitee's cost and expense. The
liability of Hewfant and Jackson Hewitt hereunder shall jointly be limited to
65% of the liability and expenses for which such indemnification is being sought
hereunder. This indemnity shall survive the termination of this Agreement. A
copy of the form of Indemnification Agreement is appended hereto as Exhibit "B."
19. MISCELLANEOUS
a. This Agreement is binding on the parties hereto and their
successors. Each party may assign its rights and delegate its obligations
hereunder to any of its direct corporate parents, to any of its wholly-owned
subsidiaries or to any affiliate. Other than as explicitly stated in this
paragraph, this Agreement cannot be assigned to any party without the express
written consent of all other parties, except that First Republic may designate
another Bank to offer the Bank Products in participation with First Republic and
may also sell and assign one or more participation interests in the Bank
Products at any time and from time to time pursuant to Paragraph 15 above
without notice to or the consent of the other parties.
b. This Agreement shall be governed by and interpreted under the
internal laws of the State of Delaware and, to the extent applicable, the United
States of America.
c. Notice, when required under this Agreement, shall be given in
writing by first class U.S. Mail, postage prepaid, addressed as follows:
If to BANK: First Republic Bank
1608 Walnut Street
10th Floor
Philadelphia, PA 19102
If to JHTS: Jackson Hewitt Inc.
4575 Bonney Road
Virginia Beach, VA 23462
If to Hewfant: Hewfant Inc.
4575 Bonney Road
Virginia Beach, VA 23462
Notice properly given under the provisions of this Paragraph shall be deemed
given on the day following the day when placed in the mails.
d. The failure of any party to insist upon another party's compliance
with or performance of any term or condition of this Agreement shall not be
deemed a waiver of such term or condition, and no waiver shall be binding upon
any party unless in writing and signed by such party, and shall then be binding
only for that particular instance.
e. The parties agree that if any provision of this Agreement shall be
determined to be void by any court of competent jurisdiction, then such a
determination shall not affect any other provision of this Agreement, all of
which provisions shall remain in effect. If any provision is capable of two
constructions, one of which would render the provision valid, then the provision
shall have the meaning which renders it valid.
f. This writing constitutes the entire agreement among the parties.
This Agreement may be amended or supplemented only by a writing duly executed by
authorized representatives of the parties.
g. It is expressly understood and agreed that it is not the intention
or purpose of this Agreement to create nor shall the same be construed as
creating any type of agency, partnership or joint venture.
h. From time to time First Republic, its designated Bank and/or its or
their banking examiners or auditors may perform physical audits of blank Bank
ACR check stock, Program Application forms, copies of Taxpayers' 8453 Forms, and
delinquency summaries by JHTS Affiliates in Hewfant's or JHTS's possession.
Hewfant and JHTS will permit First Republic, its designated Bank, and/or its or
their banking examiners or auditors, access to Hewfant's and/or JHTS's premises
and records for the purpose of such audits, and will cooperate with Bank in
connection with such audits.
i. This Agreement may not be modified or amended without the written
consent of JHTS., Hewfant and Bank. Any changes in terms or fees must be decided
upon each year no later than December 1 or shall continue to remain in effect.
Fees established on that date shall be as provided in the Addendum for the next
Tax Season and may not be changed at any other time without the express, written
consent of all parties.
j. To facilitate execution, this Agreement may be executed in
counterparts by the parties and shall be binding when duly authorized signatures
of each party appear on one or more counterparts delivered to the other parties.
All counterparts shall collectively constitute a single Agreement.
IN WITNESS WHEREOF, and intending to be legally bound hereby, the
parties hereto have caused their duly authorized representatives to execute this
Agreement as of the day and year first written above.
Attest: FIRST REPUBLIC BANK
BY: /s/Rolf Stensrud
--------------------------------
(SEAL)
Typed Name: Rolf Stensrud
Title: President
Attest: HEWFANT, INC.
BY: /s/ Keith e. Alessi
---------------------------------
(SEAL)
Typed Name: Keith E. Alessi
Title: President
Attest: JACKSON HEWITT INC.
BY: /s/ Keith E. Alessi
-----------------------------------
(SEAL)
Typed Name: Keith E. Alessi
Title: President
<PAGE>
TAX REFUND FUNDING AGREEMENT
This Tax Refund Funding Agreement (the "Agreement") is made this 26th
day of November, 1997, by and among Santa Barbara Bank & Trust, a California
banking corporation ("Santa Barbara"), Hewfant Inc., a Virginia corporation
("Hewfant"), and Jackson Hewitt Inc., a Virginia corporation (which, together
with its affiliates and franchisees (each an "Affiliate"), as applicable, is
referred to as "JHTS").
DEFINITIONS
"Addendum No. 1" means an addendum to this Agreement, adopted by the
parties for any Tax Season while this Agreement remains in effect, which
specifies the fees and charges for the Bank Products imposed on Taxpayers during
that Tax Season and the duties and obligations of the parties regarding the
disbursement thereof. The provisions of the Addendum No. 1 applicable to the
current Tax Season are incorporated into this Agreement as if contained herein.
"Application" means the document by which a Taxpayer applies for an ACR
and, at the election of the Taxpayer, a RAL.
"ACR" or "Accelerated Check Refund" means a program offered by Bank
using electronic or other filing by which a Taxpayer requests his or her federal
income tax refund be deposited directly into the Taxpayer's Deposit Account at
Bank.
"ACR Application Fee" means the nonrefundable fee charged by the local
JHTS office for processing an ACR Application.
"ACR Handling Fee" means the fee charged by Bank for opening the
Deposit Account, processing and accounting for the refund to a Taxpayer by the
IRS, disbursing the tax preparation and ACR Application Fees due the local JHTS
office generating the ACR, and providing and processing the ACR check.
"Bank" means Santa Barbara or any other financial institution that
Santa Barbara designates to offer the Bank Products in participation with Santa
Barbara, as indicated in Addendum No. 1.
"Bank Fee" means the finance charge imposed by Bank for making a Refund
Anticipation Loan.
"Bank Products" include the ACRs and/or RALs.
"Business Day" means any day, other than a Saturday, Sunday or legal
holiday, on which the Bank is open for business. "Delinquent RAL" means an
outstanding RAL that has not been paid in full within 23 days after the date
the RAL check was issued.
"Deposit Account" means the deposit account established in Bank for a
Taxpayer by Bank, and into which the IRS will deposit the Taxpayer's refund.
"Electronic Filing Fee" means the fee charged by the local JHTS office
for electronically filing income tax returns prepared by preparers other than
Jackson Hewitt.
"IRS" means the Internal Revenue Service.
"Program" means the system developed by Santa Barbara, JHTS and Hewfant
to provide ACRs and RALs to Taxpayers.
"RAL" or "Refund Anticipation Loan" means a loan secured by a
Taxpayer's federal income tax refund.
"Reserve Account" means an interest bearing account at Bank into which
Bank will deposit the Bank Fee received when the tax refund is deposited by the
IRS for each RAL issued.
"Hewfant ACR Account" means an interest bearing account at Bank into
which Bank will deposit a sum as specified in the Addendum for each ACR when the
Taxpayer's federal income tax refund is deposited by the IRS into the Deposit
Account.
"Taxpayer" means a JHTS customer for any of its services. It refers
both to individual taxpayers filing individual returns and to joint taxpayers
filing joint returns.
"Tax Season" in any calendar year means the period from the first day
in that year that the IRS permits electronic filing through April 30th of that
year.
"Tax Preparation Fee" means the fee charged by the local JHTS office
for preparing and electronically filing a tax return.
INTRODUCTION
WHEREAS, JHTS operates a tax preparation business that features
electronic filing of federal and selected state income tax returns; and,
WHEREAS, Santa Barbara, Hewfant and JHTS have established a Program
through which Taxpayers are offered ACRs and RALs through selected banks; and,
WHEREAS, Bank desires to be one of the banks to offer ACRs and RALs to
JHTS customers on the terms and conditions provided in this Agreement;
NOW, THEREFORE, in consideration of the mutual promises and agreements
contained in this Agreement, and other good and valuable consideration, the
receipt of which is hereby acknowledged, all of the parties agree as follows:
AGREEMENT
1. DUTIES OF JHTS AND HEWFANT - ACR PROGRAM
As to each Taxpayer electing to apply for participation in the ACR
Program, Hewfant or JHTS, as applicable, shall have the following obligations:
a. JHTS will complete and have the Taxpayer (and the Taxpayer's spouse
if the return is a joint return) execute: (1) an ACR Application on a form which
Hewfant will have printed at its expense from artwork supplied by Bank and
approved by Hewfant and (2) an IRS Form 8453 (U.S. Individual Income Tax
Declaration for Electronic Filing), which JHTS will execute as the
preparer/transmitter, which Form 8453 JHTS will supply at its expense. Bank's
name and routing transit number shall be preprinted in Part II of Form 8453 and
a depositor account number consisting of a prefix specified by Bank, and a
suffix consisting of the Taxpayer's social security number, which shall be
verified by JHTS (or the social security number of the primary Taxpayer, in the
case of a joint return) shall be inserted by JHTS in Part II in Form 8453.
b. JHTS will inspect one form of signed picture identification, and use
its best efforts to inspect a second form of signed photo identification from
each Taxpayer to verify the identity of the Taxpayer. If joint Taxpayers are
both present, JHTS will inspect one form of picture identification from each.
The identification shall be from among the following:
i. a clearly identifiable school picture ID card;
ii. a valid U.S. Passport;
iii. a valid resident alien card that contains a
photograph;
iv. a valid driver's license containing a photo ID;
v. a current military ID card;
vi. a state ID card;
vii. an Indian Affairs card; or
viii. a union membership ID.
c. Hewfant will cooperate with JHTS in submitting the Taxpayer's
federal income tax return to the IRS electronically. JHTS will file the hard
copy of IRS Form 8453 with the IRS in accordance with IRS regulations.
d. After electronically transmitting or mailing the Taxpayer's income
tax return to the IRS and receiving the IRS acknowledgment, JHTS will
electronically transmit to Bank and Hewfant: (1) the Taxpayer's name; (2) the
Taxpayer's address; (3) the Taxpayer's social security number; (4) the amount of
the Taxpayer's federal income tax refund as computed by JHTS; (5) the location
code of the JHTS office at which the Taxpayer applied for an ACR; and (6) the
amount of all fees owing to JHTS and Bank from the Taxpayer which the Taxpayer
authorized Bank to withhold from the Taxpayer's refund and pay to JHTS.
e. Upon receiving notice from Bank that a Taxpayer's refund has been
deposited at Bank, Hewfant shall assist JHTS to prepare an ACR check by
completing a blank cashier's check form supplied by Bank at Bank's expense, and
completing and affixing thereon a laser generated facsimile signature authorized
by Bank. Such check shall be in the amount of the tax refund less the ACR
Handling Fee, the Tax Preparation Fee, the Electronic Filing Fee, if any, the
ACR Application Fee, and any other sum that the Taxpayer authorized Bank to
withhold from the ACR check and pay to third parties. This check shall be made
available to the Taxpayer by JHTS at the JHTS office at which the Taxpayer
applied for the ACR following JHTS's receipt of confirmation from Bank that the
tax refund has been deposited into the Taxpayer's account at Bank.
f. JHTs will retain original ACR Applications for twenty-five (25)
months, and send to Bank copies of ACR Applications within five (5) days of
Bank's request. JHTS will retain copies of such records associated with the ACR
Program, and the electronic filing of the Taxpayer's federal income tax return
as the IRS may from time to time require or direct.
g. JHTS will use its best efforts to retain copies of such records
associated with the ACR Program and the electronic and mail filing of the
Taxpayer's federal income tax return as the IRS may from time to time require or
direct.
2. BANK'S DUTIES - ACR PROGRAM
Bank will have the following duties with respect to each Application
for an ACR transmitted to it by Hewfant or JHTS:
a. At the time Hewfant or JHTS notifies Bank of an application for an
ACR, Bank will open a Deposit Account in the name of Taxpayer in which the
Taxpayer's refund will be deposited by the IRS. Bank shall provide artwork for a
form to be executed by a taxpayer granting Bank the right to offset such refund
from the Deposit Account when it is electronically deposited by the IRS for all
JHTS fees and Bank's fees.
b. Upon receipt of the Taxpayer's refund from the IRS, Bank shall remit
the Tax Preparation Fee, the Electronic Filing Fee, if any, the ACR Application
Fee, and any other sum that Taxpayer has authorized Bank to pay pursuant to the
ACR Application by: (a) transferring the amount of the Tax Preparation Fee, the
Electronic Filing Fee, if any, and the ACR Application Fee, via ACH, to the
account of the JHTS office that generated the ACR Application; and (b) notifying
Hewfant each day, either electronically or on magnetic diskette, of each tax
refund received for which an ACR check should be issued, together with the name
and social security number of the Taxpayer, the amount of the Tax Preparation
Fee, the Electronic Filing Fee, if any, the ACR Application Fee, and any other
sum remitted for such Taxpayer to a third party, pursuant to the ACR
Application, and the location code of the JHTS office at which the particular
Taxpayer applied for an ACR.
c. While this Agreement is in effect, subject to the approval of
Hewfant and JHTS, Bank will designate, pursuant to the provisions of Paragraph
19.i, the amount of the ACR Handling Fee, which fee shall be provided in the
Addendum and be in effect for one (1) calendar year. Bank may change the ACR
Handling Fee for any subsequent calendar year during the term of this Agreement
by November 1 of the prior calendar year only according to the provisions of
Paragraph 19.i of this Agreement.
3. ALLOCATION OF ACR HANDLING FEES
The ACR Handling Fees shall be allocated and remitted as provided in
Addendum No. 1.
4. DUTIES OF HEWFANT AND JHTS - RAL PROGRAM
As to each Taxpayer electing to apply for participation in the RALs
Program, Hewfant or JHTS, as applicable, will do the following:
a. Perform those duties specified in Subparagraphs 1.a, 1.b and 1.c of
this Agreement.
b. After electronically transmitting the Taxpayer's income tax return
to the IRS and receiving the IRS acknowledgment, JHTS will electronically
transmit to Bank and Hewfant: (1) the Taxpayer's name; (2) the Taxpayer's
address; (3) the Taxpayer's social security number; (4) the amount of the
Taxpayer's federal income tax refund as computed by JHTS; (5) the location code
of the JHTS office at which the Taxpayer applied for a RAL; and, (6) the amount
of all fees owing to JHTS from the Taxpayer which the Taxpayer authorized Bank
to withhold from the RAL proceeds and pay to JHTS. JHTS shall instruct its
Affiliates that, in no instance, may a separate charge be imposed by an
Affiliate related to the application for or processing and disbursement of a RAL
other than the ACR Application, Electronic Filing, if any, and Tax Preparation
Fees and that the ACR Application Fee charged by an Affiliate shall be the same
whether the Taxpayer applies for an ACR alone or an ACR and RAL.
c. On each Business Day during the term of this Agreement, Hewfant will
process each Application for a RAL transmitted to it on that day in accordance
with Bank's program eligibility and credit underwriting standards then in effect
for such RALs and in accordance with an ASCII or other acceptable record of
uncreditworthy persons provided by Bank, and will notify JHTS electronically
within two (2) hours after it receives the application as to whether the RAL
should be made based on Bank's eligibility and credit underwriting standards.
Bank shall independently evaluate each Application for a RAL.
d. Unless notice is received by JHTS from Bank electronically within
two (2) hours after Bank received the Application that a Taxpayer's application
for a RAL has not been approved by Bank, upon receipt of electronic notice from
Hewfant that a Taxpayer's RAL should be made, in accordance with an ASCII or
other acceptable file of ineligible customers to be supplied by Bank, JHTS shall
prepare a disbursement check for the RAL by completing a blank cashier's check
form supplied by Bank at Bank's expense, and completing and affixing thereon a
laser generated facsimile signature authorized by Bank. Such ACR check shall be
for the amount of the RAL less the Bank Fee that the Taxpayer authorized Bank to
withhold from the RAL, and less the Tax Preparation, Electronic Filing, if any,
ACR Application, and ACR Handling Fees, and any other applicable fees that the
Taxpayer authorized Bank to withhold from the RAL and pay to JHTS.
e. JHTS will also complete a Proceeds Disbursement Authorization and
Truth-in-Lending Disclosure and Loan And Security Agreement (the "Disclosure")
on a form which shall be a perforated stub of the blank ACR cashier's check form
supplied by Bank at Bank's expense. JHTS shall then deliver such Disclosure and
check promptly to the Taxpayer and provide Bank with a listing of all checks
issued on a particular Business Day and, if not on that day, JHTS will use every
effort to provide this information as soon as possible. This listing shall
identify ACR checks issued by amount, date issued and check number.
f. If a Taxpayer's RAL Application is denied for any reason, Hewfant
will provide an ASCII or other acceptable record of such Taxpayer, and forward
it to Bank on a regular basis. Pursuant to the Taxpayer's Application, the
Taxpayer will then receive an ACR check and shall have deducted from the refund
deposited by the IRS all of the tax preparation/filing fees of JHTS as well as
the ACR Application Fee, ACR Handling Fee, and sums paid to third parties, but
not the Bank Fee.
g. Upon receiving oral or written notice from a Taxpayer that the
Taxpayer no longer desires to obtain a previously approved RAL, JHTS shall not
deliver the Bank ACR check to the Taxpayer or, if the check has already been
delivered or mailed to the Taxpayer, shall advise the Taxpayer to return the ACR
check to JHTS, marked "VOID" as a result of a Taxpayer cancellation. The
Taxpayer shall then be deemed to have applied for an ACR and shall be liable for
the same fees as specified in Paragraph 4.(f) above when the new ACR check is
issued.
h. JHTS will retain original RAL Applications, copies of Disclosures
and Notices of Adverse Action for 25 months, and send individual original
Applications so retained to Bank within five (5) days after Bank's request for
them. JHTS will retain copies of such records associated with the RALs and ACRs
and the electronic filing of Taxpayer's federal income tax return as the IRS may
from time to time require or direct.
i. JHTS and Hewfant will mail up to three letters in the form adopted
by Bank and on Bank's stationary to effect collection of delinquent RALs. All
RALs that are 90 or more days delinquent may be referred by Bank to a collection
agency.
5. BANK'S DUTIES - RALS PROGRAM
Bank will have the following duties with respect to each Application
for a RAL transmitted to it by Hewfant:
a. On each Business Day during the term of this Agreement, Bank will
evaluate each Application for a RAL transmitted to it on that day in accordance
with its underwriting standards then in effect for such RALs and will notify
Hewfant electronically within two hours after it receives the application if the
Application is not approved. Bank will not accept any application from a JHTS
Affiliate if Bank receives notification from the IRS that the Affiliate is under
investigation, or Bank reasonably suspects fraudulent activity originating
through the Affiliate, or if, for any reason, delinquencies on RALs originating
through the Affiliate are considered unacceptable.
b. On the Business Day Bank receives notification, prior to a mutually
agreed upon cut-off time, that a disbursement check, including check number and
amount, has been issued, Bank will remit, via ACH directly to the bank account
of the local JHTS office that generated the fees, the Tax Preparation Fee, the
Electronic Filing Fee, if any, the ACR Application Fee, and any other applicable
fees.
c. To enable Hewfant and JHTS to identify the fees remitted by Bank, on
a daily basis, Bank will also supply to Hewfant electronically with respect to
each fee remitted that day: (a) the name and social security number of each
Taxpayer for whom Bank remitted fees; (b) the amount of the Tax Preparation Fee,
Electronic Filing Fee, if any, ACR Application Fee, and any other applicable fee
remitted for each Taxpayer; and (c) the location code of the JHTS office at
which the particular Taxpayer applied for a RAL.
d. All loan disbursement checks delivered to Taxpayers shall be
cashier's ACR checks drawn on a loan disbursement account established by Bank,
and shall be paid promptly upon presentment, unless Bank reasonably believes
that it has a valid defense to the payment of such check. On a daily basis Bank
will supply to Hewfant electronically a listing of all ACR checks issued in
connection with RALs that have cleared.
e. Bank will open a Deposit Account for each Taxpayer at Bank. Bank
shall have the right to offset such refund when it is electronically deposited
by the IRS against the total of the loan disbursement check previously delivered
to the Taxpayer, plus the Tax Preparation Fee, Electronic Filing Fee, if any,
the RAL Application Fee, the Bank Fee, the ACR Application Fee, the ACR Handling
Fee, and any other applicable fees or deductions authorized by the Taxpayer. If
the Taxpayer's refund exceeds the total of such amounts, Bank will promptly pay
the excess amount to Taxpayer, provided that any such amount is at least $1.00.
f. While this Agreement is in effect, subject to approval of Hewfant
and JHTS, Bank will designate, pursuant to the provisions of Paragraph 19.i.,
the amount of the Bank Fees that are "Finance Charges" (as this term is defined
in Federal Reserve Board Regulation Z), which Bank Fees shall be provided in
Addendum No. 1 and be in effect for one (1) calendar year. Bank may change the
Bank Fees designated by Bank by November 1 of the year before the calendar year
in which the Bank Fees will be effective. Bank agrees to indemnify JHTS and
Hewfant with regard to compliance with law as provided in the Indemnification
Agreement appended hereto as Exhibit "B".
6. BANK FEES AS LOAN LOSS RESERVE
The Bank Fee for the RALs shall be reserved against losses on the RALs,
applied against such loan losses and disbursed as provided in Addendum No. 1.
7. BLANK CHECK STOCK
JHTS will use the blank cashiers' ACR check stock provided by Bank, and
will complete and affix laser generated facsimile signatures thereto only as
authorized by Bank for the purposes described in this Agreement. JHTS shall use
reasonable care to safeguard the blank ACR check stock supplied to it by Bank
until each ACR check form is given to the appropriate Taxpayer, but JHTS shall
not be responsible for any loss that occurs in connection with an ACR check
after it is given to the Taxpayer. If a blank ACR check form should be
discovered to have been lost, stolen or given to a person other than the proper
Taxpayer, JHTS shall promptly report that fact to Bank. Upon termination of the
Agreement, JHTS shall account to Bank for unused blank ACR check stock and
return all unused ACR check stocks to Bank. JHTS shall maintain and transmit to
Bank a record of ACR check stock or number issued to each Affiliate. JHTS shall
also destroy all facsimile specimens.
<PAGE>
8. WARRANTIES OF HEWFANT AND JHTS
Hewfant and, as applicable, JHTS, warrant and continue to warrant to Bank that:
a. JHTS will maintain such computer software as is necessary to
facilitate the Program, including error checking and fraud detection routines.
b. Hewfant will use its best efforts to provide Bank with at least the
number of Bank Products for each Tax Season as specified in the Addendum for
that Tax Season.
c. For Application data transmitted by JHTS to Hewfant, the data
originates from bona fide Program Applications actually signed and submitted by
the named applicants, copies of which along with copies of the RAL Disclosure
were provided to the Taxpayers at the time of application.
d. With respect to each Application, JHTS has obtained the required
forms of identification, signatures and certifications from each Taxpayer and
has no knowledge that any Taxpayer has provided inaccurate data.
e. Hewfant and JHTS are not aware of any reason why any Taxpayer's
income tax refund would not be made in the amount submitted by JHTS to Hewfant
and Bank.
f. All charges and sums which Hewfant or JHTS authorizes Bank to deduct
from the proceeds of an ACR or RAL made under the Program are owed to JHTS or
others by the appropriate Taxpayer and the Taxpayer has authorized deduction of
the charges or others from the ACR or RAL proceeds.
g. All ACR checks completed by JHTS and other funds received from Bank
for payment to Taxpayers will be delivered or mailed by JHTS to the appropriate
Taxpayer.
h. JHTS has complied and will continue to comply with all applicable
laws, regulations, procedures and interpretations thereof relating to the
payment of federal income tax and the preparation of federal income tax returns
and has complied and will continue to comply with all applicable laws and
regulations relating to the arranging for RALs in anticipation of the receipt of
federal income tax refunds and the marketing and advertising of such
arrangements. This warranty does not extend to those laws and regulations as to
which Santa Barbara has given its warranty under Section 9.
i. The blank loan disbursement ACR check stock and facsimile specimen
provided by Bank to JHTS will be used only as authorized by Bank for purposes
described in this Agreement and the blank ACR check stock will be returned, if
unused, by September 1 of the calendar year for which those ACR checks have been
prepared for use.
j. These warranties shall survive the termination of this Agreement.
9. WARRANTIES OF SANTA BARBARA
Santa Barbara warrants to Hewfant and, as applicable, to JHTS, that (i)
the evaluation and processing of Program Applications, the making and
documentation of RALs to Taxpayers under the Program and the fees charged by
Bank for such RALs will comply with all applicable state and federal laws and
regulations, including without limitation, the federal Truth-In-Lending Act (15
U.S.C. 1601 et seq.), but excepting those laws and regulations as to which JHTS
has given its warranty under Paragraph 8.h, and (ii) it has sufficient capital
to fund the RALS provided by Hewfant to it in any Tax Season. These warranties
shall survive the termination of this Agreement.
10. GUARANTY OF RALS
To induce Santa Barbara to make RALs to Taxpayers referred by JHTS and
Hewfant pursuant to this Agreement, Hewfant and JHTS, jointly and severally,
agree to enter into the Suretyship Agreement appended hereto as Exhibit "A."
11. TERM AND TERMINATION
a. The term of this Agreement shall begin on the date first written
above and shall terminate on November 30, 1998.
b. This Agreement may be terminated by any party upon fifteen (15) days
written notice if: (a) applicable laws, regulations, or IRS procedures governing
the making of RALs and ACRs make (or are claimed by an enforcement authority to
make) the continued operation of the Program of questionable legality, either
generally or in any area; or (b) the IRS ceases to permit JHTS to file income
tax returns electronically or the Treasury Department ceases to deposit income
tax refunds directly into accounts of Taxpayers with Bank. However, this
Agreement may not be so terminated if either ACRs or RALs may still lawfully be
offered to Taxpayers by Bank. (c) A breach of any material provision by either
party not cured within ten days from issuance of a notice to cure such breach.
c. Performance of duties which by their terms contemplate performance
after the date of termination shall be completed in accordance with this
Agreement. Such duties include, but are not limited to, collection of
delinquencies, dispersal of proceeds, payments, and the like.
12. OWNERSHIP OF LOANS
Bank, Hewfant and JHTS agree that Bank will be sole owner of the RALs
made under the Program. Santa Barbara, in consultation with Hewfant, will set
credit underwriting standards to evaluate applications for Program loans from
time to time. Santa Barbara may supply Hewfant no later than December 31 prior
to any Tax Year, with an ASCII record of the names and social security numbers
of all Taxpayers for which it will not authorize any RAL for that Tax Year,
provided that this record is not excessive in size as determined by JHTS and
Hewfant.
13. LOAN LIMITS
The maximum and minimum RAL loan amounts shall be as provided in the
Addendum.
14. JHTS FRANCHISEES (AFFILIATES)
a. JHTS may from time to time arrange for independently owned offices
franchised by or affiliated with JHTS ("Affiliates") to participate in the
Program without such Affiliates having a direct agreement with Bank.
b. JHTS agrees that such Affiliates will execute agreements requiring
them to perform the duties and make the representations and warranties of
Hewfant and JHTS to Bank with respect to RAL and ACR Applications submitted
through and processed by them.
c. Each Affiliate is responsible for any and all blank check forms
which are provided to that Affiliate pursuant to this Program. In the event that
blank ACR check forms that have been forwarded to an Affiliate have been or are
presumed to have been lost, stolen or given to a person other than the proper
Taxpayer, the Affiliate is responsible for any and all resultant loss, and the
Affiliate will indemnify the Bank against such loss. If the Affiliate is unable
or unwilling to indemnify Bank within 60 days of receipt of Bank's demand for
indemnification, JHTS agrees that it shall be responsible for the actions of
such Affiliates with respect to this Agreement and such Affiliates shall be
deemed to be offices owned by JHTS for all purposes hereof, including without
limitation the warranties of JHTS hereunder and JHTS shall indemnify the Bank
for such loss.
15. PARTICIPATION
Santa Barbara may, from time to time, sell and assign one or more
participation interests in the ACRs and RALs generated under the Program, and
the participants to whom participation interests are sold may sell
sub-participation interests; provided, however, that any financial institution
purchasing a participation interest of more than 25% in any Program RALs shall
act as a continuing surety and indemnitor of all of Bank's obligations under
this Agreement.
16. MARKETING AND OTHER MATERIALS
a. Hewfant will develop marketing materials in connection with the
Program. Santa Barbara will have the right to review promptly and approve all
marketing materials produced by Hewfant in connection with the Program, provided
that Santa Barbara's approval is not unreasonably withheld. Santa Barbara will
develop certain other written materials (including collection letters and loan
denial letters) for use in connection with the Program. Hewfant and JHTS will
have the right to promptly review and approve such materials if they are meant
for external use, provided that Hewfant's and JHTS's approvals are not
unreasonably withheld.
b. Each party hereto owns and may use in connection with the Program
certain trade and service marks. No party shall use the other's marks in any
manner except to the extent and in the manner expressly authorized in writing by
the other.
17. CONFIDENTIAL INFORMATION
Each party hereto shall safeguard all data and other information made
available to it by the other parties which is of a confidential nature, taking
reasonable precautions to withhold the same from disclosure to the same extent
that it would safeguard its own confidential information and data. Such
confidential information shall not include information which is otherwise
generally available to the public, or rightfully obtained by or from third
parties. Upon the termination of this Agreement, the parties shall return all
such confidential information and certify in writing that no copies are
retained. The undertakings of this Paragraph 17 shall survive the termination of
this Agreement.
18. INDEMNIFICATION
Hewfant and Jackson Hewitt, jointly and severally on the one part, and
Santa Barbara individually on the other (herein, each an "Indemnitor"), shall
indemnify the other against any liabilities and expenses, including legal fees,
incurred by the other in connection with any claims, disputes, controversies or
litigation arising out of (a) the failure of such Indemnitor to perform its
duties and responsibilities under this Agreement, as it may be extended,
renewed, modified or amended or (b) any breach of the Indemnitor's warranties
made under this Agreement, as it may be extended, renewed, modified or amended.
The indemnifying party shall have the right to control any action for which
indemnity is required herein, through knowledgeable and experienced counsel of
its choice; provided, however, that at the indemnitee's option, the indemnitee
may participate in and contribute to such action and appoint its own counsel at
any time, all of which shall be at such indemnitee's cost and expense. The
liability of Hewfant and Jackson Hewitt hereunder shall jointly be limited to
65% of the liability and expenses for which such indemnification is being sought
hereunder. This indemnity shall survive the termination of this Agreement. A
copy of the form of Indemnification Agreement is appended hereto as Exhibit "B."
19. MISCELLANEOUS
a. This Agreement is binding on the parties hereto and their
successors. Each party may assign its rights and delegate its obligations
hereunder to any of its direct corporate parents, to any of its wholly-owned
subsidiaries or to any affiliate. Other than as explicitly stated in this
paragraph, this Agreement cannot be assigned to any party without the express
written consent of all other parties, except that Santa Barbara may sell and
assign one or more participation interests in the Bank Products at any time and
from time to time pursuant to Paragraph 15 above without notice to or the
consent of the other parties.
b. This Agreement shall be governed by and interpreted under the
internal laws of the State of California and, to the extent applicable, the
United States of America.
c. Notice, when required under this Agreement, shall be given in
writing by first class U.S. Mail, postage prepaid, addressed as follows:
If to BANK: Santa Barbara Bank
P.O. Box 1390
Solana Beach, CA 92075
If to JHTS: Jackson Hewitt Inc.
4575 Bonney Road
Virginia Beach, VA 23462
If to Hewfant: Hewfant Inc.
4575 Bonney Road
Virginia Beach, VA 23462
Notice properly given under the provisions of this Paragraph shall be deemed
given on the day following the day when placed in the mails.
d. The failure of any party to insist upon another party's compliance
with or performance of any term or condition of this Agreement shall not be
deemed a waiver of such term or condition, and no waiver shall be binding upon
any party unless in writing and signed by such party, and shall then be binding
only for that particular instance.
e. The parties agree that if any provision of this Agreement shall be
determined to be void by any court of competent jurisdiction, then such a
determination shall not affect any other provision of this Agreement, all of
which provisions shall remain in effect. If any provision is capable of two
constructions, one of which would render the provision valid, then the provision
shall have the meaning which renders it valid.
f. This writing constitutes the entire agreement among the parties.
This Agreement may be amended or supplemented only by a writing duly executed by
authorized representatives of the parties.
g. It is expressly understood and agreed that it is not the intention
or purpose of this Agreement to create nor shall the same be construed as
creating any type of agency, partnership or joint venture.
h. From time to time Santa Barbara, its designated Bank and/or its or
their banking examiners or auditors may perform physical audits of blank Bank
ACR check stock, Program Application forms, copies of Taxpayers' 8453 Forms, and
delinquency summaries by JHTS Affiliates in Hewfant's or JHTS's possession.
Hewfant and JHTS will permit Santa Barbara, or its or their banking examiners or
auditors, access to Hewfant's and/or JHTS's premises and records for the purpose
of such audits, and will cooperate with Bank in connection with such audits.
i. This Agreement may not be modified or amended without the written
consent of JHTS., Hewfant and Bank. Any changes in terms or fees must be decided
upon each year no later than December 1 or shall continue to remain in effect.
Fees established on that date shall be as provided in the Addendum for the next
Tax Season and may not be changed at any other time without the express, written
consent of all parties.
j. To facilitate execution, this Agreement may be executed in
counterparts by the parties and shall be binding when duly authorized signatures
of each party appear on one or more counterparts delivered to the other parties.
All counterparts shall collectively constitute a single Agreement.
IN WITNESS WHEREOF, and intending to be legally bound hereby, the parties
hereto have caused their duly authorized representatives to execute this
Agreement as of the day and year first written above.
Attest: SANTA BARBARA BANK & TRUST
BY:/s/ Richard H. Turner
----------------------------------
(SEAL)
Typed Name: Richard H. Turner
Title: Vice President
Attest: HEWFANT, INC.
BY: /s/ Keith E. Alessi
----------------------------------
(SEAL)
Typed Name: Keith E. Alessi
Title: President
Attest: JACKSON HEWITT INC.
BY:: /s/ Keith E. Alessi
---------------------------------------
(SEAL)
Typed Name: Keith E. Alessi
Title: President
<PAGE>
REFUND ANTICIPATION LOAN
TRANSMITTER AGREEMENT
THIS REFUND ANTICIPATION LOAN AGREEMENT ("Agreement") is made as of this first
day of , 1998, by and between Santa Barbara Bank & Trust ("SBBT") a California
Company with its principal office at 1021 Anacapa Street, Santa Barbara, CA and
Hewfant, Inc., a sudsidiary of Jackson Hewitt, Inc. ("JHI"), a corporation with
its principal office at , .
Recitals
WHEREAS, JHI is a company which transmits electronic tax returns
directly to the Internal Revenue Service ("IRS").
WHEREAS, for Federal individual income tax returns which qualify, JHI
desires to offer through JHI franchise locations, (referred to as business
partners or "BPs") and company owned stores ("Stores") a refund anticipation
loan ("RAL") and refund transfer ("RT") program under which SBBT will make
refund anticipation loans as well as providing additional financial services
enumerated herein to taxpayers who are clients of EROs ("Clients") based upon
the amount of their expected Federal income tax refund (the "JHI RAL Program" or
the "Program"). An additional reference of Electronic Return Originator ("ERO")
will be used when referring to the combined group of BPs and Stores.
WHEREAS, SBBT desires to make RALs and RTs pursuant to this Program.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and other valuable considerations, the parties hereto agree as
follows:
TERMS AND CONDITIONS
1. Locations.
- -
SBBT has no territorial or contractual exclusions in the United States and will
offer the Program nationally. Specifically, SBBT and JHI agree to offer the
Program through BPs in the State of South Carolina, the metropolitan area
surrounding Birmingham, Alabama and Stores located throughout the United States.
Additional EROs may be added without amendment to this agreement.
2. Exclusivity.
JHI agrees that no EROs who are accepted to and participating in the
SBBT Program will be permitted to submit, through the JHI Program, applications
for RALs, RTs or substantially similar bank products to any bank product
provider other than SBBT without prior written approval by SBBT. EROs found to
be participating in both SBBT's Program and other bank programs will be
terminated from SBBT's program.
3. Products and Pricing.
SBBT will offer the following financial products and services to JHI :
a. Description:
(i.) Refund Anticipation Loan: SBBT will Provide loans based on the
expected Federal tax return refund amount as listed on IRS Form 8453, Part I,
line 4. Loan amounts will be calculated to be the total of all non-EITC related
refund plus up to $1,500 of EITC not to be less than the sum of all authorized
fees plus $1 or greater than $4,000 including all authorized fees. Pricing will
be separated into tiers based on loan amount as set forth in the attached
exhibit "Pricing and Loan Ranges", incorporated herein by reference as "Exhibit
A". SBBT will establish an account in the name of the taxpayer(s) claiming such
refund for receipt of a direct deposit of the refund due as requested on the
taxpayers' Form 8453, Part II, "Direct Deposit of Refund". All funds received
will be used to offset the amount of the loan granted the taxpayer. All excess
amounts will be disbursed to the taxpayer in a manner described in Sections 5
and 6 of this document.
(ii.) Refund Transfer Check. SBBT will establish a deposit account in
the name of the taxpayer(s) for receipt of the taxpayers Federal tax refund as
described in IRS Form 8453. Upon receipt of the expected deposit, SBBT will
deduct and pay all authorized fees and charges, including the bank's fee, and
authorize a disbursement to be made by the ERO to the taxpayer via SBBT's
cashiers check for the remaining balance.
(v.) State Refund Transfer. SBBT will, upon the receipt of a Federal
RAL or RT record, also disburse to the Client, refund amounts received from any
state taxation entity which both accepts state income tax returns electronically
and disburses refund amounts to the Client via direct deposit. Upon receipt of
the expected deposit, SBBT will deduct and pay all additional authorized fees
and charges, including the bank's fee, and authorize a disbursement to be made
by the Client to the taxpayer using the cashiers check for the remaining
balance.
b. Retail Pricing Pricing and product tiering are set forth Exhibit A.
4. Incentive and Rebate Program.
The SBBT Transmitter and ERO Incentive and Rebate programs are set
forth in the attached exhibit "Transmitter Incentives and Rebates", incorporated
herein by reference as "Exhibit B". All incentives and rebates for Transmitter
will be held by SBBT in an account specifically designated for JHI rebates, and
will be disbursed directly to JHI, initially on or around April 30, 1998, and
monthly thereafter, the last calculation and payment occurring on August 30,
1998.
5. Eligibility.
Only Clients whose 1997 Federal income tax returns are filed with the
IRS electronically through JHI and who are entitled to a refund of Federal
income taxes paid for tax year 1997 of at least the sum of all fees plus $1
shall be eligible to receive a RAL. A Client who meets the foregoing
requirements shall nevertheless be ineligible for a RAL if the Client does not
certify to all the following:
a. The Client does not owe any tax due and is not subject to any
tax liens from prior tax years;
b. The Client does not owe any delinquent child support and/or alimony
payments;
c. The Client does not owe any delinquent student loans, V.A. loans, or
other Federally sponsored loans;
d. The Client has not previously filed a 1997 Federal income tax
return;
e. The Client does not have a petition presently filed and does not
anticipate filing a petition under any state or Federal bankruptcy or insolvency
laws;
f. The Client is at least 18 years of age;
g. The Client has not paid any estimated tax and/or did not
have any amount of their 1996 refund applied to their 1997 tax return;
h. The Client is not a first-time filer.
In addition, SBBT may decline to grant a RAL, notwithstanding the Client's
certification to the foregoing matters, if SBBT receives current information
from a reliable credit reporting agency or other reliable source indicating that
the Client's income tax refund may be subject to attachment, delay or offset.
6. 'JHIs Procedures.
a. After JHI has transmitted the Client's income tax return to the IRS,
JHI shall transmit to SBBT electronically all information contained in SBBT's
"1998 Refund Anticipation Loan File Layouts and Specifications" provided to JHI
, incorporated herein by reference as "Exhibit D".
The IRS has agreed to advise JHI, as to each client, whether such
Client's tax return has been accepted for Electronic Filing. Provided the IRS
follows the practice of advising JHI in accordance with such agreement, JHI
shall not transmit to SBBT the information listed in the preceding paragraph
concerning a Client until JHI has received the promised advice from the IRS, in
which case JHI will transmit to SBBT the information specified in the preceding
paragraph plus the information JHI received from the IRS concerning whether or
not the Client's return has been accepted.
b. Upon receiving notice from SBBT that a Client's RAL application has
been approved or that an RT has been funded by the IRS, and if SBBT is not
providing check printing services pursuant to Section 3(a) herein, JHI will
transmit information to ERO enabling ERO to prepare a disbursement check by
completing a blank check form supplied directly by SBBT. Such check shall be for
the amount of the RAL or RT less, if ERO and Client elect, the total of all fees
the Client has authorized SBBT to withhold from the RAL or RT and pay to ERO and
ERO's customers that are in consideration for the preparation and filing of a
Client's tax return ("ERO's Fee") less applicable ("Finance Charges").
c. JHI shall distribute to each participating ERO its electronic filing
software, which will enable ERO to file returns electronically through JHI to
IRS, and will also permit ERO to send to SBBT via JHI the required information
to process the RAL or RT. In addition, JHI will provide a check writing program
to each ERO printing loan disbursement checks on site. This check writing
program will be designed to permit checks to be written only in the name of the
proper Client and only in the amount approved by SBBT as well as controlling the
preparation of a truth-in-lending disclosure statement on a form which shall be
a perforated stub of the blank check form. It will, in addition, have the
capability of printing a second disbursement check when additional funds are
received causing an additional amount due the Client. SBBT shall have the right
to review and approve any software developed by JHI during the testing period
referred to in Section 8 (b).
d. After JHI has sent ERO a record authorizing the printing of the
disbursement check, using the check writing software supplied by JHI, only in
the amount of the net proceeds and only to the proper Client, and JHI has
received the appropriate information from the ERO,JHI shall immediately transmit
to SBBT a check reconciliation file, the content and layout of which is
described in Exhibit D.
e. At the reasonable request of SBBT, JHI or its Clients will deliver
to SBBT a copy of any original application for a RAL or RT. Otherwise, JHI or
its EROs will retain copies of such records associated with the Program for a
twenty five month time period and the electronic filing of the Client's Federal
income tax returns as the IRS requires.
f. JHI shall comply at all times during the term of this agreement with
the SBBT tax year Refund Anticipation Loan Program File Specifications for JHI.
g. At the reasonable request of SBBT, JHI shall provide assistance to
SBBT, recognizing contractual and confidentiality limitations, which may aid
SBBT in the collection of Past Due RALs. This assistance may include, but not be
limited to, providing updated addresses and phone numbers for Clients and
taxpayers.
<PAGE>
7. SBBT's Procedures.
a. On each day during the term of this agreement, including Saturdays,
Sundays and holidays, SBBT will evaluate each application for a RAL transmitted
to it on that day, in accordance with SBBT's normal loan underwiting criteria
then in effect, and will make a reasonable effort to notify JHI electronically
within two hours after it receives the application whether or not the RAL will
be made. SBBT will not accept any applications from JHI at any time if SBBT
receives notification from the IRS that the ERO is under investigation or SBBT
reasonably suspects fraudulent activity originating through the ERO, or, if for
any reason, loan delinquencies on RALs originating through the ERO are
considered unacceptable. If SBBT employs a Credit Bureau, or other means of
evaluating the credit worthiness of the loan request, in evaluating said
application, and if a Credit Bureau report, or other information is unavailable
at any given time, then SBBT shall make a best efforts attempt to notify JHI
electronically whether or not the RAL will be made within eight hours after the
opportunity for obtaining this information commences. SBBT shall not be
considered in breach of this agreement, nor shall it be an event of default, if
SBBT, after a good faith effort, is not able to notify JHI within eight hours.
b. With respect to loan approval for RAL applications filed in certain
specified Jackson Hewitt franchises or company-owned stores (applicable sites
listed in Exhibit C "Applicable Sites"), Bank's normal loan underwriting
criteria will apply subject to the following modification: Bank will suspend the
requirement of prior year filing history when Bank can establish (identify) a
credit history of one year or more for the applicant. Said credit history will
be established by the existence for said applicant of a trade line originated
more than 12 months prior to the receipt of the RAL application. Bank further
warrants that this modification to normal loan underwriting criteria for
Applcable Sites will not be altered during the term of this agreement without
the express, written consent of JHI.
c. At the time SBBT notifies JHI that a RAL will be made or an RT has
been funded, SBBT will transfer the amount of the disbursement check to a
segregated disbursement account at SBBT. All such disbursement checks delivered
to Clients shall be drawn on such loan disbursement account and shall be paid
promptly upon presentment.
d. If the Client's refund received from the IRS exceeds the total of
such amounts owed, or if, after the loan is denied, the return is accepted by
the IRS and Direct Deposit is made to the account at SBBT, SBBT will send a
check authorization record in the amount of the excess or the deposit
respectively, (after adjusting for and posting fees) to JHI the NET deposit of
the refund. If the refund is less than the expected amount, SBBT will notify the
ERO and Client. In the event a RAL application is denied and the IRS Direct
Deposit is made by the IRS, SBBT's fee will be changed from the appropriate RAL
fee as indicated on the application, to SBBT's prevailing RT fee, listed in
Exhibit A.
e. SBBT shall make available weekly to JHI a file which shall include a
list of ACH transmissions from the IRS to SBBT and a list of all paid items.
f. SBBT will send a proper loan denial notice under Truth-In-Lending
and other applicable laws to each Client who requested a RAL, whose return was
accepted by IRS but whose application had been declined by SBBT.
8. Timetable
In order to have the Program fully operational by the date on which the
IRS will permit tax returns to be filed electronically, the parties shall adhere
to the following timetable:
a. SBBT shall provide file layouts and developer specifications on or
before November 1, 1997.
b. SBBT and JHI shall be prepared to test the integrity of software
communications using a test transmission of no less than 30 test returns on or
before by December 31, 1997. Test returns used may be the same test returns used
in testing with the Internal Revenue Service.
9. Warranties of SBBT
SBBT warrants to JHI that its evaluation and processing of the JHI RAL Program
application, its making and documentation of loans to Clients under the JHI RAL
Program, and the fees charged by it for such loans, will comply with all
applicable state and Federal laws and regulations, including, without
limitation, the Truth-In-Lending Act (15 U.S.C. Sec 1601-1667) and the Equal
Credit Opportunity Act (15 U.S.C. Sec. 1691-1691f). These warranties shall
survive the termination of this agreement.
10. Warranties of JHI.
JHI warrants to SBBT in connection with each RAL or RT that:
a. All Data transmitted to SBBT in connection with an application for a
RAL or RT will be based upon a bona fide Program application and such data will
be complete and will have been validated through JHI's system;
b. JHI is unaware of any reason why any Client's Federal or State
income tax refund would not be made in the amount submitted by JHI to SBBT;
c. JHI has complied with and will comply with all applicable laws,
regulations, procedures and interpretations thereof relating to the preparation
of Federal or State income tax returns and the marketing and advertising of such
arrangements applicable to third-party transmitters of electronically filed
returns.
d. Each ERO has completed a joinder supplied to ERO by JHI and SBBT has
approved such application prior to JHI transmitting RAL requests to SBBT from
that ERO. In addition, each ERO which has completed an application to
participate in the program is a firm, organization or individual who deals
directly with the taxpayer and who i) prepares a tax return for the purpose of
having an electronic return produced; ii) obtains the taxpayer's signature on
Federal and State Forms 8453, Individual Income Tax Declaration for Electronic
Filing; and iii) completes Part IV of Federal Form 8453, and for applicable
State Form 8453 section, as the paid preparer and/or the electronic return
originator.
e. JHI will not transmit any Client applications for RALs to SBBT for
approval from any particular ERO if SBBT has notified JHI that SBBT is no longer
accepting RAL requests from that ERO.
f. JHI has complied and will comply with the SBBT's 1998 Refund
Anticipation Loan File Layouts and Specifications in all material respects.
These warranties shall survive the termination of this agreement.
11. Term and Termination
a. The term of this agreement shall begin on the date first written
above and shall end December 1, 1998. SBBT reserves the right to modify
components of the Program at its discretion during the term of this agreement.
b. Each party may terminate this agreement upon the material breach by
the other party of the terms hereof if that non-breaching party gives the
breaching party written notice of the breach and the breaching party fails to
cure such breach within ten days after the notice is sent.
c. Either party may terminate this agreement immediately upon notice if
there is a change in any applicable law or regulation governing the making of
RALs or in tax return and refund processing by the Internal Revenue Service or
in features of the Program by either party which makes the continued operation
of the Program impractical, potentially unprofitable, or of questionable
legality.
12. Ownership of Loans
The parties agree that SBBT will be the sole owner of the loans made under the
Program. In addition, SBBT shall have the authority to transfer or assign such
loans to any affiliate of Santa Barbara Bank & Trust at any time.
13. Marketing and Other Materials
a. SBBT and JHI will have the right to review and approve all marketing
materials used to promote the program which refer to the other party either
directly or indirectly, provided that such review is conducted promptly and
approval is not unreasonably withheld.
b. Each party hereto owns and may use certain names, trademarks, logos
and service marks in connection with the Program. No party shall use any other
party's names, logos or marks in any manner except to the extent and in the
manner expressly authorized in writing by that party, and no party shall acquire
any proprietary rights in or to another party's names, logos or marks as a
result of such limited use.
14. No Use of SBBT's Name
If JHI wishes to use SBBT's name in its advertising and promotional
literature describing RALs and how the Program works, it must first submit the
purposed copy to SBBT and obtain SBBT's specific permission. This requirement is
not applicable to communication with existing ERO customers of JHI.
15. Confidential Information
Both parties hereto shall safeguard all data and other information made
available to it by the other party which such other party has marked or
otherwise affirmatively identified as being confidential in nature, taking
reasonable precautions to withhold the same from disclosure to the same extent
that it would safeguard its own confidential information and data. Such
confidential information shall not include information which otherwise may be
generally available to the public, or rightfully obtained by or from third
parties. In addition to the foregoing, SBBT specifically agrees not to make
copies of or disclose to any other person or firm, other than to Santa Barbara
Bank and Trust employees, the names of EROs or Clients or any other identifying
information obtained exclusively through its relationship with JHI as set forth
in this agreement for any purpose other than in making loans under the Program,
without the consent of the JHI. The foregoing sentence shall not preclude SBBT
from using its own records of loans which were declined under the Program as
reference material in the event any Client whose application was declined
subsequently applies directly to SBBT for a loan. The undertaking of this
Section shall survive the termination of this agreement.
16. Indemnification.
Each party hereto (herein, an "indemnifier") shall indemnify, hold
harmless and reimburse the other party for any expenses, including attorney's
fees, incurred by the other party in the payment and settlement of any claims,
disputes, controversies or litigation arising out of the failure of such
indemnifier to perform its duties and responsibilities hereunder. JHI hereby
agrees to hold SBBT harmless against any claim that the use of any of the
software or hardware, or procedures employed by SBBT for the creation of RALs,
or any part thereof, infringes upon any United States patent, copyright, trade
secret or other proprietary right. Each party may retain attorneys of its own
selection and direct its own defense.
17. Limitation of Liability.
a. No party will be liable to the other party for incidental, special,
indirect or consequential damage, or loss of profits, income, use or other
benefits, arising out of or in connection with the performance of its obligation
under this agreement or any failure of such performance unless such damage or
loss arises from that party's gross negligence or from willful or malicious
conduct.
b. Notwithstanding any other provision herein to the contrary, but
without limiting the obligation of the parties under Section 15, no party will
be liable to any other party for delay or nonperformance of any of its
obligations under this agreement where such delay or nonperformance is caused by
circumstances or acts beyond its control, including without limitation, failure
of the communications lines, equipment or systems of third parties, failure of
its equipment not caused by it, other disruptions caused by other parties, all
Acts of God, civil disturbances, strikes, or labor disputes.
18. No Joint Venture; Amendment.
This agreement or any acts pursuant hereto shall not constitute a joint venture
or create a partnership between the parties. This agreement may not be changed
except upon written amendment duly executed by an authorized representative of
each party.
19. Waiver
The failure of any party to insist upon another party's compliance with
or performance with any term or condition of this agreement shall be deemed a
waiver of such term or condition; and no waiver shall be binding upon any party
unless in writing and signed by such party, and shall then be binding only for
that particular instance.
20. Audit.
From time to time, SBBT may perform physical audits of blank SBBT
checks, Program application forms, copies of Clients' Form 8453 in JHI's
possession, and any other operation, procedure, or record, without limitation,
which has a direct or indirect relationship to the RAL Program described in this
agreement. JHI will permit SBBT access to its premises and records for the
purpose of such audits and will cooperate with SBBT in connection with audits
with proper advance notice as agreed upon by JHI.
21. Miscellaneous.
a. Assignment. This agreement is binding on the parties hereto
and their successors, and no party may assign its rights or obligations under
this agreement without the prior written consent of the other party.
b. Applicable Law. This agreement shall be governed by and interpreted
under the laws of the State of California and to the extent applicable, the
United States of America.
c. Notices. Any notice permitted or required hereunder shall be in
writing and shall be deemed to have been given (a) on the date of delivery if
delivery of a legible copy was made personally or by facsimile transmission or
(b) on the second business day after the date on which mailed by registered
mail, certified mail, return receipt requested, addressed to the party for whom
intended at the address set forth on the signature page of this agreement or
such other address, notice of which is given herein.
If to SBBT:
Santa Barbara Bank & Trust
1021 Anacapa Street
Post Office Box JJ
Santa Barbara, CA 93102
If to JHI:
Hewfant Inc.
4575 Bonney Road
Virginia Beach, VA 23462
attn.: Keith E. Alessi
d. Severability: Construction. The parties agree that if any provision
of this agreement shall be determined by any court of competent jurisdiction to
be void or otherwise unenforceable, such determination shall not effect any
other provision of this agreement, all of which other provisions shall remain in
effect. If any provision is capable of two constructions, one of which would
render the provision valid and the other invalid, the provision shall have the
meaning which renders it valid.
e. Integration and Amendment.This agreement and the SBBT Tax Year 1997
Refund Anticipation Loan Program File Layouts and Specifications attached hereto
in Exhibit D express fully the entire understanding and agreement of the parties
concerning the subject matter hereof, and all prior understandings or
commitments of any kind, whether oral or written, concerning such subject matter
are hereby superseded and canceled. This agreement may not be amended or
modified other than by a written agreement executed by all parties.
IN WITNESS WHEREOF, this agreement has been executed and delivered by a duly
authorized officer of SBBT and by a duly authorized officer of JHI, all as of
the date first written above.
Santa Barbara Bank & Trust Hewfant, Inc.
By: /s/ Richard H. Turner By: /s/ Keith E. Alessi
---------------------- ---------------------------
Richard H. Turner Keith E. Alessi
Vice President, RAL Program Director President
Date: November 20, 1997 Date: November 24, 1997
--------------------- ---------------------------
<PAGE>
EXHIBIT A
- --------------------------------------------------------------------------------
Pricing and Loan Ranges
- --------------------------------------------------------------------------------
Santa Barbara Bank & Trust
Effective December 1, 1997
I. Refund Anticipation Loans
- -------------------------------------------------------------------------------
LOAN AMOUNT RANGES* SBBT FEE
Loan Amount Between:
- -------------------------------------------------------------------------------
Sum of All Fees + $1 - $500 $47
$501 - $1,000 $57
$1,001 - $1,500 $67
$1,501 - $2,000 $87
$2,001 - $4,000 $102
- -------------------------------------------------------------------------------
* Loan amount includes up to $1,500 of Earned Income Tax Credit.
II. Refund Transfer Check
- ------------------------------------ -------------------------------
All Amounts: $24
- ------------------------------------ -------------------------------
III. State Refund Transfer
- ------------------------------------- ------------------------------
All Amounts $10
- ------------------------------------- ------------------------------
IV. Federal Tax Refund Limit
- ----------------------------------------- -------------------------------
Minimum Refund Amount: Sum of All Fees + $1
Maximum Refund Amount: $9,999
- -------------------------------------------------------------------------
Product features and pricing are subject to change at the discretion of Santa
Barbara Bank & Trust.
<PAGE>
EXHIBIT B
- -----------------------------------------------------------------------------
Hewfant, Inc. Incentives and Rebates
- -----------------------------------------------------------------------------
Santa Barbara Bank & Trust
Terms and Conditions
Effective December 1, 1997
I. Refund Anticipation Loan Performance Incentives
Transmitter performance incentives for Refund Anticipation Loans will be paid by
Santa Barbara Bank & Trust according to the following conditions:
Loan loss will be calculated by dividing total loans in dollars
outstanding as of the end of business, August 1, 1998, by the total loans
in dollars made to the Transmitter's clients during the 1998 RAL season.
Loan amount shall be defined as the total disbursement to the taxpayer
plus the sum of all fees.
RAL Performance Incentives listed below will be paid per qualified loan. A
qualified loan shall be defined as a loan which has been paid in full prior
to August 1, 1998.
Initial loan loss calculation will occur on April 18, 1998. Any rebates
due will be paid within 10 business days of that calculation via ACH
Final loan loss calculation will occur on August 1, 1998. Any incentive
due will be paid within 10 business days of that evaluation via ACH.
The bank reserves the right to employ third party loan collection services
at its discretion. Costs incurred in this process will not be considered
"paid" amounts in calculating loan loss ratios. Use of these services will
be disclosed to the transmitter prior to implementation.
<PAGE>
- -------------------------------------------------------------------------------
RAL Performance Incentive Summary
Loan Loss Incentive to
Less Than ___ Hewfant, Inc.
4.00% $3.00
3.50% $3.00
3.00% $6.00
2.50% $8.00
2.00% $10.00
1.50% $12.00
1.00% $14.00
0.50% $16.00
0.00% $16.00
- -------------------------------------------------------------------------------
II. Refund Anticipation Loan Volume Rebate
Each qualified Refund Anticipation Loan (RAL) shall earn a rebate based on
the schedule listed below. A qualified loan shall be defined as a loan
which has been approved for disbursement.
Initial volume rebate calculation will occur on May 15, 1998. Any rebates
due will be paid within ten business days of that calculation via ACH.
The second volume rebate calculation will occur on August 1, 1998. Any
incentive due will be paid within 10 business days of that evaluation via
ACH. All rebates earned after August 1, 1998, will be paid weekly via ACH
as funding occurs.
- --------------------------------------------------------------------------------
RAL Volume Rebate Summary
$20.00 per Qualified RAL
- --------------------------------------------------------------------------------
III. Refund Transfer Check
Each qualified Refund Transfer shall earn a rebate based on the schedule
listed below. A qualified Refund Transfer shall be defined as any Refund
Transfer request or denied RAL which is fully funded prior to November 14,
1998.
EXHIBIT B (cont.)
Initial volume rebate calculation will occur on May 15, 1998. Any rebates
due will be paid within ten business days of that calculation via ACH.
The second volume rebate calculation will occur on August 1, 1998. Any
incentive due will be paid within 10 business days of that evaluation via
ACH. All rebates earned after August 1, 1998 will be paid weekly via ACH as
funding occurs.
- -------------------------------------------------------------------------
Refund Transfer Check Volume Rebate Summary
$13.00 per Qualified Refund Transfer
- -------------------------------------------------------------------------
<PAGE>
July 2, 1997
Keith E. Alessi
Jackson Hewitt Inc.
4575 Bonney Road
Virginia Beach, VA 23462
Re: Master License Agreement Renewal
Dear Keith:
Under the terms of the Master License Agreement dated October 15, 1988, between
Montgomery Ward & Co., Incorporated and Jackson Hewitt, Inc., we are advising
you bu written notice that we are offering to extend the Agreement for another
year to October 15, 1998.
If you accept the extension of the Agreement, please sign and date both copies
of this letter and retain one copy of the letter and return the other copy to:
Montgomery Ward Plaza
Business Ventures, 5-3
844 N. Larrabee
Chicago, IL 60671
Attn: Gladys Santos
Sincerely,
/s/Jerry Langer
- --------------------------
Jerry Langer
Manager, Business Ventures
ACCEPTED AND AGREED TO THIS 17thDAY OF July , 1997
JACKSON HEWITT, INC.
BY\: /s/Keith E. Alessi
--------------------------------
Keith E. Alessi
TITLE: President/CEO
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<PERIOD-END> OCT-31-1997
<CASH> 25,498
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<RECEIVABLES> 6,211
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<COMMON> 133
<OTHER-SE> 44,667
<TOTAL-LIABILITY-AND-EQUITY> 49,213
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<TOTAL-REVENUES> 5,553
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<TOTAL-COSTS> 7,816
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