Exhibit 10.17
HSBC SETTLEMENT PRODUCTS
SERVICING AGREEMENT
DATED AS OF SEPTEMBER 23, 2005
NOTE: CERTAIN MATERIAL HAS BEEN OMMITTED FROM THIS AGREEMENT PURSUANT TO A
REQUEST FOR CONFIDENTIAL TREATMENT UNDER RULE 24b-2. THE LOCATIONS OF THESE
OMISSIONS ARE INDICATED THROUGHOUT THE AGREEMENT BY THE FOLLOWING MARKINGS:
[***].
Table of Contents
Page
----
ARTICLE I DEFINITIONS............................................ 2
Section 1.1. Definitions............................................ 2
Section 1.2. Rules of Construction.................................. 5
Section 1.3. Corporate Reorganizations.............................. 5
ARTICLE II RETENTION OF SERVICER.................................. 6
Section 2.1. Engagement............................................. 6
ARTICLE III SERVICES TO BE PERFORMED............................... 6
Section 3.1. Services as Settlement Product Servicer................ 6
Section 3.2. Deposit Accounts....................................... 7
Section 3.3. Authorized Withdrawals Related to Unparticipated HSBC
RALs................................................... 7
Section 3.4. Authorized Withdrawals Related to Participated HSBC
RALs................................................... 9
Section 3.5. Authorized Withdrawals Related to RACs, Denied Classic
RALs and Denied Classic eRALs.......................... 11
Section 3.6. Priority............................................... 12
Section 3.7. No Set-off............................................. 12
ARTICLE IV STATEMENTS AND REPORTS................................. 13
Section 4.1. Reporting by the Servicer.............................. 13
ARTICLE V SERVICER COMPENSATION AND EXPENSES..................... 15
Section 5.1. HSBC Servicing Fee and Block Servicing Fee............. 15
Section 5.2. Defaulted RAL Collection Fee; Defaulted RAL Collection
Fee Credit............................................. 15
Section 5.3. Servicing Expense...................................... 15
ARTICLE VI THE SERVICER, THE ORIGINATOR AND THE PARTICIPANTS...... 16
Section 6.1. Subservicing........................................... 16
Section 6.2. Servicer Not to Assign................................. 16
ARTICLE VII REPRESENTATIONS AND WARRANTIES OF THE BLOCK COMPANIES.. 16
Section 7.1. Representations Incorporated by Reference.............. 16
ARTICLE VIII REPRESENTATIONS AND WARRANTIES OF THE HSBC COMPANIES... 16
Section 8.1. Representations Incorporated by Reference.............. 16
ARTICLE IX DEFAULT OF BFC AND REMEDIES OF HSBC COMPANIES AND THE
SERVICER............................................... 16
Section 9.1. BFC Events of Default.................................. 16
Section 9.2. Remedies............................................... 17
Section 9.3. Default Rate........................................... 17
Section 9.4. Waiver................................................. 17
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ARTICLE X DEFAULT OF HSBC COMPANIES AND REMEDIES OF BFC AND THE
SERVICER............................................... 18
Section 10.1. HSBC Company Events of Default......................... 18
Section 10.2. Remedies............................................... 18
Section 10.3. Default Rate........................................... 19
Section 10.4. Waiver................................................. 19
ARTICLE XI DEFAULT OF THE SERVICER AND REMEDIES OF BFC and HSBC
COMPANIES.............................................. 19
Section 11.1. Servicer Events of Default............................. 19
Section 11.2. Remedies............................................... 20
Section 11.3. Default Rate........................................... 21
Section 11.4. Substitute Servicer.................................... 21
ARTICLE XII TERMINATION; TRANSFER OF PARTICIPATED HSBC RALS........ 21
Section 12.1. Term................................................... 21
Section 12.2. Termination............................................ 21
Section 12.3. Termination of Agreement............................... 21
ARTICLE XIII MISCELLANEOUS PROVISIONS............................... 22
Section 13.1. Survival............................................... 22
Section 13.2. No Waivers; Remedies Cumulative........................ 22
Section 13.3. Notices................................................ 22
Section 13.4. Severability........................................... 22
Section 13.5. Amendments and Waivers................................. 22
Section 13.6. Successors and Assigns................................. 22
Section 13.7. Headings............................................... 22
Section 13.8. Alternative Dispute Resolution......................... 23
Section 13.9. Governing Law; Submission to Jurisdiction.............. 23
Section 13.10. Waiver of Jury Trial................................... 23
Section 13.11. Counterparts........................................... 23
Section 13.12. Entire Agreement....................................... 23
Section 13.13. Reinstatement.......................................... 24
Section 13.14. Advice of Counsel...................................... 24
Section 13.15. No Strict Construction................................. 24
Section 13.16. Conflict of Terms...................................... 24
Section 13.17. Further Execution...................................... 24
Section 13.18. Expenses............................................... 24
Section 13.19. No Implied Relationship................................ 25
Section 13.20. No Third Party Beneficiaries........................... 25
Section 13.21. Force Majeure.......................................... 25
Section 13.22. Limitation of Scope of Representations and Warranties
and Other Disclosures.................................. 25
Section 13.23. Inspection and Audit Rights............................ 25
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HSBC SETTLEMENT PRODUCTS SERVICING AGREEMENT
This HSBC Settlement Products Servicing Agreement (this "Servicing
Agreement"), dated as of September 23, 2005, is made by and among the following
parties:
HSBC Bank USA, National Association, a national banking association ("HSBC
Bank");
HSBC Taxpayer Financial Services, Inc., a Delaware corporation ("HSBC
TFS");
Household Tax Masters Acquisition Corporation, a Delaware corporation
("HTMAC"); and
Block Financial Corporation, a Delaware corporation ("BFC").
RECITALS
A. HSBC Bank offers banking products and services, including Settlement
Products offered through Block Offices and the Block Digital Channel.
B. HTMAC purchases loans and participation interests in loans originated by
HSBC Bank.
C. BFC offers financial products and services to individuals and business
entities, and purchases loans and participation interests in loans originated by
third party lenders.
D. HSBC TFS is in the business of servicing loans and other financial
products and services, including Settlement Products, for HSBC Bank and other
financial services companies.
E. Simultaneously with the execution of this Servicing Agreement, HSBC
Bank, HTMAC, HSBC TFS and certain of their Affiliates, and BFC and certain of
its Affiliates, are entering into the HSBC Settlement Products Retail
Distribution Agreement, dated as of the date hereof, as from time to time
amended, restated, supplemented or otherwise modified (the "Retail Distribution
Agreement"), and other agreements related thereto.
F. Simultaneously with the execution of this Servicing Agreement, HSBC
Bank, HTMAC and BFC are entering into the HSBC Settlement Products Participation
Agreement dated as of the date hereof, as from time to time amended, restated or
otherwise modified (the "Participation Agreement"), pursuant to which HSBC Bank
may sell, and BFC may purchase, Participation Interests in certain Settlement
Products originated by HSBC Bank.
G. HSBC Bank, HSBC TFS, HTMAC and BFC desire to enter into this Servicing
Agreement to appoint HSBC TFS as the Servicer of the Settlement Products and to
administer all Refunds Paid with respect to such Settlement Products, in
accordance with the provisions of this Servicing Agreement.
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AGREEMENT
ACCORDINGLY, the parties to this Servicing Agreement agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1. Definitions.
For all purposes of this Servicing Agreement, except as otherwise expressly
provided herein or unless the context otherwise requires, capitalized terms not
otherwise defined herein shall have the meanings assigned to such terms in the
Appendix of Defined Terms and Rules of Construction attached to the Retail
Distribution Agreement as APPENDIX A, which is hereby incorporated by reference
herein. All other capitalized terms used herein shall have the meanings set
forth below. In the event that any definition specified in this Servicing
Agreement for any capitalized term is inconsistent with the definition specified
for such term in the Appendix of Defined Terms and Rules of Construction
attached to the Retail Distribution Agreement as APPENDIX A, the definition in
the Appendix of Defined Terms and Rules of Construction attached to the Retail
Distribution Agreement as APPENDIX A shall govern.
"2005 BASELINE PERCENTAGE" shall mean the IRS Collections Percentage for the
2005 Tax Year.
"BASE SERVICING FEE FACTOR" shall mean, for each applicable Tax Period, an
amount (i) reasonably determined by the Servicer to cover its anticipated base
servicing expenses for such Tax Period, and (ii) set forth in a notice delivered
to the other HSBC Companies and the Block Companies on December 15th prior to
the start of such Tax Period; provided, however, that for each Tax Period such
amount shall not exceed the following:
TAX PERIOD MAXIMUM AMOUNT
- ---------- --------------
2007 [***]
2008 [***]
2009 [***]
2010 [***]
2011 [***]
2012 $0 if the Participation Agreement is not renewed for such
Tax Period.
An amount as agreed to by the Servicer and BFC on or
before the commencement of the Renewal Term (as defined in
the Participation Agreement) related to such Tax Period;
provided, however, that if no such amount is agreed to,
then such amount shall be deemed to be [***].
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2013 $0 if the Participation Agreement is not renewed for such
Tax Period.
An amount as agreed to by the Servicer and BFC on or
before the commencement of the Renewal Term (as defined in
the Participation Agreement) related to such Tax Period;
provided, however, that if no such amount is agreed to,
then such amount shall be deemed to be [***].
2014 and thereafter $0
"BLOCK SERVICING FEE" shall mean, with respect to a Tax Period, an amount equal
to the product of (a) the remainder (but not less than zero) of (i) the Base
Servicing Fee Factor for such Tax Period, minus (ii) the HSBC Base Servicing Fee
for such Tax Period, multiplied by (b) a percentage equal to the sum of one
hundred percent (100%) plus the applicable TVM.
"BASE SERVICING FEE PERCENTAGE" shall mean, with respect to a Tax Period, an
amount, expressed as a percentage rounded to six decimal places, equal to the
remainder of (I) the product of (a) [***] percent ([***]%), multiplied by (b)
the ratio of (i) the RAL Net Revenues for such Tax Period, divided by (ii) the
Gross RAL Loan Volume for such Tax Period, minus (II) the applicable Service
Carry Percentage, but in no event less than zero percent (0%).
"DEFAULTED RAL COLLECTION FEE ADJUSTMENT FACTOR" shall mean, with respect to all
HSBC RALs collected during a Tax Year but originated in a specific earlier Tax
Period, a percentage rounded to six decimal points, computed as follows:
[(A multiplied by (1 - B)) divided by C] divided by D,
where
A = the HSBC Base Servicing Fee for the Tax Period of origination,
B = the Defaulted RAL Collection Fee Percentage for the Tax Year of collection,
C = the weighted average Applicable Percentage (by original Principal Amount)
for all Participated HSBC RALs originated during such Tax Period of origination,
and
D = the RAL Net Revenues for such Tax Period of origination.
"DEFAULTED RAL COLLECTION FEE" shall mean, with respect to each Defaulted HSBC
RAL, a collection fee payable to the Servicer equal to the product of (a) the
applicable Defaulted RAL Collection Fee Percentage multiplied by (b) certain
amounts otherwise distributable to the Originator, a Participant or other
creditor, as set forth in the provisos to Sections 3.3(b), 3.4(b) and 3.5(b) of
the Servicing Agreement.
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"DEFAULTED RAL COLLECTION FEE CREDIT" shall mean, as of the first day of any Tax
Period, the remainder of [***].
"DEFAULTED RAL COLLECTION FEE PERCENTAGE" shall be, with respect to all HSBC
RALs collected during a specific Tax Year, [***] percent ([***]%), unless the
IRS Collections Percentage for the immediately preceding Tax Year was less than
the 2005 Baseline Percentage by at least [***] percent ([***]%), in which event
the Defaulted RAL Collection Fee Percentage shall be determined as follows:
REDUCTION IN IRS COLLECTIONS PERCENTAGE DEFAULTED RAL
DURING THE TAX YEAR COMPARED TO 2005 COLLECTION FEE PERCENTAGE
BASELINE PERCENTAGE FOR CURRENT TAX PERIOD
- --------------------------------------- -------------------------
at least [***]% but less than [***]% [***]%
at least [***]% but less than [***]% [***]%
at least [***]% but less than [***]% [***]%
at least [***]% but less than [***]% [***]%
at least [***]% but less than [***]% [***]%
By way of example only, if the 2005 Base Percentage was [***]% and the
IRS Collections Percentage for the 2007 Tax Year was [***]% (i.e., a reduction
of the IRS Collections Percentage by [***]%), the Defaulted RAL Collection Fee
Percentage for all HSBC RALs collected during the 2008 Tax Year would be [***]%.
"DEFAULTED RAL POOL COLLECTION FEE CREDIT" shall mean, in any computation of
Defaulted RAL Collection Fee Credit generated in a particular Tax Year with
respect to HSBC RALs originated in a specific Tax Period, the product of [***].
"DELINQUENT ERO CHARGE COLLECTION FEE" shall mean an amount equal to [***]
percent ([***]%) of those amounts collected by the Servicer on account of those
Delinquent ERO Charges which BFC has identified in writing to the Servicer and
specifically authorized the Servicer to collect on behalf of the related ERO.
"GROSS RAL LOAN VOLUME" shall mean, with respect to a Tax Period, the aggregate
gross initial principal amounts of all HSBC RALs made during such Tax Period.
"HSBC BASE SERVICING FEE" shall mean, with respect to a Tax Period, the product
of [***].
"HSBC SERVICING AGREEMENT" shall have the meaning set forth in Section 3.1.
"HSBC SERVICING FEE" shall mean, with respect to any Tax Period, the sum of (i)
the HSBC Base Servicing Fee, plus (ii) the HSBC Variable Servicing Fee.
"HSBC VARIABLE SERVICING FEE" shall mean, with respect to any Tax Period, the
product of [***].
"IRS COLLECTIONS PERCENTAGE" shall mean, as to any Tax Year, the percentage of
[***].
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"PERMITTED BLOCK ASSIGNMENT" shall have the meaning set forth in Section 1.3(a).
"PERMITTED HSBC ASSIGNMENT" shall have the meaning set forth in Section 1.3(b).
"RAL LOAN VOLUME CORRIDOR PEAK" shall mean, with respect to any Tax Period, the
following amounts:
TAX PERIOD AMOUNT
- ---------- ------
2007 $[***]
2008 $[***]
2009 $[***]
2010 $[***]
2011 $[***]
2012 $[***]
2013 $[***]
"RAL LOAN VOLUME OVERAGE" shall mean, with respect to a Tax Period,[***].
"RAL NET REVENUES" shall mean, with respect to a Tax Period, the remainder of
(a) the aggregate amount of all RAL Fees and Refund Account Fees charged or
accrued by the Originator with respect to HSBC RALs made during such Tax Period,
plus the RAL Price Reduction Amount minus (b) the aggregate unpaid Principal
Amount of all outstanding HSBC RALs that were made during such Tax Period,
determined as of December 31st following such Tax Period.
"SERVICE CARRY PERCENTAGE" shall mean, with respect to a Tax Period, an amount
expressed as a percentage (rounded to six decimal points) equal to [***].
"SETTLEMENT PRODUCTS SERVICING" shall have the meaning set forth in Section 3.1.
"TVM" shall mean a percentage equal to the 12 month average of one year LIBOR
for the preceding 12 months (measured on each December 15 following a Tax
Period) plus 0.20% (20 basis points).
Section 1.2. Rules of Construction. For all purposes of this Servicing
Agreement, unless the context otherwise requires, the rules of construction set
forth in the Appendix of Defined Terms and Rules of Construction attached to the
Retail Distribution Agreement as APPENDIX A shall be applicable to this
Servicing Agreement.
Section 1.3. Corporate Reorganizations.
(a) The Block Companies may assign their rights and obligations under
this Servicing Agreement to one or more Subsidiaries of H&R Block without the
consent of the HSBC Companies if (i) such assignment is desirable in connection
with a reorganization of the
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business operations of H&R Block's Subsidiaries, (ii) such contemplated
assignment will not materially adversely affect any right or obligation of any
HSBC Company under this Servicing Agreement, and (iii) the contemplated assignee
(A) is a wholly owned (direct or indirect) Subsidiary of H&R Block and (B) has
the operational and financial capacity to meet all obligations of the assigning
Block Company under this Servicing Agreement contemplated to be assigned to it
(a "Permitted Block Assignment"). The assigning Block Companies shall provide
each of the HSBC Companies at least sixty (60) days prior written notice of any
contemplated Permitted Block Assignment. The parties hereto agree to amend this
Servicing Agreement to the extent necessary to reflect such Permitted Block
Assignment.
(b) The HSBC Companies may assign their rights and obligations under
this Servicing Agreement to one or more Subsidiaries of HSBC North American
Holdings, Inc., without the consent of the Block Companies if (i) such
assignment is desirable in connection with a reorganization of the business
operations of HSBC North American Holdings, Inc.'s Subsidiaries, (ii) such
contemplated assignment will not materially adversely affect any right or
obligation of any Block Company under this Servicing Agreement, and (iii) the
contemplated assignee (A) is a wholly owned (direct or indirect) Subsidiary of
HSBC North American Holdings, Inc., (B) only with respect to any assignment by
HSBC Bank under this Section 1.3(b), is a national bank or federal savings
association and (C) has the operational and financial capacity to meet all
obligations of the assigning HSBC Company under this Servicing Agreement
contemplated to be assigned to it (a "Permitted HSBC Assignment"). The assigning
HSBC Companies shall provide each of the Block Companies at least sixty (60)
days prior written notice of any contemplated Permitted HSBC Assignment. The
parties hereto agree to amend this Servicing Agreement to the extent necessary
to reflect such Permitted HSBC Assignment.
(c) If HSBC Bank assigns this Servicing Agreement by a Permitted HSBC
Assignment, then HSBC Bank shall also assign to such Subsidiary(ies) its rights
and obligations under the HSBC Servicing Agreement with respect to this
Servicing Agreement.
ARTICLE II
RETENTION OF SERVICER
Section 2.1. Engagement. The Originator hereby appoints the Servicer, and
the Servicer hereby accepts such appointment, to act exclusively as the agent of
the Originator to perform the Settlement Products Servicing (as defined in
Section 3.1 below) with respect to each of the Settlement Products throughout
the term of this Servicing Agreement or for such other period of time as set
forth herein, upon and subject to the terms, covenants and provisions hereof.
ARTICLE III
SERVICES TO BE PERFORMED
Section 3.1. Services as Settlement Product Servicer. The Servicer hereby
agrees to serve as the servicer with respect to each of the Settlement Products
on behalf of the Originator and for the benefit of each Participant. The
Servicer shall service and administer each Settlement
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Product upon and subject to the terms of this Servicing Agreement and that
certain Amended and Restated Services Agreement (as amended from time to time,
the "HSBC Servicing Agreement"), dated as of January 20, 2005, by and between
HSBC TFS and HSBC Bank ("Settlement Products Servicing"). In the event of any
inconsistency between the terms and provisions of this Servicing Agreement and
the HSBC Servicing Agreement, the terms and provisions of this Servicing
Agreement shall govern and control. The HSBC Servicing Agreement shall not be
terminated or permitted to lapse during the term of this Servicing Agreement,
except as provided in Section 11.2(a)(ii). Notwithstanding any provision of this
Servicing Agreement to the contrary, Originator and Servicer may amend the HSBC
Servicing Agreement without the consent of any Participant if such amendment (a)
pertains uniformly to all refund anticipation loan programs serviced by the
Servicer, and (b) does not cause a Material Adverse Effect with respect to any
Participant, Block Company or Affiliate thereof, or Franchisee. The Originator
and the Servicer shall give prompt notice to each Participant of any breach by
the Servicer of its obligations under the HSBC Servicing Agreement, or any
termination of the HSBC Servicing Agreement. The Originator hereby makes to each
Participant the representations and warranties set forth in Section 13(a) of the
HSBC Servicing Agreement (provided that all references therein to "Agreement"
shall mean the HSBC Servicing Agreement) as of the date hereof. The Servicer
hereby makes to each Participant the representations and warranties set forth in
Section 13(b) of the HSBC Servicing Agreement (provided that all references
therein to "Agreement" shall mean the HSBC Servicing Agreement) as of the date
hereof.
Section 3.2. Deposit Accounts. With respect to each Settlement Product, the
Servicer shall establish and maintain one Deposit Account in compliance with IRS
regulations for the benefit of the Settlement Product Client for the purposes
set forth herein. Deposit Accounts shall be denominated in the name of the
Settlement Product Client. The Servicer shall deposit into each Deposit Account,
on the day of receipt, all payments and collections received by it on or after
the date hereof with respect to the related Settlement Product, including, but
not limited to the Refund Paid.
Section 3.3. Authorized Withdrawals Related to Unparticipated HSBC RALs.
With respect to any Deposit Account related to an Unparticipated HSBC RAL and in
accordance with the corresponding Application and other related documents
including, without limitation, any related RAL Document, the Servicer, following
the deposit of any payment or collection into such Deposit Account pursuant to
Section 3.2, shall make withdrawals from such Deposit Account only as follows
(the order set forth below constituting an order of priority for such
withdrawals):
(a) to withdraw any amount deposited in such Deposit Account which was
not required to be deposited therein;
(b) except as otherwise specified below, to remit all amounts on
deposit in such Deposit Account (that represent good funds, net of any prior
withdrawals from the Deposit Account pursuant to this Section 3.3) no later than
4:30 p.m. Eastern time on the Business Day following receipt, pursuant to wiring
instructions from the Originator, in the order listed below; provided, however,
that except as provided below, amounts on deposit must be received by the
Servicer prior to 8:00 p.m. Eastern time on a Business Day; provided, further,
that except as
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provided below, any amounts received at or after 8:00 p.m. Eastern time on a
Business Day shall be deemed to have been received on the following Business
Day:
(i) to the applicable ERO, the Delinquent ERO Charges (payable
solely out of the Refund Paid), in the manner and at such times as set
forth in Section 9.8(a) of the Retail Distribution Agreement, net of
Delinquent ERO Charge Collection Fees (if any, but in any event subject to
Section 5.2(b)), which shall be retained by the Servicer;
(ii) to the Originator, the related RAL Principal Amount;
(iii) to the Originator, the Late Fees, if any;
(iv) to the applicable creditor or creditors, the First Priority
Prior Indebtedness (payable in order of oldest to most recent First
Priority Prior Indebtedness, in each case allocated in accordance with the
priorities set forth in Section 3.4(b) of this Servicing Agreement);
provided, however, that if the source of payment of such amounts is the
Refund Paid and if the Servicer receives an information file from the IRS
regarding such Refund Paid on or before the second Business Day preceding
receipt of such Refund Paid, then if the calendar day following receipt is
not a Business Day, such amounts shall be remitted via wire transfer on
later than 4:30 p.m. Eastern time on the day of receipt;
(v) to the applicable creditor or creditors, via ACH credit or
otherwise in accordance with the servicing standard specified in the HSBC
Servicing Agreement, the Second Priority Prior Indebtedness;
(vi) to the applicable Person or Persons entitled thereto, via
ACH credit or otherwise in accordance with the servicing standard specified
in the HSBC Servicing Agreement, the Other Required Deductions;
(vii) to the Person or Persons entitled thereto, via ACH credit
or otherwise in accordance with the servicing standard specified in the
HSBC Servicing Agreement, such other Authorized Deductions as the
Settlement Products Client shall have authorized in writing, including any
custodian for an XIRA; and
(viii) to the Settlement Product Client, any remaining amounts to
be processed as a Disbursement by the Originator; and
(c) to clear and terminate such Deposit Account upon the termination
of the Servicer's obligations with respect to such Deposit Account under this
Servicing Agreement.
The parties hereto acknowledge that, with respect to Unparticipated HSBC RALs,
any related ERO Charges shall have already been paid out of related RAL proceeds
pursuant to Section 9.8 of the Retail Distribution Agreement. Notwithstanding
the foregoing, the order of priority of distributions specified in clause (b)
above shall be subject to the priority of distributions specified in any
existing collection agreement related to applicable Second Priority Prior
Indebtedness and to which the Servicer is party; provided, however, that any new
collection agreement entered into by the Servicer (which shall include any
existing collection agreement to
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which the Servicer is party and as to which the Servicer exercises an option
held by it to extend the term of such collection agreement beyond December 31,
2007) shall provide for priority of distributions consistent with clause (b)
above.
Section 3.4. Authorized Withdrawals Related to Participated HSBC RALs. With
respect to any Deposit Account related to a Participated HSBC RAL and in
accordance with the corresponding Application and other related documents
including, without limitation, any related RAL Document, the Servicer, following
the deposit of any payment or collection into such Deposit Account pursuant to
Section 3.2, shall make withdrawals from such Deposit Account only as follows
(unless otherwise provided below, the order set forth below constituting an
order of priority for such withdrawals):
(a) to withdraw any amount deposited in such Deposit Account which was
not required to be deposited therein;
(b) except as otherwise specified below, to remit all amounts on
deposit in such Deposit Account (that represent good funds, net of any prior
withdrawals from the Deposit Account pursuant to this Section 3.4) no later than
4:30 p.m. Eastern time on the Business Day following receipt, pursuant to wiring
instructions from the Originator, in the order listed below; provided, however,
that except as provided below, amounts on deposit must be received by the
Servicer prior to 8:00 p.m. Eastern time on a Business Day; provided, further,
that except as provided below, any amounts received at or after 8:00 p.m.
Eastern time on a Business Day shall be deemed to have been received on the
following Business Day:
(i) to the applicable ERO, the Delinquent ERO Charges, (payable
solely out of the Refund Paid), in the manner and at such times as set
forth in Section 9.8(a) of the Retail Distribution Agreement, net of
Delinquent ERO Charge Collection Fees (if any, but in any event subject to
Section 5.2(b)), which shall be retained by the Servicer;
(ii) to the Originator in accordance with its RAL Ownership
Interest, to each Participant in accordance with its respective
Participation Interest, and to each holder of any other related
participation interest in accordance with such interest (such rights of
each Participant and holder under this clause (ii) being pari passu with
the rights of the Originator and each other under this clause (ii)), the
related RAL Principal Amount; provided, however, that if the source of
payment of such amounts is the Refund Paid and if the Servicer receives an
information file from the IRS regarding such Refund Paid on or before the
second Business Day preceding receipt of such Refund Paid, then if the
calendar day following receipt is not a Business Day, such amounts shall be
remitted via wire transfer on later than 4:30 p.m. Eastern time on the day
of receipt;
(iii) to the Originator in accordance with its RAL Ownership
Interest, to each Participant in accordance with its respective
Participation Interest, and to each holder of any other related
participation interest in accordance with such interest (such rights of
each Participant and holder under this clause (iii) being pari passu with
the rights of the Originator and each other under this clause (iii)), the
Late Fees, if any; provided, however, that if the source of payment of such
amounts is the Refund Paid and
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if the Servicer receives an information file from the IRS regarding such
Refund Paid on or before the second Business Day preceding receipt of such
Refund Paid, then if the calendar day following receipt is not a Business
Day, such amounts shall be remitted via wire transfer on later than 4:30
p.m. Eastern time on the day of receipt;
(iv) to the applicable creditor or creditors, the First Priority
Prior Indebtedness (payable in order of oldest to most recent First
Priority Prior Indebtedness, in each case allocated in accordance with the
priorities set forth in Section 3.4(b) of this Servicing Agreement);
provided, however, that if the source of payment of such amounts is the
Refund Paid and if the Servicer receives an information file from the IRS
regarding such Refund Paid on or before the second Business Day preceding
receipt of such Refund Paid, then if the calendar day following receipt is
not a Business Day, such amounts shall be remitted via wire transfer on
later than 4:30 p.m. Eastern time on the day of receipt;
(v) to the applicable creditor or creditors, via ACH credit or
otherwise in accordance with the servicing standard specified in the HSBC
Servicing Agreement, the Second Priority Prior Indebtedness;
(vi) to the applicable Person or Persons entitled thereto, via
ACH credit or otherwise in accordance with the servicing standard specified
in the HSBC Servicing Agreement, the Other Required Deductions;
(vii) to the Person or Persons entitled thereto, via ACH credit
or otherwise in accordance with the servicing standard specified in the
HSBC Servicing Agreement, such other Authorized Deductions as the
Settlement Products Client shall have authorized in writing, including any
custodian for an XIRA; and
(viii) to the Settlement Product Client, any remaining amounts to
be processed as a Disbursement by the Originator;
provided, however, that if the Participated HSBC RAL is a Defaulted HSBC
RAL, then the Servicer shall collect the applicable Defaulted RAL
Collection Fee by withholding and retaining an amount (subject to Section
5.2(b)) equal to the product of (a) the Defaulted RAL Collection Fee
Percentage multiplied by (b) the amounts otherwise distributable pursuant
to subparagraphs (ii), (iii) and (iv) above; and
(c) to clear and terminate such Deposit Account upon the termination
of the Servicer's obligations with respect to such Deposit Account under this
Servicing Agreement.
The parties hereto acknowledge that, with respect to Participated HSBC RALs, any
related ERO Charges shall have already been paid out of related RAL proceeds
pursuant to Section 9.8 of the Retail Distribution Agreement. Notwithstanding
the foregoing, the order of priority of distributions specified in clause (b)
above shall be subject to the priority of distributions specified in any
existing collection agreement related to applicable Second Priority Prior
Indebtedness and to which the Servicer is party; provided, however, that any new
collection agreement entered into by the Servicer (which shall include any
existing collection agreement to which the Servicer is party and as to which the
Servicer exercises an option held by it to extend
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the term of such collection agreement beyond December 31, 2007) shall provide
for priority of distributions consistent with clause (b) above.
Section 3.5. Authorized Withdrawals Related to RACs, Denied Classic RALs
and Denied Classic eRALs. With respect to any Deposit Account related to a RAC,
Denied Classic RAL or Denied Classic eRAL, and in accordance with the
corresponding Application and other related documents, the Servicer, following
the deposit of any payment or collection into such Deposit Account pursuant to
Section 3.2, shall make withdrawals from such Deposit Account only as follows
(the order set forth below constituting an order of priority for such
withdrawals):
(a) to withdraw any amount deposited in such Deposit Account which was
not required to be deposited therein;
(b) except as otherwise specified below, to remit all amounts on
deposit in such Deposit Account (that represent good funds, net of any prior
withdrawals from the Deposit Account pursuant to this Section 3.5) no later than
4:30 p.m. Eastern time on the Business Day following receipt, pursuant to wiring
instructions from the Originator, in the order listed below; provided, however,
that except as provided below, amounts on deposit must be received by the
Servicer prior to 8:00 p.m. Eastern time on a Business Day; provided, further,
that except as provided below, any amounts received at or after 8:00 p.m.
Eastern time on a Business Day shall be deemed to have been received on the
following Business Day:
(i) to the applicable ERO, the ERO Charges, (payable solely out
of the Refund Paid), in the manner and at such times as set forth in
Section 9.8(a) or Section 9.8(b), as applicable, of the Retail Distribution
Agreement;
(ii) to the applicable ERO, the Delinquent ERO Charges, (payable
solely out of the Refund Paid), in the manner and at such times as set
forth in Section 9.8(a) of the Retail Distribution Agreement, net of
Delinquent ERO Charge Collection Fees (if any, but in any event subject to
Section 5.2(b)), which shall be retained by the Servicer;
(iii) to the Originator, the Refund Account Fee;
(iv) to the applicable creditor or creditors, the First Priority
Prior Indebtedness (payable in order of oldest to most recent First
Priority Prior Indebtedness, in each case allocated in accordance with the
priorities set forth in Section 3.4(b) of this Servicing Agreement);
provided, however, that if the source of payment of such amounts is the
Refund Paid and if the Servicer receives an information file from the IRS
regarding such Refund Paid on or before the second Business Day preceding
receipt of such Refund Paid, then if the calendar day following receipt is
not a Business Day, such amounts shall be remitted via wire transfer on
later than 4:30 p.m. Eastern time on the day of receipt;
(v) to the applicable creditor or creditors, via ACH credit or
otherwise in accordance with the servicing standard specified in the HSBC
Servicing Agreement, the Second Priority Prior Indebtedness;
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(vi) to the Person or Persons entitled thereto, via ACH credit or
otherwise in accordance with the servicing standard specified in the HSBC
Servicing Agreement, the Other Required Deductions;
(vii) to the Person or Persons entitled thereto, via ACH credit
or otherwise in accordance with the servicing standard specified in the
HSBC Servicing Agreement, such other Authorized Deductions as the
Settlement Products Client shall have authorized in writing, including any
custodian for an XIRA; and
(viii) to the Settlement Product Client, any remaining amounts to
be processed as a RAC;
provided, however, that the Servicer shall collect the applicable Defaulted
RAL Collection Fee, if any, by withholding and retaining an amount (subject
to Section 5.2(b)) equal to the product of (a) the Defaulted RAL Collection
Fee Percentage multiplied by (b) the amounts otherwise distributable
pursuant to subparagraph (iv) above; and
(c) to clear and terminate such Deposit Account upon the termination
of the Servicer's obligations with respect to such Deposit Account under this
Servicing Agreement.
Notwithstanding the foregoing, the order of priority of distributions specified
in clause (b) above shall be subject to the priority of distributions specified
in any existing collection agreement related to applicable Second Priority Prior
Indebtedness and to which the Servicer is party; provided, however, that any new
collection agreement entered into by the Servicer (which shall include any
existing collection agreement to which the Servicer is party and as to which the
Servicer exercises an option held by it to extend the term of such collection
agreement beyond December 31, 2007) shall provide for priority of distributions
consistent with clause (b) above.
Section 3.6. Priority. The Servicer shall not withdraw from any Deposit
Account and remit to any party any amounts in satisfaction of any indebtedness,
obligations or otherwise of any Settlement Products Client prior to satisfaction
of all obligations, indebtedness and otherwise of such Settlement Products
Client under subsections (a) and (b) of Sections 3.3, 3.4 or 3.5, as applicable.
Section 3.7. No Set-off. Except as otherwise specifically provided in this
Article III with respect to retention of Defaulted RAL Collection Fees, none of
the Servicer, the Originator or any Affiliate thereof shall have any right to
set-off against amounts payable hereunder to any Participant or any Affiliate
thereof. The parties agree that the preceding sentence shall not be construed to
limit or adversely affect the ability of any Block Company to apply or offset
the Defaulted RAL Collection Fee Credit against amounts payable to any HSBC
Company in the manner set forth in Section 5.2.
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ARTICLE IV
STATEMENTS AND REPORTS
Section 4.1. Reporting by the Servicer.
(a) The Servicer shall provide, or cause to be provided, as
applicable, to the Originator and each Participant the following:
(i) No later than 8:30 a.m. Eastern time on each Business Day, a
report setting forth (A) the aggregate amount of collections processed by
Servicer on the immediately preceding Business Day and the Originator's and
each Participant's share thereof, (B) the number of and aggregate amount
outstanding of HSBC RALs as of the close of business on the immediately
preceding Business Day and the Originator's and each Participant's share
thereof, and (C) the number and principal amount of HSBC RALs funded by the
Originator on the immediately preceding Business Day on a "checks cleared"
basis and the Originator's and each Participant's share of collections
related thereto;
(ii) On the eighth (8th) day of each month, or if such day is not
a Business Day, the immediately preceding Business Day, a report setting
forth (A) the aggregate amount of collections processed by Servicer during
the immediately preceding month and the Originator's and each Participant's
share thereof, (B) the number of and aggregate amount outstanding of HSBC
RALs as of the end of the last day of the immediately preceding month and
the Originator's and each Participant's share thereof, (C) an aging of HSBC
RALs outstanding as of the end of the last day of the immediately preceding
month, (D) the aggregate amount outstanding and an aging (by year) of
Defaulted HSBC RALs as of the end of the last day of the immediately
preceding month, (E) the number of HSBC RALs issued during the immediately
preceding month and the Originator's and each Participant's share of
collections related thereto, and (F) the aggregate amount of HSBC RALs
(exclusive of Defaulted HSBC RALs) with respect to which payment has not
been received from the Obligor within the thirty (30) day period following
the day on which each such HSBC RAL was issued and the Originator's and
each Participant's share thereof;
(iii) On the second Business Day following December 15 of each
Tax Year, estimates (based upon information available as of December 15 of
such Tax Year) of (a) the IRS Collections Percentage with respect to such
Tax Year and the Defaulted RAL Collection Fee Credit, and (b) the HSBC
Servicing Fee and the Block Servicing Fee for the related Tax Period, along
with supporting data, documentation and computations for each such
estimate;
(iv) On the second Business Day following the conclusion of each
Tax Year, its determination (as of the end of such Tax Year) of (a) the IRS
Collections Percentage with respect to such Tax Year and the Defaulted RAL
Collection Fee Credit, and (b) the HSBC Servicing Fee and the Block
Servicing Fee for the related Tax Period, along with supporting data,
documentation and computations for each such determination;
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(v) Unless a Type II SAS 70 report (or any equivalent thereof or
successor thereto) has been previously delivered pursuant to Section 6.10
of the Retail Distribution Agreement in the then-current calendar year, on
the thirtieth (30th) day of the second month immediately following the end
of each of the Originator's and Servicer's fiscal year, as applicable, a
report prepared by a nationally recognized independent accounting firm
regarding its evaluation of the Originator's or Servicer's, as applicable,
internal accounting controls relative to its respective obligations under
the Program Contracts with respect to the Settlement Products, such report
including an opinion (assuming the accuracy of any reports generated by the
agents of Originator or Servicer, as applicable) of such accounting firm
that the systems of internal accounting controls of the Originator or the
Servicer, as applicable, in effect on the day set forth in the report were
sufficient for the prevention and detection of errors for such exceptions,
errors or irregularities as such firm shall believe to be immaterial to the
financial statements of the Originator or the Servicer, as applicable, and
such other exceptions, errors or irregularities as shall be set forth in
such report; provided, however, that the HSBC Companies and the Block
Companies shall split equally expenses incurred by the HSBC Companies in
connection with the preparation of any such reports; provided, further,
that the Block Companies' portion of such expenses shall not exceed Fifty
Thousand Dollars ($50,000) in any year of the Term of this Servicing
Agreement;
(vi) At the request of any Participant (but not more often than
annually), on or before June 30 of each year, a special report that the
Servicer shall obtain from its independent certified public accountants (in
such form and subject to such assumptions, limitations and qualifications
as such accountants generally require for special reports of such type)
that shall in effect state that the amounts calculated for the Servicer's
Block Servicing Fee, the HSBC Servicing Fee, the IRS Collections
Percentage, the Defaulted RAL Collection Fee Percentage and the Defaulted
RAL Collection Fee Credit for the previous Tax Period or Tax Year, as
applicable, under Article V hereof are in compliance with the terms of this
Servicing Agreement or stating the nature of any variance from the terms of
this Servicing Agreement, provided, that each requesting Participant and
the Servicer shall share the cost of such report equally (with each such
Participant reimbursing the Servicer for such Participant's share such
cost); and
(vii) Any statement, report or information reasonably requested
by the Originator or any Participant; provided, however, that the Servicer
shall not be required to provide copies of any statement, report or
information requested by, or provided to, any applicable regulatory agency;
provided, further, that the preceding proviso shall not preclude the
provision of the same or similar information to the extent that the request
therefor is not specifically framed in the context of responses to requests
of applicable regulatory agencies.
(b) Unless otherwise specifically stated herein, if the Servicer is
required to deliver any statement, report or information under any provision of
this Servicing Agreement, the Servicer shall satisfy such obligation by
delivering such statement, report or information in a commonly used electronic
format.
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ARTICLE V
SERVICER COMPENSATION AND EXPENSES
Section 5.1. HSBC Servicing Fee and Block Servicing Fee.
(a) In consideration for the Settlement Products Servicing performed by the
Servicer pursuant to this Servicing Agreement, as soon as possible after
December 31st, but in any event on or before the fifth Business Day after such
date, following each Tax Period during the Term of the Retail Distribution
Agreement (beginning in December 2007):
(i) HTMAC shall pay to the Servicer the applicable HSBC Servicing Fee; and
(ii) BFC shall pay to the Servicer the applicable Block Servicing Fee;
in each case via wire transfer of immediately available funds to an account
designated in writing by the Servicer.
(b) The Servicer shall not have a right of set-off to collect the HSBC
Servicing Fee or the Block Servicing Fee from any funds held, or amount payable,
by the Servicer pursuant to the Servicing Agreement. The Servicer shall not have
any lien on amounts payable to any Participant hereunder.
Section 5.2. Defaulted RAL Collection Fee; Defaulted RAL Collection Fee
Credit.
(a) In addition to the servicing fees described in section 5.1 above,
as consideration for collection of certain Defaulted HSBC RALs, the Servicer
shall be entitled to receive a Defaulted RAL Collection Fee for each Defaulted
HSBC RAL solely from the funds, and in accordance with the payment provisions,
specified in Article III of this Servicing Agreement.
(b) Notwithstanding any provision of any Program Contract to the
contrary, the Defaulted RAL Collection Fee Credit shall, at the sole option of
the applicable Block Company, be offset against any amount owed (either directly
or by way of allocation of losses) by any of the Block Companies to any of the
HSBC Companies with respect to the Settlement Products Program, including but
not limited to any portion of Defaulted RAL Collection Fees or Delinquent ERO
Charge Collection Fees allocable to a Block Company (or an Affiliate thereof,
but in no event allocable to a Franchisee) in its capacity as a Participant or
an ERO.
Section 5.3. Servicing Expense. The Servicer shall pay all expenses
incurred by it in connection with its Settlement Products Servicing activities
hereunder and shall not be entitled to reimbursement thereof except as
specifically provided for herein or as provided in the HSBC Servicing Agreement
(but only to the extent that the HSBC Servicing Agreement does not provide for
payment of such amounts by any Participant out of its own funds or by retention
or offset of amounts otherwise payable to any Participant hereunder or the
Participation Agreement).
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ARTICLE VI
THE SERVICER, THE ORIGINATOR AND THE PARTICIPANTS
Section 6.1. Subservicing. The Servicer shall provide oversight and
supervision with regard to the performance of all subcontracted services and any
subservicing agreement shall be consistent with and subject to the provisions of
this Servicing Agreement. Neither the existence of any subservicing agreement
nor any of the provisions of this Servicing Agreement relating to subservicing
shall relieve the Servicer of its obligations hereunder. Notwithstanding any
such subservicing agreement, the Servicer shall be obligated to the same extent
and under the same terms and conditions as if the Servicer alone was servicing
and administering the related Settlement Products in accordance with the terms
of this Servicing Agreement. The Servicer shall be solely liable for all fees
owed by it to any subservicer, regardless of whether the Servicer's compensation
hereunder is sufficient to pay such fees.
Section 6.2. Servicer Not to Assign. Except as otherwise provided in
Section 1.3(b), the Servicer may not assign this Servicing Agreement or any of
its rights, powers, duties or obligations hereunder without the written consent
of the Originator and each Participant.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF THE BLOCK COMPANIES
Section 7.1. Representations Incorporated by Reference. Each Block Company
that is a party to this Servicing Agreement represents and warrants, with
respect to itself only, to each of the HSBC Companies that is a party to this
Servicing Agreement that each representation and warranty made by it in Article
III of the Retail Distribution Agreement is true and correct, each and all of
which are made as of the date hereof (except the representations and warranties
in Section 3.6 of the Retail Distribution Agreement) and as of each day during
the term of this Servicing Agreement.
ARTICLE VIII
REPRESENTATIONS AND WARRANTIES OF THE HSBC COMPANIES
Section 8.1. Representations Incorporated by Reference. Each HSBC Company
that is a party to this Servicing Agreement represents and warrants, with
respect to itself only, to each of the Block Companies that is a party to this
Servicing Agreement that each representation and warranty made by it in Article
IV of the Retail Distribution Agreement is true and correct, each and all of
which are made as of the date hereof and (except the representations and
warranties in Section 4.6 of the Retail Distribution Agreement) as of each day
during the term of this Servicing Agreement.
ARTICLE IX
DEFAULT OF BFC AND REMEDIES OF HSBC COMPANIES AND THE SERVICER
Section 9.1. BFC Events of Default. The occurrence of any one or more of
the following events for any reason whatsoever (whether voluntary or
involuntary, by operation of law or otherwise) shall constitute an event of
default with respect to BFC:
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(a) BFC fails to observe or perform any covenant applicable to it
contained in this Servicing Agreement (or, in the event such covenant does not
contain a Material Adverse Effect qualification, so long as such failure could
reasonably be expected to have a Material Adverse Effect) and the same shall
remain unremedied for five (5) days or more following receipt of written notice
of such failure;
(b) any representation, warranty, certification or statement made by
BFC in this Servicing Agreement shall prove to have been incorrect in any
respect (or, in the event such representation, warranty, certificate or
statement made in this Servicing Agreement does not contain a Material Adverse
Effect qualification, so long as such incorrect representation, warranty,
certification or statement could reasonably be expected to have a Material
Adverse Effect); or
(c) a Block Event of Default occurs under the Retail Distribution
Agreement.
Section 9.2. Remedies.
(a) If any event of default by BFC under Section 9.1 has occurred and
is continuing and adversely affects any HSBC Company party hereto, other than
the Servicer, the following actions may be taken:
(i) Termination. Any HSBC Company other than the Servicer may
terminate itself as a party to this Servicing Agreement. Such HSBC Company
terminating itself as a party to this Servicing Agreement under this
Section 9.2(a)(i) shall promptly provide written notice to BFC and the
Servicer. The effective date of any termination shall be the date such
corresponding notice was received by BFC. For purposes of this Section
9.2(a)(i), a termination by such HSBC Company shall only be with respect to
itself as a party to this Servicing Agreement and shall not be deemed to be
a termination of this Servicing Agreement with respect to any other party.
(ii) Other Rights and Remedies. Subject to Section 9.2(b), any
HSBC Company may exercise any rights and remedies provided to it under the
Servicing Agreement or at law or equity.
(b) If any event of default by BFC under Section 9.1 has occurred and
is continuing and adversely affects the Servicer, the Servicer may exercise any
rights and remedies provided to it under the Servicing Agreement or at law or
equity; provided, however, the Servicer shall be prohibited from terminating
this Servicing Agreement or suspending, in whole or in part, its performance
hereunder.
Section 9.3. Default Rate. If any event of default of BFC has occurred and
is continuing, and all or any portion of the Obligations hereunder of BFC are
outstanding, such Obligations or any portion thereof shall bear interest at the
Default Rate until such Obligations or such portion thereof plus all interest
thereon are paid in full.
Section 9.4. Waiver. Any HSBC Company may waive, in writing, any event of
default of BFC. Upon any such waiver of a past event of default of BFC, such
event of default of BFC shall cease to exist; provided, however, that such
waiver shall not excuse or discharge any
17
Obligations relating to or liabilities arising from such event of default of
BFC. No such waiver shall extend to any subsequent or other event of default of
BFC or impair any right consequent thereon except to the extent expressly so
waived.
ARTICLE X
DEFAULT OF HSBC COMPANIES AND REMEDIES OF BFC AND THE SERVICER
Section 10.1. HSBC Company Events of Default. The occurrence of any one or
more of the following events for any reason whatsoever (whether voluntary or
involuntary, by operation of law or otherwise) shall constitute an event of
default with respect to any HSBC Company party hereto:
(a) such HSBC Company fails to observe or perform any covenant
applicable to it contained in this Servicing Agreement (or, in the event such
covenant does not contain a Material Adverse Effect qualification, so long as
such failure could reasonably be expected to have a Material Adverse Effect),
following receipt of notice of such failure and the same shall remain unremedied
for five (5) days or more following receipt of such notice;
(b) any representation, warranty, certification or statement made by
such HSBC Company in this Servicing Agreement is incorrect in any respect (or,
in the event such representation, warranty, certificate or statement made in
this Servicing Agreement does not contain a Material Adverse Effect
qualification, so long as such incorrect representation, warranty, certification
or statement could reasonably be expected to have a Material Adverse Effect); or
(c) a HSBC Event of Default occurs under the Retail Distribution
Agreement.
Section 10.2. Remedies.
(a) If any event of default by any HSBC Company under Section 10.1 has
occurred and is continuing and adversely affects BFC, the following actions may
be taken:
(i) Termination. BFC may terminate this Servicing Agreement. In
the event BFC terminates this Servicing Agreement under this Section
10.2(a)(i), it shall promptly provide written notice to each HSBC Company
and the Servicer. The effective date of any termination shall be the
earliest date such corresponding notice was received by any HSBC Company.
(ii) Other Rights and Remedies. BFC may exercise any rights and
remedies provided to it under the Servicing Agreement or at law or equity.
(b) If any event of default by any HSBC Company under Section 10.1 has
occurred and is continuing and adversely affects the Servicer, the Servicer may
exercise any rights and remedies provided to it under the Servicing Agreement or
at law or equity; provided, however, the Servicer shall be prohibited from
terminating this Servicing Agreement or suspending, in whole or in part, its
performance hereunder.
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Section 10.3. Default Rate. If any event of default of any HSBC Company has
occurred and is continuing, and all or any portion of the Obligations hereunder
of the HSBC Companies parties hereto are outstanding, such Obligations or any
portion thereof shall bear interest at the Default Rate until such Obligations
or such portion thereof plus all interest thereon are paid in full.
Section 10.4. Waiver. BFC may waive, in writing, any event of default of
any HSBC Company. Upon any such waiver of a past event of default of any HSBC
Company, such event of default of such HSBC Company shall cease to exist;
provided, however, that such waiver shall not excuse or discharge any
Obligations relating to or liabilities arising from such event of default of
such HSBC Company. No such waiver shall extend to any subsequent or other event
of default of any HSBC Company or impair any right consequent thereon except to
the extent expressly so waived.
ARTICLE XI
DEFAULT OF THE SERVICER AND REMEDIES OF BFC AND HSBC COMPANIES
Section 11.1. Servicer Events of Default. The occurrence of any one or more
of the following events for any reason whatsoever (whether voluntary or
involuntary, by operation of law or otherwise) shall constitute an event of
default with respect to the Servicer (each, a "Servicer Event of Default"):
(a) the Servicer fails to remit to HSBC Bank or any Participant any
payment required to be so remitted by the Servicer under the terms of this
Servicing Agreement when and as due;
(b) the Servicer fails to observe or perform any other covenant
applicable to it contained in the HSBC Servicing Agreement or this Servicing
Agreement (or, in the event such covenant does not contain a Material Adverse
Effect qualification, so long as such failure could reasonably be expected to
have a Material Adverse Effect), following receipt of notice of such failure and
the same shall remain unremedied for ten (10) days or more following receipt of
such notice;
(c) any representation, warranty, certification or statement made by
the Servicer in this Servicing Agreement shall prove to have been incorrect in
any respect (or, in the event such representation, warranty, certificate or
statement made in this Servicing Agreement does not contain a Material Adverse
Effect qualification, so long as such incorrect representation, warranty,
certification or statement could reasonably be expected to have a Material
Adverse Effect);
(d) a HSBC Event of Default occurs under the Retail Distribution
Agreement; or
(e) any termination of the HSBC Servicing Agreement.
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Section 11.2. Remedies.
(a) If any Servicer Event of Default has occurred and is continuing
and adversely affects HSBC Bank, the following actions may be taken:
(i) Termination. HSBC Bank may terminate itself as a party to
this Servicing Agreement. In the event HSBC Bank terminates itself as a
party to this Servicing Agreement under this Section 11.2(a)(i), it shall
promptly provide written notice to the Servicer and the Participants. The
effective date of any termination shall be the date such corresponding
notice was received by the Servicer. For purposes of this Section
11.2(a)(i), a termination by HSBC Bank shall only be with respect to itself
as a party to this Servicing Agreement and shall not be deemed to be a
termination of this Servicing Agreement with respect to any other party.
(ii) Replacement of the Servicer. HSBC Bank may terminate this
Servicing Agreement and the HSBC Servicing Agreement; provided, that the
effective date of such termination shall be the date on which a substitute
servicer reasonably acceptable to HSBC Bank and the Participants has
entered into a substitute servicing agreement, substantially similar to
this Servicing Agreement, with HSBC Bank and the Participants, and the HSBC
Servicing Agreement, with HSBC Bank, immediately prior to such termination
of Servicer as a party to this Servicing Agreement and the HSBC Servicing
Agreement.
(iii) Other Rights and Remedies. HSBC Bank may exercise any
rights and remedies provided to it under the Servicing Agreement or at law
or equity.
(b) If any Servicer Event of Default has occurred and is continuing
and adversely affects any Participant, the following actions may be taken:
(i) Termination. Such Participant may terminate itself as a party
to this Servicing Agreement. Any Participant terminating itself as a party
to this Servicing Agreement under this Section 11.2(b)(i) shall promptly
provide written notice to the Servicer and HSBC Bank. The effective date of
any termination shall be the date such corresponding notice was received by
the Servicer. For purposes of this Section 11.2(b)(ii), a termination by
any Participant shall only be with respect to itself as a party to this
Servicing Agreement and shall not be deemed to be a termination of this
Servicing Agreement with respect to any other party.
(ii) Replacement of the Servicer. Such Participant may terminate
this Servicing Agreement; provided, that the effective date of such
termination shall be the date on which a substitute servicer reasonably
acceptable to HSBC Bank and the Participants has entered into a substitute
servicing agreement, substantially similar to this Servicing Agreement,
with HSBC Bank and the Participants immediately prior to such termination
of Servicer as a party to this Servicing Agreement.
(iii) Other Rights and Remedies. Such Participant may exercise
any rights and remedies provided to it under the Servicing Agreement or at
law or equity.
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Section 11.3. Default Rate. If any Servicer Event of Default has occurred
and is continuing, and all or any portion of the Obligations hereunder of the
Servicer are outstanding, such Obligations or any portion thereof shall bear
interest at the Default Rate until such Obligations or such portion thereof plus
all interest thereon are paid in full.
Section 11.4. Substitute Servicer. On or after the receipt by the Servicer
of such written notice of termination of this Servicing Agreement, and if
applicable, the HSBC Servicing Agreement, all authority and power of the
Servicer under this Servicing Agreement, and if applicable, the HSBC Servicing
Agreement, whether with respect to the Settlement Products or otherwise, shall
pass to and be vested in the substitute servicer, and the Servicer agrees to
cooperate with HSBC Bank and each Participant in terminating the Servicer's
rights and responsibilities hereunder and under the HSBC Servicing Agreement,
including, without limitation, the transfer to the substitute servicer of the
servicing files and the funds held in the accounts as set forth in this
Servicing Agreement.
ARTICLE XII
TERMINATION; TRANSFER OF PARTICIPATED HSBC RALS
Section 12.1. Term. The term of this Servicing Agreement shall begin July
1, 2006 and shall terminate in accordance with Section 12.2.
Section 12.2. Termination.
(a) This Servicing Agreement shall terminate immediately, upon the
mutual written agreement of all of the parties hereto.
(b) This Servicing Agreement shall terminate in accordance with
Section 11.2(a)(ii) and Section 11.2(b)(ii).
Section 12.3. Termination of Agreement.
(a) In no event shall the Settlement Product Servicing obligations of
the Servicer terminate prior to HSBC Bank and each Participant entering into a
servicing agreement substantially similar hereto with a substitute servicer
reasonably acceptable to HSBC Bank and each Participant.
(b) Termination pursuant to this Article XII or as otherwise provided
herein shall be without prejudice to any rights of HSBC Bank, any Participant or
the Servicer which may have accrued through the date of termination hereunder.
Upon such termination, the Servicer shall (i) remit all funds in the Deposit
Accounts to such Person as is designated in writing by HSBC Bank and the
Participants; (ii) deliver all related servicing files to the Persons designated
in writing by HSBC Bank and the Participants; and (iii) fully cooperate with
HSBC Bank, the Participants and any substitute servicer to effectuate an orderly
transition of Settlement Product Servicing of the related Settlement Products.
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ARTICLE XIII
MISCELLANEOUS PROVISIONS
Section 13.1. Survival.
(a) The rights and obligations of the parties hereto under Articles I,
II, III, IV, V, VI, VII, VIII and XII of this Servicing Agreement shall survive
the termination or expiration of this Servicing Agreement until such time as no
liabilities hereunder are due and owing to the Originator or any Participant;
except that Section 3.3(b)(i), Section 3.4(b)(i), Section 3.5(b)(i) and Section
3.5(b)(ii) shall survive the termination or expiration of this Servicing
Agreement to and including December 31 occurring in the Tax Year in which the
Participation Agreement is terminated or expires.
(b) The (i) representations and warranties of the parties hereto and
(ii) the rights and obligations of the parties hereto under Articles IX, X, XI
and XIII of this Servicing Agreement shall survive the termination or expiration
of this Servicing Agreement indefinitely.
Section 13.2. No Waivers; Remedies Cumulative. No failure or delay by any
party hereto in exercising any right, power or privilege under this Servicing
Agreement shall operate as a waiver thereof nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. The rights and remedies herein provided
shall be cumulative and not exclusive of any rights or remedies provided by law,
by other agreement or otherwise.
Section 13.3. Notices. All notices, requests and other communications to
any party hereunder shall be provided in the manner set forth in Section 22.3 of
the Retail Distribution Agreement.
Section 13.4. Severability. In case any provision of or obligation under
this Servicing Agreement shall be invalid, illegal or unenforceable in any
applicable jurisdiction, the validity, legality and enforceability of the
remaining provisions or obligations, or of such provision or obligation in any
other jurisdiction, shall not in any way be affected or impaired thereby.
Section 13.5. Amendments and Waivers. Any provision of this Servicing
Agreement may be amended or waived only if such amendment or waiver is in
writing and is signed by all of the parties hereto.
Section 13.6. Successors and Assigns. The provisions of this Servicing
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns; provided, however, no such party
may assign or otherwise transfer any of its rights under this Servicing
Agreement without the prior written consent of all parties signatory hereto
except as otherwise provided in Section 1.3 and Section 6.1 hereof.
Section 13.7. Headings. Headings and captions used in this Servicing
Agreement (including all exhibits and schedules thereto) are included herein for
convenience of reference only and shall not constitute a part of this Servicing
Agreement for any other purpose or be given any substantive effect.
22
Section 13.8. Alternative Dispute Resolution. ANY DISPUTE BETWEEN OR AMONG
THE PARTIES HERETO ARISING OUT OF OR RELATING TO THIS SERVICING AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREIN (EXCEPT JUDICIAL ACTION FOR SPECIFIC
PERFORMANCE OR INJUNCTIVE RELIEF) SHALL BE RESOLVED AMONG THE PARTIES TO SUCH
DISPUTE BY NEGOTIATIONS, MEDIATION AND ARBITRATION IN ACCORDANCE WITH THE
PROVISIONS OF ARTICLE XXI OF THE RETAIL DISTRIBUTION AGREEMENT, WHICH ARE
INCORPORATED HEREIN BY REFERENCE.
Section 13.9. Governing Law; Submission to Jurisdiction. THIS SERVICING
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL
LAWS OF THE STATE OF MISSOURI. WITHOUT LIMITING THE EFFECT OF SECTION 13.8
HEREOF AND ARTICLE XXI OF THE RETAIL DISTRIBUTION AGREEMENT, EACH OF THE PARTIES
HERETO HEREBY (A) SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE FEDERAL AND/OR
STATE COURTS SITTING IN ST LOUIS, MISSOURI FOR PURPOSES OF ALL LEGAL PROCEEDINGS
FOR SPECIFIC PERFORMANCE OR INJUNCTIVE RELIEF PERMITTED BY SECTION 21.12 OF THE
RETAIL DISTRIBUTION AGREEMENT, (B) IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING
OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT
ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT
FORUM, (C) IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN ANY SUCH PROCEEDING IN
THE MANNER PROVIDED FOR NOTICES IN SECTION 13.3 AND AGREES THAT NOTHING IN THIS
SERVICING AGREEMENT WILL AFFECT THE RIGHT OF ANY PARTY TO THIS SERVICING
AGREEMENT TO SERVE PROCESS IN ANY SUCH PROCEEDING IN ANY OTHER MANNER PERMITTED
BY LAW.
Section 13.10. Waiver of Jury Trial. WITHOUT LIMITING THE EFFECT OF SECTION
13.8 HEREOF, EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ANY AND ALL RIGHT TO
TRIAL BY JURY IN ANY ACTION ARISING OUT OF OR RELATING TO THIS SERVICING
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
Section 13.11. Counterparts. This Servicing Agreement may be signed in any
number of counterparts, each of which shall be an original, with the same effect
as if the signatures thereto and hereto were upon the same instrument. This
Servicing Agreement shall become effective upon the execution of a counterpart
hereof by each of the parties hereto.
Section 13.12. Entire Agreement. This Servicing Agreement and the other
Program Contracts constitute the entire agreement and understanding among the
parties hereto, and supersede and extinguish any and all prior agreements and
understandings, oral or written relating to the operation of the Settlement
Products Program on and after July 1, 2006. For the avoidance of doubt, (i) this
Servicing Agreement and the other Program Contracts shall govern the operation
of the Settlement Products Program on and after July 1, 2006, (ii) the Prior
Program Agreements shall continue to govern the operation of the current program
until their
23
expiration on June 30, 2006 in accordance with their terms, and (iii) nothing in
this Servicing Agreement or the other Program Contracts shall affect the rights
and obligations of the parties to the Prior Program Agreements, whenever
arising, under such Prior Program Agreements, which remain valid and enforceable
in accordance with their terms.
Section 13.13. Reinstatement. This Servicing Agreement shall remain in full
force and effect and continue to be effective should any petition be filed by or
against any party hereto for liquidation or reorganization, should any party
hereto become insolvent or make an assignment for the benefit of any creditor or
creditors or should a receiver or trustee be appointed for all or any
significant part of any party's assets or properties, and shall continue to be
effective or to be reinstated, as the case may be, if at any time payment and
performance of the obligations hereunder, or any part thereof, is, pursuant to
applicable law, rescinded or reduced in amount, or must otherwise be restored or
returned by any obligee of such obligations, whether as a "voidable preference,"
"fraudulent conveyance," or otherwise, all as though such payment or performance
had not been made. In the event that any payment, or any part thereof, is
rescinded, reduced, restored or returned, the obligations hereunder shall be
reinstated and deemed reduced only by such amount paid and not so rescinded,
reduced, restored or returned.
Section 13.14. Advice of Counsel. Each of the parties represents to each
other party hereto that it has discussed this Servicing Agreement with its
counsel.
Section 13.15. No Strict Construction. The parties hereto have participated
jointly in the negotiation and drafting of this Servicing Agreement. In the
event any ambiguity or question of intent or interpretation arises, this
Servicing Agreement shall be construed as if drafted jointly by the parties
hereto and no presumption or burden of proof shall arise favoring or disfavoring
any party by virtue of the authorship of any provision of this Servicing
Agreement.
Section 13.16. Conflict of Terms. Except as otherwise provided in this
Servicing Agreement or any of the other Program Contracts by specific reference
to the applicable provisions of this Servicing Agreement, if any provision
contained in this Servicing Agreement conflicts with any provision in any of the
other Program Contracts, other than the Indemnification Agreement and the Retail
Distribution Agreement, the provisions contained in this Servicing Agreement
shall govern and control. If there if a conflict between this Servicing
Agreement and the Retail Distribution Agreement (but not the Indemnification
Agreement), then the Retail Distribution Agreement shall control. If there is a
conflict between the Servicing Agreement and the Indemnification Agreement, the
Indemnification Agreement shall control.
Section 13.17. Further Execution. Each party hereto shall execute any and
all documents as are necessary or desirable to consummate the transactions
contemplated hereby.
Section 13.18. Expenses. Except as otherwise provided herein or in any
Program Contract, each party hereto shall pay its own expenses, including the
expenses of its own counsel and its own accountants, in connection with the
consummation of the transactions contemplated by this Servicing Agreement.
24
Section 13.19. No Implied Relationship. Notwithstanding any provision
herein to the contrary:
(a) This Servicing Agreement shall not be construed to establish a
partnership or joint venture between the parties hereto.
(b) All personnel employed or otherwise engaged by any party hereto to
perform the obligations and duties of such party hereunder shall not be deemed
to be employees of any other party hereto. In addition, the party employing or
otherwise engaging such employees, shall at all times be responsible for the
compensation of, and payment of applicable state and federal income taxes with
respect to, any personnel employed by such party to perform any services
hereunder.
Section 13.20. No Third Party Beneficiaries. This Servicing Agreement is
for the sole benefit of the parties hereto and their permitted successors and
assigns and nothing in this Servicing Agreement, express or implied, is intended
to or shall confer upon any other person any legal or equitable right, benefit
or remedy, of any nature whatsoever under or by reason of this Servicing
Agreement.
Section 13.21. Force Majeure. No party hereto shall be liable for failure
to satisfy or delays in the satisfaction of its Obligations, except failure or
delay with respect to its payment obligations, as a result of a Force Majeure
Event.
Section 13.22. Limitation of Scope of Representations and Warranties and
Other Disclosures. The representations, warranties and other disclosures set
forth by each party hereto are only made for the benefit of the parties hereto
and the purpose of the transactions contemplated hereby and are not intended for
use by any person with respect to any acquisition or disposition of any security
of any party hereto.
Section 13.23. Inspection and Audit Rights. Each Participant shall have
those inspection and audit rights set forth in Section 6.7 of the Retail
Distribution Agreement.
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THIS SERVICING AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY
BE ENFORCED BY THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this HSBC Settlement
Products Servicing Agreement to be executed by their respective duly authorized
officers as of the date set forth above.
HSBC BANK USA, NATIONAL ASSOCIATION,
a national banking association
By: /s/ Kathleen R. Whelehan
------------------------------------
Name: Kathleen R. Whelehan
Title: EVP
HSBC TAXPAYER FINANCIAL SERVICES, INC.,
a Delaware corporation
By: /s/ Paul J. Creatura
------------------------------------
Name: Paul J. Creatura
Title: CEO
HOUSEHOLD TAX MASTERS ACQUISITION
CORPORATION,
a Delaware corporation
By: /s/ Paul J. Creatura
------------------------------------
Name: Paul J. Creatura
Title: President
BLOCK FINANCIAL CORPORATION,
a Delaware corporation
By: /s/ Bret G. Wilson
------------------------------------
Name: Bret Wilson
Title: Secretary