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-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VbV6LH5sC3WiLUOmXZ5h4AXusLfDr/Rp8zeeO/kJJWOPq+WcLG6DzLFVf4G60+os 6SKfujpKT6Ku47M++0MeNQ== 0001193125-06-056993.txt : 20060317 0001193125-06-056993.hdr.sgml : 20060317 20060316191905 ACCESSION NUMBER: 0001193125-06-056993 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20060131 FILED AS OF DATE: 20060317 DATE AS OF CHANGE: 20060316 FILER: COMPANY DATA: COMPANY CONFORMED NAME: JACKSON HEWITT TAX SERVICE INC CENTRAL INDEX KEY: 0001283552 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PERSONAL SERVICES [7200] IRS NUMBER: 200778892 STATE OF INCORPORATION: DE FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-32215 FILM NUMBER: 06693642 BUSINESS ADDRESS: STREET 1: 3 SYLVAN WAY CITY: PARSIPPANY STATE: NJ ZIP: 07054 BUSINESS PHONE: 9736301040 MAIL ADDRESS: STREET 1: 3 SYLVAN WAY CITY: PARSIPPANY STATE: NJ ZIP: 07054 10-Q 1 d10q.htm FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 2006 For the quarterly period ended January 31, 2006

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 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 January 31, 2006

¨	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 1-32215

Jackson Hewitt Tax Service Inc.

(Exact name of registrant as specified in its charter)

Delaware

20-0779692

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

3 Sylvan Way

Parsippany, New Jersey 07054

(Address of principal executive offices including zip code)

(973) 630-1040

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has 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. Yes x No ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Exchange Act). Yes ¨ No x

The number of shares outstanding of the registrant’s common stock was 35,274,963 (net of 2,538,197 shares held in treasury) as of February 28, 2006.

JACKSON HEWITT TAX SERVICE INC.

TABLE OF CONTENTS


		Page
	PART 1 - FINANCIAL INFORMATION	3

Item 1.	Consolidated Financial Statements (Unaudited):	3

	Consolidated Balance Sheets.	3

	Consolidated Statements of Operations.	4

	Consolidated Statements of Cash Flows.	5

	Notes to Consolidated Financial Statements.	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	20

Item 3.	Quantitative and Qualitative Disclosures about Market Risk.	35

Item 4.	Controls and Procedures.	36

	PART II - OTHER INFORMATION	37

Item 1.	Legal Proceedings.	37

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds and Issuer Purchases of Equity Securities.	37

Item 3.	Defaults Upon Senior Securities.	37

Item 4.	Submission of Matters to a Vote of Security Holders.	37

Item 5.	Other Information.	37

Item 6.	Exhibits.	37

	Signatures.	38

PART 1 — FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements (Unaudited)

JACKSON HEWITT TAX SERVICE INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Dollars in thousands, except per share amount)


	As of
	January 31, 2006			April 30, 2005
Assets
Current assets:
Cash and cash equivalents	$	4,108		$	113,264
Accounts receivable, net of allowance for doubtful accounts of $2,778 and $1,840, respectively		84,977			15,187
Notes receivable, net		4,956			3,156
Prepaid expenses and other		8,342			7,542
Deferred income taxes		4,615			3,446

Total current assets		106,998			142,595

Property and equipment, net		36,417			33,942
Goodwill		392,700			392,691
Other intangible assets, net		86,758			87,634
Notes receivable, net		6,654			2,765
Other non-current assets, net		15,422			15,462

Total assets	$	644,949		$	675,089

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued liabilities	$	28,767		$	27,581
Income taxes payable		9,427			21,339
Deferred revenues		20,092			7,834

Total current liabilities		58,286			56,754

Long-term debt		205,000			175,000
Deferred income taxes		35,752			36,005
Other non-current liabilities		13,936			11,093

Total liabilities		312,974			278,852

Commitments and Contingencies (Note 15)

Stockholders’ equity:
Common stock, par value $0.01; Authorized: 200,000,000 shares; Issued: 37,810,115 and 37,634,327 shares, respectively		378			376
Additional paid-in capital		350,179			344,908
Retained earnings		42,247			50,953
Accumulated other comprehensive income		498			—
Less: Treasury stock, at cost: 2,538,197 and zero shares, respectively		(61,327	)		—

Total stockholders’ equity		331,975			396,237

Total liabilities and stockholders’ equity	$	644,949		$	675,089

The accompanying notes are an integral part of these Consolidated Financial Statements.

JACKSON HEWITT TAX SERVICE INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share amounts)


	Three Months Ended January 31,						Nine Months Ended January 31,
	2006			2005			2006			2005
Revenues
Franchise operations revenues:
Royalty	$	29,262		$	20,197		$	30,589		$	21,186
Marketing and advertising		13,318			9,414			13,930			9,869
Financial product fees		17,197			13,673			21,179			16,863
Other financial product revenues		1,409			2,277			5,518			8,117
Other		3,938			3,663			8,199			8,324
Service revenues from company-owned office operations		30,031			24,013			30,873			25,076

Total revenues		95,155			73,237			110,288			89,435

Expenses
Cost of franchise operations		6,800			6,577			21,303			19,875
Marketing and advertising		16,787			14,977			22,642			20,175
Cost of company-owned office operations		14,921			12,107			24,064			21,646
Selling, general and administrative		11,576			6,209			26,696			22,896
Depreciation and amortization		2,859			2,850			8,242			8,647

Total expenses		52,943			42,720			102,947			93,239

Income (loss) from operations		42,212			30,517			7,341			(3,804	)
Other income/(expense):
Interest income		508			355			1,433			739
Interest expense		(2,747	)		(2,022	)		(6,664	)		(4,539	)
Write-off of deferred financing costs		—			—			(2,677	)		—
Gain on sale of assets, net		304			—			520			—

Income (loss) before income taxes		40,277			28,850			(47	)		(7,604	)
Provision for (benefit from) income taxes		15,810			11,304			(19	)		(2,980	)

Net income (loss)	$	24,467		$	17,546		$	(28	)	$	(4,624	)

Earnings (loss) per share:
Basic	$	0.69		$	0.47		$	—		$	(0.12	)

Diluted	$	0.69		$	0.46		$	—		$	(0.12	)

Dividends declared per share:
Basic	$	0.08		$	0.07		$	0.24		$	0.14

Diluted	$	0.08		$	0.07		$	0.24		$	0.14

Weighted average shares outstanding:
Basic		35,286			37,640			36,307			37,603

Diluted		35,678			38,030			36,307			37,603

The accompanying notes are an integral part of these Consolidated Financial Statements.

JACKSON HEWITT TAX SERVICE INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)


	Nine Months Ended January 31,
	2006			2005
Operating activities:
Net loss	$	(28	)	$	(4,624	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		8,242			8,647
Gain on sale of assets, net		(520	)		—
Amortization of Gold Guarantee product		(1,656	)		(1,182	)
Amortization of development advances		883			776
Amortization of deferred financing costs		191			387
Write-off of deferred financing costs		2,677			—
Provision for uncollectible receivables, net		1,116			1,788
Stock-based compensation		2,042			6,002
Deferred income taxes		(1,252	)		(376	)
Other		10			—
Changes in assets and liabilities, excluding the impact of acquisitions:		—			—
Accounts receivable		(71,019	)		(25,241	)
Notes receivable		(2,480	)		(4,383	)
Prepaid expenses and other		1,307			(2,279	)
Other non-current assets		(5,151	)		(1,699	)
Accounts payable and accrued liabilities		154			2,668
Income taxes payable		(11,912	)		76
Deferred revenues		15,877			9,592
Other non-current liabilities		4,996			(2,933	)

Net cash used in operating activities		(56,523	)		(12,781	)

Investing activities:
Capital expenditures		(8,554	)		(3,633	)
Funding of development advances		(1,192	)		(2,271	)
Storefront financing		(2,716	)		—
Cash paid for acquisitions		(1,779	)		(1,698	)

Net cash used in investing activities		(14,241	)		(7,602	)

Financing activities:
Common stock repurchases		(61,327	)		—
Proceeds from issuance of $175 Million Notes		—			175,000
Cash portion of Special Dividend to Cendant		—			(175,000	)
Repayment of $175 Million Notes		(175,000	)		—
Borrowings under revolving credit facility		210,000			20,000
Repayment of borrowings under revolving credit facility		(5,000	)		(8,000	)
Proceeds from issuance of common stock		2,406			304
Dividends paid to stockholders		(8,671	)		(5,266	)
Debt issuance costs		(681	)		(3,337	)
Payments on capitalized lease obligation		(119	)		—
Decrease in Due from Cendant		—			12,133

Net cash (used in) provided by financing activities		(38,392	)		15,834

Net (decrease) increase in cash and cash equivalents		(109,156	)		(4,549	)
Cash and cash equivalents, beginning of period		113,264			5,266

Cash and cash equivalents, end of period	$	4,108		$	717

Supplemental disclosure for non-cash investing and financing transactions:
Special Dividend — Distribution of Due from Cendant	$	—		$	131,852

Tax benefit from exercise of stock options	$	502		$	—

Common stock grant	$	525		$	—

Change in fair value of derivatives, net of tax of $332	$	498		$	—

The accompanying notes are an integral part of these Consolidated Financial Statements.

JACKSON HEWITT TAX SERVICE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. BACKGROUND AND BASIS OF PRESENTATION

Description of Business

Jackson Hewitt Tax Service Inc., through its subsidiaries, provides computerized preparation of federal and state personal income tax returns through a network of franchised and company-owned offices under the brand name Jackson Hewitt Tax Service^{^®}. “JHTS” and the “Company” are used interchangeably to refer to Jackson Hewitt Tax Service Inc. or to Jackson Hewitt Tax Service Inc. and its subsidiaries, as appropriate to the context. Jackson Hewitt Inc. (“JHI”) is a 100% owned subsidiary of JHTS. Company-owned office operations are conducted by Tax Services of America, Inc. (“TSA”), which is a wholly-owned subsidiary of JHI. The Consolidated Financial Statements include the accounts and transactions of JHTS and its subsidiaries.

Initial Public Offering

On June 25, 2004, Cendant Corporation (“Cendant”) divested 100% of its ownership interest in JHTS through an initial public offering (“IPO”). JHTS did not receive any proceeds from the sale of the Company’s common stock by Cendant.

JHTS was incorporated in Delaware on February 20, 2004. Simultaneous with the incorporation, Cendant contributed all outstanding shares of JHI, a Virginia corporation, to JHTS. JHTS accounted for the contribution of outstanding shares as a change in reporting entities under common control and has recognized the outstanding shares at their carrying amounts at the date of transfer. Accordingly, the accompanying Consolidated Financial Statements have been prepared as though JHTS existed throughout the periods presented.

Basis of Presentation

The accompanying unaudited interim Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial statements and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements. These interim Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and other financial information included in the Company’s Annual Report on Form 10-K which was filed with the SEC on July 29, 2005.

In presenting the Consolidated Financial Statements, management makes estimates and assumptions that affect the amounts reported and related disclosures. Estimates, by their nature, are based on judgment and available information. Accordingly, actual results could differ from those estimates. In the opinion of management, the accompanying interim Consolidated Financial Statements contain all normal and recurring adjustments necessary for a fair presentation of the Company’s financial position, results of operations and cash flows. The results of operations for the interim periods reported are not necessarily indicative of the results of operations that may be expected for any future interim periods or for the full fiscal year.

The Company’s results of operations and cash flows for the period from May 1, 2004 through the Company’s IPO date, which are included in the nine months ended January 31, 2005, reflect the historical results of operations and cash flows of the business divested by Cendant in the Company’s IPO. As a result, the accompanying Consolidated Financial Statements may not necessarily reflect the Company’s results of operations and cash flows in the future or what the Company’s results of operations and cash flows would have been had JHTS been a stand-alone public company during this period. See Note 8 - “Related Party Transactions” for a more detailed description of the Company’s transactions with Cendant.

Comprehensive Income (Loss)

The Company’s comprehensive income (loss) is comprised of net income (loss) from the Company’s results of operations and changes in the fair value of derivatives. The components of comprehensive income (loss), net of tax, are as follows:


	Three Months Ended January 31,				Nine Months Ended January 31,
	2006		2005		2006			2005
	(in thousands)				(in thousands)
Net income (loss)	$	24,467	$	17,546	$	(28	)	$	(4,624	)
Changes in fair value of derivatives		16		—		498			—

Total comprehensive income (loss)	$	24,483	$	17,546	$	470		$	(4,624	)

Reclassifications

Certain amounts presented in the prior periods’ consolidated financial statements have been reclassified to conform to the current periods’ presentation.

2. RECENT ACCOUNTING PRONOUNCEMENT AND SIGNIFICANT ACCOUNTING POLICIES

Recent Accounting Pronouncement

In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 123R, “Share-Based Payment” (“SFAS No. 123R”), which eliminates the alternative to measure stock-based compensation awards using the intrinsic value approach permitted by Accounting Principles Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees” and by SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”). The Company is required to adopt the provisions of SFAS No. 123R by May 1, 2006. On January 1, 2003, the Company adopted the fair value method of accounting for stock-based compensation provisions of SFAS No. 123 and the transitional provisions of SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure.” As a result, the Company has been recording stock-based compensation expense since January 1, 2003 for employee stock awards that were granted or modified subsequent to December 31, 2002. In addition, the Company’s current practice with respect to forfeitures is to recognize the related benefit upon forfeiture of the award. Upon adoption of SFAS No. 123R, the Company will be required to recognize compensation expense net of estimated forfeitures upon the issuance of the award. The Company is currently evaluating the remaining provisions of SFAS No. 123R to determine the effect, if any, it may have on the Company’s financial position, results of operations or cash flows.

Other Financial Product Revenues

Other financial product revenues represent a portion of the revenues the Company earns from the facilitation of refund anticipation loans (“RALs”). In the three months ended January 31, 2006, the agreement with Santa Barbara Bank & Trust (“SBB&T”), a division of Pacific Capital Bank, N.A., provided for a total of $11.8 million in fees for RALs facilitated by the Company’s network which is subject to a threshold by which net finance fees received by SBB&T must exceed uncollected loans from the aggregate principal amount of RALs facilitated by the Company’s network. Until it becomes determinable that the Company will not have to reimburse any amounts to SBB&T, the Company has deferred all such revenues on the Consolidated Balance Sheet as of January 31, 2006. See Note 16—“Subsequent Events” for a more detailed discussion of the new financial product agreements executed on February 24, 2006.

Derivatives and Hedging Activities

The Company has entered into interest rate swap agreements for the purpose of mitigating the Company’s exposure to floating interest rates on certain portions of the Company’s debt. The use of derivatives is restricted to those intended for hedging purposes; the use of any derivative instrument for trading purposes is strictly prohibited.

The Company’s interest rate swap agreements have been designated as cash flow hedges and are recorded on the Consolidated Balance Sheet at their fair value. Changes in the fair value of the interest rate swap agreements, to the extent

that they remain highly effective, are recorded in other comprehensive income (loss). The Company formally assesses (both at inception of the hedge and on an ongoing basis) whether the derivatives that are used in hedging transactions have been highly effective in offsetting changes in the cash flows of hedged items and whether those derivatives may be expected to remain highly effective in future periods. Any hedge ineffectiveness is recorded in the Consolidated Statement of Operations. See Note 10 – “Interest Rate Swap Agreements” for a more detailed discussion of the Company’s derivative transactions.

Rent Expense

Total rent payments in an operating lease are recognized straight-line over the lease term, including any rent holiday period(s). Reimbursements for leasehold improvements are accounted for as a deferred rental liability and recognized as a reduction to rent expense over the term of the lease.

3. COMPUTATION OF EARNINGS (LOSS) PER SHARE

The computation of basic earnings (loss) per share is calculated by dividing net income (loss) available to the Company’s common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share is calculated by dividing net income available to the Company’s common stockholders by an adjusted weighted average number of common shares outstanding assuming conversion of potentially dilutive securities arising from stock options outstanding. Common shares repurchased by the Company are excluded from the calculation of earnings (loss) per share.

The following table presents the computation of basic and diluted earnings (loss) per share:


	Three Months Ended January 31,				Nine Months Ended January 31,
	2006		2005		2006			2005
Net income (loss), basic and diluted (in thousands)	$	24,467	$	17,546	$	(28	)	$	(4,624	)

Weighted average shares outstanding (in thousands):
Basic		35,286		37,640		36,307			37,603

Diluted		35,678		38,030		36,307			37,603

Earnings (loss) per share:
Basic	$	0.69	$	0.47	$	0.00		$	(0.12	)

Diluted	$	0.69	$	0.46	$	0.00		$	(0.12	)

Stock options to purchase 2,311,964 and 2,000,611 shares of common stock were not included in the computation of diluted net loss per share for the nine months ended January 31, 2006 and 2005, respectively, because the effect would have been antidilutive.

4. GOODWILL AND OTHER INTANGIBLE ASSETS, NET

The changes in the carrying amount of goodwill by segment were as follows:


	Franchise Operations		Company- Owned Office Operations			Total
	(In thousands)
Balance as of April 30, 2005	$	336,767	$	55,924		$	392,691
Additions		—		1,933			1,933
Dispositions		—		(1,924	)		(1,924	)

Balance as of January 31, 2006	$	336,767	$	55,933		$	392,700

See Note 13 - “Acquisitions and Dispositions” for additional information on acquisitions and dispositions made during the nine months ended January 31, 2006.

Other intangible assets consist of:


	As of January 31, 2006							As of April 30, 2005
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
	(In thousands)
Amortizable other intangible assets:
Franchise agreements(a)	$	16,052	$	(12,387	)	$	3,665	$	16,052	$	(11,184	)	$	4,868
Customer relationships(b)		7,561		(5,467	)		2,093		7,143		(5,377	)		1,766

Total amortizable other intangible assets	$	23,613	$	(17,855	)		5,758	$	23,195	$	(16,561	)		6,634

Unamortizable other intangible assets:
Jackson Hewitt trademark							81,000							81,000

Total other intangible assets						$	86,758						$	87,634

(a)	Amortized over a period of 10 years.

(b)	Amortized over a period of, on average, five years.

The changes in the carrying amount of other intangible assets, net, by segment were as follows:


	Franchise Operations			Company- Owned Office Operations			Total
	(In thousands)
Balance as of April 30, 2005	$	85,868		$	1,766		$	87,634
Additions		—			1,048			1,048
Dispositions		—			(61	)		(61	)
Amortization		(1,203	)		(660	)		(1,863	)

Balance as of January 31, 2006	$	84,665		$	2,093		$	86,758

Amortization expense relating to other intangible assets was as follows:


	Three Months Ended January 31,				Nine Months Ended January 31,
	2006		2005		2006		2005
	(In thousands)
Franchise agreements	$	400	$	376	$	1,203	$	1,178
Customer relationships		204		317		660		959

Total	$	604	$	693	$	1,863	$	2,137

Estimated amortization expense related to other intangible assets for each of the respective periods in the fiscal years ended April 30 is as follows:


	Amount
	(In thousands)
Remaining three months in fiscal 2006	$	672
2007		2,484
2008		1,511
2009		377
2010		281
2011 and thereafter		433

Total	$	5,758

5. NOTES RECEIVABLE, NET

Notes receivable, net consists of the following:


	As of
	January 31, 2006			April 30, 2005
	(In thousands)
Notes receivable	$	13,126		$	7,570
Less allowance for uncollectible amounts		(1,516	)		(1,649	)

Notes receivable, net		11,610			5,921
Less current portion, net		(4,956	)		(3,156	)

Notes receivable, net—non-current	$	6,654		$	2,765

In the three and nine months ended January 31, 2006, the Company provided financing to franchisees for 81 and 108 storefront locations, respectively, in loan amounts of up to $25,000 for each note receivable. These notes are typically due over a period of less than 30 months. At January 31, 2006, the current portion of notes receivable, net includes $0.6 million related to storefront financing and non-current notes receivable, net includes $2.2 million related to storefront financing.

6. DEVELOPMENT ADVANCES, NET

Development advances, net are included in other non-current assets, net and consist of the following:


	As of
	January 31, 2006			April 30, 2005
	(In thousands)
Unamortized development advances	$	7,971		$	7,662
Less allowance		(1,246	)		(1,226	)

Development advances, net	$	6,725		$	6,436

7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities consist of the following:


	As of
	January 31, 2006		April 30, 2005
	(In thousands)
Accounts payable	$	2,966	$	2,089
Accrued payroll and related liabilities		8,738		10,385
Accrued litigation settlement		2,820		3,107
Accrued marketing and advertising		4,437		6,479
Accrued purchase price obligations		1,243		120
Outstanding checks in excess of funds on deposit		—		1,304
Other accrued liabilities		8,563		4,097

Total accounts payable and accrued liabilities	$	28,767	$	27,581

8. RELATED PARTY TRANSACTIONS

Special Dividend Paid to Cendant

Upon completion of the Company’s IPO in June 2004, the Company declared a special dividend to Cendant in the amount of $306.9 million (the “Special Dividend”). The $175.0 million cash portion of this Special Dividend was funded entirely from the net proceeds of five-year floating rate senior unsecured notes, as discussed more fully in Note 9—”Long-Term Debt and Credit Facilities.” The remaining $131.9 million represented the distribution of a receivable from Cendant.

The Company recorded the Special Dividend as a reduction to retained earnings of $175.3 million and a reduction to additional paid-in capital of $131.6 million. The amount by which retained earnings was reduced represented the accumulation of all earnings by the Company up to the Company’s IPO date at which time the Company began operating as a separate public company.

Allocation and Funding of Expenses

During the period from May 1, 2004 to the Company’s IPO date, the Company was allocated general corporate overhead expenses from Cendant for corporate-related functions as well as other expenses directly attributable to the Company. Cendant allocated corporate overhead to the Company based on a percentage of the Company’s forecasted revenues and allocated other expenses that directly benefited the Company based on the Company’s actual utilization of the services. Corporate expense allocations included executive management, finance, human resources, information technology, legal and real estate facility usage and were included in selling, general and administrative expenses in the Consolidated Statement of Operations. The Company believes the assumptions and methodologies underlying the allocations of general corporate overhead and direct expenses from Cendant to the Company were reasonable and are consistent with the amounts that would have been incurred if the Company had performed these functions as a stand-alone company.

All allocated overhead expenses as well as direct charges were included in Due from Cendant on the Consolidated Balance Sheet. No interest was charged by Cendant or received by the Company in any period presented with respect to intercompany balances. Prior to the Company’s IPO, Cendant used cash swept from the Company’s bank accounts to fund these disbursements.

The major categories of intercompany activity between the Company and Cendant were as follows:


	Period from May 1, 2004 to the Company’s IPO Date
	(In thousands)
Due from Cendant as of April 30, 2004	$	143,985

Corporate expense allocations		(750	)
Payroll and related		(5,461	)
Accounts payable funding		(12,878	)
Income taxes		2,509
Cash sweeps		4,447

Subtotal		(12,133	)
Special Dividend - distribution of Due from Cendant		(131,852	)

Due from Cendant as of the Company’s IPO date	$	—

Transitional Agreement and Other Related Agreements

Upon completion of the Company’s IPO, the Company entered into a transitional agreement with Cendant to provide for an orderly transition to being an independent company and to govern the continuing arrangements between the Company and Cendant. The Company also entered into a sublease agreement for its corporate headquarters in Parsippany, New Jersey, which expired in September 2005, and a sublease assignment and assumption agreement for its technology facility in Sarasota, Florida. The Company pays rent directly to the landlord of the Sarasota facility as a sublessee under Cendant’s lease, which expires in May 2006. The Company’s rental expense under these agreements was $0.1 million and $0.4 million for the three months ended January 31, 2006 and 2005, respectively. For the nine months ended January 31, 2006 and 2005, such rental expense was $0.9 million and $1.1 million, respectively.

On May 1, 2005, the Company entered into a new lease with a different lessor for office space located in Parsippany and in September 2005, the Company relocated its corporate headquarters to this office space. The lease expires in October 2012. Annual base rental expense is $1.2 million.

On November 17, 2005, the Company entered into a new lease with a different lessor for office space located in Sarasota. The Company plans to relocate its current technology facility to this office space in the first quarter of fiscal 2007. The lease expires in June 2014. Annual base rental expense will be $0.7 million.

Under the transitional agreement, Cendant provided the Company with various services, including services relating to facilities, human resources and employee benefits, payroll, financial systems management, treasury and cash management, accounts payable services, tax support, event marketing, revenue audit services, public and regulatory affairs, telecommunications services, information technology services and call support services. The transitional agreement also contains provisions relating to indemnification, tax sharing and tax indemnification, access to information and non-solicitation of employees.

Excluding rental expense disclosed above, the Company incurred an aggregate of $0.2 million and $0.8 million of expenses related to such transitional and other related agreements with Cendant for the three months ended January 31, 2006 and 2005, respectively, which is included in cost of franchise operations and selling, general and administrative. For the nine months ended January 31, 2006 and 2005, the Company incurred an aggregate of $1.3 million and $1.8 million of such expenses, respectively.

Under the transitional agreement, the cost of each transitional service generally reflects the same payment terms and is calculated using the same cost allocation methodologies for the particular service as those associated with the costs reported in the Company’s historical Consolidated Financial Statements prior to the Company’s IPO. The transitional agreement was negotiated in the context of a parent-subsidiary relationship. The provisions of many of the services were transitioned at similar costs to those allocated by Cendant historically. There are no fixed or minimum contractual purchase obligations under the transitional agreement and other related agreements.

The Company has completed most transition arrangements with Cendant and is now predominantly operational on its own systems and infrastructure. The Company has completed the implementation of its own back office systems including human resources and employee benefits, payroll, financial systems management, treasury and cash management, accounts payable, tax support and public and regulatory affairs. On June 30, 2005, the Company entered into a five-year agreement with a service provider at a cost of $0.7 million annually to provide information technology support services. Such services provided by Cendant under the transitional agreement were terminated as of September 30, 2005. Also, on September 30, 2005, Cendant discontinued providing revenue audit services to the Company. The Company is currently evaluating various alternatives to replace the revenue audit services.

Remaining transitional services from Cendant are as follows:

•

Telecommunications services: Cendant will continue to provide the Company with telecommunications services under the transitional agreement until June 30, 2007. Both Cendant and the Company may terminate the provision of these services, without penalty, upon 180 days written notice by the terminating party.

•

Call support services: Cendant will continue to provide the Company with call support services under the transitional agreement until December 31, 2006.

•

Event marketing services: Cendant will continue to provide the Company with event marketing services under the transitional agreement until December 31, 2006.

9. LONG-TERM DEBT AND CREDIT FACILITIES

$250 Million Credit Facility

On June 29, 2005, the Company established a $250.0 million five-year unsecured credit facility (the “$250 Million Credit Facility”) that generally had less restrictive covenants than those contained in the Company’s prior debt agreements and reduced the cost of debt. Borrowings under the $250 Million Credit Facility are to be used to finance working capital needs, potential acquisitions and other general corporate purposes including repurchases of the Company’s common stock.

The $250 Million Credit Facility provides for loans in the form of Eurodollar or Base Rate borrowings. Eurodollar borrowings bear interest at the London Inter-Bank Offer Rate (“LIBOR”), as defined in the $250 Million Credit Facility, plus a credit spread as defined in the $250 Million Credit Facility, currently 0.95% per annum. Base Rate borrowings, as defined in the Credit Agreement, bear interest primarily at the Prime Rate, as defined in the $250 Million Credit Facility. The $250 Million Credit Facility carries an annual fee currently at 0.175% of the unused portion of the $250 Million Credit Facility, which is payable quarterly. The Company may also use the $250 Million Credit Facility to issue letters of credit for general corporate purposes. There was a $1.0 million letter of credit outstanding under the $250 Million Credit Facility as of January 31, 2006.

In connection with entering into the $250 Million Credit Facility, the Company incurred $0.7 million of financing fees, which were deferred and are being amortized to interest expense over the term of the $250 Million Credit Facility. Amortization of financing fees under the $250 Million Credit Facility amounted to $34,000 and $0.1 million for the three and nine months ended January 31, 2006, respectively.

Interest expense associated with borrowings under the $250 Million Credit Facility was $2.6 million and $4.9 million for the three and nine months ended January 31, 2006, respectively.

The $250 Million Credit Facility agreement contains covenants, including the requirement that the Company maintain certain financial covenants, such as a maximum consolidated leverage ratio of 2.5:1.0 and a minimum consolidated interest coverage ratio of 4.0:1.0. The consolidated leverage ratio is the ratio of consolidated debt to consolidated Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”), each as defined in the $250 Million Credit Facility. The consolidated interest coverage ratio is the ratio of consolidated EBITDA to consolidated interest expense, each as defined in the $250 Million Credit Facility. The maximum leverage ratio and minimum interest coverage ratio remains fixed through the five-year term of the $250 Million Credit Facility. As of January 31, 2006, the Company was in compliance with these covenants.

The $250 Million Credit Facility contains various customary restrictive covenants that limit the Company’s ability to, among other things, (i) incur additional indebtedness or guarantees, (ii) create liens or other encumbrances on the Company’s property, (iii) enter into a merger or similar transaction, (iv) sell or transfer property except in the ordinary course of business, and (v) make dividend and other restricted payments.

Floating Rate Senior Unsecured Notes

On June 27, 2005, the Company repaid in full $175.0 million of five-year floating-rate senior unsecured notes (“$175 Million Notes”) that were outstanding. To repay the $175 Million Notes, the Company used cash provided by operations from the prior tax season of $76.0 million and borrowed $99.0 million under the $100.0 million five-year revolving credit facility (the “$100 Million Credit Facility”), discussed below.

The Company had issued the $175 Million Notes through a private placement on June 25, 2004 in connection with the Company’s IPO. The purpose of this issuance was to fund the cash portion of the Special Dividend paid to Cendant upon Cendant’s divestiture of its entire ownership in the Company. The $175 Million Notes accrued interest based on the three-month LIBOR plus 1.5%.

In connection with the issuance of the $175 Million Notes, the Company incurred $1.7 million of financing fees which were deferred and amortized to interest expense over the term of the $175 Million Notes. Amortization of such fees amounted to $0.1 million for the three months ended January 31, 2005. For the nine months ended January 31, 2006 and 2005, such amortization was $0.1 million and $0.2 million, respectively. The Company incurred a non-cash charge of $1.4 million for the nine months ended January 31, 2006 related to the write-off of deferred financing costs associated with the repayment of the $175 Million Notes in June 2005.

The agreement governing the $175 Million Notes contained substantially similar provisions and covenants to those contained in the $100 Million Credit Facility, as well as customary event of default provisions and other terms and conditions that were consistent with those contained in similar debt obligations of issuers with a credit quality similar to JHTS. The agreements that governed the $175 Million Notes and $100 Million Credit Facility were amended on January 7, 2005 to permit the Company to repurchase additional shares of common stock.

Interest expense under the $175 Million Notes amounted to $1.7 million for the three months ended January 31, 2005. For the nine months ended January 31, 2006 and 2005, such expense was $1.3 million and $3.6 million, respectively.

$100 Million Credit Facility

On June 29, 2005, the Company repaid and then immediately terminated the $100 Million Credit Facility, which the Company had established on June 25, 2004. Borrowings under the $100 Million Credit Facility were available to finance working capital needs, acquisitions and other general corporate purposes. The $100 Million Credit Facility provided for loans in the form of Eurodollar or Alternate Base Rate borrowings. Eurodollar borrowings bore interest at the adjusted LIBOR, as defined in the $100 Million Credit Facility, plus 1.25% per annum. Alternate Base Rate borrowings bore interest primarily at the Prime Rate, as defined in the $100 Million Credit Facility, plus 0.25% per annum. The Company also was permitted to use the $100 Million Credit Facility to issue letters of credit for general corporate purposes. The $100 Million Credit Facility carried an annual facility fee of 0.25% of the total commitment amount which was payable quarterly.

In connection with entering into the $100 Million Credit Facility, the Company incurred $1.6 million of financing fees, which were deferred and were being amortized to interest expense over the five-year term of the $100 Million Credit Facility. Amortization of financing fees amounted to $0.1 million for the three months ended January 31, 2005. For the nine months ended January 31, 2006 and 2005, such amortization was $0.1 million and $0.2 million, respectively. The Company incurred a non-cash charge of $1.3 million for the nine months ended January 31, 2006 related to the write-off of deferred financing costs associated with the termination of the $100 Million Credit Facility in June 2005.

As discussed above, on June 27, 2005, the Company borrowed $99.0 million from the $100 Million Credit Facility and two days later repaid this amount in full. Interest expense associated with borrowings under the $100 Million Credit Facility was $35,000 for the nine months ended January 31, 2006. Such interest expense was $0.1 million for the three and nine months ended January 31, 2005.

Bridge Agreement

On May 26, 2005, the Company and a financial institution entered into a bridge credit agreement (the “Bridge Agreement”), pursuant to which the financial institution agreed to establish a revolving line of credit in favor of the Company, in the aggregate principal amount of up to $50.0 million, to temporarily supplement the Company’s $100 Million Credit Facility after repaying the $175 Million Notes. The interest payable on the unpaid principal amount of any borrowing under the Bridge Agreement was calculated at a rate equal to LIBOR, as defined in the Bridge Agreement, plus 1.25%. The Bridge Agreement incorporated by reference certain terms and conditions set forth in the $100 Million Credit Facility. The Bridge Agreement was scheduled to expire by no later than January 31, 2006, but was terminated upon the execution of the $250 Million Credit Facility on June 29, 2005. The Company did not borrow against the Bridge Agreement.

Average Cost of Debt

For the three months ended January 31, 2006 and 2005, the Company’s average cost of debt was 5.5% and 4.2%, respectively. For the nine months ended January 31, 2006 and 2005, the Company’s average cost of debt was 5.3% and 4.0%, respectively.

10. INTEREST RATE SWAP AGREEMENTS

In August 2005, the Company entered into interest rate swap agreements with financial institutions to convert a notional amount of $50.0 million of floating-rate borrowings under the $250 Million Credit Facility into fixed-rate debt, with the intention of mitigating the economic impact of changing interest rates. Under these interest rate swap agreements, which became effective in October 2005, the Company receives a floating interest rate based on the three-month LIBOR (in arrears) and pays a fixed interest rate averaging 4.4%. These agreements mature in June 2010 and were determined to be cash flow hedges in accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” as amended by SFAS No. 137, No. 138 and No. 149 (“SFAS No. 133”). At January 31, 2006, the fair value of the interest rate swap agreements was an asset of $0.8 million which is recorded in other non-current assets on the Consolidated Balance Sheet. The change in fair value since inception to January 31, 2006 was $0.5 million, net of tax, and is recorded as a component of accumulated other comprehensive income. Since inception, no amounts have been recognized in the Consolidated Statements of Operations due to ineffectiveness.

11. STOCK-BASED COMPENSATION

Exchange Transaction

Prior to the Company’s IPO, certain employees of the Company were granted stock options and restricted stock units (“RSUs”) under Cendant’s stock-based compensation plans. In connection with the Company’s IPO and pursuant to the consent of each holder, the Company issued to employees 903,935 vested stock options and 100,880 shares of common stock

in exchange for their Cendant stock options and RSUs, respectively. The exchange transaction was structured to provide the same relative value to employees as the Cendant awards held by such employees prior to the Company’s IPO. As a result of the exchange transaction, the Company incurred stock-based compensation expense of $4.5 million for the nine months ended January 31, 2005, which is included in selling, general and administrative expenses in the Consolidated Statement of Operations. Included in the $4.5 million charge was a $1.9 million charge related to the issuance to employees of vested stock options to purchase shares of JHTS common stock in exchange for their Cendant stock options. Additionally, Cendant RSUs held by the Company’s employees were cancelled and converted into JHTS common stock that resulted in $2.6 million of stock-based compensation expense, of which approximately $1.0 million represents the value of shares withheld to satisfy the employees’ income and payroll tax obligation.

Stock Options

In addition to the exchange transaction, the Company incurred stock-based compensation expense of $0.7 million and $0.4 million in the three months ended January 31, 2006 and 2005, respectively, in connection with stock options granted to employees. For the nine months ended January 31, 2006 and 2005, the Company incurred such stock-based compensation expense of $1.8 million and $1.0 million, respectively.

Restricted Stock Units

The Company incurred stock-based compensation expense of $0.1 million in each of the three month periods ended January 31, 2006 and 2005, respectively, in connection with the issuance of fully vested and non-forfeitable RSUs to certain non-employee directors that are payable in shares of the Company’s common stock as a one-time distribution upon termination of services. For the nine months ended January 31, 2006 and 2005, the Company incurred such stock-based compensation expense of $0.2 million and $0.4 million, respectively.

12. SHARE REPURCHASE PROGRAMS

During the three months ended January 31, 2006, the Company paid $2.8 million, including commissions, to repurchase 115,297 shares of its common stock, which completed a $50.0 million share repurchase program that had been approved by the Company’s Board of Directors on July 5, 2005. For the nine months ended January 31, 2006, the Company paid $61.3 million, including commissions, to repurchase 2,538,197 shares of its common stock of which 500,000 shares were acquired under a previously authorized repurchase program. No repurchased shares have been retired as of January 31, 2006.

13. ACQUISITIONS AND DISPOSITIONS

During the three months ended January 31, 2006, the Company acquired five tax return preparation businesses for a total purchase price of $2.7 million, of which $1.2 million represents accrued purchase price obligations that are included in accounts payable and accrued liabilities on the Consolidated Balance Sheet as of January 31, 2006. All of the goodwill associated with acquisitions was allocated to the company-owned office operations segment.

In November 2005, the Company sold selected company-owned office operations in Texas to an existing franchisee for consideration of $0.9 million of which $0.1 million represented initial franchise fees for territory sales and $0.8 million was for the sale of the assets. As a result of the sale, the Company recognized a $0.3 million gain on sale of assets.

In October 2005, the Company sold selected company-owned office operations in Texas and Massachusetts to existing franchisees for total consideration of $2.2 million of which $0.3 million represented initial franchise fees for territory sales and $1.9 million was for the sale of the assets. As a result of the two sales, the Company recognized a $0.2 million net gain on sale of assets.

14. SEGMENT INFORMATION

The Company manages and evaluates the operating results of the business in two segments:

•

Franchise Operations — This segment consists of the operations of the Company’s franchise business, including royalty and marketing and advertising revenues, financial product fees, other financial product revenues and other revenues;

•

Company-Owned Office Operations — This segment consists of the operations of the Company’s owned offices for which the Company recognizes service revenues for the preparation of tax returns and related services.

Management evaluates the operating results of each of its reportable segments based upon revenues and income (loss) before income taxes. Intersegment transactions approximate fair market value and are not significant.


(In thousands)	Franchise Operations		Company- Owned Office Operations			Corporate and Other (a)			Total
*Three months ended January 31, 2006*
Revenues	$	65,124	$	30,031		$	—		$	95,155

Income (loss) before income taxes	$	40,995	$	11,534		$	(12,252	)	$	40,277

*Three months ended January 31, 2005*
Revenues	$	49,224	$	24,013		$	—		$	73,237

Income (loss) before income taxes	$	26,443	$	8,426		$	(6,019	)	$	28,850


(In thousands)	Franchise Operations		Company- Owned Office Operations			Corporate and Other (a)			Total
*Nine months ended January 31, 2006*
Revenues	$	79,415	$	30,873		$	—		$	110,288

Income (loss) before income taxes	$	30,079	$	45		$	(30,171	)	$	(47	)

*Nine months ended January 31, 2005*
Revenues	$	64,359	$	25,076		$	—		$	89,435

Income (loss) before income taxes	$	18,314	$	(4,402	)	$	(21,516	)	$	(7,604	)

(a)	Amounts included in income (loss) before income taxes consist of unallocated corporate overhead supporting both segments including legal, finance, human resources, real estate facilities and strategic development activities, as well as stock-based compensation, interest income and interest expense.

15. COMMITMENTS AND CONTINGENCIES

Guarantees

The Company is required to provide various types of surety bonds, such as tax preparer bonds and performance bonds, which are irrevocable undertakings by the Company to make payment in the event the Company fails to perform certain of its obligations. These bonds vary in duration although most are issued and outstanding from one to two years. As of January 31, 2006, the maximum potential payment under the aggregate outstanding surety bonds is approximately $1.9 million. Historically, no surety bonds have been drawn upon and there is no future expectation that these surety bonds will be drawn upon.

The Company provides a guarantee that could require it to make future minimum rental payments under a three-year leasing arrangement, which expires this tax season, in the event that the primary obligor does not meet its required payments. The Company has not recorded a liability on the Consolidated Balance Sheet with respect to this guarantee. As of January 31, 2006, the maximum potential payment under this arrangement totals $0.4 million. There have been no amounts paid by the Company under this arrangement in the past and there is no expectation that the Company will be required to make payment in the future.

The Company, through TSA, provides customers of company-owned offices with a guarantee in connection with the preparation of tax returns that may require it in certain circumstances to pay penalties and interest assessed by a taxing authority. The Company has recognized a liability of $0.1 million as of January 31, 2006 for the fair value of the obligation undertaken in issuing the guarantee. Such liability is included in accounts payable and accrued liabilities on the Consolidated Balance Sheet. In addition, the Company may be required to pay additional tax (or refund shortfall) assessed by a taxing authority for all customers that purchase the Company’s Gold Guarantee^® product. The Company may incur a liability to the extent that the total customer Gold Guarantee claims exceed maximum thresholds pursuant to the contract between the Company and the third party program provider. There have been no amounts paid by the Company under this arrangement in the past relating to such potential liability and the Company does not expect to be required to make payment in the future.

The transitional agreement with Cendant provides that the Company continue to indemnify Cendant and its affiliates against potential losses based on, arising out of or resulting from, among other things, claims by third parties relating to the ownership or the operation of the Company’s assets or properties and the operation or conduct of the Company’s business, whether in the past or future, including any currently pending litigation against Cendant and any claims arising out of or relating to the Company’s IPO. The only currently pending litigation against the Company and Cendant are the suits brought by Canieva Hood in Ohio and California, which are discussed below in “Legal Proceedings.” Additionally, the transitional agreement provides that the Company will be responsible for the respective tax liabilities imposed on or attributable to the Company and any of the Company’s subsidiaries relating to all taxable periods. Accordingly, the Company will indemnify Cendant and its subsidiaries against any such tax liabilities imposed on or attributable to the Company and any of the Company’s subsidiaries. While there have not been any indemnification payments by the Company under these arrangements since the Company’s IPO, there can be no assurance that the Company will not be obligated to make such payments in the future.

There was a $1.0 million letter of credit outstanding under the $250 Million Credit Facility as of January 31, 2006 as required under the Company’s lease agreement for the new corporate headquarters.

The Company routinely enters into contracts that include indemnification provisions that typically serve to protect the contracting parties from losses such parties suffer as a result of acts or omissions of the Company and/or its affiliates, including in particular indemnity obligations relating to (a) tax, legal and other risks related to the purchase of businesses; (b) indemnification of the Company’s directors and officers; (c) indemnities of various lessors in connection with facility leases for certain claims arising from such facility or lease; and (d) third-party claims, including those from franchisees, relating to various arrangements in the normal course of business. Typically, there is no stated maximum payment related to these indemnities, and the term of indemnities may vary and in many cases is limited only by the applicable statute of limitations. The likelihood of any claims being asserted against the Company and the ultimate liability related to any such claims, if any, is difficult to predict. While there have not been any indemnification payments by JHTS under these arrangements in the past, there can be no assurance that the Company will not be obligated to make such payments in the future.

Legal Proceedings

On August 27, 2002, a plaintiff group comprising of 154 franchisees filed an action against SBB&T and the Company in the Superior Court of New Jersey, Morris

County. The suit alleged, among other things, that the Company breached an agreement with the plaintiffs by not paying them a portion of surpluses in RAL loss reserves. The plaintiffs sought a declaratory judgment, an accounting, payment of an incentive rebate, unspecified compensatory and punitive damages, treble damages and attorneys’ fees. By an order dated December 6, 2002, the court dismissed the conversion and fraud counts of the complaint with prejudice. The plaintiffs filed an amended complaint on March 17, 2003. The parties submitted the matter to mediation in July 2003, which resulted in a settlement in which the Company agreed, among other things, to make a $2.0 million cash payment, spend an additional $2.0 million on regional advertising from 2004 through 2006, pay additional rebates to franchisees of up to $3.00 per RAL processed during the 2004 through 2006 tax seasons, subject to performance criteria, and implement a temporary royalty fee reduction program for certain new franchise offices. On December 19, 2003, the court issued a ruling enforcing the settlement and dismissed the action with prejudice. Accordingly, a $10.4 million charge was recognized in fiscal 2004. As of January 31, 2006, the Company has made cash payments of $7.2 million towards the litigation settlement. As of January 31, 2006, the Company’s litigation settlement accrual of $2.7 million is included in accounts payable and accrued liabilities on the Consolidated Balance Sheet.

As of January 31, 2006, 152 plaintiffs in the action have executed the settlement agreement. One plaintiff has appealed the enforcement order of December 19, 2003. On May 17, 2005, the Superior Court of New Jersey Appellate Division reversed the trial court’s December 19, 2003 ruling as to the one who appealed, and remanded for further proceedings. The Company has filed a petition for certification with the New Jersey Supreme Court, which was granted on July 20, 2005. The decision of the New Jersey Supreme Court is currently pending.

On or about April 4, 2003, Canieva Hood and Congress of California Seniors brought a purported class action suit against SBB&T and the Company in the Superior Court of California (San Francisco), subsequently adding Cendant, in the Superior Court of California (Santa Barbara, following a transfer from San Francisco) in connection with the provision of RALs, seeking declaratory relief as to the lawfulness of the practice of cross-lender debt collection, the validity of SBB&T’s cross-lender debt collection provision and whether the method of disclosure to customers with respect to the provision is unlawful or fraudulent. The Company was joined in the action for allegedly collaborating, and aiding and abetting, in the actions of SBB&T. The Company filed a demurrer and subsequently answered the amended complaint, denying any liability. The Court has granted a motion to dismiss SBB&T and other banks who are third-party defendants on the ground that the claims are preempted by federal law. Plaintiffs have appealed that decision. The Court has stayed all other proceedings, pending appeal. The Company believes it has meritorious defenses and is contesting this matter vigorously. Ms. Hood has also filed a separate suit against the Company and Cendant on December 18, 2003 in the Ohio Court of Common Pleas (Montgomery County) and is seeking to certify a class in the action. Plaintiff subsequently voluntarily dismissed Cendant from this action. The allegations relate to the same set of facts as the California action. The Company filed a motion to stay or dismiss, which was denied, and subsequently answered the Complaint, denying any liability. The case is in its discovery and pretrial stage. The Company has filed a motion to stay the action, or in the alternative to add SBB&T as a third-party defendant, pending a decision in the California appeal. A decision by the Court is currently pending. The Company believes it has meritorious defenses and is contesting this matter vigorously.

On June 18, 2004, Myron Benton brought a purported class action against SBB&T and the Company in the Supreme Court of the State of New York (County of New York) in connection with disclosures made in connection with the provision of RALs, alleging that the disclosures and related practices are fraudulent and otherwise unlawful, and seeking equitable and monetary relief. The Company filed a motion to dismiss that complaint. In response, Benton withdrew his original complaint and filed an amended complaint on January 3, 2005. The Company filed a motion for summary judgment and the plaintiff filed a cross-motion for summary judgment, both of which are currently pending. While this matter is at a preliminary stage, the Company believes it has meritorious defenses and is contesting this matter vigorously.

On December 23, 2005, Pierre Brailsford and Kevin Gilmore brought a purported class action against the Company in the Superior Court of California, Alameda County in connection with disclosures made in connection with the provision of RALs, alleging that the disclosures and related practices are fraudulent and otherwise unlawful, and seeking equitable and monetary relief. The Company removed the action to federal court and subsequently filed a motion to dismiss the complaint. While this matter is at a preliminary stage, the Company believes it has meritorious defenses and is contesting this matter vigorously.

In March 2003, the Attorney General’s Office of the State of California (“California Attorney General”) initiated an inquiry into the Company’s business practices. The Company has voluntarily provided information requested by the California Attorney General about industry practices in general and our practices specifically. The California Attorney General has expressed concerns that certain business practices may violate law, which include, but are not limited to, the manner in which services are marketed, and financial products are facilitated. The Company believes that it has substantial defenses to any potential claims by the California Attorney General, however, in order to avoid protracted and potentially costly legal proceedings, the Company has recently engaged in settlement discussions with the California Attorney

General. The Company believes that it will be able to reach a settlement with the California Attorney General that will not have a material adverse effect on the Company’s business, financial condition and results of operations. There can be no assurance that the Company’s efforts to resolve the California Attorney General’s inquiry will be successful, or that the amount reserved will be sufficient, and the Company cannot predict the timing or the final terms of any settlement.

The Company is from time to time subject to other legal proceedings and claims in the ordinary course of business, none of which the Company believes are likely to have a material adverse effect on the Company’s financial position, results of operations or cash flows. However, there can be no assurance that such litigation or claims, or any future litigation or claims, will not have a material adverse effect on the Company’s financial position, results of operations or cash flows.

16. SUBSEQUENT EVENTS

Declaration of Dividend

On March 10, 2006, the Company’s Board of Directors declared a quarterly cash dividend of $0.08 per share of common stock, payable on April 14, 2006, to common stockholders of record on March 28, 2006.

New Financial Product Agreements

On February 24, 2006, the Company entered into program agreements (the “Program Agreements”) with HSBC Taxpayer Financial Services Inc. (“HSBC”) and SBB&T. Under the Program Agreements, each financial institution has the right to offer, process and administer certain refund-based financial products to customers of certain of the Company’s franchised and company-owned offices. Each financial institution pays the Company a fixed annual fee as compensation for being granted access to the Company’s customers, and the Company’s provision of other related services.

In connection with the Program Agreements, the Company also entered into technology agreements (the “Technology Agreements” and, together with the Program Agreements, the “Agreements”) with each financial institution, pursuant to which the Company provides certain technology-related services to the financial institutions in support of the financial institutions’ offering and administration of financial products. Under the Technology Agreements, the Company receives a fixed annual fee payment from each financial institution, as well as a potential variable payment tied to growth in the programs administered by the financial institutions under the Program Agreements.

The Agreements were deemed effective as of January 2, 2006 and were applicable for tax season 2006 and all related periods. The agreements with HSBC will expire on October 31, 2007. The agreements with SBB&T will expire on October 31, 2008.

In the three months ended January 31, 2006, the Company recognized $15.3 million of financial product fees under the prior agreements with the financial institutions. Revenues will be recognized in the fourth quarter of fiscal 2006 to account for differences between the prior and new agreements. The Company expects to recognize revenues as financial product fees earned under the combined new Agreements in both the third and fourth quarter of each year on a mostly pro rata basis as financial products are facilitated. Additionally, in the fourth quarter the Company will reverse the $11.8 million in deferred revenues on the Consolidated Balance Sheet as of January 31, 2006 as it relates to the prior agreement with SBB&T.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion may be understood more fully by reference to the Consolidated Financial Statements, Notes to the Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on July 29, 2005.

FORWARD-LOOKING STATEMENTS

Certain statements in this report, including but not limited to those contained in “Part I. Item 1—Consolidated Financial Statements” and notes thereto, “Part I. Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Part II. Item 1—Legal Proceedings” and included in this report are “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the financial condition, results of operations, cash flows, plans, objectives, future performance and business of Jackson Hewitt Tax Service Inc. (“JHTS”), including our ability to meet estimates regarding the opening of new offices and the sale of new territories. All statements in this report, other than statements that are purely historical, are forward-looking statements. Forward-looking statements include statements preceded by, followed by or that otherwise include the words “believes”, “expects”, “anticipates”, “intends”, “projects”, “estimates”, “plans”, “may increase”, “may fluctuate” and similar expressions or future or conditional verbs such as “will”, “should”, “would”, “may” and “could.” These forward-looking statements involve risks and uncertainties.

Actual results may differ materially from those contemplated (expressed or implied) by such forward-looking statements, because of, among other things, the following potential risks and uncertainties: our ability to achieve the same level of growth in revenues and profits that we have in the past; government initiatives that simplify tax return preparation, improve the timing and efficiency of processing tax returns or decrease the number of tax returns filed or the size of the refunds; government legislation and regulation of the tax preparation industry and related products and services offered or facilitated, including refund anticipation loans (“RALs”); our exposure to litigation; our ability to protect our customers’ personal information; the success of our franchised offices; our responsibility to third parties for the acts of our franchisees; disruptions in our relationships with our franchisees; changes in our relationships with financial product providers that could affect our ability to facilitate the sale of financial products; changes in our relationships with retailers that could affect our growth and profitability; seasonality of our business and its effect on our stock price; competition from other tax return preparation service providers; our ability to offer innovative new products and services; our reliance on electronic communications to perform the core functions of our business; our reliance on cash flow from subsidiaries; our compliance with revolving credit facility covenants; our exposure to increases in prevailing market interest rates; the effect of market conditions, general conditions in the tax return preparation industry or general economic conditions; and changes in accounting policies or practices.

Other factors and assumptions not identified above were also involved in the derivation of these forward-looking statements, and the failure of such other assumptions to be realized as well as other factors may also cause actual results to differ materially from those projected. Most of these factors are difficult to predict accurately and are generally beyond our control. As a result of these factors, no assurance can be given as to our future results and achievements. Accordingly, a forward-looking statement is neither a prediction nor a guarantee of future events or circumstances, and those future events or circumstances may not occur. You should not place undue reliance on the forward-looking statements, which speak only as of the date of this report. Readers should also consult the cautionary statements and risk factors listed in our Annual Report on Form 10-K for the year ended April 30, 2005 and our other public filings with the SEC. Copies are available from the SEC or JHTS website. We assume no obligation, and we expressly disclaim any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise.

OVERVIEW

We manage and evaluate the operating results of our business in two segments:

•

Franchise operations: This segment consists of the operations of our franchise business, including royalty and marketing and advertising revenues, financial product fees, other financial product revenues and other revenues.

•

Company-owned office operations: This segment consists of the operations of our company-owned offices for which we recognize service revenues for the preparation of tax returns and related services.

JHTS is the second largest paid tax return preparer in the United States based on the number of individual tax returns filed by paid preparers. As of January 31, 2005, we operated a nationwide network comprised of 5,366 franchised offices and 647 company-owned offices under the Jackson Hewitt Tax Service^{^®} brand. During the three months ended January 31, 2006, our network filed 1.3 million tax returns, an increase of 19% as compared to the same period last year. We generate revenues from fees paid by our franchisees, service revenues earned at company-owned offices and revenues earned in connection with our facilitation of the sale of financial products. “JHTS,” “we,” “our,” and “us,” are used interchangeably to refer to Jackson Hewitt Tax Service Inc. and its subsidiaries, appropriate to the context.

Separation from Cendant Corporation and Related Party Transactions

On June 25, 2004, Cendant Corporation (“Cendant”) divested 100% of its ownership interest in us through an initial public offering (“IPO”). Upon completion of our IPO, we entered into a transitional agreement with Cendant to provide for an orderly transition to being an independent company and to govern the continuing arrangements between us and Cendant. We also entered into a sublease agreement for our corporate headquarters in Parsippany, New Jersey, which expired in September 2005, and a sublease assignment and assumption agreement for our technology facility in Sarasota, Florida. We pay rent directly to the landlord of the Sarasota facility as a sublessee under Cendant’s lease, which expires in May 2006. Our rental expense under these agreements was $0.1 million and $0.4 million for the three months ended January 31, 2006 and 2005, respectively. For the nine months ended January 31, 2006 and 2005, such rental expense was $0.9 million and $1.1 million, respectively.

On May 1, 2005, we entered into a new lease with a different lessor for office space located in Parsippany and in September 2005, we relocated our corporate headquarters to this office space. The lease expires in October 2012. Annual base rental expense is $1.2 million.

On November 17, 2005, we entered into a new lease with a different lessor for office space located in Sarasota. We plan to relocate our current technology facility to this office space in the first quarter of fiscal 2007. The lease expires in June 2014. Annual base rental expense will be $0.7 million.

Under the transitional agreement, Cendant provided us with various services, including services relating to facilities, human resources and employee benefits, payroll, financial systems management, treasury and cash management, accounts payable services, tax support, event marketing, revenue audit services, public and regulatory affairs, telecommunications services, information technology services and call support services. The transitional agreement also contains provisions relating to indemnification, tax sharing and tax indemnification, access to information and non-solicitation of employees.

Excluding rental expense disclosed above, we incurred an aggregate of $0.2 million and $0.8 million of expenses related to such transitional and other related agreements with Cendant for the three months ended January 31, 2006 and 2005, respectively. For the nine months ended January 31, 2006 and 2005, such costs were $1.3 million and $1.8 million, respectively.

Under the transitional agreement, the cost of each transitional service generally reflects the same payment terms and is calculated using the same cost allocation methodologies for the particular service as those associated with the costs reported in our historical Consolidated Financial Statements prior to our IPO. The transitional agreement was negotiated in the context of a parent-subsidiary relationship. The provisions of many of the services were transitioned at similar costs to those allocated by Cendant historically. There are no fixed or minimum contractual purchase obligations under the transitional agreement and other related agreements.

We have completed most transition arrangements with Cendant and are now predominantly operational on our own systems and infrastructure. We have completed the implementation of our own back office systems, including human resources and employee benefits, payroll, financial systems management, treasury and cash management, accounts payable, tax support and public and regulatory affairs. On June 30, 2005, we entered into a five-year agreement with a service provider at a cost of $0.7 million annually to provide information technology support services. Such services provided by Cendant under the transitional agreement were terminated as of September 30, 2005. Also, on September 30, 2005, Cendant discontinued providing revenue audit services to us. We are currently looking at various alternatives to replace the revenue audit services.

Remaining transitional services from Cendant are as follows:

•

Telecommunications services: Cendant will continue to provide us with telecommunications services under the transitional agreement until June 30, 2007. Both Cendant and we may terminate the provision of these services, without penalty, upon 180 days written notice by the terminating party.

•

Call support services: Cendant will continue to provide us with call support services under the transitional agreement until December 31, 2006.

•

Event marketing services: Cendant will continue to provide us with event marketing services under the transitional agreement until December 31, 2006.

Prior Period Financial Statements

Our unaudited consolidated statements of operations and cash flows for the nine months ended January 31, 2005 reflect the historical results of operations and cash flows of our business from May 1, 2004 through our IPO date divested by Cendant in our IPO. As a result, the accompanying Consolidated Financial Statements may not necessarily reflect our results of operations and cash flows in the future or what our results of operations and cash flows would have been had we been a stand-alone public company during the entire period in fiscal 2005.

Key Trends Affecting Our Results

Our revenues have grown significantly over the past three fiscal years achieved, in part, through rapidly establishing offices in areas with large markets for our services. The following is a summary of the key trends that currently affect our results. Please also see “Forward-Looking Statements” for a discussion of potential risks and uncertainties facing our business.

•

Seasonality of Revenues and Results of Operations — Given the seasonal nature of the tax preparation business, we have historically generated and expect to generate substantially all of our revenues during the tax season period from January through April of each year, which overlaps our third and fourth fiscal quarters. During fiscal 2005, we generated approximately 91% of our revenues during this four-month period. We historically operate at a loss through the first eight months of each fiscal year, during which we incur costs primarily associated with preparing for the upcoming tax season.

•

Franchise Business Model — A majority of our revenues are derived from our franchise system, which has increased significantly over the past three fiscal years. Our franchise business model enables us to grow more quickly with less capital investment and lower operating expenses than if we directly operated all of the offices in our network. The franchise business model has an inherently higher profit margin than our company-owned offices, as our existing infrastructure permits additional franchise growth without significant additional fixed cost investment.

New Financial Product Agreements

On February 24, 2006, we entered into program agreements (the “Program Agreements”) with HSBC Taxpayer Financial Services Inc. (“HSBC”) and SBB&T. Under the Program Agreements, each financial institution has the right to offer, process and administer certain refund-based financial products to customers of certain of our franchised and company-owned offices. Each financial institution pays us a fixed annual fee as compensation for being granted access to our customers, and our provision of other related services.

In connection with the Program Agreements, we also entered into technology agreements (the “Technology Agreements” and, together with the Program Agreements, the “Agreements”) with each financial institution, pursuant to which we provide certain technology-related services to the financial institutions in support of the financial institutions’ offering and administration of financial products. Under the Technology Agreements, we receive a fixed annual fee payment from each financial institution, as well as a potential variable payment tied to growth in the programs administered by the financial institutions under the Program Agreements.

For fiscal 2006 we expect total revenues under the new Agreements to be between $60 and $62 million. In the three months ended January 31, 2006, we recognized $15.3 million of financial product fees under the prior agreements with the financial institutions. Revenues will be recognized in the fourth quarter of fiscal 2006 to account for differences between the prior and new agreements. We expect to recognize revenues as financial product fees earned under the combined new Agreements in both the third and fourth quarter of each year on a mostly pro rata basis as financial products are facilitated. Additionally, in the fourth quarter we will reverse the $11.8 million in deferred revenues on the Consolidated Balance Sheet as of January 31, 2006 as it relates to the prior agreement with SBB&T.

Had the new Agreements been executed on January 2, 2006, we would have recognized $26.0 million of financial product fees under the new Agreements during the three months ended January 31, 2006.

RESULTS OF OPERATIONS

Our consolidated results of operations are set forth below and are followed by a more detailed discussion of each of our business segments, as well as a detailed discussion of certain corporate and other expenses.

Consolidated Results of Operations


	Three Months Ended January 31,						Nine Months Ended January 31,
	2006			2005			2006			2005
	(in thousands)						(in thousands)
Revenues
Franchise operations revenues:
Royalty	$	29,262		$	20,197		$	30,589		$	21,186
Marketing and advertising		13,318			9,414			13,930			9,869
Financial product fees		17,197			13,673			21,179			16,863
Other financial product revenues		1,409			2,277			5,518			8,117
Other		3,938			3,663			8,199			8,324
Service revenues from company-owned office operations		30,031			24,013			30,873			25,076

Total revenues		95,155			73,237			110,288			89,435

Expenses
Cost of franchise operations		6,800			6,577			21,303			19,875
Marketing and advertising		16,787			14,977			22,642			20,175
Cost of company-owned office operations		14,921			12,107			24,064			21,646
Selling, general and administrative		11,576			6,209			26,696			22,896
Depreciation and amortization		2,859			2,850			8,242			8,647

Total expenses		52,943			42,720			102,947			93,239

Income (loss) from operations		42,212			30,517			7,341			(3,804	)
Other income/(expense):
Interest income		508			355			1,433			739
Interest expense		(2,747	)		(2,022	)		(6,664	)		(4,539	)
Write-off of deferred financing costs		—			—			(2,677	)		—
Gain on sale of assets, net		304			—			520			—

Income (loss) before income taxes		40,277			28,850			(47	)		(7,604	)
Provision for (benefit from) income taxes		15,810			11,304			(19	)		(2,980	)

Net income (loss)	$	24,467		$	17,546		$	(28	)	$	(4,624	)

The table below presents selected key operating statistics for our franchise and company-owned office operations.


	Three Months Ended January 31,				Nine Months Ended January 31,
	2006		2005		2006		2005
Offices:
Franchise operations		5,366		4,826		5,366		4,826
Company-owned office operations		647		621		647		621

Total offices - system		6,013		5,447		6,013		5,447

Tax returns prepared (in thousands):
Franchise operations		1,193		988		1,249		1,038
Company-owned office operations		150		140		154		145

Total tax returns prepared - system		1,343		1,128		1,403		1,183

Average revenues per tax return prepared:
Franchise operations (1)	$	186.02	$	158.61	$	185.85	$	158.27

Company-owned office operations (2)	$	200.29	$	171.70	$	200.51	$	172.74

Average revenues per tax return prepared - system	$	187.61	$	160.24	$	187.46	$	160.05


Financial products (in thousands) (3)		1,262		999		1,284		1,030


Average financial product fees per financial product (4)	$	13.63	$	13.69	$	16.50	$	16.37

_________ (1) Calculated as total revenues earned by our franchisees, which does not represent revenues earned by us, divided by the number of tax returns prepared by our franchisees (see calculation below). We earn royalty and marketing and advertising revenues, which represent a percentage of the revenues received by our franchisees. (2) Calculated as tax preparation revenues and related fees earned by company-owned offices (as reflected in the Consolidated Statements of Operations) divided by the number of tax returns prepared by company-owned offices. (3) Consists of refund-based financial products and Gold Guarantee products. (4) Calculated as revenues earned from financial product fees (as reflected in the Consolidated Statements of Operations) divided by the number of financial products facilitated.

Calculation of average revenues per tax return prepared in Franchise Operations:

(dollars in thousands, except per tax return data)	Three Months Ended January 31,				Nine Months Ended January 31,
	2006		2005		2006		2005
Total revenues earned by our franchisees (A)	$	221,965	$	156,750	$	232,113	$	164,238


Average royalty rate (B)		13.18%		12.88%		13.18%		12.90%
Marketing and advertising rate (C)		6.00%		6.00%		6.00%		6.00%

Combined royalty and marketing and advertising rate (B plus C)		19.18%		18.88%		19.18%		18.90%


Royalty revenues (A times B)	$	29,262	$	20,197	$	30,589	$	21,186
Marketing and advertising revenues (A times C)		13,318		9,414		13,930		9,869

Total royalty and marketing and advertising revenues	$	42,580	$	29,611	$	44,519	$	31,055


Number of tax returns prepared by our franchisees (D)		1,193		988		1,249		1,038


Average revenues per tax return prepared by our franchisees (A divided by D)	$	186.02	$	158.61	$	185.85	$	158.27

Amounts may not recalculate precisely due to rounding differences.

Three Months Ended January 31, 2006 as Compared to Three Months Ended January 31, 2005

Total Revenues

Total revenues increased $21.9 million, or 30%, primarily due to the increase of 19% in the number of tax returns prepared in our network as well as due to the increase of 17% in the average revenues per tax return prepared in our network. The number of tax returns prepared increased primarily due to strong same stores sales growth and the expansion of our network as total number of offices increased 10%. Additionally, the inclusion of an extra weekday at the end of January in the current year as compared to last year contributed 13 percentage points to the growth (i.e. 6% “day over day” growth). Average revenues per tax return prepared increased primarily as a result of annual price increases, enhanced product offerings and increased financial product penetration and increased complexity of tax returns prepared.

Financial product fees increased $3.5 million, or 26%, primarily due to a 26% increase in the number of financial products facilitated by our network as a result of the increase in the number of tax returns prepared and increase in financial product penetration rates.

Please see Franchise Results of Operations and Company-Owned Office Results of Operations for additional highlights.

Total Expenses

Total expenses increased $10.2 million, or 24%. The more notable highlights with respect to expenses incurred were as follows:

Cost of franchise operations: Cost of franchise operations increased $0.2 million, or 3%, due to the growth in our Gold Guarantee program during the 2005 tax season as expense from the Gold Guarantee product is charged ratably over the product’s 36-month life.

Marketing and advertising: Marketing and advertising expenses increased $1.8 million, or 12%, in line with anticipated tax return growth.

Cost of company-owned office operations: Cost of company-owned office operations increased $2.8 million, or 23%, primarily due to higher labor and facilities expenses incurred to support the growth in the segment.

Selling, general and administrative: Selling, general and administrative increased $5.4 million, or 86%, due to higher expenses in the following areas: (i) $4.1 million in legal and potential settlement-related expenses; (ii) $0.3 million in Sarbanes-Oxley compliance costs; (iii) $0.3 million in stock-based compensation due to additional stock options granted; and (iv) $0.7 million in other miscellaneous expenses primarily due to increased personnel and other administrative expenses.

Other Income/(Expense)

Please see Corporate and Other for the highlights regarding interest income, interest expense and write-off of deferred financing costs. Additionally, we recognized a $0.3 million net gain on sale of assets relating to the sale of company-owned operations in Texas to an existing franchisee.

Nine Months Ended January 31, 2006 as Compared to Nine Months Ended January 31, 2005

Total Revenues

Total revenues increased $20.9 million, or 23%, primarily due to the increase of 19% in the number of tax returns prepared in our network as well as due to the increase of 17% in the average revenues per tax return prepared in our network. The number of tax returns prepared and average revenues per tax return both increased primarily due to the same reasons discussed in the three month comparison.

Financial product fees increased $4.3 million, or 26%, primarily due to a 25% increase in the number of financial products facilitated by our network as a result of the increase in the number of tax returns prepared and increase in financial product penetration rates. Also contributing to the increase in such revenues was an increase of $1.6 million due to the growth in our Gold Guarantee program during the 2005 tax season as revenues from our Gold Guarantee product are recognized ratably over the product’s 36-month life.

Please see Franchise Results of Operations and Company-Owned Office Results of Operations for additional highlights.

Total Expenses

Total expenses increased $9.7 million, or 10%. The more notable highlights with respect to expenses incurred were as follows:

Cost of franchise operations: Cost of franchise operations increased $1.4 million, or 7%, primarily due to the growth in our Gold Guarantee program.

Marketing and advertising: Marketing and advertising expenses increased $2.5 million, or 12%, in line with anticipated tax return growth.

Cost of company-owned office operations: Costs of company-owned office operations increased $2.4 million, or 11%, primarily due to higher labor and facilities expenses incurred to support the growth in the segment.

Selling, general and administrative: Selling, general and administrative increased $3.8 million, or 17%, due to higher expenses in the following areas: (i) $4.6 million in legal and potential settlement-related expenses; (ii) $1.0 million in Sarbanes-Oxley compliance costs; (iii) $0.6 million in on-going stock-based compensation due to just over seven months of such costs subsequent to our IPO in June 2004 and additional stock options granted in the current period; (iv) $0.5 million in rental expense primarily due to duplicate rental costs for our corporate headquarters as rental expense was recorded beginning at inception of our new corporate headquarters lease which was several months prior to our occupancy; and (v) $1.6 million in other miscellaneous expenses primarily due to increased personnel and other administrative expenses. Included in the nine months ended January 31, 2005 was a stock-based compensation charge of $4.5 million related to the issuance to our employees of vested stock options and shares of common stock in exchange for Cendant stock options and restricted stock units that were held by our employees prior to our IPO.

Other Income/(Expense)

Please see Corporate and Other for the highlights regarding interest income, interest expense and the write-off of deferred financing costs. Additionally, we recognized a $0.5 million net gain on sale of assets relating to the sale of company-owned operations in Texas and Massachusetts to existing franchisees.

Segment Results and Corporate and Other

Franchise Operations

Results of Operations


	Three Months Ended January 31,				Nine Months Ended January 31,
	2006		2005		2006		2005
	(in thousands)				(in thousands)
Revenues
Royalty	$	29,262	$	20,197	$	30,589	$	21,186
Marketing and advertising		13,318		9,414		13,930		9,869
Financial product fees		17,197		13,673		21,179		16,863
Other financial product revenues		1,409		2,277		5,518		8,117
Other		3,938		3,663		8,199		8,324

Total revenues		65,124		49,224		79,415		64,359

Expenses
Cost of operations		6,800		6,577		21,303		19,875
Marketing and advertising		14,485		13,239		19,758		17,877
Selling, general and administrative		1,114		1,412		2,953		3,360
Depreciation and amortization		2,204		1,896		6,251		5,647

Total expenses		24,603		23,124		50,265		46,759

Income from operations		40,521		26,100		29,150		17,600
Other income/(expense):
Interest income		474		343		929		714

Income before income taxes	$	40,995	$	26,443	$	30,079	$	18,314

Three Months Ended January 31, 2006 as Compared to Three Months Ended January 31, 2005

Total Revenues

Total revenues increased $15.9 million, or 32%, primarily due to the increase of 21% in the number of tax returns prepared as well as due to the increase of 17% in the average revenues per tax return prepared. The number of tax returns prepared increased primarily due to strong same stores sales growth and the expansion of the franchise operations segment as total number of offices increased 11%. Additionally, the inclusion of an extra weekday at the end of January in the current year as compared to last year contributed to the increase. Average revenues per tax return prepared increased primarily as a result of annual price increases, enhanced product offerings, increased financial product penetration and increased complexity of tax returns prepared. Additional highlights with respect to revenues earned were as follows:

Royalty and marketing and advertising: Royalty revenues increased $9.1 million, or 45%, and marketing and advertising revenues increased $3.9 million, or 41%, both primarily due to the increase in total revenues earned by our franchisees. In addition, in the third quarter we benefited from an increase in the average royalty rate we earn, which was 13.2% as compared to 12.9% in the same quarter last year as the segment included more territories at the 15% royalty fee rate.

Financial product fees: Financial product fees increased $3.5 million, or 26% The number of financial products facilitated increased 26% to 1.3 million, primarily due to the increase in the number of tax returns prepared and an increase in the financial product attachment rate. Offsetting the increase was a decrease in revenues of $0.5 million related to our debit card product

Other financial product revenues: Other financial product revenues decreased $0.9 million, or 38%, primarily due to lower collections attributable to our agreement with SBB&T.

Other revenues: Other revenues increased $0.3 million, or 8%, primarily due to higher revenues in the following areas: (i) $0.6 million in fees for electronically-transmitted tax returns; (ii) $0.1 million in commissions earned from vendors in connection with goods and services purchased by our franchisees; and (iii) $0.1 million in initial franchisee fees for territory sales to an existing franchisee of selected company-owned office operations in Texas. These increases were partially offset by a $0.7 million decrease in revenues related to a reduction in territory sales of 21 as 41 territories were sold in the current quarter.

Total Expenses

Total expenses increased $1.5 million, or 6%. The more notable highlights with respect to expenses incurred were as follows:

Cost of operations: Cost of operations increased $0.2 million, or 3%, due to the growth in our Gold Guarantee program during the 2005 tax season.

Marketing and advertising: Marketing and advertising expenses increased $1.2 million, or 9%, in line with anticipated tax return growth.

Selling, general and administrative: Selling, general and administrative decreased $0.3 million, or 21%, primarily due to decrease in sales commission expense as a result of fewer territory sales during the quarter.

Nine Months Ended January 31, 2006 as Compared to Nine Months Ended January 31, 2005

Total Revenues

Total revenues increased $15.1 million, or 23%, primarily due to the increase of 20% in the number of tax returns prepared as well as due to the increase of 17% in the average revenues per tax return prepared. The number of tax returns prepared and average revenues per tax return both increased primarily due to the same reasons discussed in the three month comparison. Additional highlights with respect to revenues earned were as follows:

Royalty and marketing and advertising: Royalty revenues increased $9.4 million, or 44%, and marketing and advertising revenues increased $4.1 million, or 41%, primarily due to the increase in total revenues earned by our franchisees. In addition, in the current period we benefited from an increase in the average royalty rate we earn, which was 13.2% as compared to 12.9% in the same period last year.

Financial product fees: Financial product fees increased $4.3 million, or 26%. The number of financial products facilitated increased 25% to 1.3 million, primarily due to the increase in the number of tax returns prepared and an increase in the financial product attachment rate. Also contributing to the overall increase in such revenues was an increase of $1.6 million due to the growth in our Gold Guarantee program during the 2005 tax season as revenues from our Gold Guarantee product are recognized ratably over the product’s 36-month life. Offsetting the increase was a decrease in revenues of $0.5 million related to our debit card product.

Other financial product revenues: Other financial product revenues decreased $2.6 million, or 32%, primarily due to lower collections attributable to our agreement with SBB&T.

Other revenues: Other revenues decreased $0.1 million, or 2%, primarily due to lower revenues of $1.2 million related to a reduction in territory sales of 28 as 174 territories were sold in the current period partially offset by higher revenues of $0.6 million in fees for electronically-transmitted tax returns and $0.5 million in initial franchisee fees for territory sales to existing franchisees of selected company-owned office operations in Texas and Massachusetts.

Total Expenses

Total expenses increased $3.5 million, or 7%. The more notable highlights with respect to expenses incurred were as follows:

Cost of operations: Cost of operations increased $1.4 million, or 7%, primarily due to the growth in our Gold Guarantee program during the 2005 tax season.

Marketing and advertising: Marketing and advertising expenses increased $1.9 million, or 11%, in line with anticipated tax return growth.

Selling, general and administrative: Selling, general and administrative decreased $0.4 million, or 12%, primarily due to decrease in sales commission expense as a result of fewer territory sales during the period.

Company-Owned Office Operations

Results of Operations


	Three Months Ended January 31,				Nine Months Ended January 31,
	2006		2005		2006			2005
	(in thousands)				(in thousands)
Revenues
Service revenues from operations	$	30,031	$	24,013	$	30,873		$	25,076

Expenses
Cost of operations		14,921		12,107		24,064			21,646
Marketing and advertising		2,302		1,738		2,884			2,298
Selling, general and administrative		923		800		2,409			2,559
Depreciation and amortization		655		954		1,991			3,000

Total expenses		18,801		15,599		31,348			29,503

Income (loss) from operations		11,230		8,414		(475	)		(4,427	)
Other income/(expense):
Interest income		—		12		—			25
Gain on sale of assets, net		304		—		520			—

Income (loss) before income taxes	$	11,534	$	8,426	$	45		$	(4,402	)

Three Months Ended January 31, 2006 as Compared to Three Months Ended January 31, 2005

Service revenues from operations increased $6.0 million, or 25%, primarily due to the increase of 7% in the number of tax returns prepared as well as an increase of 17% in the average revenues per tax return prepared. The number of tax returns prepared increased primarily due to a 4% increase in the total number of offices in existing, but under penetrated, territories. Additionally, the inclusion of an extra weekday at the end of January in the current year offset the decline in the number of tax returns attributable to the sale of operations in Texas and Massachusetts to existing franchisees. Average revenues per tax return prepared increased primarily as a result of annual price increases, enhanced product offerings, increased financial product penetration and increased complexity of tax returns prepared.

Total expenses increased $3.2 million, or 21%, primarily due to increases of $2.8 million in cost of operations primarily due to higher labor and facilities expenses incurred to support the growth in offices and $0.6 million in marketing and advertising expenses in line with anticipated tax return growth. Offsetting the increase was a decrease in depreciation and amortization of $0.3 million. Additionally, we recognized a $0.3 million net gain on sale of assets relating to the sale of operations in Texas to an existing franchisee.

Nine Months Ended January 31, 2006 as Compared to Nine Months Ended January 31, 2005

Service revenues from operations increased $5.8 million, or 23%, primarily due to the increase of 6% in the number of tax returns prepared as well as due an increase of 16% in the average revenues per tax return prepared. The number of tax returns prepared and average revenues per tax return prepared both increased primarily due to the same reasons discussed in the three month comparison.

Total expenses increased $1.8 million, or 6%. Cost of operations and marketing and advertising expenses increased due to the same reasons discussed in the three month comparison. Offsetting the increase was a recovery of $0.6 million of previously written-off receivables and a decrease in depreciation and amortization of $1.0 million primarily due to certain equipment becoming fully depreciated since January 31, 2005. Additionally, we recognized a $0.5 million net gain on sale of assets relating to the sale of operations in Texas and Massachusetts to existing franchisees.

Corporate and Other

Corporate and other expenses consist of unallocated corporate overhead supporting both segments, including legal, finance, human resources, real estate facilities and strategic development activities, as well as stock-based compensation, interest income and interest expense.


	Three Months Ended January 31,						Nine Months Ended January 31,
	2006			2005			2006			2005
	(in thousands)						(in thousands)
Expenses (a)
General and administrative	$	9,539		$	3,997		$	21,334		$	12,469
Stock-based compensation related to our IPO		—			—			—			4,508

Total expenses		9,539			3,997			21,334			16,977

Other income/(expense):
Interest income		34			—			504			—
Interest expense		(2,747	)		(2,022	)		(6,664	)		(4,539	)
Write-off of deferred financing costs		—			—			(2,677	)		—

Loss before income taxes	$	(12,252	)	$	(6,019	)	$	(30,171	)	$	(21,516	)

(a)	Included in selling, general and administrative in the Consolidated Statements of Operations.

Three Months Ended January 31, 2006 as Compared to Three Months Ended January 31, 2005

Corporate and other total expenses, excluding other income/(expense), increased $5.5 million due to higher expenses in the following areas: (i) $4.1 million in legal and potential settlement-related expenses; (ii) $0.3 million in stock-based compensation due to additional stock options granted; (iii) $0.3 million in Sarbanes-Oxley compliance; and (iv) $0.8 million in other miscellaneous costs primarily due to increased personnel and other administrative costs.

Other income/(expense)

Interest expense: Interest expense increased $0.7 million, or 36%, primarily due to the effect of rising market interest rates on our outstanding floating-rate debt. This increase was partially offset by a decrease in the amortization of deferred financing costs primarily due to the write-off in the first quarter of fiscal 2006 of deferred financing costs associated with the repayment of five-year floating-rate senior unsecured notes (“$175 Million Notes”) and the termination of our $100.0 million five-year revolving credit facility (the “$100 Million Credit Facility”).

Nine Months Ended January 31, 2006 as Compared to Nine Months Ended January 31, 2005

Corporate and other total expenses, excluding other income/(expense), increased $4.4 million, or 26%, due to higher expenses in the following areas: (i) $4.6 million in legal and potential settlement-related expenses; (ii) $1.0 million in Sarbanes-Oxley compliance; (iii) $0.6 million in on-going stock-based compensation due to just over seven months of such costs subsequent to our IPO in June 2004 and additional stock options granted in the current period; (iv) $0.5 million in rental expense primarily due to duplicate rental costs for our corporate headquarters; and (v) $2.2 million in other miscellaneous expenses primarily due to increased personnel and other administrative costs. Included in the nine months ended January 31, 2005 was a stock-based compensation charge of $4.5 million related to our IPO.

Other income/(expense)

Interest income: We earned interest income of $0.5 million related to investment earnings on cash equivalents.

Interest expense: Interest expense increased $2.1 million, or 47%, primarily due to the effect of rising market interest rates on our predominantly outstanding floating-rate debt in addition to a higher average debt balance period over period. In an effort to mitigate the economic impact of changing interest rates, in August 2005 we entered into interest rate swap agreements to fix the interest rate on $50.0 million of our floating rate borrowings under the $250 Million Credit Facility.

Write-off of deferred financing costs: We incurred a non-cash charge of $2.7 million related to the write-off of deferred financing costs associated with the repayment of the $175 Million Notes and termination of our $100 Million Credit Facility.

Liquidity and Capital Resources

Historical Sources and Uses of Cash from Operations

Seasonality of our Cash Flows

Our revenues have been and are expected to continue to be highly seasonal. As a result, we generate most of our operating funds during the tax season that consists of the period from January through April. Certain of our expenses are also highly seasonal in nature including our marketing and advertising expenses as well as the costs to operate our company-owned offices, both of which increase shortly before and continue through the tax filing season. During the off-peak season, we require funds to cover our operating expenses as well as to reinvest in our business for future growth. We expect to fund our operations through our operating cash flow and through our credit facility, as required.

Repayment of Long-Term Debt and the Establishment of a $250 Million Credit Facility

On June 27, 2005, we repaid in full the $175 Million Notes that were outstanding as of April 30, 2005. To repay the $175 Million Notes, we used cash provided by operations from the prior tax season of $76.0 million and borrowed $99.0 million under our $100 Million Credit Facility that was established in June 2004. We incurred a non-cash charge of $2.7 million related to the write-off of deferred financing costs associated with the repayment of the $175 Million Notes and termination of our $100 Million Credit Facility.

On June 29, 2005, we established a $250.0 million five-year unsecured credit facility (the “$250 Million Credit Facility”) that made many of the covenants less restrictive than the covenants in our prior debt agreements and reduced the cost of debt. We repaid in full $99.0 million that was outstanding under our $100 Million Credit Facility with borrowings under our $250 Million Credit Facility and then terminated the $100 Million Credit Facility. Borrowings under the $250 Million Credit Facility are to be used to finance working capital needs, potential acquisitions and other general corporate purposes including repurchases of our common stock. The $250 Million Credit Facility provides for loans in the form of Eurodollar or Base Rate borrowings. Eurodollar borrowings bear interest at LIBOR, as defined in the $250 Million Credit Facility, plus a credit spread as defined, currently 0.95% per annum. Base Rate borrowings, as defined in the Credit Agreement, bear interest primarily at the Prime Rate, as defined in the agreement. The $250 Million Credit Facility carries an annual fee currently at 0.175% of the unused portion of the $250 Million Credit Facility, which is payable quarterly. We may also use the $250 Million Credit Facility to issue letters of credit for general corporate purposes. There was a $1.0 million letter of credit outstanding under the $250 Million Credit Facility as of January 31, 2006 as required under a lease agreement for our corporate headquarters in New Jersey.

To the extent we complete any acquisitions, we may require additional debt or equity financing to meet our capital needs. Our liquidity position may be negatively affected by unfavorable conditions in the market in which we operate. In addition, our inability to generate sufficient profits during tax season may unfavorably impact our funding requirements.

For a more detailed discussion of our $250 Million Credit Facility, including a description of financial covenants which we are required to maintain, please refer to Part 1–Item 1-Note 9-”Long-Term Debt and Credit Facilities” to our Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

Sources and Uses of Cash

Operating activities: In the nine months ended January 31, 2006, net cash used in operating activities was $56.5 million. Described below are some of the more significant items that contributed to, or partially offset, our net cash used in operating activities in the nine months ended January 31, 2006:

•

Increase in accounts receivable — Included in the January 31, 2006 accounts receivable are primarily royalty and marketing and advertising revenues earned by us and due from our franchisees and financial product fees earned by us and due from the financial institutions that sell our financial products. The increase was partially offset by the collection of receivables due at April 30, 2005.

•

Litigation settlement payments — We made payments of $2.2 million related to the litigation settlement reserve established in fiscal 2004 in connection with an action filed by 154 of our franchisees.

•

Interest payments — We made interest payments of $3.7 million related to borrowings under the $250 Million Credit Facility. In addition, we made a final interest payment of $2.1 million related to our $175.0 Million Notes, which were repaid in full in June 2005.

•

Marketing and advertising payments — We made marketing and advertising payments of $24.7 million relating to increasing awareness of our brand to drive customer growth.

•

Bonus payments and deferred compensation – We made payments of $9.1 million, including related employer payroll tax obligations, for amounts earned during the period from January 2004 to April 2005.

•

Income tax payments – We made such payments of $13.1 million during the period.

In the nine months ended January 31, 2005, net cash used in operating activities was $12.8 million. Described below are some of the more significant items that contributed to, or partially offset, our net cash used in operating activities in the nine months ended January 31, 2005:

•

Increase in accounts receivable — Included in the January 31, 2005 accounts receivable are royalty and marketing and advertising revenues earned by us and due from our franchisees and financial product fees and other financial product revenues earned by us and due from the financial institutions that sell our financial products. The increase was partially offset by the collection of receivables due at April 30, 2004.

•

Litigation settlement payments — We made payments of $2.3 million related to the litigation settlement reserve established in fiscal 2004.

•

Marketing and advertising payments — We made marketing and advertising payments of $17.2 million relating to increasing awareness of our brand to drive customer growth.

•

Interest payments – We made interest payments of $2.9 million on the $175 Million Notes.

Investing activities: Net cash used in investing activities was $14.2 million in the nine months ended January 31, 2006. Capital expenditures included the build-out costs associated with our new corporate headquarters. Our investing activities included the funding of development advances by which we provide funds to independent tax practices for the conversion of such operations to the JHTS brand as franchisees and/or to provide funds to existing franchisees to assist in their business expansion through the acquisition of independent tax practices. We expect to continue to make such funding in the future. We provided financing to franchisees for 108 storefront locations in loan amounts of up to $25,000 for each note receivable, which are typically due over a period of less than 30 months. Cash paid for acquisitions represented primarily payments related to the acquisition of tax return preparation businesses during the third quarter.

Net cash used in investing activities was $7.6 million in the nine months ended January 31, 2005. Our investing activities included capital expenditures primarily related to upgrades of our information technology systems, funding of development advances and payments related to acquisitions of tax return preparation businesses and settlement of accrued purchase price obligations.

Financing activities: Net cash provided by financing activities was $38.4 million in the nine months ended January 31, 2006. We repaid the entire $175.0 million of Notes that were outstanding as of April 30, 2005 with cash provided by operations from the prior tax season of $76.0 million and borrowings of $99.0 million under our $100 Million Credit Facility. We then repaid in full the $99.0 million that was outstanding under the $100 Million Credit Facility with borrowings under the newly established $250 Million Credit Facility. We also borrowed an additional $111.0 million under the $250 Million Credit Facility (and repaid $5.0 million) during the period. We paid $61.3 million, including commissions, to repurchase 2,538,197 shares of our common stock. We made dividend payments to stockholders of $8.7 million during the period. We also paid fees to establish the $250 Million Credit Facility. Partially offsetting the above were the proceeds we received upon the exercise of stock options by employees.

Net cash used in financing activities was $15.8 million in the nine months ended January 31, 2005 which included the cash settlement of our remaining intercompany balance with Cendant. In connection with our IPO, we issued the $175 Million Notes and used the entire proceeds to fund the cash portion of the Special Dividend to Cendant. We paid fees to issue the $175 Million Notes as well as to establish the $100 Million Credit Facility. We made dividend payments to stockholders of $5.3 million during the period.

Future Cash Requirements and Sources of Cash

Future Cash Requirements

Our primary future cash requirements will be to fund operating activities, repay outstanding borrowings under the $250 Million Credit Facility, fund development advances, fund capital expenditures, fund acquisitions and pay quarterly dividends. For the remainder of fiscal 2006, our primary cash requirements are as follows:

Credit facility repayments—We intend to partially repay outstanding borrowings under the $250 Million Credit Facility by using anticipated cash flows provided by operating activities in the fourth quarter.

Debt service—We expect to make periodic interest payments on our debt outstanding.

Quarterly dividends— On March 10, 2006, our Board of Directors declared a quarterly cash dividend of $0.08 per share of common stock, payable on April 14, 2006, to common stockholders of record on March 28, 2006.

Marketing and advertising—Cash outlays for marketing and advertising expenses are seasonal in nature and typically increase in our third and fourth fiscal quarters consistent with the tax season. Marketing and advertising expenses include national, regional and local campaigns designed to increase brand awareness and attract both early-season and late-season tax filers. Cash collections from marketing and advertising royalties from our franchise operations segment largely fund our budget for these types of expenses. We intend to continue to increase such spending as we continue to increase awareness of our brand to drive customer growth.

Costs to operate company-owned offices—Our company-owned offices complement our franchise system and are focused primarily on organic growth through the opening of new company-owned offices within existing territories as well as increasing office productivity. Costs to operate our company-owned offices typically peak in the fourth quarter primarily due to the labor costs related to the seasonal employees who provide tax preparation services to our customers.

In addition, we may from time to time seek to repurchase shares of our common stock in open market purchases, privately negotiated transactions or otherwise. Such repurchases, if any, will depend on the prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.

Future Sources of Cash

We expect our primary source of cash to be provided by operating activities during the fourth quarter of fiscal 2006, primarily from the collection of accounts receivable from our franchisees and from the financial institutions that sell our financial products. During the off-peak season we typically anticipate the need to borrow against the $250 Million Credit Facility to fund operations as evidenced by our outstanding borrowings of $205.0 million under the $250 Million Credit Facility during the nine months ended January 31, 2006. As of March 9, 2006 we had $94.0 million of indebtedness under our $250 Million Credit Facility as we have repaid $111.0 million since January 31, 2006 using cash flows from operating activities during the fourth quarter.

Interest Rate Swap Agreements

In August 2005, we entered into interest rate swap agreements with financial institutions to convert a notional amount of $50.0 million of floating-rate borrowings under the $250 Million Credit Facility into fixed-rate debt, with the intention of mitigating the economic impact of changing interest rates. Under these interest rate swap agreements, which became effective in October 2005, we receive a floating interest rate based on the three-month LIBOR (in arrears) and pay a fixed interest rate averaging 4.4%. These agreements mature in June 2010 and were determined to be cash flow hedges in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities” as amended by SFAS No. 137, No. 138 and No. 149 (“SFAS No. 133”). At January 31, 2006, the fair value of the interest rate swap agreements was an asset of $0.8 million which is recorded in other non-current assets on the Consolidated Balance Sheet. The change in fair value since inception, which is $0.5 million, net of tax, is recorded as a component of accumulated other comprehensive income. Since inception, no amounts have been recognized in the Consolidated Results of Operations due to ineffectiveness.

Critical Accounting Policies

In presenting our Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States, we are required to make estimates and assumptions that affect the amounts reported therein. Events that are outside of our control cannot be predicted and, as such, they cannot be contemplated in evaluating such estimates and assumptions. If there is a significant unfavorable change to current conditions, it could result in a material adverse impact to our consolidated results of operations, financial position and liquidity. We believe that the estimates and assumptions we used when preparing our consolidated financial statements were the most appropriate at that time. The following critical accounting policies may affect reported results resulting in variations in our financial results both on an interim and fiscal year-end basis.

Goodwill

We review the carrying value of our goodwill, as required by SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”), by comparing the carrying value of our reporting units to their fair value. When determining fair value, we utilized various assumptions, including projections of future cash flows. A change in these underlying assumptions will cause a change in the results of the tests and, as such, could cause fair value to be less than the respective carrying amount. In such event, we would then be required to record a charge, which would impact results. We review the carrying value of goodwill for impairment annually, or more frequently if circumstances indicate impairment may have occurred. We will conduct the required annual goodwill impairment review during the fourth quarter of fiscal 2006. An adverse change to our business would impact our consolidated results and may result in an impairment of our goodwill. The aggregate carrying value of our goodwill was $392.7 million as of January 31, 2006. See Item 1—Note 4—“Goodwill and Other Intangible Assets, Net” to our Consolidated Financial Statements for more information on goodwill.

Other Intangible Assets

In accordance with the provisions of SFAS No. 142, indefinite-lived intangible assets are carried at the lower of cost or fair value. If the fair value of the indefinite-lived intangible asset is less than the carrying amount, an impairment loss would be recognized in an amount equal to the difference. We review the carrying value of indefinite-lived intangible assets for impairment annually, or more frequently if circumstances indicate impairment may have occurred. We will conduct the required annual indefinite-lived intangible assets impairment review during the fourth quarter of fiscal 2006. An adverse change to our business would impact our consolidated results and may result in an impairment of our indefinite-lived intangible assets. The aggregate carrying value of our indefinite-lived intangible assets was $81.0 million as of January 31, 2006. See Item 1—Note 4—“Goodwill and Other Intangible Assets, Net” to our Consolidated Financial Statements for more information on indefinite-lived intangible assets.

Recent Accounting Pronouncement

In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123R, “Share-Based Payment” (“SFAS No. 123R”), which eliminates the alternative to measure stock-based compensation awards using the intrinsic value approach permitted by Accounting Principles Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees” and by SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”). We are required to adopt the provisions of SFAS No. 123R by May 1, 2006. On January 1, 2003, we adopted the fair value method of accounting for stock-based compensation provisions of SFAS No. 123 and the transitional provisions of SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure.” As a result, we have been recording stock-based compensation expense since January 1, 2003 for employee stock awards that were granted or modified subsequent to December 31, 2002. In addition, our current practice with respect to forfeitures is to recognize the related benefit upon forfeiture of the award. Upon adoption of SFAS No. 123R, we will be required to recognize compensation expense net of estimated forfeitures upon the issuance of the award. We are currently evaluating the remaining provisions of SFAS No. 123R to determine the effect, if any, it may have on our financial position, results of operations or cash flows.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

A 1% change in the interest rate on our floating-rate borrowings outstanding as of January 31, 2006, excluding our $50.0 million of hedged borrowings whereby we fixed the interest rate, would result in an increase or decrease in interest expense of $1.6 million annually.

Item 4. Controls and Procedures.

(a)

Disclosure Controls and Procedures. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this quarterly report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures are effective.

(b)

Changes in Internal Control Over Financial Reporting. During the fiscal quarter to which this report relates, there have not been any changes in our internal controls over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

See Part 1-Item 1-Note 15-“Commitments and Contingencies” to our Consolidated Financial Statements, which is incorporated by reference herein.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds and Issuer Purchases of Equity Securities.

Unregistered Sales of Equity Securities and Use of Proceeds: None.

Issuer Purchases of Equity Securities:


Period of settlement date	Total Number of Shares Repurchased	Average Price Paid per Share (including Commissions)		Total Number of Shares Purchased as Part of Publicly Announced Program (a)	Approximate Dollar Value of Shares that May Yet Be Purchased Under Program
November 1-30, 2005	115,297	$	24.42	115,297		N/A

Total	115,297	$	24.42	115,297	$	—

(a)	On July 5, 2005, we announced a $50.0 million share repurchase program, which was completed in November 2005.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Submission of Matters to a Vote of Security Holders.

None.

Item 5. Other Information.

None.

Item 6. Exhibits.

Exhibits: We have filed the following exhibits in connection with this report.


10.31		Program Agreement, dated February 24, 2006, between Jackson Hewitt Inc., HSBC Taxpayer Financial Services Inc. and Beneficial Franchise Company, Inc.*

10.32		Technology Services Agreement, dated February 24, 2006, between Jackson Hewitt Technology Services Inc. and HSBC Taxpayer Financial Services Inc.*

10.33		Program Agreement, dated as of February 24, 2006, by and between Jackson Hewitt Inc. and Santa Barbara Bank & Trust*

10.34		Technology Services Agreement, dated February 24, 2006, by and between Jackson Hewitt Technology Services Inc. and Santa Barbara Bank & Trust*

31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*	Confidential treatment has been requested for the redacted portions of this agreement. A complete copy of the agreement, including the redacted portions, has been filed separately with the SEC.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 17, 2006.

JACKSON HEWITT TAX SERVICE INC.

By:

/s/ MICHAEL D. LISTER

Michael D. Lister

President and Chief Executive Officer

(Principal Executive Officer)

/s/ MARK L. HEIMBOUCH

Mark L. Heimbouch

Executive Vice President and Chief Financial Officer

(Principal Financial Officer and Principal Accounting Officer)

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EX-10.31 2 dex1031.htm PROGRAM AGREEMENT, DATED FEBRUARY 24, 2006 Program Agreement, dated February 24, 2006

Exhibit 10.31

[*] designates portions of this document that have been omitted pursuant to a request for confidential treatment filed separately with the Securities and Exchange Commission.

PROGRAM AGREEMENT

This Program Agreement (“Agreement”) dated this 24 day of February, 2006, between JACKSON HEWITT INC., a Virginia corporation (“Jackson Hewitt”) with its principal place of business at 3 Sylvan Way, Parsippany, New Jersey 07054, HSBC TAXPAYER FINANCIAL SERVICES INC., a Delaware corporation, with offices located at 90 Christiana Road, New Castle, Delaware (“HSBC”) and BENEFICIAL FRANCHISE COMPANY, INC., a Delaware corporation and an affiliate of HSBC, with its principal offices located at 90 Christiana Road, New Castle, Delaware (“Beneficial Franchise”).

Recitals

WHEREAS, Jackson Hewitt (i) is the franchisor of the Jackson Hewitt Tax Service^® tax preparation system to independently owned and operated franchisees (“Franchisees”) and (ii) through Tax Service of America, Inc. (“TSA”), a wholly owned subsidiary, owns and operates Jackson Hewitt Tax Service tax preparation offices (“Corporate Stores,” and, together with Franchisees, “Operators”); and

WHEREAS, the Operators provide to customers computerized federal and state individual income tax return preparation with electronic filing and offer or facilitate related services; and

WHEREAS, HSBC administers, and its affiliate offers, certain financial products to customers of tax service companies; and

WHEREAS, Beneficial Franchise is the owner of certain patents which provide Beneficial Franchise with rights to certain processes and methods used in the processing and administration of certain financial products; and

WHEREAS, HSBC desires the opportunity for itself and its affiliate to respectively administer and offer financial products to certain customers of Jackson Hewitt Tax Service, and Jackson Hewitt desires that HSBC and its affiliate respectively administer and offer financial products to such customers on the terms and conditions set forth in this Agreement; and

WHEREAS, if customers accept an offer of financial products, HSBC shall arrange for the provision of such financial products and administer the program as more fully set forth in this Agreement; and

WHEREAS, HSBC desires, and Jackson Hewitt agrees to provide, its marketing and training services and personnel in connection with and to devote support and additional resources in support of the Program; and

WHEREAS, simultaneous with the execution of this Agreement HSBC shall enter into a technology services agreement with Jackson Hewitt Technology Services Inc. in connection with

HSBC and its affiliate respectively administering and offering the Program (“Technology Services Agreement”).

NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows:

1. DEFINITIONS. In addition to the other definitions set forth in the Agreement, the following terms are defined as follows:

1.1 “ACR” shall mean an accelerated check refund, assisted direct deposit or ADD, or such other product or terminology used to describe the process by which the Originator receives the Customer’s refund from the taxing authority through a deposit account set up by the Originator before forwarding the net proceeds to the recipient.

1.2 “Applicant” shall mean an individual electing to apply for a Financial Product at the office location of an Operator in connection with the Program.

1.3 “Application” shall mean one or more HSBC Financial Product application forms to be used by an Applicant, including any supplemental application forms.

1.4 “Applicable Law” shall mean all applicable federal, state and local laws, rules and regulations.

1.5 “Business Day” shall mean any day that is not a Saturday, Sunday legal holiday or other day on which banks in the state of New York are required or permitted to be closed.

1.6 “Customer” shall mean a Jackson Hewitt Tax Service customer that was also a customer of one of the financial institutions that provided financial products facilitated by Jackson Hewitt Tax Service offices and such customer received a RAL, a funded Federal ACR, or a funded State ACR from such financial institution. For purposes of this definition, joint borrowers or joint recipients of such a financial product shall constitute one “Customer” and a customer that receives both a RAL or funded Federal ACR and a funded state ACR shall count as two “Customers”.

1.7 “Financial Product” shall mean any product offered by the Originator under the Program, including, without limitation, RAL, Money Now^SM Loan, ACR, HELP^® Loan, Flex Loan, and any similar product or any such product as modified, as offered from time to time.

1.8 “IRS” shall mean the Internal Revenue Service.

1.9 “Marks” shall mean the names, trademarks, service marks, trade names, service names, and logos of a party,, as the same may be amended from time to time.

1.10 “Money Now Loan” shall mean a Money Now Loan (pf) and Money Now Loan (std) collectively.

1.11 “Money Now Loan (pf)” shall mean a loan by the Originator to an Applicant based on, among other things, the Applicant’s anticipated Federal income tax refund, with proceeds of such loan available on the same day the loan is approved by the Originator, offered in the month of January and without a final tax return being prepared and filed with the IRS at the time.

1.12 “Money Now Loan (std)” shall mean a loan by the Originator to an Applicant based on, among other things, the Applicant’s anticipated Federal income tax refund, with proceeds of such loan available on the same day the loan is approved by the Originator, with a final tax return being prepared and filed with the IRS in the same office visit as the Applicant applies for such a loan, or if the Applicant applies prior to the first day of electronic filing, the final tax return being filed on the first day of electronic filing.

1.13 “New Financial Products” shall mean financial products that are not Financial Products.

1.14 “Originator” shall mean the state or nationally chartered banking institution, designated by HSBC in accordance with Section 4.1.

1.15 “Program Protocols” shall mean those processes and procedures developed by HSBC for offering Financial Products pursuant to the Program, including, but not limited to, EFS Requirements, Quick Reference Guide, HSBC Bank Book materials, and the HSBC Bank Product Compliance Training materials.

1.16 “Program Requirements” shall mean the requirements set forth in Section 3.3 and any other requirements mutually agreed upon in writing by the parties.

1.17 “Qualifying Procedures” shall mean procedures developed from time to time by HSBC relating to an Applicant qualifying to apply for Financial Products and the Application process pursuant to the Program.

1.18 “RAL” shall mean a refund anticipation loan based upon, among other things, and secured by, an Applicant’s anticipated Federal income tax refund.

1.19 “Tax Season” shall mean the period beginning on January 2 of a calendar year and ending on the last day an individual is permitted to file a federal income tax return with the IRS without extension, typically April 15 of such calendar year.

2. THE PROGRAM.

2.1 The Program. Pursuant to the terms and subject to the conditions of this Agreement, HSBC shall administer, and its designated Originator as provided for herein shall

[*] designates portions of this document that have been omitted pursuant to a request for confidential treatment filed separately with the Securities and Exchange Commission.

offer, Financial Products to certain customers of Jackson Hewitt Tax Service (as determined herein) during each Tax Season and at such other times as mutually agreed to by the parties, during the Term (the “Program”).

2.2 Limited Exclusivity.

(a) HSBC (or its designated Originator) shall have the opportunity to offer Financial Products to customers of designated Jackson Hewitt Tax Service Operators based upon such Operators’ office locations as set forth in, or as determined by Jackson Hewitt in accordance with the terms of, this Agreement. To the extent an Operator’s location is designated by Jackson Hewitt as an HSBC location for a Tax Season (and any related period of time), then Jackson Hewitt shall not contract with any other financial product provider to have the opportunity to offer Financial Products to the customers of such Operator’s location.

(b) For Tax Season 2006 HSBC (or its designated Originator) shall offer, and shall be the sole and exclusive provider of, Financial Products to Jackson Hewitt Tax Service customers of the following designated locations: [*].

(c) For Tax Season 2007 and any subsequent Tax Seasons under this Agreement, if extended, Jackson Hewitt shall have the sole and exclusive right to determine the locations to be designated as HSBC locations for such Tax Season, subject to the other terms and conditions of this Agreement including Article 7 hereof Jackson Hewitt shall provide notice of such designation to HSBC no later than the [*] prior to such applicable Tax Season. HSBC (or its designated Originator) shall be the sole and exclusive provider of Financial Products in those designated locations.

(d) The designation of locations in this Section 2.2 is subject to, and may be modified in accordance with, the requirements of the multi-state operations of an Operator as defined by processing center and may result in certain locations, whether within designated states or outside designated states, being excluded from or included in, as the case may be, the designated locations for HSBC under the Program in any given Tax Season; provided, however, that the remaining office locations designated after such adjustment shall continue to meet the requirements set forth in Article 7.

(e) For the term of the Agreement, unless otherwise agreed to by Jackson Hewitt and HSBC, HSBC (or its designated Originator) shall offer and be the provider of the Financial Product referred to as Flexloan for customers of all locations operated as Corporate Stores and all locations operated by Franchisees.

(f) With respect to the designated locations as referenced in this Article 2, Jackson Hewitt shall require the Operators of such locations to enter into separate agreements, with HSBC, in the form currently in effect with TSA and Franchisees for Tax Season 2006, and modified as required herein, with HSBC to enroll and participate in the Program on an annual basis (each, a “Participation Agreement”). HSBC shall provide the form of Participation Agreement to Jackson Hewitt by September 30 of each year, and HSBC and Jackson Hewitt shall

use their commercially reasonable efforts to distribute and collect executed agreements, no later than the December 28^th prior to each Tax Season. In the event an Operator has not executed a Participation Agreement, such Operator shall not be permitted to participate in the Program. Jackson Hewitt shall cause TSA to execute the Participation Agreement for designated locations and not to participate in any competing program for designated locations. Jackson Hewitt shall use commercially reasonable efforts to cause each Franchisee operating a designated location to execute a Participation Agreement and not operate in any competing program for designated locations. Jackson Hewitt shall enforce its rights under its franchise agreements with respect to compliance with the foregoing by its Franchisees and to assist HSBC in enforcing its rights under the Participation Agreements. Notwithstanding anything contained herein to the contrary, nothing herein shall create any obligations or rights between Operators and HSBC. Any and all such obligations or rights shall be set forth in the Participation Agreement, including the Operators obligations to follow applicable Program Protocols.

3. RIGHTS, DUTIES AND OBLIGATIONS OF JACKSON HEWITT.

3.1 Duties. Jackson Hewitt shall comply with all applicable Program Protocols and Applicable Law in connection with the performance of its obligations hereunder. With respect to obligations of the Operators hereunder, and notwithstanding anything to the contrary set forth herein, Jackson Hewitt agrees to (i) cause TSA to be in compliance with Applicable Law and applicable Program Protocols; (ii) use commercially reasonable efforts to encourage compliance by Franchisees with Applicable Law and applicable Program Protocols, and take actions reasonably deemed appropriate by Jackson Hewitt in the event of non-compliance, including exercising rights under the respective franchise agreements with respect to Franchisees.

3.2 Training. Jackson Hewitt shall devote employees and resources as it deems reasonably necessary to provide training to Operators and corporate staff in connection with the facilitation of the Program, including with respect to forms, documents, product descriptions and the Profiler ® system. Jackson Hewitt shall provide a training manual to Operators and shall also provide other mutually agreed to training to the Operators and shall deliver to HSBC a certification that training has been provided.

3.3 Program Requirements. Jackson Hewitt shall cause Operators to perform the following Program Requirements:

(i) prepare and/or collect and file with appropriate taxing authorities federal and state income tax returns (the “Returns”) for its customers.

(ii) require each Applicant to complete and sign the Application and to provide all requested information as part of the Application process, take such action as shall be reasonably necessary to obtain the certification required by the Application, and ensure that all material information received from the Customer, including social security number(s), is accurately reflected.

[*] designates portions of this document that have been omitted pursuant to a request for confidential treatment filed separately with the Securities and Exchange Commission.

(iii) complete IRS Form 8453 and any such other IRS or state forms as are required to complete the Application process and have such forms signed by the Applicant and an employee of the Operator. Such forms shall indicate that the account is a “checking” account and that the source is “other”, and shall include information provided by HSBC (such as the applicable check routing number and applicable client account number) and shall name Originator as the financial institution and the same information shall be contained in the appropriate data fields as part of the electronically filed Return.

(iv) follow all Qualifying Procedures and all procedures built into the Profiler^® system.

(v) deliver to Applicant, have them sign, if applicable, and provide Applicant with a copy of the signed Application, signed IRS Form 8453 or similar form, and signed Loan Agreement and Disclosure Statement(s), and any other agreements and documents required as part of the Program.

(vi) retain a copy of each Applicant’s signed documents relating to the Program in the Applicant’s customer file maintained by the Operator for a period of five years from the date on such documents (after which time such documents may be discarded in accordance with applicable legal requirements) and to forward to HSBC copies of all such documents upon HSBC’s written request.

(vii) (a) affix a facsimile signature by way of an imprint of the authorized signatory of Originator for those customers that elect their Financial Product to be disbursed by check, (b) take reasonable measures to keep such checks secure and safeguarded against loss or misuse; and (c) deliver such checks to Applicants in accordance with Program Protocols.

(viii) promptly notify HSBC, in the event an Applicant notifies such Operator that a check disbursed by such Operator has become lost, or that the Applicant has not received a check mailed by HSBC within fourteen (14) days of expected receipt, to: (i) cause a stop payment; and (ii) facilitate the issuance of a new check and an indemnifying bond in a form satisfactory to HSBC, which bond shall be completed by the Customer.

3.4 Marketing Materials. Jackson Hewitt may (but shall not be obligated to) create marketing or promotional materials that relate, in whole or in part, to the Program. In all cases in which HSBC’s or Originator’s Marks are used in such materials or Financial Products are referenced, such materials shall conform to the HSBC’s marketing guidelines that have been provided to Jackson Hewitt in advance of each Tax Season, and HSBC shall have the opportunity to review, comment upon, and approve or disapprove the same within [*] of its receipt thereof. If HSBC disapproves of such materials, the parties shall mutually agree on alternative language within [*] thereafter. If HSBC approves such materials, such materials shall be in compliance with the Federal Truth in Lending Act or Regulation Z of the Federal Reserve Board, or other federal or state laws or regulations solely applicable to national banks or consumer lenders and Jackson Hewitt may rely on the same. Jackson Hewitt shall be responsible for, and shall not have the right to rely on HSBC’s review for, any other Applicable Law.

[*] designates portions of this document that have been omitted pursuant to a request for confidential treatment filed separately with the Securities and Exchange Commission.

3.5 Access to Offices. Jackson Hewitt shall require each Operator participating in the Program to grant HSBC access to such Operator’s office locations upon notice to and approval by Jackson Hewitt (which approval shall not be unreasonably withheld) for the purpose of assisting and facilitating the operation of the Program at such office locations. The foregoing shall be set forth in the Participation Agreement. Further, in connection with such access, HSBC may inspect any forms, documents, marketing and promotional materials, and check stock that the Operator may possess relating to the Program.

3.6 Operators. Jackson Hewitt acknowledges that the Originator is a regulated financial institution and has ultimate control in the setting of the credit criteria and fees it charges to customers. HSBC shall also have the right to determine whether any fees or charges by Operators in connection with the facilitation of Financial Products shall be permitted under the Program. HSBC shall provide notice to Jackson Hewitt of any such determinations in advance of a Tax Season which shall also be set forth in the Participation Agreement.

4. RIGHTS, DUTIES AND OBLIGATIONS OF HSBC.

4.1 Designation of Originator. HSBC Bank N.A. shall be the designated Originator of the Program until such time that a different affiliate of HSBC is designated. If the Originator is not to be HSBC Bank N.A., HSBC shall deliver written notice to Jackson Hewitt no later than the August 31^st prior to the relevant Tax Season setting forth the name of its affiliate designated to be the Originator. All Originators shall have sufficient net worth to support the Program.

4.2 The Program.

(a) Offering Financial Products. HSBC or its Originator shall offer Financial Products to Jackson Hewitt Tax Service customers as designated pursuant to Article 2 hereof in accordance with the terms of this Agreement, all other agreed to terms of the Program, and the Program Protocols. HSBC shall administer and the Originator shall provide Financial Products to Applicants in accordance with this Agreement, all other agreed to terms of the Program, and the Program Protocols, and applicable established credit criteria.

(b) HSBC acknowledges that Jackson Hewitt Tax Service operates through multiple locations and not all of which are subject the terms of this Agreement and that HSBC is seeking the assistance of Jackson Hewitt and its affiliates in the building of the Program and the software relating to it. Toward that end, HSBC agrees that it will accommodate commercially reasonable requests of Jackson Hewitt with respect to the Program to ensure that Jackson Hewitt’s programs are not inconsistent and impractical or unduly burdensome. The parties shall mutually agree as to whether Jackson Hewitt’s request is made in connection with (i) the preceding sentence or (ii) otherwise a general modification, expansion, improvement of the Program or specific change to the Program. In the event that such a request is made in connection with clause (i) above, HSBC shall provide cost estimates (excluding costs of internal resources) to Jackson Hewitt. If Jackson Hewitt agrees that HSBC should proceed with such request based upon such cost estimate, HSBC agrees to bear the first [*] of such cost for each Tax Season, and Jackson Hewitt shall be

[*] designates portions of this document that have been omitted pursuant to a request for confidential treatment filed separately with the Securities and Exchange Commission.

responsible for costs in excess of such amount. In the event any amount is not utilized during Tax Season 2006, such amount shall be added to the amount available for, and shall become the aggregate amount available in, Tax Season 2007.

(c) HSBC shall process Applications and administer Financial Products with respect to such Applications facilitated by Operators according to the credit criteria established by HSBC (or the Originator) subject to the terms of this Agreement. In accordance with the Application, HSBC shall cause Originator to establish an account (“Deposit Account”) for Customers, and Originator shall maintain the right to offset against all sums received from the IRS or state taxing authority which are deposited in the Deposit Account in connection with such Applicant’s refund all monies owed in connection with the Financial Product, any previous financial product, or to Jackson Hewitt and Operators for certain charges. If a Customer is mailed a refund check rather than receiving the refund electronically in the Deposit Account, or receives a refund less than the amount anticipated, then Originator shall have the right under the Application with the Customer to be paid directly by such Customer.

(d) HSBC’s Program shall be generally competitive in the marketplace and HSBC shall not take actions that would be unreasonably impractical for Jackson Hewitt and the Operators to administer or facilitate in connection with the Program (taking into account Jackson Hewitt’s operational needs and other programs). HSBC shall operate the Program in accordance with industry standards [*]. The parties shall in good faith seek to have the Program be compelling to customers in the marketplace.

4.3 Delivery of Authorized Charges. HSBC shall, upon delivery to Jackson Hewitt of an Applicant’s funding record or check print record, remit on the same Business Day(s) if such record is received by 6 pm ET on that day, directly by way of an automated clearing house credit to the appropriate bank account (as identified to HSBC in writing by Jackson Hewitt), all fees or charges authorized by the Applicant for payment to Jackson Hewitt or the Operator. Jackson Hewitt shall use commercially reasonable efforts to require an Operator to deliver a reconciliation record within two (2) Business Days after such funding.

4.4 Establishment of Program Parameters. Each Tax Season HSBC or its Originator shall determine the Program parameters, including all fees related to Financial Product offerings to customers, Qualifying Procedures, Program Protocols, and the credit criteria that shall apply to each loan product. HSBC shall deliver information concerning the aforementioned fees, Qualifying Procedures, Program Protocols, and credit criteria (other than credit criteria related to proprietary scoring) in writing to Jackson Hewitt no later than the October 31 prior to each Tax Season. HSBC shall consider all reasonable requests of Jackson Hewitt regarding impact to the Jackson Hewitt Tax Service business or other general suggestions regarding enhancements to the Program. HSBC may not modify any of the aforementioned fees, Qualifying Procedures, Program Protocols, or credit criteria (other than credit criteria related to proprietary scoring) for the ensuing Tax Season after such information is so provided to Jackson Hewitt unless approved by Jackson Hewitt, which approval shall not be unreasonably withheld. Financial Products in the Program shall have a pricing structure consistent with past practice of HSBC programs offered to

[*] designates portions of this document that have been omitted pursuant to a request for confidential treatment filed separately with the Securities and Exchange Commission.

Jackson Hewitt Tax Service customers (that is, a RAL shall have a finance charge and a fee shall be charged for the opening and administration of the Deposit Account), although the amount of such fees may be different, and unless Jackson Hewitt has consented to an alternative. HSBC or its Originator shall offer all Financial Products at all times during the Tax Season and other agreed to periods.

4.5 Development of Forms/Materials. HSBC shall develop materials for the offering, receipt and processing of Applications, and in connection with the Program Protocols, and shall create and distribute to Jackson Hewitt for its prior review forms to be used by each Operator. HSBC may, but shall not be required to, create solicitation, marketing and/or promotional materials relating to the Program, each of which (if created) shall be subject to Jackson Hewitt’s prior review. HSBC covenants and agrees that the Program Protocols and all documents and materials created or provided by HSBC (or by it on behalf of Originator) shall comply with Applicable Law. All such forms, consents and other materials prepared by HSBC shall be delivered to Jackson Hewitt to provide Jackson Hewitt with sufficient time to review and comment in advance of each Tax Season HSBC shall take into account all reasonable requests of Jackson Hewitt in connection with the review of all such materials and other matters in connection with the Program, including Program Protocols and procedures. All such forms, documents and materials shall be reasonably customized for the Program taking into account the specific names and needs of Jackson Hewitt and Jackson Hewitt Tax Service. HSBC shall deliver its marketing guidelines to Jackson Hewitt in advance of Jackson Hewitt’s marketing planning for each Tax Season.

4.6 Compliance with Laws, Rules and Regulations. HSBC and the Originator shall comply with all Applicable Law in connection with their respective administering and offering of the Program and the performance of their respective obligations hereunder and under the Program. HSBC represents that (i) the Financial Products may be lawfully provided by the Originator and (ii) that the facilitation of Financial Products by the Operators and Jackson Hewitt will be in compliance with Applicable Law, as long as the Operators and Jackson Hewitt comply with all laws applicable to their role as facilitators of Financial Products.

4.7 Review of Marketing Materials Prepared by Jackson Hewitt. HSBC shall review, comment upon, and approve or disapprove marketing materials submitted to HSBC by Jackson Hewitt within [*] of its receipt thereof. If HSBC disapproves of such materials, the parties shall mutually agree on alternative language within [*] thereafter. If HSBC approves such materials, such materials shall be in compliance with the Federal Truth in Lending Act or Regulation Z of the Federal Reserve Board or other federal or state laws or regulations solely applicable to national banks or consumer lenders and Jackson Hewitt may rely on the same. Jackson Hewitt shall be responsible for, and shall not have the right to rely on HSBC’s review for, any other Applicable Law.

4.8 Check Stock. HSBC shall provide Operators with an adequate supply of consecutively numbered disbursement checks upon which they may affix a facsimile signature by way of an imprint of the authorized signatory of Originator for those customers that elect their Financial Product to be disbursed by check. HSBC shall replenish such check stock promptly

[*] designates portions of this document that have been omitted pursuant to a request for confidential treatment filed separately with the Securities and Exchange Commission.

upon the request of such Operator or Jackson Hewitt (including, if necessary, by overnight delivery at HSBC’s expense, unless Jackson Hewitt failed to exercise due care in making such a request or in the handling of check stock).

4.9 Processing of Loan Applications; Check Print Authorizations. HSBC shall timely process each Application in accordance with industry standards, provided that HSBC shall in the ordinary course of business process (i) Money Now Loan, HELP Loan and Flexloan (and any other instant product agreed to from time to time) Applications within three minutes of receipt of such Application from an Operator or Jackson Hewitt, and (ii) RAL (and other financial product agreed to from time to time) Applications prior to the expiration of eight hours after having received from the Operator or Jackson Hewitt an acknowledgment of the due filing of the Applicant’s Return, together with any corresponding debt indicator, as received from the IRS (unless such failure to do so is caused by an event affecting the industry generally or is otherwise outside of HSBC’s control). The foregoing process times shall, in each case, be met [*] of the time (i.e. a [*] service level). Upon the approval of an Application, HSBC shall promptly communicate check print authorizations to the Operator.

4.10 Availability of Funds. HSBC shall have sufficient funds available at all times to pay, or cause the payment of, all Financial Products disbursements authorized for disbursement.

4.11 Reports. HSBC shall provide, in a timely fashion, such reports to Jackson Hewitt as Jackson Hewitt reasonably may request, including ad hoc reports as well as reports prepared by HSBC for HSBC’s own use regarding Customers; provided that HSBC is not required to provide reports which contain information regarding other transmitters, non-Customers or proprietary risk model information. HSBC shall otherwise notify and discuss trend information with Jackson Hewitt. In addition, HSBC shall also provide, in a timely fashion, on a monthly basis the reports attached hereto as Exhibit 4.11. HSBC covenants and agrees that all reports will be true, correct and complete in all respects.

4.12 Solicitation. HSBC shall not engage in any solicitation of Customers or Applicants without having obtained Jackson Hewitt’s prior written approval. Jackson Hewitt shall have the right to review and comment on all solicitation materials and lists before any such solicitation take place.

4.13 Online Reports. As agreed upon by the parties, HSBC shall provide web-based, online reports to Operators with respect to Financial Products and the Program in a form acceptable to Jackson Hewitt. The form of reports shall be agreed to from time to time by the parties.

4.14 New Financial Products. HSBC shall devote additional resources, at its own expense, to the joint development of New Financial Products with Jackson Hewitt. The parties acknowledge and agree to keep the terms of such developments confidential. The parties shall resolve ownership rights between the parties prior to implementing New Financial Products. HSBC agrees to commit substantial resources to develop and implement one project as agreed upon the parties each Tax Season at the reasonable request of Jackson Hewitt.

4.15 Training Program. Prior to the 2007 Tax Season, HSBC, at its expense, shall design and establish, with input and cooperation from Jackson Hewitt, a web based training program for the Operators and their respective employees which shall be designed to provide the Operators and their respective employees with education and training about the Financial Products and the Program.

4.16 Compliance Program. HSBC, at its expense shall design, establish and maintain a compliance program which shall include monitoring activities of Operators in connection with the Program.

4.17 Management and Technical Support.

(a) HSBC shall support the Program with at least the following dedicated non-exclusive staffing: (i) one (1) business development group director; (ii) one (1) business development director; (iii) one (1) risk management professional; (iv) one (1) technology director; and (v) one (1) technology project manager.

(b) In the event any persons currently employed in such roles set forth in paragraph (a) above leaves such role, HSBC shall promptly find a replacement in order to maintain service levels and provide Jackson Hewitt notice of such event and the name of such replacement. Such replacement must be reasonably acceptable to Jackson Hewitt. In the event such replacement is not reasonably acceptable to Jackson Hewitt, HSBC shall endeavor to satisfy Jackson Hewitt’s requests. In any event, HSBC shall reimburse Jackson Hewitt for any additional costs of resources required to maintain existing service levels after such original departure occurred.

(c) HSBC shall maintain a “firewall” between personnel exclusively dedicated to other transmitters, tax preparers and software developers and confidential information regarding Jackson Hewitt and the Program.

(d) Any New Financial Product development or any significant modification to a Financial Product will be lead at HSBC by Business Development and Technology representatives.

4.18 Customer Contact. On or before July 1, 2006, and thereafter as such materials change, and other than in connection with customer service or collection telephone calls, HSBC shall provide all materials to be provided to, or be used in contacting customers, including, letters, customer lists and scripts for Jackson Hewitt’s prior review and comment, but Jackson Hewitt shall not have approval rights for such materials. At no time shall HSBC (a) make any comments about Jackson Hewitt Tax Service, other than in reference to the fact that the customer is a Jackson Hewitt Tax Service customer, (b) mention any other tax preparer, in any customer contact with a known Jackson Hewitt Tax Service customer, or (c) distribute letters to Jackson Hewitt Tax Service customers which are not intended to be distributed to such customers, without the prior consent of Jackson Hewitt, or (d) take action or make any comment detrimental to Jackson Hewitt business in its communications with customers, without the prior consent of

Jackson Hewitt. In the event of any of the foregoing, HSBC shall promptly notify Jackson Hewitt and shall in good faith negotiate an appropriate compensation to Jackson Hewitt and/or incentive to such affected Jackson Hewitt customers.

4.19. Applicant Information. Notwithstanding anything herein to the contrary, neither Jackson Hewitt, nor Operators shall be held responsible for false or inaccurate information provided by Applicants.

4.20 Access to Offices. HSBC shall have access to each Operator’s office locations, as set forth in the Participation Agreements, upon notice to and approval by Jackson Hewitt (which approval shall not be unreasonably withheld) for the purpose of assisting and facilitating the operation of the Program at such office locations. Further, in connection with such access, HSBC may inspect any forms, documents, marketing and promotional materials, and check stock that the Operator may possess relating to the Program.

4.21 If Jackson Hewitt reasonably believes that it is subject to a significant legal risk as a result of a regulatory event, court order, or new legislation, the parties shall modify the Program to mitigate such risk.

5. RIGHTS, DUTIES AND OBLIGATIONS OF BENEFICIAL FRANCHISE.

5.1 Licenses. Beneficial Franchise hereby grants to Jackson Hewitt, its subsidiaries and Operators a royalty free, non-assignable, nonexclusive right and license under U.S. Patent Nos. 4,890,228, 5,193,057, and 5,963,921 (“Patent Rights”) to use any data processing system or any method falling within the scope of any claim of the Patent Rights in connection with offering Financial Products. Beneficial Franchise also grants to Jackson Hewitt the exclusive right to grant sublicenses to use any data processing system or method falling within the scope of any claim of the Patent Rights to HSBC.

5.2 Warranties. Beneficial Franchise represents and warrants that it is the true and lawful owner of the Patent Rights, that the Patent Rights do not infringe upon any intellectual property rights of any third parties, that it has the right to grant the rights and licenses described herein and that the Patent Rights are the only patents or license rights Beneficial Franchise owns or has the right to license relating to the Program. BENEFICIAL FRANCHISE MAKES NO WARRANTIES, EXPRESS OR IMPLIED, REGARDING THE SUBJECT MATTER OF THESE LICENSES.

5.3 Expiration of Licenses. The licenses granted to Jackson Hewitt, its subsidiaries and Operators under Section 5.1 above shall run until the termination of this Agreement, and the termination of such licenses shall terminate any sublicenses thereof granted by Jackson Hewitt hereunder.

[*] designates portions of this document that have been omitted pursuant to a request for confidential treatment filed separately with the Securities and Exchange Commission.

6. LICENSE AND SUBLICENSE OF CERTAIN RIGHTS;

6.1 Sublicense of Rights Under Patent. Jackson Hewitt hereby grants to HSBC a non-exclusive and non-assignable right and license under the Patent Rights to use any data processing system or any method falling within the scope of any claim of the Patent Rights in connection with the making of RALs and issuing of ACRs to any Applicant.

6.2 License of Trademarks. During the Term and subject to the terms and conditions of this Agreement, each of HSBC and Jackson Hewitt hereby grants to the other a non-exclusive, non-assignable and royalty-free right and license to use, reproduce and display its Marks and the Marks of their respective affiliates relating to the Program, solely in connection with the marketing, making and processing of Financial Products in connection with the Program. Neither party shall at any time adopt or use, or seek to register, without the other party’s prior written consent, any variation of such other party’s Marks, or any mark similar thereto or likely to be confused therewith. Any and all goodwill arising from either party’s use of the other party’s Marks shall inure solely to the benefit of such other party, and neither during nor after the termination of this Agreement shall either party assert any claim to the other party’s Marks or goodwill. Neither party shall use the Marks of the other for any purpose except the purposes specifically set forth herein. All rights in and to the Marks of a party which are not specifically granted to the other herein shall remain with such party.

6.3 Designated Marks. Only those Marks that are designated by a party may be used by the other party or its parents, affiliates, or subsidiaries. Each party may use the other party’s names in connection with the Program or Financial Products, except as provided in Section 11.14.

7. TAX SEASON 2007 AND 2008 CUSTOMERS OPPORTUNITY.

7.1 Tax Season 2006. [*]

7.2 Tax Season 2007. For Tax Season 2007 Jackson Hewitt shall designate HSBC the Financial Product provider under the Program for Operators [*]

7.3 Tax Season 2008. Not later than August 31, 2007, the parties shall commence negotiations in good faith to amend the contract to extend the Program one additional year, with the intention that the Program shall include the opportunity for HSBC to offer Financial Products to customers of additional Operators, [*] subject to the parties mutually agreeing on all terms of such extension, including, without limitation, economics. Such discussions shall not continue past October 31, 2007 unless otherwise mutually agreed.

8. FEES PAID TO JACKSON HEWITT.

8.1 Fees. In consideration of the rights and opportunities granted to HSBC herein, including the rights granted in Article 6, and the performance of services and expense incurred by Jackson Hewitt in connection with the Program, all of which expenses are either directly or indirectly incurred for the benefit of HSBC, HSBC shall pay to Jackson Hewitt, a fee as follows:

[*] designates portions of this document that have been omitted pursuant to a request for confidential treatment filed separately with the Securities and Exchange Commission.

(a) HSBC shall pay to Jackson Hewitt, (except as designated below) for Tax Season 2006 [*].

(b) HSBC shall pay to Jackson Hewitt, (except as designated below) for Tax Season 2007 [*].

(c) The above consideration shall be due and paid in three equal installments each Tax Season. For Tax Season 2006, the first two installments shall be due and paid no later than March 1, 2006, and the third installment shall be due and paid no later than the last Business Day of March 2006. For Tax Season 2007, the three installments shall be due and paid no later than the last Business Day of January, February, and March 2007 respectively.

(d) Jackson Hewitt shall have the right to direct HSBC to make payments pursuant to this Article 8, directly to other entities or third parties.

8.2 Financial Products. The parties agree that Jackson Hewitt shall have no right to any fees earned by HSBC (or its Originator) for Financial Products. The parties agree that HSBC (or the Originator) is the sole owner of the loans made under the Program.

9. TERM; TERMINATION.

9.1 Term of Agreement. This Agreement shall be effective upon its execution and be deemed effective as of January 1, 2006 and applicable to the Program for Tax Season 2006 and the related preseason period. This Agreement shall terminate and expire on October 31, 2007, unless extended in accordance the terms of this Agreement (the “Term”).

9.2 Termination.

(a) Any party may terminate this Agreement (i) on the tenth (10th) day after receipt of written notice or in the case of the period from November 1 to April 15 the twentieth (20) day after receipt of written notice, by a party during a Tax Season, of its material breach of the performance of its obligations or duties hereunder (provided that the breaching party has failed to cure such breach within such ten-day period); (ii) the offering of the Program is no longer feasible or practical due to legal, legislative or regulatory events, determinations, enactments or interpretations; (iii) the IRS eliminates the debt indicator; or (iv) [*]. In the case of (ii), (iii) and (iv), such termination shall only be effective after a party first delivers notice requesting a meeting to discuss issues surrounding potential termination, and thereafter the parties mutually endeavored in good faith to employ commercially reasonable efforts to resolve such matter for a period of no less than ten (10) days after receipt of such notice. To be effective, the foregoing notice with respect to clause (iv) above must be delivered no later than October 31, 2006, except in the case of Participation Agreements, which shall be delivered on December 29, 2006. After such respective dates, the respective termination rights set forth in clause (iv) shall expire. The termination rights set forth herein shall be the sole and exclusive remedy for the matters covered in subsections (ii), (iii) and (iv) above, except that with respect to subsections (iv) above, it shall

also be deemed a breach of this Agreement if Jackson Hewitt has not demonstrated that its operational limitations were commercially reasonable as required by Section 7.2.

(b) HSBC and Beneficial Franchise, on the one hand, or Jackson Hewitt, on the other, may terminate the Agreement, at any time, immediately upon notice to the other parties, (i) upon the filing by or against the other party of any petition in bankruptcy or for reorganization or debt consolidation under the federal bankruptcy laws or under comparable law; (ii) upon the other party’s making of an assignment of all or substantially all of its assets for the benefit of creditors; (iii) upon the application of the other party for the appointment of a receiver or trustee of its assets.

(c) Any party may terminate this Agreement upon the effective date of termination of the Technology Services Agreement; provided, however, if it is ultimately determined that the Technology Services Agreement by and between Jackson Hewitt Technology Services Inc. and HSBC of even date herewith (“Technology Services Agreement”) was wrongfully terminated, then such party shall be liable for wrongful termination under this Agreement.

9.3 Return of Proprietary Information. Upon termination of this Agreement, the parties will return to any furnishing party all proprietary and confidential information received in connection with this Agreement and certify in writing to such furnishing party that such receiving party has not retained any copies of such proprietary or confidential information.

9.4 Survival. The provision of Articles 8 (to the extent the payment due date is prior to the effective date of termination), 9, 10, 11.1, 11.2, 11.3, 11.5, 11.15, 11.16, 11.17, 11.18, 11.19, 11.20, 11.21, 11.22, 11.23, 11.24, and 11.25 shall survive termination of this Agreement.

10. INDEMNIFICATION.

10.1 Indemnification by Jackson Hewitt. Except as otherwise limited by this Agreement, Jackson Hewitt shall indemnify, defend and hold harmless HSBC, its affiliates, parents, and subsidiaries, and their respective officers, directors, employees, agents, successors and permitted assigns, from and against any and all expenses and costs (including, without limitation, reasonable attorneys’ fees), judgments, penalties, liabilities (including amounts paid in settlement or other disposition) in connection with any third party claims, disputes, controversies or litigation or regulatory action arising out of, relating to or resulting from (i) any violation or alleged violation of Applicable Law by Jackson Hewitt or TSA in connection with the Program; (ii) any material breach by Jackson Hewitt of any representation, warranty, covenant or agreement hereunder or (iii) the negligence or willful misconduct of Jackson Hewitt in connection with the performance by it of its obligations under this Agreement.

10.2 Indemnification by HSBC. Except as otherwise limited by this Agreement, HSBC shall indemnify, defend, and hold harmless Jackson Hewitt, its affiliates, parents, and subsidiaries, and their respective officers, directors, employees, agents, successors and permitted assigns, from and against any and all expenses and costs (including, without limitation,

reasonable attorneys’ fees), judgments, penalties, liabilities (including amounts paid in settlement or other disposition) in connection with any third party claims, disputes, controversies, litigation or regulatory action arising out of, relating to or resulting from (i) the Program Protocols (provided that the Program Protocols have been followed), (ii) the administration, offer and sale of Financial Products by HSBC or Originator hereunder; (iii) any violation or alleged violation of Applicable Law (including, without limitation, the Federal Truth in Lending Act or Regulation Z of the Federal Reserve Board or other applicable federal or state banking and consumer finance laws or regulations) by HSBC, Originator or Beneficial Franchise, or solely by the Financial Products; (iv) the use of the names, trademarks, service marks, trade names, service names, and logos of Originator in any materials produced hereunder and approved by HSBC in connection with the Program; (iv) any material breach by HSBC or Beneficial Franchise of any representation, warranty, covenant or agreement hereunder; or (v) the negligence or willful misconduct of HSBC or Beneficial Franchise in connection with the performance by them of their respective obligations under this Agreement.

10.3 Indemnification Procedures. The indemnitee shall promptly notify the indemnitor in writing of any claim that may be the subject of indemnification under this Article 10; provided, however, that the failure of an indemnitee to so notify the indemnitor shall not relieve the indemnitor of its indemnification obligations hereunder to the extent that such failure does not actually prejudice the indemnitor with respect to such claim. The indemnitee shall have the right (but not the obligation) to defend such action or proceeding by retaining attorneys of its own selection to represent it at the indemnitor’s reasonable expense; provided that the indemnitor shall in all events have the right to participate in such defense. Indemnitee shall not compromise or settle any such claim or action without the prior approval of the indemnitor. Indemnitor shall have the right to sole and exclusive control of the matter upon written notice to the indemnitee that indemnitor shall take full responsibility for all costs, fees, obligations and damages associated with such claim. Indemnitor shall not compromise or settle any claim or action without the prior approval of the indemnitee and Indemnitor shall not be permitted to take actions that would materially adversely affect indemnitee. In the event of disagreement among the parties with respect to the settlement or handling of a third party matter, the parties agree to seek the immediate assistance of a mediator to assist the parties in resolving the matter taking into account the detrimental impact of the proposed action or inaction on the parties respective businesses.

11. MISCELLANEOUS

11.1 Privacy. No party shall make any unauthorized disclosure of or use any personal information of individual consumers which it receives from the other party or on the other party’s behalf other than to carry out the purposes for which such information is received, and each party shall comply in all respects with all applicable requirements of Title V of the Gramm-Leach-Bliley Act of 1999 and its implementing regulations and all other privacy regulations or requirements.

11.2 Information Security. Each party has developed, implemented, and will maintain effective information security policies and procedures that include administrative, technical and physical safeguards designed to (i) ensure the security and confidentiality of confidential information provided to the other parties hereunder, (ii) protect against anticipated threats or hazards to the security or integrity of such confidential information, (iii) protect against unauthorized access or use of such confidential information, and (iv) ensure the proper disposal of confidential information. All personnel handling such confidential information have been appropriately trained in the implementation of that party’s information security policies and procedures. Each party regularly audits and reviews its information security policies and procedures to ensure their continued effectiveness and determine whether adjustments are necessary in light of then-current circumstances including, without limitation, changes in technology, customer information systems or threats or hazards to confidential information. In the event of unauthorized access to confidential information or non-public personal information of individual consumers, each party shall cooperate with the other party, provide any notices and information regarding such unauthorized access to appropriate law enforcement agencies and government regulatory authorities, and affected customers which the other party in its sole discretion deems necessary.

11.3 Proprietary and Confidentiality Rights of The Parties. Each of the parties is informed and acknowledges that implementation and operation of the Program will involve the use of certain systems, computer programs, marketing, product development, risk management, and strategy data and/or other data, including business information or trade secrets (“Proprietary Information”) that are proprietary to the respective parties. Each party will retain in confidence all Proprietary Information received in connection with this Agreement and limit access to or disclosure of such Proprietary Information received in connection with this Agreement solely for the purpose of operation of the Program hereunder. To this end, the recipient will employ the same degree of care to avoid disclosure of such information that it employs with respect to its own information that it deems confidential. Such obligation of confidentiality shall not extend to any information which is shown to have been known by the receiving party prior to disclosure to it by the other party or parties hereto or generally known to others engaged in the same trade or business as the furnishing party, or that is or shall become part of public knowledge through no act or omission by the receiving party or its directors, officers, employees, professional advisors, or other representatives, or that shall have been lawfully received by the receiving party from a third party other than professional advisors and other representatives. Notwithstanding the foregoing, HSBC, upon obtaining appropriate consents from Applicants and the prior written consent of Jackson Hewitt, may share data obtained from such Applicant’s Returns and Applications with its affiliates for the purpose of detecting or preventing fraud.

11.4 New Financial Products. Notwithstanding anything to the contrary contained herein, if HSBC, after reasonable prior notice from Jackson Hewitt, does not offer any Operator any financial product(s) which are being facilitated by Operators that are not under the Program, then Jackson Hewitt may make alternative arrangements to provide for such product(s) to be facilitated by such Operator through an alternative financial product provider in those states. The foregoing shall not count against any other requirements of Jackson Hewitt or the Operator

under this Agreement and shall ratably reduce the requirements of Articles 2, 7, and 8 of this Agreement, and Section 6 of the Technology Services Agreement.

11.5 Audit and Report Rights.

(a) During the Term and for a period of one year thereafter, each party shall upon reasonable written request to the other party, provide access to books and records to the other party; (but not to any third parties without the consent of that party, which consent shall not be unreasonably withheld) and cooperate with, and provide to, the other party such assistance as it reasonably may require in connection with such party’s audit of the Program or matters in connection with the exercise of termination rights.

(b) HSBC shall provide Jackson Hewitt with reports as reasonably requested by Jackson Hewitt, the expense of which shall be split evenly between the parties, in order to permit Jackson Hewitt to perform an adequate assessment of internal control over financial reporting (which reports shall permit Jackson Hewitt’s auditors to audit Jackson Hewitt’s internal control over financial reporting and management’s assessment thereof). If Jackson Hewitt desires a SAS 70 report, HSBC shall engage its external auditors and shall provide a copy of such written report to Jackson Hewitt. The cost of providing the SAS 70 report by the external auditors shall be split evenly between the parties.

11.6 Market Research. HSBC may conduct up-front market research and market sizing with respect to product design and pricing related to the Program. In addition, HSBC may conduct market research regarding new products, product enhancements and competitive intelligence. HSBC may collaborate with Jackson Hewitt (i) to determine other uses for market research including creative/direct mail tests, concept tests, strategy refinement, market sizing, client segmentation, and benchmarking, and (ii) on marketing research projects conducted on Customers. All market research performed on Customers shall be shared with Jackson Hewitt, subject to Applicable Law.

11.7 Changes in HSBC Cross Collection Activities

(a) HSBC shall in good faith discuss the cessation or modification of all or any portion of their cross collection practices during the Term of this Agreement at the request of Jackson Hewitt. If, after such discussions, HSBC and Jackson Hewitt mutually agree that such practices should cease or be modified, in whole or in part, HSBC shall, to the extent not prohibited by an agreement with another RAL lender concerning cross collection, comply with terms of any such agreement with Jackson Hewitt.

(b) In the event HSBC is prohibited from complying with any agreement between HSBC and Jackson Hewitt concerning the cessation or modification of any cross collection practices, HSBC shall nonetheless engage such RAL lender in good faith discussions concerning the cessation or modification of cross collection practices as agreed to by HSBC and Jackson Hewitt.

[*] designates portions of this document that have been omitted pursuant to a request for confidential treatment filed separately with the Securities and Exchange Commission.

(c) Unless Jackson Hewitt otherwise consents in writing, HSBC may only enter into a new agreement or otherwise extend the term of an agreement currently in effect with another RAL lender in connection with cross collection practices if the agreement or amendment states that HSBC may terminate the agreement immediately if it makes a reasonable determination that it is required to do so by law, regulation, or regulatory authority.

(d) [*]

11.8 Quarterly Marketing and Post Implementation Strategies Meetings. HSBC and Jackson Hewitt shall participate in meetings on a quarterly basis to discuss strategy, initiatives and the Program generally, with mutually agreed to attendees. HSBC shall bear expenses of at least [*] for such meetings annually.

11.9 Representations. Each party represents and warrants to the others that (i) it is a corporation in good standing, (ii) its execution of this Agreement does not constitute a violation of any agreement or relationship to which it is a party, (iii) it has the right to enter into and perform its obligations hereunder and to grant the rights granted herein, and (iv) its Marks do not infringe upon the copyrights or trademarks of any third parties.

11.10 Agency; No Third Party Beneficiary.

(a) This Agreement does not establish or create a joint venture among Jackson Hewitt or HSBC (or its Originator) and the employees, agents or representatives of the respective parties and the Originator are not the partners, agents or representatives of each other. Except as otherwise provided in this Agreement, no party shall have, or hold itself out as having, any right, power or authority to act or create any obligation, express or implied, on behalf of the other.

(b) No Third Party Beneficiaries. Nothing in this Agreement is intended or shall be construed to give any person, other than the parties hereto, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision contained herein.

11.11 Joint Marketing. The Parties shall engage in joint marketing activities pursuant to this Agreement and any other joint marketing agreement that may be entered into from time to time.

11.12 Assignment. Subject to the next sentence, this Agreement may not be assigned by any party hereto without the prior written consent of the other, which consent shall not be unreasonably withheld. Either party may assign this Agreement to an affiliate of equal or greater

net worth or in connection with a consolidation, merger or sale of all or substantially all of its assets, without the consent of the other party, provided that the successor in interest to such party assumes the obligations of such party hereunder and agrees to be bound by the terms hereof. This Agreement and the covenants and agreements herein contained shall, subject to the provisions of this Section, inure to the benefit of, and be binding upon, the parties hereto and their respective successors and permitted assigns.

11.13 Force Majeure. Either party shall be excused from performance hereunder for failure to perform any of the obligations if (i) such failure to perform occurs by reason of any of the following events (“Force Majeure Events”): act of God, fire, flood, storm, earthquake, tidal wave, communications failure, sabotage, war, military operation, terrorist attack, national emergency, mechanical or electrical breakdown, general failure of the postal or banking system, civil commotion, strikes, or the order, requisition, request or recommendation of any governmental agency or acting governmental authority, or either party’s compliance therewith or government proration, regulation, or priority, or any other similar cause beyond either party’s reasonable control and (ii) such Force Majeure Event is beyond such party’s reasonable control. The party excused from performance shall be excused from performance (i) only after notice from the party whose performance is impaired, (ii) only during the continuance of the Force Majeure Event and (iii) only for so long as such party continues to take reasonable steps to mitigate the effect of the Force Majeure Event and to substantially perform despite the occurrence of the Force Majeure Event. The party whose performance is not impaired may terminate this Agreement upon five (5) consecutive days’ notice during any tax season or upon thirty (30) consecutive days’ notice at any other time, effective immediately upon written notice to such party.

11.14 Public Announcements; Press Releases. The parties hereto will jointly determine the appropriateness, timing, distribution, and content of any press releases and any other public announcements that relate to this Agreement or the parties’ business relationship, or that mentions the other party’s or any of its parents’, affiliates’ or subsidiarys’ names or tradenames, and each party and its affiliates may only issue such a press release or public announcement with the prior consent of the other party, subject in all cases to the requirements of Section 11.15 hereof.

11.15 Confidential Nature of Agreement. The parties agree that the terms of this Agreement shall be kept confidential and may be released by a party to an unaffiliated third party only (i) if required by Applicable Law (including applicable laws of the securities and exchange commission and other regulatory bodies), or in connection with a merger, consolidation, sale of the stock or substantially all of the assets or other significant transaction of a party; provided that the party to whom this Agreement is disclosed is bound by confidentiality restrictions no less stringent than those set forth herein, or (ii) with the prior written consent of the other party hereto.

11.16 DISCLAIMERS. THE OBLIGATIONS OF JACKSON HEWITT, HSBC AND BENEFICIAL FRANCHISE UNDER THIS AGREEMENT ARE IN LIEU OF ALL

WARRANTIES, EXPRESS OR IMPLIED. NONE OF JACKSON HEWITT, HSBC OR BENEFICIAL FRANCHISE SHALL BE LIABLE FOR INCIDENTAL, SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES, LOSS OF PROFITS OR INCOME, LOSS OF USE OR OTHER BENEFITS ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR THE SERVICES PERFORMED HEREUNDER.

11.17 Governing Law. Except to the extent governed by the United States Trademark Act of 1946 (Lanham Act, 15 U.S.C. §§1051 et seq.), or other federal law, this Agreement and all claims arising from the relationship between the parties hereto shall be governed by, and interpreted in accordance with, the laws of the State of Delaware (without regard to its conflict of laws principles).

11.18 Notices. All notices and other communications under this Agreement shall be in writing and may be given by any of the following methods: (a) personal delivery against a signed receipt; (b) facsimile transmission (with confirmation of receipt as provided below); (c) registered or certified mail, postage prepaid, return receipt requested; or (d) overnight delivery service. Notices shall be sent to the appropriate party at its address or facsimile number given below (or as such other address or facsimile number for such party as shall be specified by notice given hereunder):

If to HSBC to:

HSBC Taxpayer Financial Services Inc.

90 Christiana Road

New Castle, DE 19720

Attention: Vice President - Sales

With a copy to: Office of the General Counsel

If to Beneficial Franchise:

Beneficial Franchise Company, Inc.

200 Somerset Corporate Blvd.

Bridgewater, NJ 08807

Attention: Susan E. Artmann

If to Jackson Hewitt:

Jackson Hewitt Inc.

3 Sylvan Way

Parsippany, NJ 07054

Attention: Group Vice President – Financial Products

With a copy to: Office of the General Counsel

All such notices and communications shall be deemed delivered upon (a) actual receipt thereof by the addressee, (b) actual delivery thereof to the appropriate address, or (c) in the case of a facsimile transmission, upon transmission thereof by the sender and issuance by the transmitting machine of a confirmation slip confirming that the number of pages constituting the notice have been transmitted without error. In the case of notices sent by facsimile transmission, the sender shall contemporaneously dispatch a copy of the notice to the addressee at the address(es) indicated above by an overnight courier service. However, such mailing shall in no way alter the time at which the facsimile notice is deemed received.

11.18 Severability; Waiver. If any provision of this Agreement (other than a provision relating to fees or credit criteria) shall for any reason be held invalid, illegal or unenforceable, then the same shall not affect the validity of this Agreement or any other provision hereof, unless such a change has a material impact on any party, and this Agreement shall be interpreted and construed as if such provision to the extent invalid, had not been contained herein. The parties shall in good faith endeavor to redesign the Program or the terms hereof in a manner consistent with the intent and economic effect of this Agreement before terminating this Agreement pursuant to this Section. No waiver of any breach of this Agreement shall be effective unless made in writing and signed by an authorized representative of the waiving party. The waiver by any party of any breach hereof shall not operate or be interpreted as a waiver of any other or subsequent breach.

11. 19 Commitment to Negotiation.

(a) Negotiation. Except with respect to a party’s wrongful use of the Marks of the other party for which the aggrieved party may seek injunctive or such other relief as such aggrieved party may deem appropriate, or litigation brought against either party by third parties, no party hereto shall institute any proceeding in any court or administrative agency or any arbitration to resolve a dispute among the parties before that party has sought to resolve the dispute through direct negotiation with the other parties. If the dispute is not resolved within three weeks after a demand for direct negotiation, the parties may then seek alternative methods of resolution.

(b) Consent to Jurisdiction. The parties agree that any other party may institute any action against it in any state or federal court of competent jurisdiction located in the City of New York, State of New York and irrevocably submits to the jurisdiction of such courts and waives any objection it may have to either the jurisdiction of or venue in such courts. This provision, however, shall not prevent a party from filing suit in any other court of competent jurisdiction if it chooses to do so.

11.20 WAIVER OF JURY TRIAL. THE PARTIES HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY SUIT, ACTION, PROCEEDING OR COUNTERCLAIM CONCERNING ANY RIGHTS UNDER THIS AGREEMENT, ANY RELATED DOCUMENT OR UNDER ANY OTHER DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH, OR ARISING FROM ANY RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT, AND AGREE

THAT ANY SUCH SUIT, ACTION, PROCEEDING OR COUNTERCLAIM SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES ENTERING INTO THIS AGREEMENT.

11.21 Entire Agreement. This Agreement, together with all Exhibits hereto, including any related agreements, and the Technology Service Agreement represents the entire agreement between the parties with respect to the subject matter set forth herein and each party represents and warrants to the other that there are no oral understandings between or among them or other written documents that differ from the terms and conditions of this Agreement. This Agreement may be modified only by a written agreement, signed by the party against whom enforcement is sought.

11.22 Termination of Agreements. The Amended and Restated Program Agreement made effective on January 1, 2003, by and between Jackson Hewitt, Beneficial Franchise and Household Tax Masters Inc., now known as HSBC Taxpayer Financial Services Inc. and that certain Flexloan Operations Agreement dated as of January 1, 2004, by and between Jackson Hewitt and Household Tax Masters Inc., now known as HSBC Taxpayer Financial Services Inc. are terminated as of the effective date of the Agreement.

11.23 Headings; Construction. Headings used in this Agreement are for reference purposes only and in no way define, limit, construe or describe the scope or extent of such section or in any way affect this Agreement.

11.24 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of, which shall be taken together and deemed to be one instrument.

11.25 Further Assurance. From time to time after the execution of this Agreement, each party shall execute and deliver, or cause to be executed and delivered, all such documents and instruments as may be reasonably necessary to consummate the transactions contemplated by this Agreement.

[Remainder Intentionally Left Blank]

The parties have executed and delivered this Agreement as of the day and year first above written.


WITNESS:	HSBC TAXPAYER FINANCIAL SERVICES INC.

/s/ Susan E. Artmann	By:	/s/ Reynold F. Sbrilli
	Name:	Reynold F. Sbrilli
	Title:	Senior Vice President

WITNESS:	BENEFICIAL FRANCHISE COMPANY, INC.

/s/ Reynold F. Sbrilli	By:	/s/ Susan E. Artmann
	Name:	Susan E. Artmann
	Title:	Vice President

WITNESS:	JACKSON HEWITT INC.

/s/ Clark Gill	By:	/s/ Bill San Giacomo
	Name:	Bill San Giacomo
	Title:	Group Vice President – Financial Products

Exhibit 4.11

[*] Designates portions of this document that have been omitted pursuant to a request for confidential treatment filed separately with the Securities and Exchange Commission.

[*]

Hosted by www.Geocities.ws

EX-10.32 3 dex1032.htm TECHNOLOGY SERVICES AGREEMENT, DATED FEBRUARY 24, 2006 Technology Services Agreement, dated February 24, 2006

Exhibit 10.32

[*] designates portions of this document that have been omitted pursuant to a request for confidential treatment filed separately with the Securities and Exchange Commission.

TECHNOLOGY SERVICES AGREEMENT

This Technology Services Agreement (“Agreement”) dated this 24 day of February, 2006, between JACKSON HEWITT TECHNOLOGY SERVICES INC., a Delaware corporation (the “Company”) with its principal place of business at 100 Arthur Andersen Parkway, Sarasota, Florida 34232, and HSBC TAXPAYER FINANCIAL SERVICES INC., a Delaware corporation, with offices located at 90 Christiana Road, New Castle, Delaware (“HSBC”).

Recitals

WHEREAS, Jackson Hewitt Inc. (“Jackson Hewitt”) (i) is the franchisor of the Jackson Hewitt Tax Service^® tax preparation system to independently owned and operated franchisees (“Franchisees”) and (ii) through Tax Service of America, Inc. a wholly owned subsidiary owns and operates tax preparation offices (“Corporate Stores,” and, together with Franchisees, “Operators”); and

WHEREAS, The Operators provide to customers computerized federal and state individual income tax return preparation with electronic filing and offer or facilitate related services; and

WHEREAS, HSBC administers and its affiliate offers certain financial products to customers of tax service companies; and

WHEREAS, simultaneous with the execution of this Agreement, HSBC and its affiliate Beneficial Franchise Company, Inc. are entering into an agreement with Jackson Hewitt with respect to a program whereby HSBC shall administer and its affiliate shall offer financial products to certain customers of Jackson Hewitt Tax Service (the “Program”), upon the terms and conditions set forth therein (the “Program Agreement”); and

WHEREAS, HSBC desires, and the Company agrees to provide, certain technology services, personnel and related support to HSBC and Operators in connection with the Program.

1. DEFINITIONS. In addition to the other definitions set forth in the Agreement, the following terms are defined as follows:

1.2 “Applicant” shall mean an individual electing to apply for a Financial Product at the office location of an Operator in connection with the Program.

1.3 “Application” shall mean one or more HSBC Financial Product application forms to be used by an Applicant, including any supplemental application forms.

1.4 “Applicable Law” shall mean all applicable federal, state and local laws, rules and regulations.

1.5 “Business Day” shall mean any day that is not a Saturday, Sunday legal holiday or other day on which banks in the state of New York are required or permitted to be closed.

1.6 “Customer” shall mean a Jackson Hewitt Tax Service customer that was also a customer of one of the financial institutions that provided financial products facilitated by Jackson Hewitt Tax Service offices and such customer received a RAL, a funded Federal ACR, or a funded State ACR from such financial institution. For purposes of this definition, joint borrowers or joint recipients of such a financial product shall constitute one “Customer” and a customer that receives a RAL or a funded Federal ACR and a funded State ACR shall count as two “Customers’.

1.7 “EFS Requirements” shall mean the technology requirements provided by HSBC with respect to the systems operating the Program.

1.8 “Financial Product” shall mean any product offered by the Originator under the Program, including, without limitation, RAL, Money Now^SM Loan, ACR, HELP^® Loan, Flex Loan, and any similar product or any such product as modified, as offered from time to time.

1.9 “IRS” shall mean the Internal Revenue Service.

1.10 “Marks” shall mean the names, trademarks, service marks, trade names, service names, and logos of a party that are designated by such party for use by the other, as the same may be amended from time to time.

1.11 “Money Now Loan” shall mean a Money Now Loan (pf) and Money Now Loan (std) collectively.

1.12 “Money Now Loan (pf)” shall mean a loan by the Originator to an Applicant based on, among other things, the Applicant’s anticipated Federal income tax refund, with proceeds of such loan available on the same day the loan is approved by the Originator, offered in the month of January and without a final tax return being prepared and filed with the IRS at the time.

1.13 “Money Now Loan (std)” shall mean a loan by the Originator to an Applicant based on, among other things, the Applicant’s anticipated Federal income tax refund, with proceeds of such loan available on the same day the loan is approved by the Originator, with a final tax return being prepared and filed with the IRS in the same office visit as the Applicant applies for such a

loan, or if the Applicant applies prior to the first day of electronic filing, the final return being filed on the first day of electronic filing.

1.14 “New Financial Products” shall mean financial products that are not Financial Products.

1.15 “Originator” shall mean the affiliate of HSBC designated to offer Financial Products under the Program.

1.16 “Program Protocols” shall mean those processes and procedures developed by HSBC for offering Financial Products pursuant to the Program, including, but not limited to, EFS Requirements, Quick Reference Guide, HSBC Bank Book materials, and the HSBC Bank Product Compliance Training materials.

1.18 “RAL” shall mean a refund anticipation loan based upon, among other things, and secured by, an Applicant’s anticipated Federal income tax refund.

2. THE SERVICES.

2.1 The Services. In advance of each Tax Season, the Company and HSBC shall mutually agree on the technology needs related to the Program including systems and software modification, incorporation and implementation of EFS Requirements in, and the coordination of systems between Profiler^®, the Jackson Hewitt Tax Service electronic filing software program and the related systems and servers (“Profiler”) and HSBC’s systems Each party shall provide additional technology services upon the terms and conditions to be agreed in writing with HSBC. This Agreement applies to the services set forth herein to be performed in connection with the facilitation of Financial Products by Jackson Hewitt Tax Service locations during the Tax Season.

2.2 Deliverables. In advance of each Tax Season, The Company and HSBC shall agree in writing as to the deliverables required under this Agreement for the next Tax Season (or other related period) and the timeline of the required deliverables. In the event the parties are unable to reach agreement on the scope of deliverables or related timeline, the parties shall seek the assistance of a mediator to assist them in such efforts. Each party shall use reasonable efforts to implement all requested deliverables, but shall not be held liable for matters not completed for the beginning of a Tax Season if such requests have not been agreed to before

October 31^st preceding a Tax Season. Notwithstanding the foregoing, the parties shall use their commercially reasonable best efforts to implement all deliverables that are required in order to comply with Applicable Law.

2.3 New Financial Products. The parties shall devote sufficient time and resources to implement technology solutions for the introduction of New Financial Products into the Program.

3. RIGHTS, DUTIES AND OBLIGATIONS OF THE COMPANY.

3.1 Personnel. The Company shall devote a reasonable number of employees to meet its obligations under this Agreement.

3.2 Training. The Company shall devote employees and resources as it deems necessary to provide training to Operators and corporate staff in connection with the operation of Profiler in connection with the Program.

3.3 Profiler Requirements. Subject to Article 2 above, Profiler shall provide for:

(a) the electronic transmission of Applications to HSBC or the Originator, including extracting all relevant Financial Product data from the IRS transmission file each time a Return for an Applicant is sent to the IRS in accordance with the Electronic Data Processing Guidelines provided by HSBC in advance of each Tax Season.

(b) the display of required interview questions with respect to Financial Products.

(c) the retention of an electronic copy of the forms of all Program documents for a period of five years from the date on such documents (after which time such documents may be deleted in accordance with applicable legal requirements).

(d) the printing of required documents including, the Application (other than paper Applications), IRS Form 8453 or similar form, and Loan Agreement and Disclosure Statement.

(e) the printing of HSBC disbursement checks at designated locations with the ability to affix a facsimile signature of the authorized signatory of the Originator.

3.4 System Errors. The Company shall consult with HSBC to develop a system for eliminating transmission errors, to the extent practicable.

3.5 Support. The Company shall operate a call center to support Operators in connection with the operation of Profiler as it relates to the facilitation of the Program.

3.6 Computer Network. The Company shall establish and maintain a technology and communication center, at a location designated by the Company, for use in electronically transmitting Returns, Applications and other related materials to HSBC.

3.7 Systems. The Company shall provide HSBC with all necessary information needed for HSBC or the Originator to coordinate systems and information.

3.8 Program Deliverables. The Company shall cooperate and consult with HSBC in accordance with Article 2 to agree on deliverables for a Tax Season and the related timeline.

3.9 System Changes. Unless required by law or otherwise agreed, the Company shall not alter its existing systems and software in such a manner that would result in the inability of the system to communicate with HSBC’s system in the general manner in which it communicated for the preceding Tax Season.

3.10 Availability. The Company shall be available during business hours and reasonably at all other times for consultation to HSBC to assist in timely completion of deliverables and continuation of operations during Tax Season.

3.11 Forwarding Applications to HSBC. The Company shall incorporate or cause to be incorporated electronic filing software requirements provided by HSBC into its electronic filing software program relating to Applications. The Company shall extract all Money Now Loan and RAL data from its IRS transmission file each time a return for an Applicant is sent to the IRS in accordance with the Electronic Data Processing Guidelines provided by HSBC from time to time. The Company shall not forward an Application for a RAL or ACR to HSBC without having electronically transmitted or caused to be transmitted the Applicant’s return to the IRS, and shall not forward an Application for a Money Now Loan (std) without transmitting or causing to be transmitted the Applicants return to the IRS on the same day (and if it is done before the start of electronic filing, it must be done on the first day of electronic filing) and with respect to a RAL Application only, without having received acknowledgment of the return’s acceptance from the IRS for Electronic Filing, which acknowledgment shall also include, if available and currently provided, the reason the return was rejected, as described in Chapter 3 of the IRS e-file Handbook for Authorized IRS e-file Providers of Individual Income Tax Returns (Publication 1345, including Rev. Proc. 2000-31), as the same may be amended from time to time. Jackson Hewitt shall also forward customer’s electronically filed tax return information simultaneously with or promptly after the Application is transmitted to HSBC.

4. RIGHTS, DUTIES AND OBLIGATIONS OF HSBC.

4.1 Program Deliverables. HSBC shall cooperate and consult with the Company in accordance with Article 2 to agree on deliverables for a Tax Season and the related timeline

4.2 Systems.

(a) System Changes. Unless required by law or otherwise agreed, HSBC shall not alter its existing systems and software in such a manner that would result in the inability of the system to communicate with the Company’s system in the general manner in which it communicated for the preceding Tax Season.

(b) HSBC acknowledges that Profiler is distributed to Jackson Hewitt Tax Service offices nationally and to Operators through multiple locations and not all of which will participate in the Program or Profiler as it relates to the Program as developed under this Agreement and that certain Program requirements or requests as they relate to Profiler will not be reasonable or practicable due to the needs and requirements of Jackson Hewitt, and the operation of Jackson Hewitt’s business and Profiler. Toward that end, HSBC agrees that it will use its commercially reasonable efforts to accommodate reasonable requests of the Company with respect to the deliverables and Program to ensure that the Company’s programs are not inconsistent, impractical or unduly burdensome on the Company or the operation of the Jackson Hewitt Tax Service business.

(c) HSBC shall provide the Company with all necessary information needed from HSBC or the Originator to create and populate required documents, including information related to the deposit account for Customers created for the respective Financial Product.

4.3 Availability. HSBC shall be available during business hours and reasonably at all other times for consultation to the Company to assist in timely completion of deliverables and continuation of operations during Tax Season.

4.4 Reports. HSBC shall provide, in a timely fashion, such reports to Jackson Hewitt as Jackson Hewitt reasonably may request, including ad hoc reports as well as reports prepared by HSBC for HSBC’s own use regarding Customers; provided that HSBC is not required to provide reports which contain information regarding other transmitters, non-Customers or proprietary risk model information. HSBC shall otherwise notify and discuss trend information with Jackson Hewitt. In addition, HSBC shall also provide, in a timely fashion, on a monthly basis the reports attached hereto as Exhibit 4.4 HSBC covenants and agrees that all reports will be true, correct and complete in all respects.

4.5 HSBC acknowledges and agrees (i) to keep all information with respect to Profiler and the modifications and developments hereunder confidential; and (ii) that the Company maintains sole and exclusive ownership rights in Profiler as modified, and further disclaims on behalf of itself and all other persons any ownership or purported ownership rights in the same.

4.6 Maintenance of Communication Lines. HSBC shall maintain communication lines for the Jackson Hewitt Tax Service e-file processing system to support the maximum daily Financial Product volume projected by the Company, as well as full Application follow-up information using such protocol and process as is mutually agreed upon by the Company and HSBC.

4.7 Maintenance of Communication Lines. HSBC shall maintain communication lines for the HSBC processing center to support the Program, using such protocol and process as is mutually agreed upon by HSBC and the Company. HSBC shall also maintain the ability to electronically communicate with HSBC’s affiliates for the purpose of fulfilling HSBC’s duties under the Program.

[*] designates portions of this document that have been omitted pursuant to a request for confidential treatment filed separately with the Securities and Exchange Commission.

4.8 File Sharing. HSBC shall provide certain processing files for use during each Tax Season to the Company sufficiently in advance of each product launch each Tax Season.

4.9 Management and Technical Support

(b) In the event any persons currently employed in such roles set forth in paragraph (a) above leaves such role, HSBC shall promptly find a replacement in order to maintain service levels and provide the Company notice of such event and the name of such replacement. Such replacement must be reasonably acceptable to the Company. In the event such replacement is not reasonably acceptable to The Company, HSBC shall endeavor to satisfy the Company’s reasonable requests. In any event, HSBC shall reimburse the Company for any additional costs of resources required to maintain existing service levels after such original departure occurred.

5. LICENSE OF CERTAIN RIGHTS.

5.1 License of Trademarks. During the Term and subject to the terms and conditions of this Agreement, each of HSBC and the Company hereby grants to the other a non-exclusive, non-assignable and royalty-free right and license to use, reproduce and display its Marks and the Marks of their respective affiliates relating to the Program, solely in connection with the Program and Profiler. Neither party shall at any time adopt or use, or seek to register, without the other party’s prior written consent, any variation of such other party’s Marks, or any mark similar thereto or likely to be confused therewith. Any and all goodwill arising from either party’s use of the other party’s Marks shall inure solely to the benefit of such other party, and neither during nor after the termination of this Agreement shall either party assert any claim to the other party’s Marks or goodwill. Neither party shall use the Marks of the other for any purpose except the purposes specifically set forth herein. All rights in and to the Marks of a party which are not specifically granted to the other herein shall remain with such party.

6. FEES PAID TO THE COMPANY.

6.1 Fees. In consideration of the performance of services hereunder, HSBC shall pay to the Company, fees as follows:

(a) HSBC shall pay to the Company for Tax Season 2006 [*].

[*] designates portions of this document that have been omitted pursuant to a request for confidential treatment filed separately with the Securities and Exchange Commission.

(b) HSBC shall pay to the Company for Tax Season 2007 [*].

(d) For Tax Season 2007, HSBC shall pay additional consideration to the Company for additional services performed and additional resources required to support expansion in the Program over such Tax Seasons. [*]

6.2 Financial Products. The parties agree that the Company shall have no right to any fees earned by HSBC in connection with its offering Financial Products.

7. TERM; TERMINATION.

7.1 Term of Agreement. This Agreement shall be effective upon its execution and be deemed effective as of January 1, 2006, and applicable to the Program for Tax Season 2006 and the related preseason period and to the Program for Tax Season 2007. This Agreement shall terminate and expire on October 31, 2007, unless extended by written agreement of the parties (the “Term”).

7.2 Termination.

(a) Any party may terminate this Agreement (i) on the tenth (10th) day after receipt of written notice, or in the case of the period from November 1 to April 15the twentieth (20^th) day after receipt of a written notice, by a party during a Tax Season, of its material breach of the performance of its obligations or duties hereunder (provided that the breaching party has failed to cure such breach within such ten-day period); or (ii) immediately upon the effective date of termination of the Program Agreement; provided however if it is ultimately determined that the Program Agreement was wrongfully terminated, then such party shall be liable for wrongful termination under this Agreement.

(b) HSBC and Beneficial Franchise, on the one hand, or The Company, on the other, may terminate the Agreement, at any time, immediately upon notice to the other parties, (i) upon the filing by or against the other party of any petition in bankruptcy or for reorganization or debt consolidation under the federal bankruptcy laws or under comparable law; (ii) upon the other party’s making of an assignment of all or substantially all of its assets for the benefit of creditors; (iii) upon the application of the other party for the appointment of a receiver or trustee of its assets.

7.3 Return of Proprietary Information. Upon termination of this Agreement, the parties will return to any furnishing party all proprietary and confidential information received in

connection with this Agreement and certify in writing to such furnishing party that such receiving party has not retained any copies of such proprietary or confidential information.

7.4 Survival. The provision of Articles 6 (to the extent the payment due date is prior to the effective date of termination), 7, 8, and 9 shall survive termination of this Agreement.

8. INDEMNIFICATION.

8.1 Indemnification by The Company. Except as otherwise limited by this Agreement, the Company shall indemnify, defend and hold harmless HSBC, its affiliates, parents, and subsidiaries, and their respective officers, directors, employees, agents, successors and permitted assigns, from and against any and all expenses and costs (including, without limitation, reasonable attorneys’ fees), judgments, penalties, liabilities (including amounts paid in settlement or other disposition) in connection with any third party claims, disputes, controversies or litigation arising out of, relating to or resulting from (i) any violation or alleged violation of Applicable Law by the Company in connection with this Agreement; (ii) any material breach by the Company of any representation, warranty, covenant or agreement hereunder or (iii) the negligence or willful misconduct of the Company in connection with the performance by it of its obligations under this Agreement.

8.2 Indemnification by HSBC. Except as otherwise limited by this Agreement, HSBC shall indemnify, defend, and hold harmless the Company, its affiliates, parents, and subsidiaries, and their respective officers, directors, employees, agents, successors and permitted assigns, from and against any and all expenses and costs (including, without limitation, reasonable attorneys’ fees), judgments, penalties, liabilities (including amounts paid in settlement or other disposition) in connection with any third party claims, disputes, controversies, litigation or regulatory action arising out of, relating to or resulting (i) any violation or alleged violation of Applicable Law by HSBC in connection with this Agreement, (ii) any material breach by HSBC of any representation, warranty, covenant or agreement hereunder; or (iii) the negligence or willful misconduct of HSBC in connection with the performance by them of their respective obligations under this Agreement.

8.3 Indemnification Procedures. The indemnitee shall promptly notify the indemnitor in writing of any claim that may be the subject of indemnification under this Article 8; provided, however, that the failure of an indemnitee to so notify the indemnitor shall not relieve the indemnitor of its indemnification obligations hereunder to the extent that such failure does not actually prejudice the indemnitor with respect to such claim. The indemnitee shall have the right (but not the obligation) to defend such action or proceeding by retaining attorneys of its own selection to represent it at the indemnitor’s reasonable expense; provided that the indemnitor shall in all events have the right to participate in such defense. Indemnitee shall not compromise or settle any such claim or action without the prior approval of the indemnitor. Indemnitor shall have the right to sole and exclusive control of the matter upon written notice to the indemnitee that indemnitor shall take full responsibility for all costs, fees, obligations and damages

associated with such claim. Indemnitor shall not compromise or settle any claim or action without the prior approval of the indemnitee and Indemnitor shall not be permitted to take actions that would materially adversely affect indemnitee. In the event of disagreement among the parties with respect to the settlement or handling of a third party matter, the parties agree to seek the immediate assistance of a mediator to assist the parties in resolving the matter taking into account the detrimental impact of the proposed action or inaction on the parties respective businesses

9. MISCELLANEOUS

9.1 Privacy. No party shall make any unauthorized disclosure of or use any personal information of individual consumers which it receives from the other party or on the other party’s behalf other than to carry out the purposes for which such information is received, and each party shall comply in all respects with all applicable requirements of Title V of the Gramm-Leach-Bliley Act of 1999 and its implementing regulations and all other privacy regulations or requirements.

9.2 Information Security. Each party has developed, implemented, and will maintain effective information security policies and procedures that include administrative, technical and physical safeguards designed to (i) ensure the security and confidentiality of confidential information provided to the other parties hereunder, (ii) protect against anticipated threats or hazards to the security or integrity of such confidential information, (iii) protect against unauthorized access or use of such confidential information, and (iv) ensure the proper disposal of confidential information. All personnel handling such confidential information have been appropriately trained in the implementation of that party’s information security policies and procedures. Each party regularly audits and reviews its information security policies and procedures to ensure their continued effectiveness and determine whether adjustments are necessary in light of then-current circumstances including, without limitation, changes in technology, customer information systems or threats or hazards to confidential information. In the event of unauthorized access to confidential information or non-public personal information of individual consumers, each party shall cooperate with the other party, provide any notices and information regarding such unauthorized access to appropriate law enforcement agencies and government regulatory authorities, and affected customers which the other party in its sole discretion deems necessary.

9.3 Proprietary and Confidentiality Rights of The Parties. Each of the parties is informed and acknowledges that implementation and operation of the Program will involve the use of certain systems, computer programs, marketing, product development, risk management, and strategy data and/or other data, including business information or trade secrets (“Proprietary Information”) that are proprietary to the respective parties. Each party will retain in confidence all Proprietary Information received in connection with this Agreement and limit access to or disclosure of such Proprietary Information received in connection with this Agreement solely for the purpose of operation of the Program hereunder. To this end, the recipient will employ the same degree of care to avoid disclosure of such information that it employs with respect to its own information that it deems confidential. Such obligation of confidentiality shall not extend to

any information which is shown to have been known by the receiving party prior to disclosure to it by the other party or parties hereto or generally known to others engaged in the same trade or business as the furnishing party, or that is or shall become part of public knowledge through no act or omission by the receiving party or its directors, officers, employees, professional advisors, or other representatives, or that shall have been lawfully received by the receiving party from a third party other than professional advisors and other representatives. Notwithstanding the foregoing, HSBC, upon obtaining appropriate consents from Applicants and the prior written consent of The Company, may share data obtained from such Applicant’s Returns and Applications with its affiliates for the purpose of offering financial products which are not offered by The Company and for the purpose of detecting or preventing fraud.

9.4 Audit and Report Rights.

9.5 Representations. Each party represents and warrants to the others that (i) it is a corporation in good standing, (ii) its execution of this Agreement does not constitute a violation of any agreement or relationship to which it is a party, (iii) it has the right to enter into and perform its obligations hereunder and to grant the rights granted herein, and (iv) its Marks do not infringe upon the copyrights or trademarks of any third parties.

9.6 Agency; No Third Party Beneficiary.

(a) This Agreement does not establish or create a joint venture among the Company or HSBC (or its Originator) and the employees, agents or representatives of the respective parties and the Originator are not the partners, agents or representatives of each other. Except as otherwise provided in this Agreement, no party shall have, or hold itself out as having, any right, power or authority to act or create any obligation, express or implied, on behalf of the other.

9.7 Assignment. Subject to the next sentence, this Agreement may not be assigned by any party hereto without the prior written consent of the other, which consent shall not be unreasonably withheld. Either party may assign this Agreement to an affiliate of equal or greater net worth or in connection with a consolidation, merger or sale of all or substantially all of its assets, without the consent of the other party, provided that the successor in interest to such party assumes the obligations of such party hereunder and agrees to be bound by the terms hereof. This Agreement and the covenants and agreements herein contained shall, subject to the provisions of this Section, inure to the benefit of, and be binding upon, the parties hereto and their respective successors and permitted assigns.

9.8 Force Majeure. Either party shall be excused from performance hereunder for failure to perform any of the obligations if (i) such failure to perform occurs by reason of any of the following events (“Force Majeure Events”): act of God, fire, flood, storm, earthquake, tidal wave, communications failure, sabotage, war, military operation, terrorist attack, national emergency, mechanical or electrical breakdown, general failure of the postal or banking system, civil commotion, strikes, or the order, requisition, request or recommendation of any governmental agency or acting governmental authority, or either party’s compliance therewith or government proration, regulation, or priority, or any other similar cause beyond either party’s reasonable control and (ii) such Force Majeure Event is beyond such party’s reasonable control. The party excused from performance shall be excused from performance (i) only after notice from the party whose performance is impaired, (ii) only during the continuance of the Force Majeure Event and (iii) only for so long as such party continues to take reasonable steps to mitigate the effect of the Force Majeure Event and to substantially perform despite the occurrence of the Force Majeure Event. The party whose performance is not impaired may terminate this Agreement upon five (5) consecutive days’ notice during any tax season or upon thirty (30) consecutive days’ notice at any other time, effective immediately upon written notice to such party.

9.9 Public Announcements. The parties hereto will jointly determine the appropriateness, timing, distribution, and content of any press releases and any other public announcements that relate to this Agreement or the parties’ business relationship, subject in all cases to the requirements of Section 9.10 hereof.

9.10 Confidential Nature of Agreement. The parties agree that the terms of this Agreement shall be kept confidential and may be released by a party to an unaffiliated third party only (i) if required by Applicable Law (including applicable laws of the securities and exchange commission and other regulatory bodies), or in connection with a merger, consolidation, sale of the stock or substantially all of the assets or other significant transaction of a party; provided that the party to whom this Agreement is disclosed is bound by confidentiality restrictions no less stringent than those set forth herein, or (ii) with the prior written consent of the other party hereto.

9.11 DISCLAIMERS. THE OBLIGATIONS OF THE COMPANY AND HSBC UNDER THIS AGREEMENT ARE IN LIEU OF ALL WARRANTIES, EXPRESS OR IMPLIED. NONE OF THE COMPANY OR HSBC SHALL BE LIABLE FOR INCIDENTAL, SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES, LOSS OF PROFITS OR INCOME, LOSS OF USE OR OTHER BENEFITS ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR THE SERVICES PERFORMED HEREUNDER.

9.12 Governing Law. Except to the extent governed by the United States Trademark Act of 1946 (Lanham Act, 15 U.S.C. §§1051 et seq.), or other federal law, this Agreement and all claims arising from the relationship between the parties hereto shall be governed by, and interpreted in accordance with, the laws of the State of Delaware (without regard to its conflict of laws principles).

9.13 Notices. All notices and other communications under this Agreement shall be in writing and may be given by any of the following methods: (a) personal delivery against a signed receipt; (b) facsimile transmission (with confirmation of receipt as provided below); (c) registered or certified mail, postage prepaid, return receipt requested; or (d) overnight delivery service. Notices shall be sent to the appropriate party at its address or facsimile number given below (or as such other address or facsimile number for such party as shall be specified by notice given hereunder):

If to HSBC to:

HSBC TAXPAYER FINANCIAL SERVICES INC.

90 Christiana Road

New Castle, DE 19720

Attention: Vice President - Sales

With a copy to: Office of the General Counsel

If to Jackson Hewitt Technology Services Inc:

c/o Jackson Hewitt Technology Services Inc.

3 Sylvan Way

Parsippany, NJ 07054

Attention: Group Vice President – Financial Products

With a copy to: Office of the General Counsel

transmitting machine of a confirmation slip confirming that the number of pages constituting the notice have been transmitted without error. In the case of notices sent by facsimile transmission, the sender shall contemporaneously dispatch a copy of the notice to the addressee at the address(es) indicated above by an overnight courier service. However, such mailing shall in no way alter the time at which the facsimile notice is deemed received.

9.14 Severability; Waiver. If any provision of this Agreement (other than a provision relating to fees) shall for any reason be held invalid, illegal or unenforceable, then the same shall not affect the validity of this Agreement or any other provision hereof, unless such a change has a material impact on any party, and this Agreement shall be interpreted and construed as if such provision to the extent invalid, had not been contained herein. The parties shall in good faith endeavor to redesign the Program or the terms hereof in a manner consistent with the intent and economic effect of this Agreement before terminating this Agreement pursuant to this Section. No waiver of any breach of this Agreement shall be effective unless made in writing and signed by an authorized representative of the waiving party. The waiver by any party of any breach hereof shall not operate or be interpreted as a waiver of any other or subsequent breach.

9.15 Commitment to Negotiation.

9.16 WAIVER OF JURY TRIAL. THE PARTIES HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY SUIT, ACTION, PROCEEDING OR COUNTERCLAIM CONCERNING ANY RIGHTS UNDER THIS AGREEMENT, ANY RELATED DOCUMENT OR UNDER ANY OTHER DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH, OR ARISING FROM ANY RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT, AND AGREE THAT ANY SUCH SUIT, ACTION, PROCEEDING OR COUNTERCLAIM SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES ENTERING INTO THIS AGREEMENT.

9.17 Entire Agreement. This Agreement, together with all Exhibits hereto, including any related agreements, and the Program Agreement represents the entire agreement between the parties with respect to the subject matter set forth herein and each party represents and warrants to the other that there are no oral understandings between or among them or other written documents that differ from the terms and conditions of this Agreement. This Agreement may be modified only by a written agreement, signed by the party against whom enforcement is sought.

9.18 Headings; Construction. Headings used in this Agreement are for reference purposes only and in no way define, limit, construe or describe the scope or extent of such section or in any way affect this Agreement.

9.19 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of, which shall be taken together and deemed to be one instrument.

9.20 Further Assurance. From time to time after the execution of this Agreement, each party shall execute and deliver, or cause to be executed and delivered, all such documents and instruments as may be reasonably necessary to consummate the transactions contemplated by this Agreement.

The parties have executed and delivered this Agreement as of the day and year first above written.


WITNESS:	HSBC TAXPAYER FINANCIAL SERVICES INC.

/s/ Susan E. Artmann	By:	/s/ Reynold F. Sbrilli

	Name:	Reynold F. Sbrilli
	Title:	Senior Vice President

WITNESS:	JACKSON HEWITT TECHNOLOGY SERVICES INC.

/s/ Clark Gill	By:	/s/ Bill SanGiacomo

	Name:	Bill SanGiacomo
	Title:	Group Vice President, Financial Products

Exhibit 4.4

[*]	Designates portion of this document that have been omitted pursuant to a request for confidential treatment filed separately with the Securities and Exchange Commission.

[*]

Annex I

[*] Designates portions of this document that have been omitted pursuant to a request for confidential treatment filed separately with the Securities and Exchange Commission.

[*]

Hosted by www.Geocities.ws

EX-10.33 4 dex1033.htm PROGRAM AGREEMENT, DATED AS OF FEBRUARY 24, 2006 Program Agreement, dated as of February 24, 2006

Exhibit 10.33

[*] designates portions of this document that have been omitted pursuant to a request for confidential treatment filed separately with the Securities and Exchange Commission.

PROGRAM AGREEMENT

THIS PROGRAM AGREEMENT (“Agreement”) is made this 24th day of February, 2006 by and between Santa Barbara Bank & Trust (“SBBT”), a division of Pacific Capital Bank, N.A., a national banking association, with its principal office at 5770 Oberlin Drive, San Diego, CA, and Jackson Hewitt Inc. (“JHI”), a Virginia corporation, with its principal office at 3 Sylvan Way, Parsippany, NJ 07054.

RECITALS

WHEREAS, JHI (i) is the franchisor of the Jackson Hewitt Tax Service® tax preparation system to independently owned and operated franchisees (“Franchisees”) and (ii) through Tax Service of America, Inc., a wholly owned subsidiary, owns and operates Jackson Hewitt Tax Service locations (“Corporate Stores,” and together with Franchisees, “electronic return originators” or “EROs”); and

WHEREAS, the EROs provide income tax return preparation with electronic filing and related services to customers; and

WHEREAS, SBBT offers products to customers of tax service companies; and

WHEREAS, SBBT desires to offer and provide certain financial products to customers of certain EROs designated by JHI from time to time, and JHI desires that SBBT provide such services, on the terms and subject to the conditions hereinafter set forth (the “Program”); and

WHEREAS, SBBT desires, and JHI agrees to provide, its marketing and training services and personnel in connection with and to devote support and additional resources in support of the Program; and

WHEREAS, simultaneous with the execution of this Agreement SBBT shall enter into a technology services agreement with Jackson Hewitt Technology Services Inc. (“JHTSI”) in connection with SBBT administering and offering the Program (“Technology Services Agreement”).

NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows:

TERMS AND CONDITIONS

1.	ERO Participation; General Terms

1.1.

Definitions

(a) “Business Day” shall mean any day that is not a Saturday, Sunday, legal holiday or other day on which banks in either the state of New York or the state of California are required or permitted to be closed.

(b) “Customer” shall mean a Jackson Hewitt Tax Service customer that was also a customer of SBBT or another financial institution that provided financial products facilitated by EROs and such customer received a RAL, a funded Federal ACR, or a funded State ACR from SBBT or such other financial institution. For purposes of this definition, joint borrowers or joint recipients of such a financial product shall constitute one “Customer” and a customer that receives both a RAL or funded Federal ACR and a funded state ACR shall count as two “Customers”.

[*] designates portions of this document that have been omitted pursuant to a request for confidential treatment filed separately with the Securities and Exchange Commission.

(c) “Financial Product” shall mean the following tax refund related financial products, a RAL, Money Now^SM Loan, Federal or state ACR, and HELP^® Loan and any similar or modified product offered from time to time, or other product agreed to by the parties in accordance with Section 3.1 hereof.

(d) “Tax Season” shall mean the period beginning on January 2 of a calendar year and ending on the last day an individual is permitted to file a federal income tax return with the IRS without extension, typically April 15 of such calendar year.

1.2	ERO Participation.

SBBT and JHI agree to offer the Program to those EROs designated by JHI from time to time as provided in Article 2 hereof. JHI shall require EROs designated to participate in the Program to enter into separate agreements with SBBT, on an annual basis in advance of the relevant Tax Season (as defined herein), in substantially the form entered into by SBBT and participating EROs during the 2006 Tax Season, with such changes thereto as the parties, from time to time, shall agree (the “SBBT Financial Product Agreement”) and to facilitate the offer of Financial Products to customers of such EROs in accordance with the terms thereof.

2.	Limited Exclusivity.

2.1

ERO Locations.

(a)

SBBT shall be the sole, exclusive and designated Financial Product provider for the ERO locations as set forth in, or as determined by JHI in accordance with the terms of, this Agreement. To the extent an ERO location is designated by JHI as an SBBT location for a Tax Season (and any related period of time), then such ERO location shall not be permitted to accept applications for Financial Products (or products substantially similar thereto) during the same Tax Season on behalf of any financial institution other than SBBT without the prior written approval of SBBT. ERO locations found to be participating at once in both the Program and a competing financial product program may be terminated by SBBT from the Program.

(b)

For Tax Season 2006, SBBT shall be the sole, exclusive and designated Financial Product provider for the following designated ERO locations: [*]

(c)

For all Tax Seasons (and related periods) after Tax Season 2006 under this Agreement, JHI shall determine the ERO locations at which SBBT shall be the sole, exclusive and designated Financial Product provider, whether by state, ERO or otherwise, for such Tax Season, subject to the other terms and conditions of this Agreement including Section 2.2 hereof. JHI shall provide notice of such designation to SBBT no later than the [*] prior to such applicable Tax Season.

(d)

Notwithstanding anything herein to the contrary, designations made herein, shall be modified by and subject to the requirements of the multi-state operations of an ERO as defined by processing center and may result in certain locations, whether within designated states or outside designated states, being excluded or included, as the case may be, in the list of designated locations for SBBT under the Program in any given Tax Season.

2.2.

ERO Designations.

(a)

For Tax Season 2006, JHI has designated SBBT as the sole and exclusive Financial Product provider under the Program for EROs [*].

[*] designates portions of this document that have been omitted pursuant to a request for confidential treatment filed separately with the Securities and Exchange Commission.

(b)

For Tax Season 2007, JHI shall designate SBBT as the sole and exclusive Financial Product provider under the Program for EROs [*].

(c)

For Tax Season 2008, JHI shall designate SBBT as the sole and exclusive Financial Product provider under the Program for EROs [*].

(d)

This Section 2.2 shall be subject to and limited by Section 9.4 hereof. JHI shall deliver information supporting the requirements of this Section 2.2 in conjunction with notice of designated locations for the respective Tax Season under Section 2.1 above.

3.	Financial Products.

3.1.

Product Offering.

(a)

Products Generally. SBBT shall offer and provide Financial Products to customers of designated EROs, on the terms and subject to the conditions set forth herein, and such other products and services as the parties may, from time to time agree.

(b)

Financial Product Definitions:

(i)

“Refund Anticipation Loan” or “RAL” shall mean a loan to a Customer based upon, among other things, the Customer’s anticipated federal income tax return refund (as identified in IRS Form 8453 or similar form, subject to any limitations that may be imposed thereon due to the application of certain underwriting criteria or other factors.

(ii)

“Money Now Loan” means a loan based on, among other things, the Customer’s anticipated Federal income tax refund, with proceeds of such loan available on the same day the loan is approved by SBBT, offered during a Tax Season.

(iii)

“Accelerated Check Refund” or “ACR” shall mean a non-loan financial product through which a Customer’s federal and/or state income tax refund (as identified in IRS Form 8453 and any applicable state tax form, respectively) is deposited into an account established by SBBT and (i) disbursed, net of authorized fees and charges, to the Customer by (x) check or (y) debit card, or (ii) disbursed, net of authorized fees and charges and via an automated clearing house credit (“ACH”) to the Customer’s designated bank account in the case of “Assisted Direct Deposit” or “ADD”. Except as otherwise specifically noted, all references hereafter in this Agreement to ACRs shall also include ADDs.

(c)

State Products. SBBT shall provide ACR services to all Applicants requesting the same, if approved, with respect to all states whose taxing authority accepts state income tax returns electronically and disburses refund amounts via direct deposit.

(d)

Product Development. SBBT and JHI may, from time to time, develop and add additional financial products to the Program. The description of such additional products and the terms and conditions governing their offer shall be set forth in separate agreement between SBBT and JHI, and if agreed to shall be included in the definition of Financial Products under this Agreement.

[*] designates portions of this document that have been omitted pursuant to a request for confidential treatment filed separately with the Securities and Exchange Commission.

Fees.

4.1.

Fees. In consideration of the rights granted to SBBT herein and the performance of services and expenses incurred by JHI in connection with the Program, SBBT shall pay to JHI fees as follows, subject to Section 4.3 hereof:

(a)

SBBT shall pay to JHI for Tax Season 2006 [*].

(b)

SBBT shall pay to JHI for Tax Season 2007 [*].

(c)

SBBT shall pay to JHI for Tax Season 2008 [*].

(d)

The above consideration shall be paid in three equal monthly installments no later than the last Business Day of January, February and March of such Tax Season. JHI shall have the right to direct SBBT to make payments directly to other entities or third parties with SBBT’s prior written consent.

(e)

The parties agree that JHI shall have no right to any fees earned by SBBT in connection with its offering Financial Products. The parties agree that SBBT is the sole owner of the Financial Products made under the Program.

5.	RAL Eligibility.

The parties agree that only those Jackson Hewitt Tax Service customers that apply for a Financial Product from SBBT (“Applicants”) whose federal income tax returns are filed electronically and such return sets forth an anticipated federal income tax refund shall be eligible to receive a RAL. An Applicant who meets the foregoing requirements shall nevertheless be subject to underwriting criteria developed by SBBT, after consultation with JHI, pursuant to Section 7.5. Notwithstanding the foregoing, if SBBT receives current information from a reliable credit reporting agency or other reliable source that an Applicant’s income tax refund may be subject to attachment, delay or offset, then SBBT may deny such Applicant a RAL.

JHI’s Obligations and Procedures. JHI agrees, in connection with the operation of the Program, to: (i) conduct such advertising; (ii) prepare forms and other written materials; (iii) cause its offices to be equipped with computer equipment and hardware; (iv) maintain personnel; (v) train such personnel and EROs with respect to the Program Protocols; and (vi) take such other actions, in each case as reasonably necessary to advertise and accommodate the facilitation of Financial Products to Applicants at its expense, as well as the following specific duties:

6.1.

Preparation and Filing of Returns. JHI shall require EROs participating in the Program to prepare and/or collect and file with the appropriate taxing authorities federal and state income tax returns for Customers, and EROs shall be solely responsible for any liability arising out of such preparation or filing.

6.2.

Application Process. JHI shall require participating EROs to require that each Applicant (i) complete and sign an application in a form developed by SBBT and reviewed by JHI prior to each Tax Season (the “Application”), which application may also include a loan agreement (the “Loan Agreement”) and a disclosure statement meeting the requirements of the federal Truth-in-Lending Act (the “Disclosure Statement”), and (ii) is given a copy of any and all disclosures required to be provided pursuant to applicable State or local law (“State Disclosure Documents”). The Application shall include, among other things, a request for certain information and certifications, as well as an authorization, signed by the Customer, to (A) use the tax return information for the application process in accordance with Section 301.7216-3(b) of the U.S. Treasury Department regulations and (B) allow SBBT to repay any delinquent RAL or Money Now Loan with the proceeds of the Financial Product obtained

pursuant to the Application. Participating EROs shall be responsible, pursuant to the terms of the SBBT Financial Product Agreement, for ensuring that the Application is complete and accurately reflects all material information received from the Customer, including social security number(s); provided, however, that the ERO shall in no event be held responsible for false or inaccurate information provided by Customers.

6.3.

Completion of IRS Form 8453. In connection with each Application, JHI shall require each participating ERO to complete IRS Form 8453 and the direct deposit designation in the electronic portion of the Applicant’s federal (and state, if applicable) income tax return which shall include information provided by SBBT (such as the applicable SBBT check routing number and Customer account number) and shall name SBBT as the financial institution. The forms shall be signed by an employee of the ERO and by the Customer, and shall also indicate that the account is a checking account and that the source is “other”. JHI shall cause the same information to be contained in the appropriate data field as part of the income tax return electronically filed by the ERO.

6.4.

Customer Copies. JHI shall require each participating ERO to provide to each Applicant a signed copy of the Application, Loan Agreement and Disclosure Statement (which may be combined into one form), signed IRS Form 8453 or similar form, together with any other agreements or documents that SBBT reasonably may require, as identified to and reviewed by JHI prior to each Tax Season; provided that SBBT shall be solely responsible for the form and content of all of the aforementioned documents, subject to JHI review prior to each Tax Season, and for their compliance with applicable laws, rules and regulations (“Applicable Law”).

6.5.

Retention and Handling of Documents.

(a)

Retention. JHI shall require each participating ERO to retain a copy of the signed Application, Loan Agreement and Disclosure Statement, State Disclosure Documents, if any, as well as a copy of the federal and state income tax returns, in the Customer’s file maintained by them for a period of five years following the preparation and filing thereof (after which time such documents may be discarded). At the reasonable request of SBBT, JHI shall cause EROs to deliver to SBBT a copy of any Application.

(b)

Tax Returns. For fraud detection, underwriting and collection purposes, JHI shall provide to SBBT electronic copies of each SBBT Customer’s electronically filed federal income tax return, in the format prescribed by the IRS, simultaneously with or promptly after the Application information is transmitted to SBBT.

6.6.

Lost Checks. If a SBBT Customer notifies an ERO that a check disbursed by it has become lost, or that he or she has not received a check mailed by SBBT within 14 days, then JHI shall require the ERO to notify SBBT immediately to stop payment thereon and to issue a new check and an indemnifying bond, to be completed by such Customer, in a form satisfactory to SBBT.

6.7.

Collection Assistance. At the reasonable request of SBBT, and subject to Applicable Law, JHI shall provide reasonable assistance to SBBT in the collection of past due RALs. Such assistance may include providing updated addresses and phone numbers for Customers, to the extent permitted by law.

6.8.

JHTSI. JHI and SBBT acknowledge and agree that JHTSI shall provide certain technology expertise, software modification and implementation and processing services, personnel and related support to JHI, SBBT and EROs in connection with the Program pursuant to the terms and conditions of the Technology Services Agreement.

7.	SBBT’s Obligations and Procedures.

7.1.

Processing of Applications. SBBT shall, on each day during the Term, process Applications and provide Financial Products with respect thereto for all Applications received electronically in accordance with SBBT’s underwriting criteria in effect at that time (as the same may be amended from time to time by the mutual consent of the parties) and in accordance with industry standards; provided that SBBT shall use commercially reasonable efforts to process (i) Money Now Loan Applications and any other similar instant Financial Product within three minutes of receipt of such Application from JHI and (ii) RAL Applications within two hours (or, if a credit bureau is employed to evaluate the creditworthiness of a RAL applicant, then within eight hours) after having received from JHI an acknowledgment of the due filing of the related tax return, together with any corresponding debt indicator, as received from the IRS. Notwithstanding the foregoing, SBBT shall not accept any Applications at any time if SBBT (i) receives notification from the IRS that the ERO is under investigation, (ii) reasonably suspects fraudulent activity originating through the ERO, or (iii) considers loan delinquencies on RALs originating through the ERO to be unacceptable, in its reasonable discretion. SBBT shall be responsible for decisions made by it to approve or deny loan Applications, including, without limitation, the provision to applicants of adverse action notices or other notices required by Applicable Law.

7.2.

Disbursement/Check Print Authorizations. SBBT shall promptly communicate disbursement authorizations to JHI (i) immediately upon approval of a HELP Loan, Money Now Loan or RAL or (ii) for other Financial Products upon receipt of and after processing IRS or state refund pre-note files to the extent such practice does not violate any applicable bank regulations, provided that federal and state funding shall be released by SBBT no later than the effective date designated by the IRS or applicable state taxing authority, respectively. SBBT shall be responsible for all disbursement/check authorizations issued by it, including losses incurred as a result of its issuance of duplicate or multiple check print authorizations or checks issued by SBBT in error or with information inconsistent with the information in the disbursement request received from JHI.

7.3.

Establishment of Accounts; Availability of Funds.

(a)

SBBT shall establish and maintain at SBBT a segregated account for the benefit of SBBT Customers (each, a “Deposit Account”), which account shall conform to the requirements of 12 C.F.R. 330.5 so as to afford such Customers FDIC insurance with respect to such Deposit Accounts. Upon notification to JHI that a RAL has been approved or that an ACR has been funded, SBBT shall transfer the amount of the net loan proceeds or refund, respectively, to the Deposit Account. All disbursements to SBBT Customers shall be drawn on the Deposit Account and shall be paid promptly upon presentment. SBBT shall make all disbursements in the manner elected by the SBBT Customer, as set forth in the Application and Loan Agreement. SBBT shall have the right to offset against the Deposit Account all fees and charges authorized by the SBBT Customer to be paid to SBBT, EROs or otherwise pursuant to his Application for a Financial Product in an amount up to the amount of the Financial Product.

(b)

Upon notification to JHI that an ADD has been funded, SBBT shall transfer funds via ACH into the account designated for receipt thereof by the SBBT Customer. If the ACH transfer is not successful, then SBBT shall disburse the refund via a check printed by the SBBT Customer’s ERO or mailed directly by SBBT.

(c)

SBBT shall have sufficient funds available at all times to pay all disbursements authorized by SBBT under the Program.

7.4.

Deduction of Additional Charges; Timing and Order of Disbursements.

(a)

SBBT shall remit payment to each ERO of all fees and charges authorized by Customers to be paid to such ERO (e.g. tax preparation and other fees) on funding of non-loan type financial products and approval of loan-type financial products. The foregoing shall be set forth in the applicable SBBT Financial Product Agreement between such ERO and SBBT.

(b)

All Financial Product disbursements shall be made to the Customer net of all authorized fees, deductions or charges. If SBBT receives a state tax refund before the IRS tax refund, then any and all ERO fees may be deducted from the state refund prior to disbursement to the Customer. If an IRS or state tax refund deposit is received in an amount less than anticipated, then disbursements will be made in the following order: first, to cover fees owed to SBBT ; second, to cover ERO fees; third, to pay any outstanding RAL obligations the Customer may have; and fourth, to pay the Customer disbursement.

(c)

If the Customer’s refund received from the IRS exceeds the total amount owed pursuant to the RAL, or if after a RAL is denied, the return is accepted by the IRS and a direct deposit is made to the Deposit Account, then SBBT shall send a disbursement authorization record in the amount of the excess or the deposit, respectively (after adjusting for and posting fees), to JHI. If the refund is less than the amount anticipated, then SBBT shall notify the ERO and the Customer of such shortfall, and demand prompt payment to SBBT of the outstanding amount.

7.5.

Establishment of Fees and Underwriting Criteria. The pricing, fees, terms and underwriting criteria for the Program shall be developed for each Tax Season by SBBT in consultation with JHI, and may be subject to modification from time to time as mutually agreed by the parties. The pricing, fees, terms and underwriting criteria must be commercially reasonable, based on the best information available that year including IRS prior-year funding trends, competitive product offerings and Customer and ERO behavior, and set forth in writing and agreed to by the parties no later than November 1^st preceding each Tax Season during the Term. Agreement by either party shall not be unreasonably withheld.

7.6.

Development of Forms/Materials. SBBT shall develop reasonable program protocols for the offering, marketing, receipt and processing of Applications, the making of loans and the delivery of Financial Product proceeds (“Program Protocols”) and shall create and distribute to JHI for its prior review forms to be used by participating EROs of each of the following: the Application, Loan Agreement, Disclosure Statement, and disbursement checks. For the avoidance of doubt, the term “Program Protocols” shall not include protocols or other materials that are developed by JHI, including without limitation materials that are developed by JHI and reviewed by SBBT pursuant to Section 11.1 hereof or otherwise. SBBT may create solicitation, marketing and promotional materials relating to the Program, each of which shall be subject to JHI’s prior review. SBBT shall provide such assistance as JHI reasonably may request in connection with the preparation and dissemination to Customers of State Disclosure Documents. SBBT covenants and agrees that the Program Protocols and all documents and materials provided by it hereunder (including, without limitation, the Application, Loan Agreements, Disclosure Statements, disbursement checks, solicitation materials and marketing and promotional materials) shall comply with Applicable Law.

7.7.

Screening. SBBT shall pre-screen the Customer base, using the underwriting criteria established pursuant to Section 7.5 or any other criteria reasonably requested by JHI, for the purpose of the parties to joint market and distribute solicitation materials regarding pre-approved Financial Products to Customers. SBBT shall provide to JHI the text of any disclosures required by Applicable Law to be provided to Customers with respect to such prescreening. The results of such screening process shall be set forth in an electronic file and shall be presented in such form as JHI shall determine. Responsibility for the cost of activities undertaken pursuant to this Section 7.7 shall be determined by the mutual agreement of the parties.

7.8.

Check Stock. SBBT shall provide and distribute to each participating ERO the necessary check stock to participate in the Program, and shall promptly replenish such stock upon the ERO’s request at no charge, unless the ERO requests overnight delivery (in which case the ERO shall pay for such delivery).

7.9.

Reports. SBBT shall provide weekly reports to JHI describing all ACH transmissions from the IRS to SBBT and all paid items, and covering such other matters and in such form as JHI reasonably may request. SBBT covenants and agrees that each such report will be true, correct and complete in all respects.

7.10.

Applicable Law. Without limiting or conditioning the obligations of JHI and the EROs to comply with Applicable Law, SBBT shall consider reasonable steps proposed by JHI to address concerns raised by JHI with respect to the operation of the Program and the facilitation of Financial Products as it relates to JHI and EROs being in compliance with Applicable Law or potential violations of Applicable Law.

7.11.

Additional Products. Upon terms to be agreed by the parties, SBBT shall facilitate the offering of such additional products as JHI and SBBT may develop or as Customers are offered in other Jackson Hewitt Tax Service® offices that are not participating in the Program, unless the offering of such products is prohibited by law. Notwithstanding anything to the contrary contained herein, if SBBT does not offer any participating ERO all financial product(s) being facilitated by EROs that are not under the Program, then JHI may make alternative arrangements to provide for such product(s) to be facilitated by such ERO through an alternative financial product provider. SBBT acknowledges that it shall not be the provider of Flex loans or debit card products under this Agreement.

7.12.

Loan Denial Notice. SBBT shall send a proper loan denial notice under the Equal Credit Opportunity Act, Regulation B and other Applicable Laws to each applicant whose loan request was declined by SBBT.

8.	Representations, Warranties and Covenants.

8.1.

Each party represents and warrants to the other that (i) it is a corporation or national banking association in good standing under the laws of its jurisdiction of incorporation or formation and is duly qualified to transact business in each jurisdiction in which the operation of its business or the ownership of its properties requires such qualification (except where the failure to so qualify would not have a material adverse effect on its business); (ii) its execution and delivery of this Agreement does not and will not violate its Certificate of Incorporation or charter or breach or constitute a default under any agreement or arrangement to which it is a party; (iii) it has the legal right to enter into and perform its obligations hereunder; (iv) its execution and delivery hereof has been duly authorized by all necessary corporate action on its part and this Agreement constitutes its legal and binding agreement, enforceable against it in accordance with its terms; and (v) its Marks (as defined below) do not infringe upon the intellectual property rights of any third party.

8.2.

SBBT covenants to and agrees with JHI that it shall comply with all Applicable Laws, rules and regulations in connection with the offer and sale of Financial Products and the performance of its obligations under this Agreement. Without limiting the foregoing, SBBT covenants and agrees that its evaluation and processing of Applications, its provision and documentation of loans, the fees charged by it for such loans and its activities involving the collection of outstanding RALs shall comply with all applicable state and federal laws, rules and regulations, including, without limitation, the Truth-In-Lending Act (15 U.S.C. Sec 1601-1667), the Equal Credit Opportunity Act (15 U.S.C. Sec. 1691-1691f), the Electronic Fund Transfer Act (15 U.S.C. 1693, et seq.) and other applicable provisions of the Consumer Credit Protection Act (15 U.S.C Sec. 1601).

8.3.

Each party further covenants to and agrees with the other that it shall fulfill its obligations hereunder in a diligent and timely fashion, consistent with the best practices in the industry; that all hardware, software, processes and procedures each party uses in providing the services hereunder are owned or properly licensed to such party and will not violate the trademark or copyright rights, right of publicity or privacy of, or constitute libel or slander against, or involve plagiarism or violate any other rights of, any person or entity and that such party’s use of them will comply with all Applicable Laws; that all processing systems, software and hardware, and policies or procedures used by each party and all rules and protocols covering such party’s employees, agents and independent contractors providing services hereunder, contain protections and security enhancements, consistent with industry standards, and provide safeguards and system protections, consistent with industry standards, to prevent hacking, viruses, security breaches, loss of data, any breach of the Gramm-Leach-Bliley Act and applicable regulations promulgated thereunder, any breach of the confidentiality provisions hereof, identity theft and fraud against JHI and Customers effecting transactions contemplated by this Agreement.

8.4.

JHI covenants to and agrees with SBBT that it shall comply with all applicable Program Protocols and Applicable Law in connection with the performance by it of its obligations under this Agreement. JHI shall comply in all material respects, and shall instruct EROs to comply, with all Program Protocols provided by SBBT in advance of each Tax Season concerning the preparation and processing of Applications.

9.	Term and Termination.

9.1.

Term. This Agreement shall be effective upon its execution and be deemed effective as of January 1, 2006 and applicable to the Program for Tax Seasons 2006, 2007 and 2008 and all related periods. This Agreement shall terminate and expire on October 31, 2008, unless extended in accordance the terms of this Agreement (the “Term”).

9.2.

Termination by Either Party. Either party may at its option terminate this Agreement upon twenty (20) days’ prior written notice if (i) the other party has materially breached any of the terms hereof and has failed to cure such breach within such ten-day period; or (ii) the continued operation of the Program or the electronic filing program is no longer commercially feasible or practical, or no longer provides the same opportunity, to the terminating party due to legal, legislative or regulatory determinations, enactments or interpretations or significant external events or occurrences beyond the control of the terminating party; provided, however, that in the case of clause (ii), the parties shall first mutually endeavor in good faith to modify the Program in a manner resolving the problems caused by legal, legislative or regulatory or external events or occurrences. In addition, either party may terminate this Agreement, immediately upon notice to the other party, upon (x) the filing by or against the other party of

[*] designates portions of this document that have been omitted pursuant to a request for confidential treatment filed separately with the Securities and Exchange Commission.

any petition in bankruptcy or for reorganization or debt consolidation under the federal bankruptcy laws or under comparable law; (y) the other party’s making of an assignment of all or substantially all of its assets for the benefit of creditors; or (z) application of the other party for the appointment of a receiver or trustee of its assets.

9.3.

Termination by JHI. JHI may terminate this Agreement immediately after a good faith discussion as to alternatives if SBBT’s processing systems are not available for any reason (including any Force Majeure Event, as defined in Section 15.2) for five (5) consecutive days or more during any Tax Season, or for 30 consecutive days or more during any other time.

9.4.

Extraordinary Events. In the event of a delivery of termination notice pursuant clause (ii) of section 9.2, SBBT shall have the right, but not the obligation, to [*]. Notwithstanding any other provisions herein regarding timing and method of resolution, if the parties are not able to reach agreement or resolution on the matters covered by this Section 9.4 by September 30 in advance of such Affected Tax Season, then the termination provisions of this Agreement shall apply.

9.5.

Continuation of Program. In the event of a termination of the Program under this Agreement during a Tax Season, both parties shall continue to provide the Program through the end of such Tax Season, unless otherwise agreed in writing by the parties, and all the relevant provisions of and obligations under this Agreement and the Technology Services Agreement shall survive until such obligations have been completed including any payment obligations for such Tax Season. The foregoing shall not be applicable if such termination is a result of an event whereby SBBT and its affiliates are ceasing as a business offering all Financial Products through transmitters and tax preparation companies in total. In addition, either party may elect to discontinue to provide the Program during a Tax Season if the termination is due to the material, uncured breach of the other party under Section 9.2(i) or an event with respect to the other party described in the last sentence of Section 9.2 occurs.

10.

Ownership of Loans.

The parties agree that SBBT will be the sole owner of the Financial Products loans made under the Program. In addition, SBBT shall have the authority to transfer or assign such loans at any time, provided that SBBT shall continue to be liable for any violation of law of such transferee or assignee. Without limiting the foregoing, (i) any such transfer or assignment (a) shall comply with all Applicable Laws, rules and regulations, and (b) shall not cause SBBT to breach any of its representations or obligations hereunder, and (ii) the transferee or assignee shall (a) represent, warrant and covenant to comply with all Applicable Laws, rules and regulations in the servicing and collection of such loans, (b) agree to provide customer service at a level at least as high as that offered by SBBT and (c) demonstrate to SBBT’s reasonable satisfaction the ability to comply with such representations, warranties and covenants.

11.

Marketing and Other Materials.

11.1.

Review. Each party shall have the right to review and approve all marketing materials used to promote the Program that reference the names, trademarks, service marks, trade names, service names or logos of such party (“Marks”); provided that such review shall be conducted promptly (in all events within [*] of receipt thereof) and approval shall not be unreasonably withheld. If such materials are provided to SBBT, SBBT shall review such materials for compliance with Applicable Laws specifically relating to the offering of Financial Products (e.g compliance with Regulation Z), provided that SBBT shall have no responsibility for such compliance if SBBT suggests revisions to such materials and such revisions are not adopted by JHI. For the avoidance of doubt, SBBT shall have no responsibility for reviewing such materials for compliance with Applicable Laws relating to

the offering of goods and services generally, including without limitation federal and state laws regulating misleading, unfair or deceptive statements, acts or practices or unfair competition. JHI shall be responsible for the compliance of such materials with all other Applicable Laws including without limitation the Applicable Laws described in the preceding sentence.

11.2.

License. During the Term and subject to the terms and conditions of this Agreement, each party grants to the other a non-exclusive, non-assignable right and license to use, reproduce and display its Marks, solely in connection with the marketing, making and processing of Financial Products to Customers in connection with the Program. Neither party shall adopt or use, or seek to register, without the other party’s prior written consent, any variation of such other party’s Marks, or any mark similar thereto or likely to be confused therewith. Any and all goodwill arising from either party’s use of the Marks of the other party shall inure solely to the benefit of such other party, and neither during nor after the termination or expiration of this Agreement shall either party assert any claim to the other party’s Marks or associated goodwill. Neither party shall use the Marks of the other party for any purpose except those specifically set forth herein. All rights in and to the Marks of a party which are not specifically granted to the other party herein shall remain with such party.

12.

Confidential Information.

12.1.

Confidentiality Rights of the Parties. The parties hereto understand that implementation and operation of the Program involves the use of certain systems, computer programs, marketing, product development, risk management, strategy data and other information, including business information and trade secrets (“Proprietary Information”) that are proprietary to the respective parties. Each party shall safeguard all Proprietary Information made available to it by the other party, taking reasonable precautions to withhold the same from disclosure to the same extent that it would safeguard its own confidential information and data. Such Proprietary Information shall not include information which is (i) shown to have been known by the receiving party prior to disclosure to it by the other party, (ii) generally known to others engaged in the same trade or business as the furnishing party, (iii) available to the public through no act or omission by the receiving party or its representatives or professional advisors, or (iv) which is rightfully obtained by the receiving party from third parties (other than professional advisors or other representatives) without restriction of confidentiality. In addition to the foregoing, SBBT specifically agrees not to make copies of or to disclose to any other person or firm, other than to employees of SBBT who need-to know such information in order to perform SBBT’s obligations under this Agreement and who have agreed to be bound by this Article 12, any Proprietary Information (including, without limitation, the names of EROs or Customers or any other identifying information obtained through its relationship with JHI as set forth in this Agreement) for any purpose other than performing its obligations hereunder. 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 Customer whose Application was declined subsequently applies directly to SBBT for a loan.

12.2.

Privacy. No party shall make any unauthorized disclosure of or use any personal information of individual consumers which it receives from the other party or on the other party’s behalf other than to carry out the purposes for which such information is received, and each party shall comply, to the extent applicable, with the requirements of the implementing regulations of Title V of the Gramm-Leach Bliley Act of 1999, specifically including, 16 Code of Federal Regulations, Chapter I, Subchapter C, Part 313.11 and 313.13. JHI and SBBT shall each adopt and maintain a comprehensive privacy policy with respect to its handling of the personal information of individual Customers submitted by such Customers to JHI. JHI’s and SBBT’s privacy policy shall be available on its Internet web sites and each shall comply with the provisions of such privacy policy.

13.

Indemnification.

13.1.

Indemnification by JHI. JHI shall indemnify, defend and hold harmless SBBT, its affiliates and their respective officers, directors and employees from and against any and all expenses and costs (including reasonable attorney’s fees and court costs) or liabilities (including amounts paid in settlement) incurred by SBBT in connection with any third party claim, dispute, controversy or litigation (individually a “claim”) arising out of or resulting from (i) JHI’s violation or alleged violation of Applicable Law (except when such violation or alleged violation is directly caused by JHI’s compliance with Program Protocols); (ii) any material breach by JHI of any representation, warranty, covenant or agreement hereunder or (iii) the negligence or willful misconduct of JHI in connection with the performance by it of its obligations under this Agreement.

13.2.

Indemnification by SBBT. SBBT shall indemnify, defend and hold harmless JHI, its affiliates, and their respective officers, directors, employees and agents, from and against any and all expenses and costs (including reasonable attorney’s fees and court costs), or liabilities (including amounts paid in settlement) incurred by any of them in connection with any third party claim, dispute, controversy or litigation (individually, a “claim”) arising out of or resulting from (i) the Program Protocols; (ii) the offer and sale of Financial Products hereunder (excluding any acts or omissions by the ERO with respect to such offer and sale, except if the claim is directly caused by the ERO acting in a manner expressly required by, or omitting to act in a manner expressly prohibited by, the Program Protocols); (iii) any violation or alleged violation of Applicable Law (including, without limitation, the Truth in Lending Act or any regulation of the Federal Reserve Board or other applicable federal or state banking or consumer finance laws or regulations) by SBBT, the Financial Products offered by SBBT or the Program Protocols, (iv) any material breach by SBBT of any representation, warranty, covenant or agreement hereunder; or (v) the negligence or wilful misconduct of SBBT in connection with the performance by it of its obligations under this Agreement.

13.3.

Procedures. The indemnitee shall promptly notify the indemnitor in writing of any claim that may be the subject of indemnification under this Article 13, and shall promptly tender to the indemnitor sole control of the defense and any settlement thereof; provided, however, that the failure of an indemnitee to so notify the indemnitor shall not relieve the indemnitor of its indemnification obligations hereunder to the extent that such failure does not actually prejudice the indemnitor with respect to such claim; and provided, further that the indemnitor shall not compromise or settle any claim or action without the prior approval of the indemnitee. The indemnitee shall have the right (but not the obligation) to defend such action or proceeding by retaining attorneys of its own selection to represent it at the indemnitor’s reasonable expense; provided that the indemnitor shall in all events have the right to participate in such defense; and provided further that the indemnitee shall not compromise or settle any such claim or action without the prior approval of the indemnitor.

14.

Limitation of Liability.

14.1.

Consequential Damages. 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 obligations under this Agreement or any failure of such performance; unless such damage or loss is subject to the indemnification provisions of this Agreement or arises from that party’s gross negligence or willful misconduct.

14.2.

sabotage, war, military operation, terrorist attack, national emergency, mechanical or electrical breakdown, general failure of the postal or banking system, civil commotion, strikes, or the order, requisition, request or recommendation of any governmental agency or acting governmental authority, or either party’s compliance therewith or government proration, regulation, or priority, or any other similar cause beyond either party’s reasonable control and (ii) such Force Majeure Event is beyond such party’s reasonable control. The party excused from performance shall be excused from performance (i) only after notice from the party whose performance is impaired, (ii) only during the continuance of the Force Majeure Event and (iii) only for so long as such party continues to take reasonable steps to mitigate the effect of the Force Majeure Event and to substantially perform despite the occurrence of the Force Majeure Event. The party whose performance is not impaired may terminate this Agreement upon five (5) consecutive days’ notice during any tax season or upon thirty (30) consecutive days’ notice at any other time, effective immediately upon written notice to such party.

15.

Commitment to Negotiation; Mediation and Arbitration of Disputes.

15.1.

Negotiation. Except with respect to either party’s wrongful use of the Marks of the other party for which the aggrieved party may seek injunctive or such other relief as such aggrieved party may deem appropriate, or litigation brought against JHI by third parties, neither party shall institute any proceeding in any court or administrative agency or any arbitration to resolve a dispute between the parties before that party has sought to resolve the dispute through direct negotiation with the other party. If the dispute is not resolved within three weeks after a demand for direct negotiation, the parties shall then attempt to resolve the dispute through mediation and/or arbitration as provided in this Article 15.

15.2.

Scope of Arbitration. Except for either party’s wrongful use of the Marks for which the aggrieved party may seek injunctive or such other relief as such aggrieved party may deem appropriate, or litigation brought against JHI by third parties, all controversies, disputes or claims between JHI and SBBT (and any owners, guarantors, affiliates and employees of SBBT, if applicable, but in no event shall any of such owners, guarantors, affiliates and employees be deemed third-party beneficiaries of this Agreement), arising out of or related to: (i) this Agreement or any other related agreement between JHI and SBBT, or any provision of any such agreements; (ii) the relationship of the parties; (iii) the validity of this Agreement or any other related agreement between JHI and SBBT or any provision of any such agreements; or (iv) any problem arising from the undertakings hereunder, will be submitted for mediation, as set forth below in Section 15.3 and, in the event mediation is not demanded by a party or does not result in a resolution of the dispute, for binding arbitration to the New York, New York office of the American Arbitration Association on demand of either party. SBBT agrees to cause its owners, guarantors, affiliates and employees of SBBT reasonably likely to be involved in such controversies, disputes and claims to agree to be bound by the provisions of Sections 15.2, 15.3, 15.4, 15.5 and 15.6 hereof.

Such arbitration proceeding will be conducted in New York, New York and will be heard by a panel of three arbitrators in accordance with the then current Commercial Arbitration Rules of the American Arbitration Association, provided that the Federal Rules of Evidence shall be applicable to the arbitration hearing and any evidence obtained for or presented at the hearing and that the arbitrators shall be attorneys familiar with the Federal Rules of Evidence. All other matters relating to arbitration will be governed by the Federal Arbitration Act (9 U.S.C. §§ 1 et seq.) and not by any state arbitration law.

The decision and award of the arbitrators will be binding and conclusive upon both JHI and SBBT, and enforceable in any court of competent jurisdiction. The arbitrators have the right, in their discretion, to award or include in the award any lawfully appropriate relief (including, punitive damages) and to assess costs or expenses to one or both parties and may award attorneys’ fees and legal costs to the prevailing party as part of such award, provided that the arbitrator will not have the right to declare any Mark generic or otherwise invalid.

JHI and SBBT agree to be bound by the provisions of any limitation on the period of time in which claims must be brought under Applicable Law or this Agreement, whichever expires earlier. JHI and SBBT further agree that, in connection with any such arbitration proceeding, each must submit or file any claim which would constitute a compulsory counterclaim (as defined by Rule 13 of the Federal Rules of Civil Procedure) within the same proceeding as the claim to which it relates. Any such claim which is not submitted or filed as described above will be forever barred.

Each party agrees that arbitration will be conducted on an individual, not a class-wide, basis, and that an arbitration proceeding between JHI and SBBT may not be consolidated with any other arbitration proceeding between JHI and any other person, corporation, limited liability company or partnership, provided that JHI or SBBT may consolidate any arbitration proceeding commenced under this Section 15.2 with any arbitration proceeding commenced by JHI, JHTSI or SBBT under any other agreement executed in connection herewith including without limitation the Technology Services Agreement.

Notwithstanding anything to the contrary contained in this Section, JHI and SBBT shall each have the right in a proper case to obtain temporary restraining orders and temporary or preliminary injunctive relief from a court of competent jurisdiction; provided, however, that JHI or SBBT must contemporaneously submit the dispute for arbitration on the merits as provided herein and the submission to the court shall not waive the right to arbitration.

15.3.

Mediation. If a dispute is not resolved by direct negotiation, as provided hereinabove, either party may demand mediation. In the event mediation is demanded, it shall take place with a mediator to be agreed upon by the parties. In the event the parties are unable to agree upon a mediator, one will be appointed by the AAA. The mediation will take place in New York, New York, or such other place as the parties may agree. A demand for mediation will not preclude a party from filing a demand for arbitration, but the parties will agree to a stay of any arbitration proceedings for a period of a minimum of three months from the date mediation is demanded to permit the mediation to take place.

15.4.

Governing Law. All matters relating to arbitration will be governed by the Federal Arbitration Act (9 U.S.C. §§ 1 et seq.). Except to the extent governed by the Federal Arbitration Act, the United States Trademark Act of 1946 (Lanham Act, 15 U.S.C. §§1051 et seq.), or other federal law, this Agreement and all claims arising from the relationship between JHI and SBBT will be governed by the laws of the state of New York without regard to its conflict of laws principles.

15.5.

Consent to Jurisdiction. Each party agrees that the other party may institute any action against it (which is not required to be arbitrated hereunder) and any action to confirm or to enforce an arbitration award hereunder in any state or federal court of competent jurisdiction located in the city of New York, state of New York and irrevocably submits to the jurisdiction of such courts and waives any objection it may have to either the jurisdiction of or venue in such courts.

15.6.

Waiver of Jury Trial. JHI and SBBT irrevocably waive trial by jury in any action, proceeding or counterclaim, whether at law or in equity, brought by either of them against the other party.

16.

No Joint Venture.

This Agreement or any acts pursuant hereto shall not constitute a joint venture or create a partnership, agency or employment relationship between the parties. Except as expressly provided in this Agreement, no party shall have, or hold itself out as having, any right, power or authority to act or create any obligation, express or implied, on behalf of the other.

17.

Audit Rights.

17.1.

During the Term and for a period of one year thereafter, SBBT shall (a) maintain reasonably adequate books and records with respect to any fees or compensation to be provided to JHI hereunder and otherwise with respect to its obligations hereunder; (b) upon reasonable written request, provide access to such books and records to JHI and its authorized agents (including, but not limited to, its auditors); and (c) cooperate with, and provide to, JHI and such agents such assistance as they reasonably may require. JHI shall pay for the expenses associated with the conduct of such audit, provided that if such audit reveals an underpayment by SBBT of more than five percent (5%) of any amount due hereunder, then SBBT shall, promptly upon JHI’s request, tender the amount of such underpayment to JHI and reimburse JHI for such audit expenses.

17.2.

During the Term and for a period of one year thereafter, JHI shall (a) maintain reasonably adequate books and records with respect to the information to be provided by JHI to SBBT pursuant to Section 2.2(d) hereof, including without limitation information regarding Applicable Customers, and otherwise with respect to its obligations hereunder; (b) upon reasonable written request, provide access to such books and records to SBBT and its authorized agents (including, but not limited to, its auditors); and (c) cooperate with, and provide to, SBBT and such agents such assistance as they reasonably may require. SBBT shall pay for the expenses associated with the conduct of such audit, provided that if such audit reveals an inaccurate calculation of Applicable Customers of more than five percent (5%) for any Tax Season, then JHI shall, promptly upon SBBT’s request, reimburse SBBT for such audit expenses. In addition, JHI acknowledge and agree that JHI and the EROs shall be subject to audit and review by the banking agencies having jurisdiction over SBBT to the extent provided by law.

18.

Survival.

Upon the expiration or termination of this Agreement in accordance with the provisions of Article 9, no party shall remain liable to the other, except with respect to Article 4 (to the extent JHI’s right to receive payment has acrrued), 6.5(a), 12.1, 12.2, 13.1, 13.2, 13.3, 14.1, 14.2, and Articles 15, 17, this Article 18, and Article 19, all of which shall survive the expiration and termination hereof.

19.

Miscellaneous.

19.1.

Assignment. This Agreement is binding on, and shall inure to the benefit of, the parties hereto and their respective successors and permitted assigns. Neither party may assign its rights or obligations under this Agreement (other than in the context of a change in control of a party) without the prior written consent of the other party.

19.2.

Notices. Any notice permitted or required hereunder shall be in writing and shall be deemed to have been given (i) on the date of delivery if delivery of a legible copy was made personally or by facsimile transmission or (ii) 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 below or such other address, notice of which is given herein.

If to SBBT:

Santa Barbara Bank & Trust

5770 Oberlin Drive

San Diego, CA 92121

Attn: Rich Turner

Senior Vice President/RAL Program Director

with a copy to:

Pacific Capital Bank, N.A.

1021 Anacapa Street

Santa Barbara, California 93101

Attn: Frederick W. Clough, Esq.

General Counsel

If to JHI:

Jackson Hewitt Inc.

3 Sylvan Way

Parsippany, NJ 07054

Attn: Bill San Giacomo

Group Vice President, Financial Products

with a copy to:

Jackson Hewitt Inc.

3 Sylvan Way

Parsippany, NJ 07054

Attn: Office of the General Counsel

19.3.

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, then such determination shall not affect any other provision of this Agreement, all of which other provisions shall remain in effect. If any provision were capable of two constructions, one of which would render the provision valid and the other invalid, then the provision shall have the meaning that renders it valid. In the event that any provision hereof pertaining to fees, commissions or underwriting criteria is held to be invalid, then the parties shall endeavor in good faith the redesign the Program or the terms thereof in a manner consistent with the intent and economic effect of this Agreement.

19.4.

Waiver. No waiver of any breach of this Agreement shall be effective unless in writing and signed by an authorized representative of the waiving party. The waiver of any breach hereof shall not operate or be construed as a waiver of any other or subsequent breach.

19.5.

Integration; Subordination of JHI Obligations. It is expressly understood and agreed that, upon execution and delivery of this Agreement by all parties hereto, that certain Refund Anticipation Loan Agreement, dated as of May 5, 2004, by and between the parties shall be terminated and of no further force and effect, except that the payment obligations set forth in Exhibit B thereto (to the extent they have accrued as of the date hereof) and each of the other provisions described in Section 18 thereof shall survive such termination. This Agreement, together with the Exhibits hereto and all agreements or documents related hereto or delivered hereunder and the Technology Services Agreement 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 (other than those obligations which, by their terms and nature, survive termination or expiration). Whenever it states in this Agreement that JHI shall cause the EROs to perform any act or do any thing, and such performance is also required of the ERO by the terms of the SBBT Financial Product Agreement by and between the ERO and SBBT, the provisions of the SBBT Financial Product Agreement shall control and JHI’s obligations shall be subordinate to the obligations of the ERO.

19.6.

Amendment. This Agreement may not be amended or modified other than by a written agreement executed by both parties.

19.7.

Headings. Headings used in this Agreement are for convenience of reference only and do not define, interpret, describe the scope of or otherwise affect any provision hereof.

19.8.

Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which, taken together, shall be deemed one and the same instrument.

19.9.

Further Assurances. From time to time following the execution of this Agreement, each party agrees to do such things and execute and deliver such documents as may reasonably be necessary to effectuate the intent and purposes of this Agreement.

19.10.

No Third Party Beneficiaries. This Agreement has been made for the sole benefit of SBBT and JHI and is not intended to, and shall not, confer any benefit or rights upon, nor may it be enforced by, any other person.

19.11.

Publicity; Disclosure. Neither party shall issue any press release relating to this Agreement without the prior consent of the other party. Each party hereto shall be permitted to disclose this Agreement to the extent such party determines that such disclosures is required by applicable law.

19.12.

Joint Marketing. The Parties shall engage in joint marketing activities pursuant to Section 7.7 of this Agreement and any other joint marketing agreement that may be entered into from time to time.

[Remainder of page intentionally left blank]

IN WITNESS WHEREOF, this Agreement has been executed and delivered by a duly authorized officer of each party as of the date set forth above.

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EX-10.34 5 dex1034.htm TECHNOLOGY SERVICES AGREEMENT, DATED FEBRUARY 24, 2006 Technology Services Agreement, dated February 24, 2006

Exhibit 10.34

[*] designates portions of this document that have been omitted pursuant to a request for confidential treatment filed separately with the Securities and Exchange Commission.

TECHNOLOGY SERVICES AGREEMENT

THIS TECHNOLOGY SERVICES AGREEMENT (“Agreement”) is made this 24th day of February, 2006 by and between Santa Barbara Bank & Trust (“SBBT”), a division of Pacific Capital Bank, N.A., a national banking association, with its principal office at 5770 Oberlin Drive, San Diego, CA, and Jackson Hewitt Technology Services Inc (“JHTSI”), a Delaware corporation, with its principal office at 100 Arthur Andersen Parkway, Sarasota, Florida 34232.

RECITALS

WHEREAS, Jackson Hewitt Inc. (“JHI”) (i) is the franchisor of the Jackson Hewitt Tax Service^® tax preparation system to independently owned and operated franchisees (“Franchisees”) and (ii) through Tax Service of America, Inc., a wholly owned subsidiary, owns and operates Jackson Hewitt Tax Service locations (“Corporate Stores,” and together with Franchisees, “electronic return originators” or “EROs”); and

WHEREAS, the EROs provide income tax return preparation with electronic filing and related services to customers; and

WHEREAS, SBBT offers products to customers of tax service companies; and

WHEREAS, JHI and SBBT have entered into that certain Program Agreement of even date herewith respect to the Program (the “Program Agreement”); and

WHEREAS, SBBT desires, and JHTSI agrees to provide, certain technology services, personnel and related support to SBBT and EROs in connection with the Program.

TERMS AND CONDITIONS

1.	General Terms.

1.1.

Additional Definitions: The following additional definitions apply for purposes of this Agreement:

(a)

(b)

“Business Day” shall mean any day that is not a Saturday, Sunday, legal holiday or other day on which banks in either the state of New York or the state of California are required or permitted to be closed.

[*] designates portions of this document that have been omitted pursuant to a request for confidential treatment filed separately with the Securities and Exchange Commission.

(c)

“Customer” shall mean a Jackson Hewitt Tax Service customer that was also a customer of SBBT or another financial institution that provided financial products facilitated by EROs and such customer received a RAL, a funded Federal ACR, or a funded State ACR from SBBT or such other financial institution. For purposes of this definition, joint borrowers or joint recipients of such a financial product shall constitute one “Customer” and a customer that receives both a RAL or funded Federal ACR and a funded state ACR shall count as two “Customers”.

(d)

“Financial Product” shall mean any product offered by SBBT under the Program, including, without limitation, a RAL, Money Now^SM Loan, ACR, and HELP^® Loan and any similar or modified product offered from time to time.

(e)

(f)

“Refund Anticipation Loan” or “RAL” shall mean a loan to a Customer based upon, among other things, the Customer’s anticipated federal income tax return refund (as identified in IRS Form 8453 or similar form , subject to any limitations that may be imposed thereon due to the application of certain underwriting criteria or other factors.

(g)

[*]

(h)

“Tax Season” shall mean the period beginning on January 2 of a calendar year and ending on the last day an individual is permitted to file a federal income tax return with the IRS without extension, typically April 15 of such calendar year.

1.2.

The Services. In advance of each Tax Season, JHTSI and SBBT shall mutually agree on the technology needs related to the Program for the Tax Season (or other related period) including systems and software modification, incorporation and implementation of specifications in, and the coordination of systems between, Profiler^®, the Jackson Hewitt Tax Service electronic filing software program and the related systems and servers (“Profiler”) and SBBT’s systems (collectively, the “Services”). JHTSI agrees that it shall provide the agreed upon Services. JHTSI shall provide additional technology services upon the terms and conditions to be agreed in writing with SBBT. This Agreement applies to the services set forth herein to be performed in connection with the facilitation of Financial Products by Jackson Hewitt Tax Service locations during the Tax Season.

1.3.

Deliverables. In advance of each Tax Season, JHTSI and SBBT shall agree in writing as to the deliverables required under this Agreement for the Tax Season (or other related period) and the timeline of the required deliverables. JHTSI agrees that it shall provide the agreed upon deliverables. In the event the parties are unable to reach agreement on the scope of deliverables or related timeline, the parties shall seek the assistance of a mediator to assist them in such efforts. JHTSI shall use reasonable efforts to implement all requested deliverables, but shall not be held liable for matters not completed for the beginning of a Tax Season if such requests have been agreed to after August 31^stpreceding a Tax Season.

1.4

New Financial Products. If new Financial Products are introduced into the Program pursuant to the terms and conditions of the Program Agreement, the parties shall devote sufficient time and resources to implement technology solutions for such new Financial Products.

[*] designates portions of this document that have been omitted pursuant to a request for confidential treatment filed separately with the Securities and Exchange Commission.

1.5

Fees. In consideration of the rights granted to SBBT herein and the performance of services, delivery of deliverables and expenses incurred by JHTSI in connection with the Program, SBBT shall pay to JHTSI fees as follows, subject to Section 5.3 hereof:

(a)

SBBT shall pay to JHTSI for Tax Season 2006 [*].

(b)

SBBT shall pay to JHTSI for Tax Season 2007 [*].

(c)

SBBT shall pay to JHTSI for Tax Season 2008 [*].

(d)

(e)

The parties agree that JHTSI shall have no right to any fees earned by SBBT in connection with its offering Financial Products. The parties agree that SBBT is the sole owner of the Financial Products made under the Program.

1.6

Additional Fees. For each Tax Season under this Agreement, SBBT shall pay additional consideration to JHTSI for additional services performed and additional resources required to support expansion in the Program over such Tax Seasons. [*]

2.	JHTSI’s Obligations and Procedures. JHTSI agrees, in connection with the operation of the Program, to perform, and enable ProFiler^® to perform as applicable, the following specific duties:

2.1

Personnel. JHTSI shall devote a sufficient number of employees to meet its obligations under this Agreement.

2.2

Training. JHTSI shall devote a sufficient number of employees and level of resources to provide training to EROs and corporate staff in connection with the operation of Profiler in connection with the Program.

2.3

System Errors. JHTSI shall consult with SBBT to develop a system for eliminating transmission errors, to the extent practicable.

2.4

Support. JHTSI shall operate a call center to support EROs in connection with the operation of Profiler as it relates to the facilitation of the Program.

2.5

Computer Network. JHTSI shall establish and maintain a technology and communication center, at a location designated by JHTSI, for use in electronically transmitting returns, applications and other related materials to SBBT. JHTSI shall back up all Customer and other data related to the Program on at least a daily basis.

2.6

Transmission of Customer Information. After JHTSI has transmitted the Customer’s income tax return to the Internal Revenue Service (“IRS”) and received from the IRS acknowledgment of its acceptance thereof and the debt indicator relating thereto (to the extent provided) as described by Chapter 3 of the IRS e-file Handbook for Authorized IRS e-file Providers of Individual Income Tax Returns (Publication 1345, including Rev. Proc. 2000-31), as the same may be amended from time to time (the “Notification”), JHTSI shall electronically transmit to SBBT all data required to be extracted from the IRS transmission file and the SBBT customer application in accordance with SBBT’s Refund Anticipation Loan File Layouts and Specifications (“Specifications”), which shall be provided to JHTSI no later than the November 1 immediately preceding each tax season and shall be incorporated herein by reference, together with information, if any, received in the Notification. JHTSI

shall not transmit any Application information for a Money Now Loan which does not also make application for a RAL. Notwithstanding the foregoing, if SBBT shall notify JHTSI (as described in Section 3.1) that it is no longer accepting Applications from an ERO, then JHTSI shall immediately halt all transmissions to SBBT in respect of such ERO. In the event it no longer becomes feasible to process Applications in the manner specified in this Section 2.6 due to circumstances beyond the control of the parties, then the parties shall endeavor in good faith to take all commercially reasonable actions necessary to promptly modify the Program so as to resolve the problems.

2.7

Check Disbursements; Lost Checks; Check Reconciliations.

(a)

Check Disbursements. If a Customer has chosen an SBBT cashier’s check as the method of disbursement, then upon receipt of notice from SBBT that it has approved a Customer’s RAL Application, or that the IRS has funded a Customer’s ACR, JHTSI shall transmit a check print authorization to the ERO to permit the ERO to print a disbursement check from the consecutively numbered blank check stock supplied to it by SBBT. Such check shall evidence the amount of the RAL, Money Now Loan or ACR, less all fees and charges authorized by the Customer to be deducted therefrom, and shall bear an imprint of the facsimile signature of an authorized SBBT signatory as provided by SBBT.

(b)

Check Reconciliations. JHTSI shall immediately transmit to SBBT a check reconciliation file, the content and layout of which are described in the Specifications, with respect to each check as to which it has received from the ERO confirmation that the check was printed.

2.8

Data Processing Systems.

(a)

SBBT Communications. During the Term, JHTSI shall develop, maintain and operate data processing systems and programs that are capable of electronically transmitting and receiving all information, records and file formats required by the Specifications. Except as limited by Section 9.1 hereof, JHTSI shall be responsible for any losses directly attributable to the failure of JHTSI’s data processing systems and programs to electronically transmit and receive records and files in accordance with the requirements set forth in the Specifications.

(b)

Electronic Filing Software. JHTSI shall distribute to each participating ERO its proprietary electronic filing software, ProFiler^®, which shall (i) enable the ERO to prepare accurately and electronically file returns to the IRS through JHTSI and (ii) accurately populate the Truth-in-Lending Act Disclosure Statement, applicable State Disclosure Documents and Applications based upon information input by the tax preparer.

(c)

Check Writing Software. JHTSI shall distribute to each participating ERO a check writing program, which program shall permit (i) checks to be written only in the name of the proper Customer and only in the amount approved by SBBT, (ii) the printing of the Disclosure Statement (the text of which shall have been prepared by SBBT and reviewed by JHTSI) on a perforated stub of the SBBT blank check form, and (iii) the printing of additional disbursement checks in the event that additional funds are received and owing to the Customer.

(d)

Software. SBBT shall provide no fewer than 30 test transmissions on or before December 1^st preceding each tax season during the Term to ensure accuracy and functionality of all such software which test cases will be performed by JHTSI which results shall be shared with SBBT. Based on the results of the test cases, SBBT shall

approve or disprove software implemented for use in connection with the performance of this Agreement, including software that is embedded in, or otherwise is utilized in connection with, ProFiler.

(e)

Disaster Recovery Plan. JHTSI shall maintain adequate business resumption and disaster recovery plans. The plans shall be periodically tested by JHTSI and the results of the tests shall be shared with SBBT.

(f)

Insurance. JHTSI shall maintain commercial general liability and errors and omissions insurance coverage in amounts appropriate for its operations.

3.	SBBT’s Obligations and Procedures.

3.1.

Program Deliverables. SBBT shall cooperate and consult with JHTSI in accordance with Article 1 to agree on deliverables for a Tax Season and the related timeline.

3.2

Systems.

(a)

Unless required by applicable laws rules and regulations (“Applicable Law”), SBBT shall not alter its existing systems and software without first obtaining the written consent of JHTSI to ensure compatibility of the proposed modifications such that they will not adversely affect the offering of Financial Products under the Program or render JHTSI unable to operate or use with Profiler as it currently exists. SBBT shall cause its systems to communicate with Profiler, including such that Applications can be transmitted to SBBT and responses to the Applications can be received by JHTSI, Profiler and the Jackson Hewitt Tax Service office locations.

(b)

SBBT acknowledges that Profiler is distributed to Jackson Hewitt Tax Service offices nationally and to EROs through multiple locations and not all of which will participate in the Program or Profiler as it relates to the Program as developed under this Agreement and that certain Program requirements or requests as they relate to Profiler will not be reasonable or practicable due to the needs and requirements of Jackson Hewitt, and the operation of Jackson Hewitt’s business and Profiler. Toward that end, SBBT agrees that it will use its commercially reasonable efforts to accommodate reasonable requests of JHTSI with respect to the deliverables and Program to ensure that JHTSI’s programs are not inconsistent, impractical or unduly burdensome on JHTSI or the operation of the Jackson Hewitt Tax Service business.

(c)

SBBT shall provide JHTSI with all necessary information needed from SBBT or the Originator to create and populate required documents, including information related to the deposit account for Customers created for the respective Financial Product.

3.3

Availability. SBBT shall be available during business hours and reasonably at all other times for consultation to JHTSI to assist in timely completion of deliverables and continuation of operations during Tax Season.

3.4

SBBT acknowledges and agrees (i) to keep all information with respect to Profiler and the modifications and developments hereunder confidential; and (ii) that JHTSI maintains sole and exclusive ownership rights in Profiler as modified, and further disclaims on behalf of itself and all other persons any ownership or purported ownership rights in the same.

3.5

Reports. SBBT shall provide weekly reports to JHTSI describing all ACH transmissions from the IRS to SBBT and all paid items, and covering such other matters and in such form as JHTSI reasonably may request. SBBT covenants and agrees that each such report will be true, correct and complete in all respects.

4.	Representations, Warranties and Covenants.

4.1.

Each party represents and warrants to the other that (i) it is a corporation or national banking association in good standing under the laws of its jurisdiction of incorporation or formation and is duly qualified to transact business in each jurisdiction in which the operation of its business or the ownership of its properties requires such qualification (except where the failure to so qualify would not have a material adverse effect on its business); (ii) its execution and delivery of this Agreement does not and will not violate its Certificate of Incorporation or charter or breach or constitute a default under any agreement or arrangement to which it is a party; (iii) it has the legal right to enter into and perform its obligations hereunder; (iv) its execution and delivery hereof has been duly authorized by all necessary corporate action on its part and this Agreement constitutes its legal and binding agreement, enforceable against it in accordance with its terms; and (v) its Marks (as defined in the Program Agreement) do not infringe upon the intellectual property rights of any third party.

4.2.

SBBT covenants to and agrees with JHTSI that it shall comply with all Applicable Laws, rules and regulations in connection with the offer and sale of Financial Products and the performance of its obligations under this Agreement. Without limiting the foregoing, SBBT covenants and agrees that its evaluation and processing of Applications, its provision and documentation of loans, the fees charged by it for such loans and its activities involving the collection of outstanding RALs shall comply with all applicable state and federal laws, rules and regulations, including, without limitation, the Truth-In-Lending Act (15 U.S.C. Sec 1601-1667), the Equal Credit Opportunity Act (15 U.S.C. Sec. 1691-1691f), the Electronic Fund Transfer Act (15 U.S.C. 1693, et seq.) and other applicable provisions of the Consumer Credit Protection Act (15 U.S.C Sec. 1601).

4.3.

Each party further covenants to and agrees with the other that it shall fulfill its obligations hereunder in a diligent and timely fashion, consistent with the best practices in the industry; that all hardware, software, processes and procedures each party uses in providing the services hereunder are owned or properly licensed to such party and will not violate the trademark or copyright rights, right of publicity or privacy of, or constitute libel or slander against, or involve plagiarism or violate any other rights of, any person or entity and that such party’s use of them will comply with all Applicable Laws; that all processing systems, software and hardware, and policies or procedures used by each party and all rules and protocols covering such party’s employees, agents and independent contractors providing services hereunder, contain protections and security enhancements, consistent with industry standards, and provide safeguards and system protections, consistent with industry standards, to prevent hacking, viruses, security breaches, loss of data, any breach of the Gramm-Leach-Bliley Act and applicable regulations promulgated thereunder, any breach of the confidentiality provisions hereof, identity theft and fraud against JHTSI and Customers effecting transactions contemplated by this Agreement.

4.4.

JHTSI covenants to and agrees with SBBT that it shall comply with all applicable Program Protocols (as defined in the Program Agreement) and Applicable Law in connection with the performance by it of its obligations under this Agreement.

5.	Term and Termination.

5.1.

[*] designates portions of this document that have been omitted pursuant to a request for confidential treatment filed separately with the Securities and Exchange Commission.

5.2.

Termination by Either Party. Either party may at its option terminate this Agreement upon twenty (20) days’ prior written notice if (i) the other party has materially breached any of the terms hereof and has failed to cure such breach within such twenty-day period; or (ii) immediately upon receipt of written notice of termination of the Program Agreement; provided however if it is ultimately determined that the Program Agreement was wrongfully terminated, then such party shall be liable for wrongful termination under this Agreement. In addition, either party may terminate this Agreement, immediately upon notice to the other party, upon (x) the filing by or against the other party of any petition in bankruptcy or for reorganization or debt consolidation under the federal bankruptcy laws or under comparable law; (y) the other party’s making of an assignment of all or substantially all of its assets for the benefit of creditors; or (z) application of the other party for the appointment of a receiver or trustee of its assets.

5.3

In the event of a delivery of a termination notice under Section 5.2 (ii) that is the result of a termination notice under Section 9.2 (ii) of the Program Agreement, and there has been a notice under Section 9.4 of the Program Agreement, then SBBT shall have the right to [*]. Any disputes under this Section shall be resolved at the same time, in the same manner and in the same proceeding, as disputes under Section 9.4 of the Program Agreement.

5.4

Continuation of Program. In the event of a termination of the Program under the Program Agreement during a Tax Season, both parties shall continue to provide the Program through the end of such Tax Season, unless otherwise agreed in writing by the parties, and all the relevant provisions of and obligations under this Agreement and the Technology Services Agreement shall survive until such obligations have been completed including any payment obligations for such Tax Season. The foregoing shall not be applicable if such termination is a result of an event whereby SBBT and its affiliates are ceasing as a business offering all financial products through transmitters and tax preparation companies in total. In addition, either party may elect to discontinue the Program during a Tax Season if the termination is due to the material, uncured breach of the other party under Section 5.2(i) or an event with respect to the other party described in the last sentence of Section 5.2 occurs.

5.5

Termination by JHTSI. JHTSI may terminate this Agreement immediately after a good faith discussion as to alternatives if SBBT’s processing systems are not available for any reason (including any Force Majeure Event, as defined in Section 9.2) for five (5) consecutive days or more during any Tax Season, or for 30 consecutive days or more during any other time.

6.	Ownership of Loans.

The parties agree that SBBT will be the sole owner of the Financial Products made under the Program. In addition, SBBT shall have the authority to transfer or assign such Financial Products at any time, provided that SBBT shall continue to be liable for any violation of law of such transferee or assignee. Without limiting the foregoing, (i) any such transfer or assignment (a) shall comply with all Applicable Laws, rules and regulations, and (b) shall not cause SBBT to breach any of its representations or obligations hereunder, and (ii) the transferee or assignee shall (a) represent, warrant and covenant to comply with all Applicable Laws, rules and regulations in the servicing and collection of such loans, (b) agree to provide customer service at a level at least as high as that offered by SBBT and (c) demonstrate to SBBT’s reasonable satisfaction the ability to comply with such representations, warranties and covenants.

7.	Confidential Information.

7.1.

Confidentiality Rights of the Parties. The parties hereto understand that implementation and operation of the Program involves the use of certain systems, computer programs, marketing, product development, risk management, strategy data and other information, including business information and trade secrets (“Proprietary Information”) that are proprietary to the respective parties. Each party shall safeguard all Proprietary Information made available to it by the other party, taking reasonable precautions to withhold the same from disclosure to the same extent that it would safeguard its own confidential information and data. Such Proprietary Information shall not include information which is (i) shown to have been known by the receiving party prior to disclosure to it by the other party, (ii) generally known to others engaged in the same trade or business as the furnishing party, (iii) available to the public through no act or omission by the receiving party or its representatives or professional advisors, or (iv) which is rightfully obtained by the receiving party from third parties (other than professional advisors or other representatives) without restriction of confidentiality. In addition to the foregoing, SBBT specifically agrees not to make copies of or to disclose to any other person or firm, other than to employees of SBBT who need-to know such information in order to perform SBBT’s obligations under this Agreement and who have agreed to be bound by this Article 7, any Proprietary Information (including, without limitation, the names of EROs or Customers or any other identifying information obtained through its relationship with JHTSI as set forth in this Agreement) for any purpose other than performing its obligations hereunder. 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 Customer whose Application was declined subsequently applies directly to SBBT for a loan.

7.2.

Privacy. No party shall make any unauthorized disclosure of or use any personal information of individual consumers which it receives from the other party or on the other party’s behalf other than to carry out the purposes for which such information is received, and each party shall comply, to the extent applicable, with the requirements of the implementing regulations of Title V of the Gramm-Leach Bliley Act of 1999, specifically including, 16 Code of Federal Regulations, Chapter I, Subchapter C, Part 313.11 and 313.13. JHTSI and SBBT shall each adopt and maintain a comprehensive privacy policy with respect to its handling of the personal information of individual Customers submitted by such Customers to JHTSI. JHTSI’s and SBBT’s privacy policy shall be available on its Internet web sites and each shall comply with the provisions of such privacy policy.

8.	Indemnification.

8.1.

Indemnification by JHTSI. JHTSI shall indemnify, defend and hold harmless SBBT, its affiliates and their respective officers, directors and employees from and against any and all expenses and costs (including reasonable attorney’s fees and court costs) or liabilities (including amounts paid in settlement) incurred by SBBT in connection with any third party claim, dispute, controversy or litigation (individually, a “claim”) arising out of or resulting from (i) JHTSI’s violation or alleged violation of Applicable Law (except when such violation or alleged violation is directly caused by JHI’s compliance with Program Protocols); (ii) any material breach by JHTSI of any representation, warranty, covenant or agreement hereunder or (iii) the negligence or willful misconduct of JHTSI in connection with the performance by it of its obligations under this Agreement.

8.2.

Indemnification by SBBT. SBBT shall indemnify, defend and hold harmless JHTSI, its affiliates, and their respective officers, directors, employees and agents, from and against any and all expenses and costs (including reasonable attorney’s fees and court costs), or liabilities (including amounts paid in settlement) incurred by any of them in connection with any third

party claim, dispute, controversy or litigation (individually, a “claim”) arising out of or resulting from (i) the Program Protocols; (ii) the offer and sale of Financial Products hereunder (excluding any acts or omissions by the ERO with respect to such offer and sale, except if the claim is directly caused by the ERO acting in a manner expressly required by, or omitting to act in a manner expressly prohibited by, the Program Protocols); (iii) any violation or alleged violation of Applicable Law (including, without limitation, the Truth in Lending Act or any regulation of the Federal Reserve Board or other applicable federal or state banking or consumer finance laws or regulations) by SBBT, the Financial Products or the Program Protocols, (iv) any material breach by SBBT of any representation, warranty, covenant or agreement hereunder; or (v) the negligence or wilful misconduct of SBBT in connection with the performance by it of its obligations under this Agreement.

8.3.

Procedures. The indemnitee shall promptly notify the indemnitor in writing of any claim that may be the subject of indemnification under this Article 8, and shall promptly tender to the indemnitor sole control of the defense and any settlement thereof; provided, however, that the failure of an indemnitee to so notify the indemnitor shall not relieve the indemnitor of its indemnification obligations hereunder to the extent that such failure does not actually prejudice the indemnitor with respect to such claim; and provided, further that the indemnitor shall not compromise or settle any claim or action without the prior approval of the indemnitee. The indemnitee shall have the right (but not the obligation) to defend such action or proceeding by retaining attorneys of its own selection to represent it at the indemnitor’s reasonable expense; provided that the indemnitor shall in all events have the right to participate in such defense; and provided further that the indemnitee shall not compromise or settle any such claim or action without the prior approval of the indemnitor.

9.	Limitation of Liability.

9.1.

9.2.

Force Majeure. Notwithstanding any other provision herein to the contrary, either party shall be excused from performance hereunder for failure to perform any of the obligations if (i) such failure to perform occurs by reason of any of the following events (“Force Majeure Events”): act of God, fire, flood, storm, earthquake, tidal wave, communications failure, sabotage, war, military operation, terrorist attack, national emergency, mechanical or electrical breakdown, general failure of the postal or banking system, civil commotion, strikes, or the order, requisition, request or recommendation of any governmental agency or acting governmental authority, or either party’s compliance therewith or government proration, regulation, or priority, or any other similar cause beyond either party’s reasonable control and (ii) such Force Majeure Event is beyond such party’s reasonable control. The party excused from performance shall be excused from performance (i) only after notice from the party whose performance is impaired, (ii) only during the continuance of the Force Majeure Event and (iii) only for so long as such party continues to take reasonable steps to mitigate the effect of the Force Majeure Event and to substantially perform despite the occurrence of the Force Majeure Event. The party whose performance is not impaired may terminate this Agreement upon five (5) consecutive days’ notice during any tax season or upon thirty (30) consecutive days’ notice at any other time, effective immediately upon written notice to such party.

10.

Commitment to Negotiation; Mediation and Arbitration of Disputes.

10.1.

Negotiation. Except with respect to either party’s wrongful use of the Marks of the other party for which the aggrieved party may seek injunctive or such other relief as such aggrieved party may deem appropriate, or litigation brought against JHTSI by third parties, neither party shall institute any proceeding in any court or administrative agency or any arbitration to resolve a dispute between the parties before that party has sought to resolve the dispute through direct negotiation with the other party. If the dispute is not resolved within three weeks after a demand for direct negotiation, the parties shall then attempt to resolve the dispute through mediation and/or arbitration as provided in this Article 10.

10.2.

Scope of Arbitration. Except for either party’s wrongful use of the Marks for which the aggrieved party may seek injunctive or such other relief as such aggrieved party may deem appropriate, or litigation brought against JHTSI by third parties, all controversies, disputes or claims between JHTSI and SBBT (and any owners, guarantors, affiliates and employees of SBBT, if applicable, but in no event shall any of such owners, guarantors, affiliates and employees be deemed third-party beneficiaries of this Agreement), arising out of or related to: (i) this Agreement or any other related agreement between JHTSI and SBBT, or any provision of any such agreements; (ii) the relationship of the parties; (iii) the validity of this Agreement or any other related agreement between JHTSI and SBBT or any provision of any such agreements; or (iv) any problem arising from the undertakings hereunder, will be submitted for mediation, as set forth below in Section 10.3 and, in the event mediation is not demanded by a party or does not result in a resolution of the dispute, for binding arbitration to the New York, New York office of the American Arbitration Association on demand of either party. SBBT agrees to cause its owners, guarantors, affiliates and employees of SBBT reasonably likely to be involved in such controversies, disputes and claims to agree to be bound by the provisions of Sections 10.2, 10.3, 10.4, 10.5 and 10.6 hereof.

The decision and award of the arbitrators will be binding and conclusive upon both JHTSI and SBBT, and enforceable in any court of competent jurisdiction. The arbitrators have the right, in their discretion, to award or include in the award any lawfully appropriate relief (including, punitive damages) and to assess costs or expenses to one or both parties and may award attorneys’ fees and legal costs to the prevailing party as part of such award, provided that the arbitrator will not have the right to declare any Mark generic or otherwise invalid.

JHTSI and SBBT agree to be bound by the provisions of any limitation on the period of time in which claims must be brought under Applicable Law or this Agreement, whichever expires earlier. JHTSI and SBBT further agree that, in connection with any such arbitration proceeding, each must submit or file any claim which would constitute a compulsory counterclaim (as defined by Rule 13 of the Federal Rules of Civil Procedure) within the same proceeding as the claim to which it relates. Any such claim which is not submitted or filed as described above will be forever barred.

Each party agrees that arbitration will be conducted on an individual, not a class-wide, basis, and that an arbitration proceeding between JHTSI and SBBT may not be consolidated with any other arbitration proceeding between JHTSI and any other person, corporation, limited liability company or partnership, provided that JHTSI or SBBT may consolidate any arbitration

proceeding commenced under this Section 10.2 with any arbitration proceeding commenced by JHI, JHTSI or SBBT under any other agreement executed in connection herewith including without limitation the Program Agreement.

Notwithstanding anything to the contrary contained in this Section, JHTSI and SBBT shall each have the right in a proper case to obtain temporary restraining orders and temporary or preliminary injunctive relief from a court of competent jurisdiction; provided, however, that JHTSI or SBBT must contemporaneously submit the dispute for arbitration on the merits as provided herein and the submission to the court shall not waive the right to arbitration.

10.3.

10.4.

Governing Law. All matters relating to arbitration will be governed by the Federal Arbitration Act (9 U.S.C. §§ 1 et seq.). Except to the extent governed by the Federal Arbitration Act, the United States Trademark Act of 1946 (Lanham Act, 15 U.S.C. §§1051 et seq.), or other federal law, this Agreement and all claims arising from the relationship between JHTSI and SBBT will be governed by the laws of the state of New York without regard to its conflict of laws principles.

10.5.

10.6.

Waiver of Jury Trial. JHTSI and SBBT irrevocably waive trial by jury in any action, proceeding or counterclaim, whether at law or in equity, brought by either of them against the other party.

11.

No Joint Venture.

12.

Audit Rights.

12.1.

During the Term and for a period of one year thereafter, SBBT shall (a) maintain reasonably adequate books and records with respect to any fees or compensation to be provided to JHTSI hereunder and otherwise with respect to its obligations hereunder; (b) upon reasonable written request, provide access to such books and records to JHTSI and its authorized agents (including, but not limited to, its auditors); and (c) cooperate with, and provide to, JHTSI and such agents such assistance as they reasonably may require. JHTSI shall pay for the expenses associated with the conduct of such audit, provided that if such audit reveals an underpayment by SBBT of more than five percent (5%) of any amount due hereunder, then SBBT shall, promptly upon JHTSI’s request, tender the amount of such underpayment to JHTSI and reimburse JHTSI for such audit expenses.

12.2.

During the Term and for a period of one year thereafter, JHTSI shall (a) maintain reasonably adequate books and records with respect to its obligations hereunder; (b) upon reasonable written request, provide access to such books and records to SBBT and its authorized agents (including, but not limited to, its auditors); and (c) cooperate with, and provide to, SBBT and such agents such assistance as they reasonably may require. SBBT shall pay for the expenses associated with the conduct of such audit, provided that if such audit reveals an inaccurate calculation of Applicable Customers of more than five percent (5%) for any Tax Season, then JHTSI shall, promptly upon SBBT’s request, reimburse SBBT for such audit expenses. In addition, JHTSI acknowledge and agree that JHTSI and the EROs shall be subject to audit, examination and review by the banking agencies having jurisdiction over SBBT, including without limitation the Office of the Comptroller of the Currency, to the extent provided by law.

13.

Survival.

Upon the expiration or termination of this Agreement in accordance with the provisions of Article 5, no party shall remain liable to the other, except with respect to Article 1 (to the extent JHTSI’s right to receive payment has accrued), 7.1, 7.2, 8.1, 8.2, 8.3, 9.1, 9.2, and Articles 10, 12, this Article 13, and Article 14, all of which shall survive the expiration and termination hereof.

14.

Miscellaneous.

14.1.

14.2.

If to SBBT:

Santa Barbara Bank & Trust

5770 Oberlin Drive

San Diego, CA 92121

Attn: Rich Turner

Senior Vice President/RAL Program Director

with a copy to:

Pacific Capital Bank, N.A.

1021 Anacapa Street

Santa Barbara, California 93101

Attn: Frederick W. Clough, Esq.

General Counsel

If to JHTSI:

Jackson Hewitt Technology Services Inc.

3 Sylvan Way

Parsippany, NJ 07054

Attn: Bill SanGiacomo

Group Vice President, Financial Products

with a copy to:

Jackson Hewitt Inc.

3 Sylvan Way

Parsippany, NJ 07054, Attn: Office of the General Counsel

14.3.

14.4.

14.5.

Integration; Subordination of JHTSI Obligations. This Agreement, together with the Exhibits hereto and all agreements or documents related hereto or delivered hereunder and the Program Agreement 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 (other than those obligations which, by their terms and nature, survive termination or expiration).Whenever it states in this Agreement that JHTSI shall cause the EROs to perform any act or do any thing, and such performance is also required of the ERO by the terms of the SBBT Financial Product Agreement by and between the ERO and SBBT, the provisions of the SBBT Financial Product Agreement shall control and JHTSI’s obligations shall be subordinate to the obligations of the ERO.

14.6.

Amendment. This Agreement may not be amended or modified other than by a written agreement executed by both parties.

14.7.

Headings. Headings used in this Agreement are for convenience of reference only and do not define, interpret, describe the scope of or otherwise affect any provision hereof.

14.8.

Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which, taken together, shall be deemed one and the same instrument.

14.9.

14.10.

No Third Party Beneficiaries. This Agreement has been made for the sole benefit of SBBT and JHTSI and is not intended to, and shall not, confer any benefit or rights upon, nor may it be enforced by, any other person.

14.11.

IN WITNESS WHEREOF, this Agreement has been executed and delivered by a duly authorized officer of each party as of the date set forth above.


SANTA BARBARA BANK & TRUST, a division of Pacific Capital Bank, N.A, a National Banking Association		JACKSON HEWITT TECHNOLOGY SERVICES, INC., a Delaware corporation

By:	/s/ Richard H. Turner	By	/s/ Bill San Giacomo
	Richard H. Turner		Bill San Giacomo
	Senior Vice President, RAL Program Director		Group Vice President, Financial Products

Exhibit A

[*] Designates portions of this document that have been omitted pursuant to a request for confidential treatment filed separately with the Securities and Exchange Commission.

[*]

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EX-31.1 6 dex311.htm CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 Certification of Chief Executive Officer pursuant to Section 302

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

I, Michael D. Lister, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of Jackson Hewitt Tax Service Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

March 17, 2006

/s/ Michael D. Lister

Michael D. Lister

President and Chief Executive Officer

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EX-31.2 7 dex312.htm CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 Certification of Chief Financial Officer pursuant to Section 302

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

I, Mark L. Heimbouch, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of Jackson Hewitt Tax Service Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

March 17, 2006

/s/ Mark L. Heimbouch

Mark L. Heimbouch

Executive Vice President and Chief Financial Officer

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EX-32.1 8 dex321.htm CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906 Certification of Chief Executive Officer pursuant to Section 906

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Jackson Hewitt Tax Service Inc. (the “Company”) on Form 10-Q for the period ended January 31, 2006, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael D. Lister, as President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:

(1)

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Michael D. Lister

Michael D. Lister

President and Chief Executive Officer

March 17, 2006

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EX-32.2 9 dex322.htm CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906 Certification of Chief Financial Officer pursuant to Section 906

Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Jackson Hewitt Tax Service Inc. (the “Company”) on Form 10-Q for the period ended January 31, 2006, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Mark L. Heimbouch, as Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:

(1)

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Mark L. Heimbouch

Mark L. Heimbouch

Executive Vice President and Chief Financial Officer

March 17, 2006

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-----END PRIVACY-ENHANCED MESSAGE-----

SANTA BARBARA BANK & TRUST,

a division of Pacific Capital Bank, N.A.,

a National Banking Association

JACKSON HEWITT INC.,

a Virginia corporation

/s/ Richard H. Turner

/s/ Bill San Giacomo

Richard H. Turner

Bill San Giacomo

Senior Vice President, RAL Program Director

Group Vice President, Financial Products