<PAGE> 1
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 OCTOBER 31, 1999
[ ] 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 1-6089
H&R BLOCK, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MISSOURI 44-0607856
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
4400 MAIN STREET
KANSAS CITY, MISSOURI 64111
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(816) 753-6900
(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
----- -----
The number of shares outstanding of the registrant's Common Stock, without par
value, at December 1, 1999 was 98,336,052 shares.
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TABLE OF CONTENTS
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Page
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PART I Financial Information
Consolidated Balance Sheets
October 31, 1999 and April 30, 1999 ................................. 1
Consolidated Statements of Operations
Three Months Ended October 31, 1999 and 1998 ........................ 2
Six Months Ended October 31, 1999 and 1998 .......................... 3
Consolidated Statements of Cash Flows
Six Months Ended October 31, 1999 and 1998 .......................... 4
Notes to Consolidated Financial Statements ............................. 5
Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................. 10
Qantitative and Qualitative Disclosures about Market Risk.............. 23
PART II Other Information....................................................... 24
SIGNATURES......................................................................... 28
</TABLE>
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H&R BLOCK, INC.
CONSOLIDATED BALANCE SHEETS
AMOUNTS IN THOUSANDS, EXCEPT SHARE AMOUNTS
<TABLE>
<CAPTION>
OCTOBER 31, APRIL 30,
1999 1999
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ASSETS (UNAUDITED) (AUDITED)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 168,182 $ 193,240
Marketable securities 43,831 56,881
Receivables, less allowance for doubtful accounts of $73,608
and $61,872 727,738 743,301
Prepaid expenses and other current assets 169,198 94,000
----------- -----------
TOTAL CURRENT ASSETS 1,108,949 1,087,422
INVESTMENTS AND OTHER ASSETS
Investments in marketable securities 218,103 170,528
Excess of cost over fair value of net tangible assets acquired,
net of amortization 659,166 405,534
Other 151,602 132,470
----------- -----------
1,028,871 708,532
PROPERTY AND EQUIPMENT, at cost less accumulated
depreciation and amortization 135,695 114,222
----------- -----------
$ 2,273,515 $ 1,910,176
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 625,666 $ 71,939
Accounts payable, accrued expenses and deposits 108,314 168,641
Accrued salaries, wages and payroll taxes 24,708 161,590
Accrued taxes on earnings 53,162 151,659
Current portion of long-term debt 56,358 -
----------- -----------
TOTAL CURRENT LIABILITIES 868,208 553,829
LONG-TERM DEBT 352,598 249,725
OTHER NONCURRENT LIABILITIES 104,051 44,635
STOCKHOLDERS' EQUITY
Common stock, no par, stated value $.01 per share 1,089 1,089
Additional paid-in capital 419,411 420,658
Retained earnings 997,534 1,130,909
Accumulated other comprehensive income (loss) (16,313) (23,400)
----------- -----------
1,401,721 1,529,256
Less cost of 10,937,737 and 11,343,608 shares of common stock
in treasury 453,063 467,269
----------- -----------
948,658 1,061,987
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$ 2,273,515 $ 1,910,176
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
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H&R BLOCK, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED, AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
OCTOBER 31,
-----------
1999 1998
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REVENUES
Service revenues $ 152,699 $ 55,922
Product revenues 50,049 23,154
Royalties 3,210 2,995
Other 3,988 3,542
--------- ---------
209,946 85,613
--------- ---------
OPERATING EXPENSES
Employee compensation and benefits 118,306 48,995
Occupancy and equipment 59,553 41,642
Interest 23,344 15,508
Marketing and advertising 14,635 8,481
Supplies, freight and postage 8,699 5,546
Other 60,203 25,336
--------- ---------
284,740 145,508
--------- ---------
Operating loss (74,794) (59,895)
OTHER INCOME
Investment income, net 2,402 9,646
Other, net 235 -
--------- ---------
2,637 9,646
Loss from continuing operations before income tax benefit (72,157) (50,249)
Income tax benefit (27,420) (19,094)
--------- ---------
Net loss from continuing operations (44,737) (31,155)
Net loss from discontinued operations (less applicable
income tax benefit of ($11)) - (18)
--------- ---------
Net loss $ (44,737) $ (31,173)
========= =========
Weighted average number of common shares outstanding 97,814 99,122
========= =========
Basic and diluted net loss per share from continuing operations $ (.46) $ (.31)
========= =========
Basic and diluted net loss per share $ (.46) $ (.31)
========= =========
Dividends per share $ .275 $ .25
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
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H&R BLOCK, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED, AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------
OCTOBER 31,
-----------
1999 1998
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REVENUES
Service revenues $ 226,202 $ 95,310
Product revenues 94,241 51,796
Royalties 4,140 4,062
Other 6,923 5,018
--------- ---------
331,506 156,186
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OPERATING EXPENSES
Employee compensation and benefits 193,658 91,993
Occupancy and equipment 110,599 82,229
Interest 34,818 30,200
Marketing and advertising 19,855 12,264
Supplies, freight and postage 12,891 8,614
Other 96,942 47,446
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468,763 272,746
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Operating loss (137,257) (116,560)
OTHER INCOME
Investment income, net 5,053 23,536
Other, net 250 -
--------- ---------
5,303 23,536
Loss from continuing operations before income tax benefit (131,954) (93,024)
Income tax benefit (50,143) (35,329)
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Net loss from continuing operations (81,811) (57,695)
Net loss from discontinued operations (less applicable
income tax benefit of ($778)) - (1,217)
--------- ---------
Net loss $ (81,811) $ (58,912)
========= =========
Weighted average number of common shares outstanding 97,764 102,049
========= =========
Basic and diluted net loss per share from continuing operations $ (.84) $ (.57)
========= =========
Basic and diluted net loss per share $ (.84) $ (.58)
========= =========
Dividends per share $ .525 $ .45
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
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H&R BLOCK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED, AMOUNTS IN THOUSANDS
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<CAPTION>
SIX MONTHS ENDED
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OCTOBER 31,
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1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (81,811) $ (58,912)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 42,731 26,884
Accretion of acquisition liabilities 3,633 -
Other noncurrent liabilities 2,935 2,457
Changes in:
Receivables 24,153 (563,792)
Prepaid expenses and other current assets (69,082) (50,287)
Accounts payable, accrued expenses and deposits (47,986) (28,351)
Accrued salaries, wages and payroll taxes (136,882) (84,351)
Accrued taxes on earnings (98,555) (294,179)
------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (360,864) (1,050,531)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities (3,987) (198,969)
Maturities of marketable securities 25,112 564,988
Loan to affiliate (62,627) -
Purchases of property and equipment (21,306) (14,896)
Excess of cost over fair value of net tangible assets acquired,
net of cash acquired (81,550) (16,513)
Other, net (13,958) (11,024)
------------ ------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (158,316) 323,586
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of notes payable (25,815,955) (3,277,627)
Proceeds from issuance of notes payable 26,369,682 3,870,614
Dividends paid (51,564) (46,248)
Payments to acquire treasury shares (32,366) (472,566)
Proceeds from stock options exercised 24,325 59,857
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NET CASH PROVIDED BY FINANCING ACTIVITIES 494,122 134,030
------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (25,058) (592,915)
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD 193,240 900,856
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 168,182 $ 307,941
============ ============
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Income taxes paid $ 48,956 $ 257,402
Interest paid 38,373 33,524
</TABLE>
See Notes to Consolidated Financial Statements
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H&R BLOCK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited, dollars in thousands, except share data
1. The Consolidated Balance Sheet as of October 31, 1999, the Consolidated
Statements of Operations for the three and six months ended October 31,
1999 and 1998, and the Consolidated Statements of Cash Flows for the six
months ended October 31, 1999 and 1998 have been prepared by the Company,
without audit. In the opinion of management, all adjustments (which include
only normal recurring adjustments) necessary to present fairly the
financial position, results of operations and cash flows at October 31,
1999 and for all periods presented have been made.
Reclassifications have been made to prior year amounts to conform with the
current year presentation.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These consolidated financial
statements should be read in conjunction with the financial statements and
notes thereto included in the Company's April 30, 1999 Annual Report to
Shareholders.
Operating revenues are seasonal in nature with peak revenues occurring in
the months of January through April. Thus, the six-month results are not
indicative of results to be expected for the year.
2. On December 1, 1999, the Company, through a subsidiary, Block Financial
Corporation, completed the purchase of Olde Financial Corporation (Olde)
for $887,000 in cash. Olde, based in Detroit, Michigan, offers brokerage
and other financial services through Olde's network of approximately
1,200 registered representatives located in 181 branch offices in 35
states. The transaction will be treated as a purchase and Olde's results
will be included as of the date of acquisition in the Company's third
quarter.
3. On August 2, 1999, the Company, through a subsidiary, RSM McGladrey, Inc.
(RSM), completed the purchase of substantially all of the non-attest assets
of McGladrey & Pullen, LLP (McGladrey). McGladrey was the nation's seventh
largest accounting and consulting firm with more than 70 offices located
primarily in the Eastern, Midwestern, Northern and Southwestern United
States. The purchase price was $240,000 in cash payments over the next four
years and the assumption of certain pension liabilities with a present
value of $52,728. The purchase agreement also provides for possible future
contingent consideration based on a calculation of earnings in year two,
three and four after the acquisition and will be treated as purchase price
when paid. In addition, the Company made cash payments of $65,453 for
outstanding accounts receivable and work-in-process that will be repaid to
the Company as RSM collects these amounts in the ordinary course of
business. The acquisition was accounted for as a purchase, and accordingly,
RSM's results are included since the date of acquisition. The additional
cash payments due over the next four years of $148,803 were treated as
noncash investing activities in the Consolidated Statement of Cash Flows
for the
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<PAGE> 8
six months ended October 31, 1999. The excess of cost over the fair value
of net tangible assets acquired was $240,535 and is being amortized on a
straight-line basis over periods of up to 20 years.
4. Receivables consist of the following:
<TABLE>
<CAPTION>
October 31, April 30,
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1999 1999
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(Unaudited) (Audited)
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Mortgage loans held for sale $ 586,998 $ 636,687
Business services accounts receivable and work-in-process 94,776 33,015
Participation in refund anticipation loans 43,147 51,074
Other 76,425 84,397
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801,346 805,173
Allowance for doubtful accounts 73,608 61,872
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$ 727,738 $ 743,301
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</TABLE>
5. The Company files its Federal and state income tax returns on a calendar
year basis. The Consolidated Statements of Operations reflect the effective
tax rates expected to be applicable for the respective full fiscal years.
6. Basic and diluted net loss per share is computed using the weighted average
number of shares outstanding during each period. Diluted net loss per share
excludes the impact of common stock options outstanding for 9,517,209
shares and the conversion of 608 shares of preferred stock to common stock,
as they are antidilutive. The weighted average shares outstanding for the
six months ended October 31, 1999 decreased to 97,764,000 from 102,049,000
last year, due to the purchase of treasury shares by the Company during
fiscal 1999 and 2000. This decrease was partially offset by stock option
exercises and the issuance of stock for acquisitions.
7. During the six months ended October 31, 1999 and 1998, the Company issued
617,028 and 1,918,558 shares, respectively, pursuant to provisions for
exercise of stock options under its stock option plans. In addition, the
Company issued 475,443 shares of its common stock for an acquisition in the
second quarter of fiscal 2000. The issuance of common stock for the
acquisition was treated as a noncash investing activity in the Consolidated
Statement of Cash Flows for the six months ended October 31, 1999. During
the six months ended October 31, 1999, the Company acquired 721,800 shares
of its common stock at an aggregate cost of $32,366. During the six months
ended October 31, 1998, the Company acquired 11,365,100 shares of its
common stock at an aggregate cost of $472,566.
8. CompuServe Corporation (CompuServe), certain current and former officers
and directors of CompuServe and the registrant are named defendants in six
lawsuits pending before the state and Federal courts in Columbus, Ohio
since 1996. All suits allege similar violations of the Securities Act of
1933 based on assertions of omissions and misstatements of fact in
connection with CompuServe's public filings related to its initial public
offering in April 1996. One state lawsuit also alleges certain oral
omissions and misstatements in connection with such offering. Relief sought
in the lawsuits is unspecified, but includes pleas for
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<PAGE> 9
rescission and damages. One Federal lawsuit names the lead underwriters of
CompuServe's initial public offering as additional defendants and as
representatives of a defendant class consisting of all underwriters who
participated in such offering. The Federal suits were consolidated, the
defendants filed a motion to dismiss the consolidated suits, the district
court stayed all proceedings pending the outcome of the state court suits,
and the United States Court of Appeals for the Sixth Circuit affirmed such
stay. The four state court lawsuits allege violations of various state
statutes and common law of negligent misrepresentation in addition to the
1933 Act claims. The state lawsuits were consolidated for discovery
purposes and defendants filed a motion for summary judgment covering all
four state lawsuits. As a part of the sale of its interest in CompuServe,
the Company has agreed to indemnify WorldCom, Inc. and CompuServe against
80.1% of any losses and expenses incurred by them with respect to these
lawsuits. The defendants are vigorously defending these lawsuits. In the
opinion of management, the ultimate resolution of these suits will not have
a material adverse impact on the Company's consolidated financial position
or results of operations.
9. Summarized financial information for Block Financial Corporation, an
indirect, wholly owned subsidiary of the Company, is presented below.
<TABLE>
<CAPTION>
October 31, April 30,
----------- ---------
1999 1999
---- ----
(Unaudited) (Audited)
<S> <C> <C>
Condensed balance sheets:
Cash and cash equivalents $ 41,373 $ 16,026
Finance receivables, net 596,546 658,882
Other assets 543,783 448,010
-------------- ---------------
Total assets $ 1,181,702 $ 1,122,918
============== ===============
Notes payable $ 625,666 $ 71,939
Long-term debt 249,750 249,725
Other liabilities 120,388 636,330
Stockholder's equity 185,898 164,924
-------------- ---------------
Total liabilities and stockholder's equity $ 1,181,702 $ 1,122,918
============== ===============
</TABLE>
<TABLE>
<CAPTION>
Three months ended Six months ended
------------------ ----------------
October 31, October 31,
----------- -----------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Condensed statements of operations:
Revenues $ 93,106 $ 53,712 $ 173,824 $ 107,227
Earnings from operations 13,549 6,340 25,290 15,454
Net earnings 12,945 2,726 15,136 8,259
</TABLE>
10. The Company sells short FNMA mortgage-backed securities to certain
broker-dealer counterparties. The position on certain or all of the fixed
rate mortgages is closed, on standard Public Securities Association (PSA)
settlement dates, when the Company enters into a forward commitment to sell
those mortgages or decides to securitize the mortgages. The effectiveness
of the hedge is measured by a historical and probable future high
correlation of changes in the fair value of the hedging instruments with
changes in the value of the hedged
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<PAGE> 10
item. If correlation ceases to exist, hedge accounting is terminated and
the gains or losses are recorded in revenues. Deferred gains on the FNMA
securities hedging instrument amounted to $196 at October 31, 1999. The
contract value and the market value of this hedging instrument at October
31, 1999 were $13,980 and $13,974, respectively. The contract value and
market value of the forward commitment at October 31, 1999 were $155,000
and $154,599, respectively.
11. The Company's comprehensive income is comprised of net earnings (loss),
foreign currency translation adjustments and the change in the net
unrealized gain or loss on marketable securities. The components of
comprehensive income (loss) during the three and six months ended October
31, 1999 and 1998 were:
<TABLE>
<CAPTION>
Three months ended Six months ended
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October 31, October 31,
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1999 1998 1999 1998
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Net loss $ (44,737) $ (31,173) $ (81,811) $ (58,912)
Change in net unrealized
gain (loss) on mkt. securities 4,680 897 5,257 1,832
Change in foreign currency
translation adjustments 3,122 (1,503) 1,830 (8,905)
------------- ----------- -------------- ------------
Comprehensive income (loss) $ (36,935) $ (31,779) $ (74,724) $ (65,985)
============= =========== ============== ============
</TABLE>
12. In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133" (SFAS 137). SFAS 137 delays the effective date of SFAS
133, "Accounting for Derivative Instruments and Hedging Activities," which
will now be effective for the Company's fiscal year ending April 30, 2002.
13. In the second quarter of fiscal year 2000, management redefined its
Mortgage operations segment to reflect the change in how the business is
analyzed and evaluated. The redefined segment, Financial services, includes
all of the previous mortgage activity along with the startup of the
Company's new financial services operations. Financial services is
primarily engaged in the origination, purchase, servicing, securitization
and sale of nonconforming and conforming mortgage loans, as well as
offering full-service investment opportunities to the general public.
Mortgage origination services are offered through a network of mortgage
brokers and through H&R Block offices. Financial planning and investment
advice is offered through H&R Block offices, and stock, bonds, mutual funds
and other products and securities are offered through a nationwide network
of registered representatives.
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Information concerning the Company's operations by reportable operating
segments for the three and six months ended October 31, 1999 and 1998 is as
follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
------------------ ----------------
October 31, October 31,
----------- -----------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
U.S. tax operations $ 19,723 $ 18,400 $ 32,798 $ 30,579
International tax operations 14,713 11,817 18,781 15,254
Financial services 91,503 52,914 170,957 105,655
Business services 83,167 1,534 107,339 2,864
Unallocated corporate 840 948 1,631 1,834
------------ -------------- -------------- --------------
$ 209,946 $ 85,613 $ 331,506 $ 156,186
============ ============== ============== ==============
Earnings (loss) from
continuing operations:
U.S. tax operations $ (83,663) $ (61,316) $ (154,733) $ (119,132)
International tax operations (1,644) (2,263) (8,165) (8,234)
Financial services 20,931 10,442 39,757 23,854
Business services (2,134) (105) (2,319) (219)
Unallocated corporate (3,431) (3,131) (6,783) (5,758)
Interest expense on LT debt (7,042) (4,438) (11,480) (8,881)
------------ -------------- -------------- --------------
(76,983) (60,811) (143,723) (118,370)
Investment income, net 2,402 9,646 5,053 23,536
Intercompany interest 2,424 916 6,716 1,810
------------ -------------- -------------- --------------
Loss from continuing operations
before income tax benefit $ (72,157) $ (50,249) $ (131,954) $ (93,024)
============ ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
October 31, April 30,
----------- ---------
1999 1999
---- ----
<S> <C> <C>
IDENTIFIABLE ASSETS:
U.S. tax operations $ 271,575 $ 268,650
International tax operations 39,756 55,684
Financial services 1,129,907 1,038,909
Business services 489,747 146,252
Unallocated corporate 342,530 400,681
-------------- --------------
$ 2,273,515 $ 1,910,176
============== ==============
</TABLE>
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<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE INFORMATION CONTAINED IN THIS FORM 10-Q AND THE EXHIBITS HERETO MAY CONTAIN
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES
ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934. SUCH
STATEMENTS ARE BASED UPON CURRENT INFORMATION, EXPECTATIONS, ESTIMATES AND
PROJECTIONS REGARDING THE COMPANY, THE INDUSTRIES AND MARKETS IN WHICH THE
COMPANY OPERATES, AND MANAGEMENT'S ASSUMPTIONS AND BELIEFS RELATING THERETO.
WORDS SUCH AS "WILL," "PLAN," "EXPECT," "REMAIN," "INTEND," "ESTIMATE,"
"APPROXIMATE," AND VARIATIONS THEREOF AND SIMILAR EXPRESSIONS ARE INTENDED TO
IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. THESE STATEMENTS SPEAK ONLY AS OF THE
DATE ON WHICH THEY ARE MADE, ARE NOT GUARANTEES OF FUTURE PERFORMANCE, AND
INVOLVE CERTAIN RISKS, UNCERTAINTIES AND ASSUMPTIONS THAT ARE DIFFICULT TO
PREDICT. THEREFORE, ACTUAL OUTCOMES AND RESULTS COULD MATERIALLY DIFFER FROM
WHAT IS EXPRESSED, IMPLIED OR FORECAST IN SUCH FORWARD-LOOKING STATEMENTS. SUCH
DIFFERENCES COULD BE CAUSED BY A NUMBER OF FACTORS INCLUDING, BUT NOT LIMITED
TO, THE UNCERTAINTY OF THE ENTRY BY THE COMPANY INTO ANY AGREEMENT REGARDING ANY
SALE, JOINT VENTURE, OR OTHER STRATEGIC ACTION INVOLVING OPTION ONE MORTGAGE
CORPORATION (OPTION ONE); THE UNCERTAINTY REGARDING THE COMPLETION OF ANY
TRANSACTION INVOLVING OPTION ONE; THE UNCERTAINTY OF LAWS, LEGISLATION,
REGULATIONS, SUPERVISION AND LICENSING BY FEDERAL, STATE AND LOCAL AUTHORITIES
AND THEIR IMPACT ON ANY PROPOSED OR POSSIBLE TRANSACTION AND THE LINES OF
BUSINESS IN WHICH THE COMPANY'S SUBSIDIARIES ARE INVOLVED; YEAR 2000 READINESS
OF THE COMPANY AND EXTERNAL PARTIES; UNFORESEEN COMPLIANCE COSTS; CHANGES IN
ECONOMIC, POLITICAL OR REGULATORY ENVIRONMENTS; CHANGES IN COMPETITION AND THE
EFFECTS OF SUCH CHANGES; THE INABILITY TO IMPLEMENT THE COMPANY'S STRATEGIES;
CHANGES IN MANAGEMENT AND MANAGEMENT STRATEGIES; THE COMPANY'S INABILITY TO
SUCCESSFULLY DESIGN, CREATE, MODIFY AND OPERATE ITS COMPUTER SYSTEMS AND
NETWORKS; LITIGATION INVOLVING THE COMPANY; AND RISKS DESCRIBED FROM TIME TO
TIME IN REPORTS AND REGISTRATION STATEMENTS FILED BY THE COMPANY AND ITS
SUBSIDIARIES WITH THE SECURITIES AND EXCHANGE COMMISSION. READERS SHOULD TAKE
THESE FACTORS INTO ACCOUNT IN EVALUATING ANY SUCH FORWARD-LOOKING STATEMENTS.
THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE PUBLICLY OR REVISE ANY
FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE
EVENTS OR OTHERWISE.
FINANCIAL CONDITION
These comments should be read in conjunction with the Consolidated Balance
Sheets and Consolidated Statements of Cash Flows found on pages 1 and 4,
respectively.
Working capital decreased to $240.7 million at October 31, 1999 from $533.6
million at April 30, 1999. The working capital ratio at October 31, 1999 is 1.28
to 1, compared to 1.96 to 1 at April 30, 1999. The decrease in working capital
and the working capital ratio is primarily due to increased short-term
borrowings to fund mortgage loan receivables which were previously funded with
corporate cash and the seasonal nature of the Company's U.S. tax operations
segment. Tax return preparation occurs almost entirely in the fourth quarter and
has the effect of increasing certain assets and liabilities during this time.
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<PAGE> 13
The Company maintains seasonal lines of credit to support short-term borrowing
facilities in the United States and Canada. The credit limits of these lines can
fluctuate according to the amount of short-term borrowings outstanding during
the year.
The Company incurs short-term borrowings throughout the year to fund receivables
associated with its mortgage loan and other financial services programs. These
short-term borrowings in the U.S. are supported by a $1.85 billion back-up
credit facility through November 1999, subject to renewal. In November 1999, the
credit facility was increased to $1.89 billion through November 2000. An
additional credit facility of $750 million was also added in November 1999,
which extends through April 2000, to support commercial paper which will be
issued to finance the acquisition of Olde Financial Corporation (Olde). It's the
Company's intention to ultimately finance a portion of the acquisition price
with the debt.
The Company's capital expenditures, treasury share purchases and dividend
payments during the first six months were funded through internally-generated
funds.
At October 31, 1999, short-term borrowings used to fund mortgage loans and other
programs increased to $625.7 million from $71.9 million at April 30, 1999 due
mainly to the funding of mortgage loan receivables which were previously funded
with corporate cash. For the six months ended October 31, 1999 and 1998,
interest expense was $34.8 million and $30.2 million, respectively. The increase
in interest expense is primarily attributable to interest expense related to the
purchase of the non-attest assets of McGladrey & Pullen, LLP. This increase is
partially offset by lower interest rates and the funding of a portion of
mortgage loans held for sale with internal funds instead of short-term
borrowings throughout most of the six-month period.
In July 1996, the Company announced its intention to repurchase up to 10 million
shares in the open market over a two-year period following the separation of
CompuServe Corporation. The two-year period expires January 31, 2000. At October
31, 1999, 7.7 million shares had been repurchased under this plan. The Company
plans to continue to purchase its shares on the open market in accordance with
this authorization, subject to various factors including the price of the stock,
availability of excess cash, the ability to maintain financial flexibility,
regulatory restrictions, and other investment opportunities available.
RESULTS OF OPERATIONS
SIGNIFICANT EVENTS
On July 21, 1999, the Company announced it was evaluating strategic alternatives
for Option One, including a possible sale or joint venture with a business
partner. Option One is reported in the Financial services segment.
On August 2, 1999, the Company, through a subsidiary, RSM McGladrey, Inc. (RSM),
completed the purchase of substantially all of the non-attest assets of
McGladrey & Pullen, LLP (McGladrey). McGladrey was the nation's seventh largest
accounting and consulting firm with more than 70 offices located primarily in
the Eastern, Midwestern, Northern and Southwestern United States. The purchase
price was $240.0 million in cash payments over the next four years and the
assumption of certain pension liabilities with a present value of $52.7 million.
In
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<PAGE> 14
addition, the Company made cash payments of $65.5 million for outstanding
accounts receivable and work-in-process balances that will be repaid to the
Company as RSM collects these amounts in the ordinary course of business. The
acquisition was accounted for as a purchase, and accordingly, RSM's results are
included since the date of acquisition.
On December 1, 1999, the Company, through a subsidiary, Block Financial
Corporation, completed the purchase of Olde for $887.0 million in cash. Olde,
based in Detroit, Michigan, offers brokerage and other financial services
through Olde's network of approximately 1,200 registered representatives
located in 181 branch offices in 35 states. The transaction will be treated as
a purchase and Olde's results will be included as of the date of acquisition in
the Company's third quarter.
-12-
<PAGE> 15
FISCAL 2000 COMPARED TO FISCAL 1999
The analysis that follows should be read in conjunction with the table below and
the Consolidated Statements of Operations found on pages 2 and 3.
THREE MONTHS ENDED OCTOBER 31, 1999 COMPARED TO
THREE MONTHS ENDED OCTOBER 31, 1998
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Revenues Earnings (loss)
-------------------------------- -------------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
U.S. tax operations $ 19,723 $ 18,400 $ (83,663) $ (61,316)
International tax operations 14,713 11,817 (1,644) (2,263)
Financial services 91,503 52,914 20,931 10,442
Business services 83,167 1,534 (2,134) (105)
Unallocated corporate 840 948 (3,431) (3,131)
Interest expense on long-term debt - - (7,042) (4,438)
--------------- -------------- -------------- -------------
$ 209,946 $ 85,613 (76,983) (60,811)
=============== ==============
Investment income, net 2,402 9,646
Intercompany interest 2,424 916
-------------- -------------
(72,157) (50,249)
Income tax benefit (27,420) (19,094)
-------------- -------------
Net loss from continuing operations (44,737) (31,155)
Net loss from discontinued operations - (18)
-------------- -------------
Net loss $ (44,737) $ (31,173)
============== =============
</TABLE>
Consolidated revenues for the three months ended October 31, 1999 increased
145.2% to $209.9 million from $85.6 million reported last year. The increase is
primarily due to revenues from Business services of $83.2 million and revenues
from Financial services of $91.5 million, a 72.9% increase over the prior year.
The consolidated pretax loss from continuing operations for the second quarter
of fiscal 2000 increased to $72.2 million from $50.2 million in the second
quarter of last year. The increase is attributable to the increased loss from
U.S. tax operations and lower investment income, which is partially offset by
improved results from Financial services.
The net loss from continuing operations was $44.7 million, or $.46 per share,
compared to $31.2 million, or $.31 per share, for the same period last year.
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<PAGE> 16
An analysis of operations by reportable operating segments follows.
U.S. TAX OPERATIONS
Revenues increased 7.2% to $19.7 million from $18.4 million last year, resulting
primarily from higher tax preparation fees that are attributable to increases in
pricing.
The pretax loss increased 36.4% to $83.7 million from $61.3 million in the
second quarter of last year due to normal operational increases in compensation
and benefits, rent and other facilities-related expenses and marketing and
advertising expenses. In addition to the normal increases, the higher
compensation is related to a change in the field manager compensation structure
that shifts their compensation to salary incurred throughout the year from
incentive bonuses incurred during the fourth quarter. Contributing to the
increases in rent and other facility-related expenses is an increase in the
amount of tax office space maintained under lease during this year's off-season.
Due to the nature of this segment's business, second quarter operating results
are not indicative of expected results for the entire fiscal year.
INTERNATIONAL TAX OPERATIONS
Revenues increased 24.5% to $14.7 million compared to $11.8 million in the prior
year's second quarter. The increase is attributable to Australian operations.
The increase in Australian revenues is due to higher tax preparation fees which
is the result of a 15.7% increase in the number of tax returns prepared over the
same period last year. Canadian and United Kingdom operations contributed
slightly to the increase in revenues.
The pretax loss decreased 27.4% to $1.6 million from $2.3 million last year. The
decrease is primarily due to the strong start to the Australian tax season. The
improved performance from Australia and the United Kingdom was partially offset
by an increased loss from Canadian operations due to increased compensation and
benefits expenses. Due to the nature of this segment's business, second quarter
operating results are not indicative of expected results for the entire fiscal
year.
FINANCIAL SERVICES
Revenues increased 72.9% to $91.5 million from $52.9 million in the same period
last year. The increase is primarily attributable to Option One, which
contributed revenues of $74.5 million for the quarter compared to $43.6 million
last year. Option One's improved performance is attributable to a higher volume
of loan sales and increased interest income as a result of higher mortgage loan
balances. Option One and Assurance Mortgage originated and sold or securitized
$1.5 billion and $1.6 billion in loans, respectively, during the second quarter
of fiscal 2000, compared to $837.9 million originated and $539.6 million sold in
the second quarter last year. In addition, the Company's broker-dealer,
Birchtree Financial, and Assurance Mortgage, both new this year, contributed to
the improved revenues.
Financial services pretax earnings of $20.9 million improved 100.5% this year
compared to earnings of $10.4 million during the second quarter of fiscal 1999.
The increase is mainly due to Option One, which contributed earnings of $21.2
million compared to $10.2 million in the same
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<PAGE> 17
quarter last year. Pretax earnings were somewhat reduced by losses related to
the startup of financial services operations that offer financial planning
services in the Company's tax offices.
BUSINESS SERVICES
Business services revenues of $83.2 million increased from $1.5 million in the
prior year due to the acquisition of six regional and one national accounting
firm since the second quarter of last year. The pretax loss was $2.1 million
compared to $105 thousand in the prior year, which includes goodwill
amortization of $5.2 million and $89 thousand, respectively. Business services
was a new reportable operating segment in fiscal 1999 with only one regional
accounting firm acquired as of the second quarter last year. In the second
quarter of fiscal 2000, there is one national accounting firm, seven regional
accounting firms and several smaller market firms included in Business services.
Due to the nature of this segment's business, revenues are seasonal, while
expenses are relatively fixed throughout the year. Results for the second
quarter are not indicative of the expected results for the entire fiscal year.
INVESTMENT INCOME, NET
Net investment income decreased 75.1% to $2.4 million from $9.6 million last
year. The decrease is due to less funds available for investment resulting from
the stock repurchase program and the use of corporate cash to fund mortgage
loans held for sale.
UNALLOCATED CORPORATE AND ADMINISTRATIVE
The unallocated corporate and administrative pretax loss for the second quarter
increased 9.6% to $3.4 million from $3.1 million in the comparable period last
year. The increase is a result of increased employee costs, and consulting and
accounting expenses.
Interest expense on long-term debt increased from $4.4 million to $7.0 million
in the current quarter. The increase is attributable to the acquisition of the
non-attest assets of McGladrey & Pullen, LLP in August 1999.
-15-
<PAGE> 18
THREE MONTHS ENDED OCTOBER 31, 1999 (SECOND QUARTER) COMPARED TO
THREE MONTHS ENDED JULY 31, 1999 (FIRST QUARTER)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Revenues Earnings (loss)
-------------------------------- -------------------------------
2nd Qtr 1st Qtr 2nd Qtr 1st Qtr
------- ------- ------- -------
<S> <C> <C> <C> <C>
U.S. tax operations $ 19,723 $ 13,075 $ (83,663) $ (71,070)
International tax operations 14,713 4,068 (1,644) (6,521)
Financial services 91,503 79,454 20,931 18,826
Business services 83,167 24,172 (2,134) (185)
Unallocated corporate 840 791 (3,431) (3,352)
Interest expense on long-term debt - - (7,042) (4,438)
--------------- -------------- -------------- -------------
$ 209,946 $ 121,560 (76,983) (66,740)
=============== ==============
Investment income, net 2,402 2,651
Intercompany interest 2,424 4,292
-------------- -------------
(72,157) (59,797)
Income tax benefit (27,420) (22,723)
-------------- -------------
Net loss from continuing operations (44,737) (37,074)
Net loss from discontinued operations - -
-------------- -------------
Net loss $ (44,737) $ (37,074)
============== =============
</TABLE>
Consolidated revenues for the three months ended October 31, 1999 increased
72.7% to $209.9 million from $121.6 million reported in the first quarter of
fiscal 2000. The increase is due primarily to revenues from Business services,
with additional increases in Financial services and International tax
operations.
The consolidated pretax loss from continuing operations for the second quarter
of fiscal 2000 increased to $72.2 million from $59.8 million in the first
quarter of this year. The increase is attributable to increased losses from U.S.
tax operations.
The net loss from continuing operations was $44.7 million, or $.46 per share,
compared to $37.1 million, or $.38 per share, for the first quarter.
An analysis of operations by reportable operating segments follows.
-16-
<PAGE> 19
U.S. TAX OPERATIONS
Revenues increased 50.8% to $19.7 million from $13.1 million in the first
quarter, resulting primarily from tuition tax school fees, which contributed
$5.5 million to the increase. Tuition tax school fees are seasonal.
The pretax loss increased 17.7% to $83.7 million from $71.1 million in the three
months ended July 31, 1999. The increased loss is due to increased marketing and
advertising and supplies and compensation and benefits expenses related to
tuition tax schools.
INTERNATIONAL TAX OPERATIONS
Revenues increased 261.7% to $14.7 million compared to first quarter revenues of
$4.1 million. The increase is entirely due to the onset of the tax season in
Australia, which contributed $11.3 million to the increase. The increase was
partially offset by a decline in tax preparation and discounted return fees in
Canada due to a decrease in the number of returns prepared.
The pretax loss declined 74.8% to $1.6 million from $6.5 million in the first
quarter. The improved results are attributable to the Australian tax-filing
season, which contributed earnings of $4.6 million compared to a pretax loss of
$1.5 million in the quarter ended July 31, 1999. The improved results were
reduced by increased losses in Canada due to increased marketing and advertising
expenses.
FINANCIAL SERVICES
Revenues increased 15.2% to $91.5 million from $79.5 million in the prior
quarter. The increase is due to interest income earned on higher balances of
mortgage loans held for sale.
Pretax earnings increased 11.2% to $20.9 million from $18.8 million in the three
months ended July 31, 1999. The increase is principally due to the timing of
loan sales at Companion Mortgage and improved results at the Company's
broker-dealer, Birchtree Financial. These increases were partially offset by a
decline in results from the Company's other mortgage entities.
BUSINESS SERVICES
Revenues increased 244.1% to $83.2 million from $24.2 million in the three
months ended July 31, 1999 due almost entirely to the acquisition of the
non-attest assets of McGladrey & Pullen, LLP purchased on August 2, 1999. The
pretax loss increased to $2.1 million from $185 thousand in the first quarter
due to increased compensation and benefits expense and the amortization of
goodwill which are primarily due to the acquisition of the non-attest assets of
McGladrey & Pullen, LLP.
INVESTMENT INCOME, NET
Net investment income decreased 9.4% to $2.4 million from $2.7 million in the
first quarter of fiscal 2000. The decrease resulted from fewer funds available
for investment.
-17-
<PAGE> 20
UNALLOCATED CORPORATE AND ADMINISTRATIVE
The unallocated corporate and administrative pretax loss for the second quarter
increased 2.4% to $3.4 million. The increase is due to lower earnings reported
by the Company's captive insurance subsidiary.
Interest expense on long-term debt increased from $4.4 million to $7.0 million
in the current quarter. The increase is attributable to the acquisition of the
non-attest assets of McGladrey & Pullen, LLP in August 1999.
-18-
<PAGE> 21
SIX MONTHS ENDED OCTOBER 31, 1999 COMPARED TO
SIX MONTHS ENDED OCTOBER 31, 1998
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Revenues Earnings (loss)
-------------------------------- -------------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
U.S. tax operations $ 32,798 $ 30,579 $ (154,733) $ (119,132)
International tax operations 18,781 15,254 (8,165) (8,234)
Financial services 170,957 105,655 39,757 23,854
Business services 107,339 2,864 (2,319) (219)
Unallocated corporate 1,631 1,834 (6,783) (5,758)
Interest expense on long-term debt - - (11,480) (8,881)
--------------- -------------- --------------- -------------
$ 331,506 $ 156,186 (143,723) (118,370)
=============== ==============
Investment income, net 5,053 23,536
Intercompany interest 6,716 1,810
-------------- -------------
(131,954) (93,024)
Income tax benefit (50,143) (35,329)
-------------- -------------
Net loss from continuing operations (81,811) (57,695)
Net loss from discontinued operations - (1,217)
-------------- -------------
Net loss $ (81,811) $ (58,912)
============== =============
</TABLE>
Consolidated revenues for the six months ended October 31, 1999 increased 112.3%
to $331.5 million from $156.2 million reported last year. The increase is
primarily due to revenues from Business and Financial services contributing
increases of $104.5 million and $65.3 million, respectively.
The consolidated pretax loss from continuing operations for the first six months
of fiscal 2000 increased to $132.0 million from $93.0 million last year. The
increase is attributable to increased losses from U.S. tax operations and lower
investment income. The increased loss was partially offset by increased earnings
from Financial services.
The net loss from continuing operations was $81.8 million, or $.84 per share,
compared to $57.7 million, or $.57 per share, for the same period last year.
An analysis of operations by reportable operating segments follows.
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<PAGE> 22
U.S. TAX OPERATIONS
Revenues increased 7.3% to $32.8 million from $30.6 million last year, resulting
primarily from higher tax preparation fees, which is attributable to increases
in pricing.
The pretax loss increased 29.9% to $154.7 million from $119.1 million in the
comparable period last year due to normal operational increases in compensation,
rent and other facility-related expenses and consulting expenses. In addition to
the normal increases, the higher compensation is related to a change in the
field manager compensation structure that shifts their compensation to salary
incurred throughout the year from incentive bonuses incurred during the fourth
quarter. Contributing to the increases in rent and other facility-related
expenses is an increase in the amount of tax office space maintained under lease
during this year's off-season. Due to the nature of this segment's business, the
six-month operating results are not indicative of expected results for the
entire fiscal year.
INTERNATIONAL TAX OPERATIONS
Revenues increased 23.1% to $18.8 million compared to $15.3 million the prior
year. The increase is primarily attributable to Australian operations. The
increase in Australian revenues is due to higher tax preparation fees which is
the result of a 7.7% increase in the number of tax returns prepared over the
same period last year. Also contributing to the increase in revenues were higher
tax preparation fees in Canada and the United Kingdom.
The pretax loss decreased .8% to $8.2 million compared to last year. The
decrease is due to improved results in Australia and the United Kingdom that was
almost entirely offset by normal operational increased losses from Canadian
operations. Due to the nature of this segment's business, the six-month
operating results are not indicative of expected results for the entire fiscal
year.
FINANCIAL SERVICES
Revenues increased 61.8% to $171.0 million from $105.7 million in the same
period last year. The increase is essentially attributable to Option One, which
contributed revenues of $139.9 million for the six months ended October 31, 1999
compared to $87.9 million for the same period last year. Option One and
Assurance Mortgage originated and sold or securitized $2.8 billion in loans
during the first six months of fiscal 2000, compared to $1.6 billion originated
and $1.2 billion sold in the same period last year. Assurance Mortgage and the
Company's broker-dealer, Birchtree Financial, both new this year, contributed to
the improved revenues.
Pretax earnings increased 66.7% to $39.8 million from $23.9 million in the prior
year. The increase is primarily due to Option One, which contributed earnings of
$42.6 million compared to earnings of $24.2 million last year. Earnings were
reduced by losses from the Company's startup of its financial services
operations and its broker-dealer, Birchtree Financial.
-20-
<PAGE> 23
BUSINESS SERVICES
Business services contributed revenues of $107.3 million compared to $2.9
million for the six months ended October 31, 1998. The pretax loss was $2.3
million compared to $219 thousand for the same period last year, which includes
goodwill amortization of $7.0 million and $161 thousand, respectively. Business
services was a new reportable operating segment in fiscal 1999 with only one
regional accounting firm acquired during the six month period last year.
However, in the six months results of fiscal 2000, there is one national
accounting firm, seven regional accounting firms and several smaller market
firms included in Business services. Due to the nature of this segment's
business, revenues are seasonal, while expenses are relatively fixed throughout
the year. Results for the six months are not indicative of the expected results
for the entire fiscal year.
INVESTMENT INCOME, NET
Net investment income decreased 78.5% to $5.1 million from $23.5 million last
year. The decrease is due to fewer funds available for investment resulting from
the stock repurchase program and the use of corporate cash to fund mortgage
loans held for sale.
UNALLOCATED CORPORATE AND ADMINISTRATIVE
The unallocated corporate and administrative pretax loss for the six months
increased 17.8% to $6.8 million from $5.8 million in the comparable period last
year. The increase is a result of higher employee costs and accounting and
consulting expenses.
Interest expense on long-term debt increased to $11.5 million from $8.9 million
in the six months ended October 31, 1998. The increase is attributable to the
acquisition of the non-attest assets of McGladrey & Pullen, LLP in August 1999.
OTHER ISSUES
YEAR 2000 READINESS DISCLOSURE
The Company has established a program to identify, prioritize, evaluate and
mitigate potential Year 2000 related issues. The Company has identified nine
mission critical business functions (e.g. U.S. tax preparation services,
wholesale loan services, etc.) and 28 non-mission critical business functions
(e.g. Kiplinger TaxCut(R) software, Australian tax operations, etc.). Within
each of the business functions, key information technology (IT) and non-IT
systems have been inventoried and assessed for compliance and detailed plans are
in place for required system modifications or replacements. Currently
remediation projects are at different phases of completion. One hundred and
thirty-eight remediation projects, including both IT and non-IT systems, were
identified within the nine mission critical business functions. Of these
projects, 130 are complete and successfully tested, two are in the testing phase
and six are still in progress. All projects are scheduled to be completed by
December 31, 1999.
Certain applications relating to Canadian operations are still in progress and
will be tested in December 1999. Contingency plans are in place with respect to
these applications. These applications are not material to the overall
operations of the Company but were identified within
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<PAGE> 24
the nine mission critical business functions. Failure of some or all of these
systems would not materially affect the Company's results of operations and
financial position.
The Company has initiated communications and surveyed state, Federal and foreign
governments and suppliers with which it interacts to determine their plans for
addressing Year 2000 issues. The Company is relying on their responses to
determine if key third parties will be Year 2000 compliant. One of the Company's
key third parties is the Internal Revenue Service (IRS). The Company has
successfully conducted Year 2000 testing with the IRS, which consisted of
confirmation of receipt of electronically filed Year 2000 returns and verbal
communication from the IRS that they had completed Year 2000 testing on their
systems that would process the returns. The Company continues to communicate
frequently with the IRS regarding its Year 2000 readiness. The Company has also
completed a survey and inventory of its tax franchisees. Some readiness issues
were identified in this process and the Company has consulted with its
franchisees on their remediation programs to help mitigate their risk. The
Company has obtained assurances from substantially all of its franchisees of
Year 2000 readiness. The Company will continue to monitor its third party
relationships for Year 2000 issues.
Costs associated with the Year 2000 issue are being expensed as incurred. Total
costs are currently estimated at $3.9 million, with approximately $3.6 million
incurred through October 31, 1999. The remaining costs to complete represent the
cost of on-going monitoring of the Company's continued readiness through the end
of the fiscal year. The costs associated with the replacement of computer
systems, hardware or equipment (currently estimated to be $15.2 million in
total, with $14.9 million incurred to date), substantially all of which would be
capitalized, are not included in the above estimates. All costs related to the
Year 2000 issue are being funded through internally-generated funds.
The Company's most likely, worst case potential risk is that the IRS will not be
Year 2000 compliant and the Company would not be able to process electronic
filings or refund anticipation loans. The Company believes that its competitors
will face the same risks.
The Company has identified and developed contingency plans for Year 2000 related
interruptions in the event that internal and/or external remediation projects
are not completed on a timely basis or that they fail to meet anticipated needs.
The Company has focused its contingency plans on accounting functions,
communications, distribution channels, facilities, insurance, suppliers,
treasury functions and tax operations (which includes franchises, Federal and
state governments, IRS and electronic filing). In addition, disaster recovery
plans and business resumption plans have been reviewed and modified for
information technology functions. While the Company does not anticipate problems
in any of these areas, the Company believes a comprehensive plan includes
preparation for continuity of its mission critical processes. The contingency
plans have been completed and will continue to be monitored with on-going
modifications being made as issues requiring change, if any, are identified.
The Company's Year 2000 program is an on-going process and the estimates of
costs, risks and completion dates are based on currently available information
and are subject to change.
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<PAGE> 25
While the Company does not anticipate any major interruptions of its business
activities, it can not make any assurances that its systems, the systems of the
state, Federal and foreign governments, tax franchisees and suppliers will be
Year 2000 compliant and will not interrupt business. While the impact can not be
fully determined, the inability of these systems to be ready could result in
significant difficulties in processing and completing fundamental transactions.
In such event, the Company's results of operations and financial position could
be adversely affected in a material manner.
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
There have been no material changes in market risk from those reported at April
30, 1999.
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<PAGE> 26
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
CompuServe Corporation (CompuServe), certain current and former officers
and directors of CompuServe and the registrant are named defendants in six
lawsuits pending before the state and Federal courts in Columbus, Ohio
since 1996. All suits allege similar violations of the Securities Act of
1933 based on assertions of omissions and misstatements of fact in
connection with CompuServe's public filings related to its initial public
offering in April 1996. One state lawsuit also alleges certain oral
omissions and misstatements in connection with such offering. Relief sought
in the lawsuits is unspecified, but includes pleas for rescission and
damages. One Federal lawsuit names the lead underwriters of CompuServe's
initial public offering as additional defendants and as representatives of
a defendant class consisting of all underwriters who participated in such
offering. The Federal suits were consolidated, the defendants filed a
motion to dismiss the consolidated suits, the district court stayed all
proceedings pending the outcome of the state court suits, and the United
States Court of Appeals for the Sixth Circuit affirmed such stay. The four
state court lawsuits allege violations of various state statutes and common
law of negligent misrepresentation in addition to the 1933 Act claims. The
state lawsuits were consolidated for discovery purposes and defendants
filed a motion for summary judgment covering all four state lawsuits. As a
part of the sale of its interest in CompuServe, the Company has agreed to
indemnify WorldCom, Inc. and CompuServe against 80.1% of any losses and
expenses incurred by them with respect to these lawsuits. The defendants
are vigorously defending these lawsuits. In the opinion of management, the
ultimate resolution of these suits will not have a material adverse impact
on the Company's consolidated financial position or results of operations.
The lawsuits discussed herein were previously reported in the first quarter
2000 Form 10-Q filed by the Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The registrant's Amended and Restated Bylaws, as previously amended
("Bylaws"), were further amended on August 30, 1999, to (a) provide that
the chief executive officer of the registrant may call special meetings of
the shareholders of the registrant; (b) provide that the chief executive
officer of the registrant may preside at meetings of the shareholders in
the absence of the chairman of the board; (c) provide that the chief
executive officer of the registrant may call special meetings of the board
of directors; (d) add the chief executive officer as an officer that may be
elected by the board of directors, if it so desires; (e) designate the
chief executive officer as an executive officer of the registrant; (f)
provide that the salary and compensation of the chief executive officer
must be fixed by the board of directors; (g) provide that the board of
directors may delegate to the chief executive officer of the registrant the
power to fix the salaries and compensation of the elected officers of the
registrant other than the salaries and compensation of the chairman of the
board, the vice chairman of the board, the chief executive officer and the
president; (h) provide that the chief executive officer of the registrant
may fix, increase or decrease the salaries and compensation of appointed
officers (other than those elected by the board), agents and employees of
the registrant until action is taken with respect thereto by the board of
directors; (i) provide that
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<PAGE> 27
the board of directors of the registrant may delegate to the chief
executive officer of the registrant authority to hire, discharge, and fix
and modify the duties, salary or other compensation of employees of the
registrant under his or her jurisdiction, and the power to obtain and
retain for the registrant the services of attorneys, accountants and other
experts; (j) provide that the board of directors may elect a chief
executive officer of the registrant that is not the chairman of the board
or the president of the registrant; (k) provide that the chief executive
officer shall be vested with such powers, duties, and authority as the
board of directors of the registrant may from time to time determine and as
may be set forth in the Bylaws; (l) provide that the chief executive
officer or the president of the registrant shall preside at all meetings of
the board of directors in the absence of the chairman of the board; (m)
provide that the chief executive officer may execute all bonds, notes,
debentures, mortgages, and other contracts requiring a seal under the seal
of the registrant, and may cause the seal to be affixed thereto, and all
other instruments for and in the name of the registrant (unless required to
be executed by the president and the chief executive officer is not also
the president); (n) provide that the chief executive officer, when
authorized so to do by the board of directors of the registrant, may
execute powers of attorney from, for, and in the name of the corporation;
(o) provide that the chief executive officer of the registrant, except as
may be otherwise directed by the board of directors, is among the officers
of the registrant, one of whom shall attend meetings of shareholders of
other corporations to represent the registrant and to vote or take action
with respect to shares of any such corporation owned by the registrant; and
(p) delete the provision stating that the chief executive officer of the
registrant shall, unless otherwise provided by the board of directors, be
an ex officio member of all standing board committees.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders of the registrant was held on September
8, 1999. At such meeting, three Class I directors were elected to serve
three-year terms. In addition, the resolutions set forth below were
submitted to a vote of shareholders. With respect to the election of
directors and the adoption of each resolution, the number of votes cast
for, against or withheld, and the number of abstentions and broker
non-votes were as follows:
Election of Class I Directors
<TABLE>
<CAPTION>
Nominee Votes FOR Votes WITHHELD
------------------ ---------- --------------
<S> <C> <C>
Henry W. Bloch 85,370,352 533,697
Robert E. Davis 85,371,477 533,572
Frank L. Salizzoni 85,366,325 537,724
</TABLE>
Adoption of the 1999 Stock Option Plan for Seasonal Employees:
The following resolution was adopted by a vote of 70,777,193 shares in
favor of such resolution, 3,539,650 shares against such resolution,
and 1,653,724 shares abstaining. There were 9,933,482 broker
non-votes. The resolution states:
-25-
<PAGE> 28
"RESOLVED, That this Company's 1999 Stock Option Plan for
Seasonal Employees, included as Appendix A to the proxy
statement relating to this meeting, is hereby adopted and
approved."
Amendment to the 1993 Long-Term Executive Compensation Plan:
The following resolution was adopted by a vote of 52,508,576 shares in
favor of such resolution, 22,636,308 shares against such resolution,
and 825,683 shares abstaining. There were 9,933,482 broker non-votes.
The resolution states:
"RESOLVED, That this Company's 1993 Long-Term Executive
Compensation Plan, as previously amended, be further amended
by deleting the number 7,000,000 in Section 6 and replacing it
with the number 13,000,000, such that, following the
amendment, the total number of shares of Common Stock issuable
under such Plan may not exceed 13,000,000 shares, subject to
adjustments as provided in the Plan."
Appointment of Auditors
The following resolution was adopted by a vote of 83,871,836 shares in
favor of such resolution, 1,640,060 shares against such resolution and
392,153 shares abstaining:
"RESOLVED, That the appointment of PricewaterhouseCoopers LLP
as the independent auditors for H&R Block, Inc., and its
subsidiaries for the year ending April 30, 2000, is hereby
ratified, approved and confirmed."
At the close of business on July 9, 1999, the record date for the annual meeting
of shareholders, there were 97,706,037 shares of Common Stock of the registrant
outstanding and entitled to vote at the meeting. There were 85,904,049 shares
represented at the annual meeting of shareholders held on September 8, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) Exhibits
3.1 Amended and Restated Bylaws of the registrant, as amended August
30, 1999.
10.1 Stock Purchase Agreement dated August 31, 1999, among Block
Financial Corporation, H&R Block, Inc., Olde Financial
Corporation, Financial Marketing Services, Inc. and the
Shareholders of Olde Financial Corporation and Financial
Marketing Services, Inc., filed as Exhibit 10.1 to the Form
8-K, Current Report, dated August 31, 1999, is incorporated
herein by reference.
-26-
<PAGE> 29
10.2 The H&R Block, Inc. 1993 Long-Term Executive Compensation Plan,
as amended through September 8, 1999.
10.3 The H&R Block 1999 Stock Option Plan for Seasonal Employees, as
amended September 8, 1999.
10.4 Amendment No. 2 to the H&R Block Deferred Compensation Plan for
Executives, as Amended and Restated.
10.5 Amendment No. 3 to the H&R Block Deferred Compensation Plan for
Executives, as Amended and Restated.
27 Financial Data Schedule
b) Reports on Form 8-K
A Form 8-K, Current Report, dated August 2, 1999, was filed on August
17, 1999 by the registrant reporting as an "Item 2" the acquisition of
substantially all of the non-attest assets of McGladrey & Pullen, LLP on August
2, 1999, and the registrant's issuance of a press release announcing the same.
The press release was included as Exhibit 99 to the Form 8-K. No financial
statements were filed as a part of the Form 8-K.
A Form 8-K, Current Report, dated August 31, 1999, was filed on
September 10, 1999 by the registrant reporting as an "Item 5" the registrant's
entry into a Stock Purchase Agreement with Olde Financial Corporation and
Financial Marketing Services, Inc. pursuant to which Block Financial Corporation
would acquire all of the outstanding common stock of Olde Financial Corporation
and Financial Marketing Services. The Agreement and the press release relating
to the proposed transaction were included as exhibits to the Form 8-K. No
financial statements were filed as a part of the Form 8-K.
A Form 8-K, Current Report, dated December 14, 1999, was filed by the
registrant reporting as an "Item 2" the acquisition of Olde Financial
Corporation on December 1, 1999. The registrant reported under "Item 7" that the
financial statements of Olde Financial Corporation and the registrant's pro
forma financial statements would be filed as soon as practicable, but no more
than 60 days after that Current Report.
-27-
<PAGE> 30
SIGNATURES
Pursuant to the requirements 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.
H&R BLOCK, INC.
------------------------------------
(Registrant)
DATE 12/15/99 BY /s/ Ozzie Wenich
----------- ------------------------------------
Ozzie Wenich
Senior Vice President and
Chief Financial Officer
DATE 12/15/99 BY /s/ Cheryl L. Givens
----------- ------------------------------------
Cheryl L. Givens
Vice President and Corporate Controller
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<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED
BYLAWS
OF
H & R BLOCK, INC.
(As amended through August 30, 1999)
OFFICES
1. OFFICES. The corporation shall maintain a registered office in the
State of Missouri, and shall have a resident agent in charge thereof. The
location of the registered office and name of the resident agent shall be
designated in the Articles of Incorporation, or by resolution of the board of
directors, on file in the appropriate offices of the State of Missouri. The
corporation may maintain offices at such other places within or without the
State of Missouri as the board of directors shall designate.
SEAL
2. SEAL. The corporation shall have a corporate seal inscribed with
the name of the corporation and the words "Corporate Seal - Missouri". The form
of the seal may be altered at pleasure and shall be used by causing it or a
facsimile thereof to be impressed, affixed, reproduced or otherwise used.
SHAREHOLDERS' MEETINGS
3. PLACE OF MEETINGS. All meetings of the shareholders shall be held
at the principal office of the corporation in Missouri, except such meetings as
the board of directors (to the extent permissible by law) expressly determines
shall be held elsewhere, in which case such meetings may be held at such other
place or places, within or without the State of Missouri, as the board of
directors shall have determined.
4. ANNUAL MEETING. (a) DATE AND TIME. The annual meeting of
shareholders shall be held on the first Wednesday in September of each year, if
not a legal holiday, and if a legal holiday, then on the first business day
following, at 9:00 a.m., or on such other date as the board of directors may
specify, when directors shall be elected and such other business transacted as
may be properly brought before the meeting.
(b) Business Conducted. At an annual meeting of shareholders, only such
business shall be conducted as shall have been properly brought before the
meeting. To be properly brought before an annual meeting, business must be
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the board, otherwise properly brought before the meeting by or
at the direction of the board, or otherwise properly brought before the meeting
by a shareholder. In addition to any other applicable requirements, for business
to be properly brought before an annual meeting by a shareholder, the
shareholder must have given timely notice thereof in writing to the secretary.
To be timely, such notice must be delivered to
<PAGE> 2
or mailed and received at the principal executive offices of the corporation at
least 45 days before the date in the year of the annual meeting corresponding to
the date on which the corporation first mailed its proxy materials for the prior
year's annual meeting of shareholders. A shareholder's notice to the secretary
shall set forth as to each matter the shareholder proposes to bring before the
annual meeting (i) a brief description of the business desired to be brought
before the annual meeting and the reasons for conducting such business at the
annual meeting, (ii) the name and record address of the shareholder proposing
such business, (iii) the class and number of shares of the corporation that are
beneficially owned by the shareholder, and (iv) any material interest of the
shareholder in such business.
Notwithstanding anything in the bylaws to the contrary, no business
shall be conducted at the annual meeting except in accordance with the
procedures set forth in this section 4(b); provided, however, that nothing in
this section 4(b) shall be deemed to preclude discussion by any shareholder of
any business properly brought before the annual meeting in accordance with said
procedure.
The chairman of an annual meeting shall, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting in accordance with the provisions of this section 4(b), and
if he should so determine, he shall so declare to the meeting and any such
business not properly brought before the meeting shall not be transacted.
5. SPECIAL MEETINGS. Special meetings of the shareholders may be
called at any time by the chairman of the board, by the chief executive officer
or by the president, or at any time upon the written request of a majority of
the board of directors, or upon the written request of the holders of not less
than 80% of the stock of the corporation entitled to vote in an election of
directors. Each call for a special meeting of the shareholders shall state the
time, the day, the place and the purpose or purposes of such meeting and shall
be in writing, signed by the persons making the same and delivered to the
secretary. No business shall be transacted at a special meeting other than such
as is included in the purposes stated in the call.
6. CONDUCT OF ANNUAL AND SPECIAL MEETINGS. The chairman of the board,
or in his absence the chief executive officer or the president, shall preside as
the chairman of the meeting at all meetings of the shareholders. The chairman of
the meeting shall be vested with the power and authority to (i) maintain control
of and conduct an orderly meeting; (ii) exclude any shareholder from the meeting
for failing or refusing to comply with any of the procedural standards or rules
or conduct or any reasonable request of the chairman; and (iii) appoint
inspectors of elections, prescribing their duties, and administer any oath that
may be required under Missouri law.
7. NOTICES. Written or printed notice of each meeting of the
shareholders, whether annual or special, stating the place, date and time
thereof and in case of a special meeting, the purpose or purposes thereof shall
be delivered or mailed to each shareholder entitled to vote thereat, not less
than ten nor more than fifty days prior to the meeting, unless, as to a
particular matter, other or further notice is required by law, in which case
such other or further notice shall be given. Any notice of a shareholders'
meeting sent by mail shall be deemed to be delivered when deposited in the
United States mail with postage prepaid
2
<PAGE> 3
thereon, addressed to the shareholder at his address as it appears on the books
of the corporation.
8. WAIVER OF NOTICE. Whenever any notice is required to be given under
the provisions of these bylaws, the Articles of Incorporation of the
corporation, or of any law, a waiver thereof, if not expressly prohibited by
law, in writing signed by the person or persons entitled to such notice, shall
be deemed the equivalent to the giving of such notice.
9. QUORUM. Except as otherwise may be provided by law, by the Articles
of Incorporation of the corporation or by these bylaws, the holders of a
majority of the shares issued and outstanding and entitled to vote thereat,
present in person or by proxy, shall be required for and shall constitute a
quorum at all meetings of the shareholders for the transaction of business.
Every decision of a majority in amount of shares of such quorum shall be valid
as a corporate act, except in those specific instances in which a larger vote is
required by law or by the Articles of Incorporation. If a quorum be not present
at any meeting, the shareholders entitled to vote thereat, present in person or
by proxy, shall have power to adjourn the meeting to a specified date not longer
than 90 days after such adjournment without notice other than announcement at
the meeting, until the requisite amount of voting shares shall be present. At
such adjourned meeting at which the requisite amount of voting shares shall be
represented any business may be transacted which might have been transacted at
the meeting as originally notified.
10. PROXIES. At any meeting of the shareholders, every shareholder
having the right to vote shall be entitled to vote in person or by proxy
appointed by an instrument in writing subscribed by such shareholder and bearing
a date not more than eleven months prior to said meeting unless said instrument
provides that it shall be valid for a longer period.
11. VOTING. Each shareholder shall have one vote for each share of
stock having voting power registered in his name on the books of the corporation
and except where the transfer books of the corporation shall have been closed or
a date shall have been fixed as a record date for the determination of its
shareholders entitled to vote, no share of stock shall be voted at any election
for directors which shall have been transferred on the books of the corporation
within fifty days preceding such election of directors.
Shareholders shall have no right to vote cumulatively for the election
of directors.
A shareholder holding stock in a fiduciary capacity shall be entitled
to vote the shares so held, and a shareholder whose stock is pledged shall be
entitled to vote unless, in the transfer by the pledgor on the books of the
corporation, he shall have expressly empowered the pledgee to vote thereon, in
which case only the pledgee or his proxy may represent said stock and vote
thereon.
12. SHAREHOLDERS' LISTS. A complete list of the shareholders entitled
to vote at every election of directors, arranged in alphabetical order, with the
address of and the number of voting shares held by each shareholder, shall be
prepared by the officer having charge of the stock books of the corporation and
for at least ten days prior to the date of the election shall be open at the
place where the election is to beheld, during the usual hours for business, to
the examination of any shareholder and shall be produced and kept open at the
place of the election during the whole time thereof to the inspection of any
shareholder
3
<PAGE> 4
present. The original or duplicate stock ledger shall be the only evidence as to
who are shareholders entitled to examine such lists, or the books of the
corporation, or to vote in person or by proxy, at such election. Failure to
comply with the foregoing shall not affect the validity of any action taken at
any such meeting.
13. RECORDS. The corporation shall maintain such books and records as
shall be dictated by good business practice and by law. The books and records of
the corporation may be kept at any one or more offices of the corporation within
or without the State of Missouri, except that the original or duplicate stock
ledger containing the names and addresses of the shareholders, and the number of
shares held by them, shall be kept at the registered office of the corporation
in Missouri. Every shareholder shall have a right to examine, in person, or by
agent or attorney, at any reasonable time, for any reasonable purpose, the
bylaws, stock register, books of account, and records of the proceedings of the
shareholders and directors, and to make copies of or extracts from them.
DIRECTORS
14. NUMBER AND POWERS OF THE BOARD. The property and business of this
corporation shall be managed by a board of directors, and the number of
directors to constitute the board shall be not less than nine nor more than
fifteen, the exact number to be fixed by a resolution adopted by the affirmative
vote of a majority of the whole board of directors, but shall be twelve until
and unless so fixed. Directors need not be shareholders. In addition to the
powers and authorities by these bylaws expressly conferred upon the board of
directors, the board may exercise all such powers of the corporation and do or
cause to be done all such lawful acts and things as are not prohibited, or
required to be exercised or done by the shareholders only.
15. INCUMBENCY OF DIRECTORS. (a) ELECTION AND TERM OF OFFICE. The
directors of the corporation shall be divided into three classes: Class I, Class
II and Class III. Membership in such classes shall be as nearly equal as
possible and any increase or decrease in the number of directors shall be
apportioned by the board of directors among the classes to maintain the number
of directors in each class as nearly equal as possible. At each annual meeting
of shareholders, directors shall be elected to succeed those whose terms then
expire and to fill any vacancies and newly created directorships not previously
filled by the board. Newly elected directors shall belong to the same class as
the directors they succeed or, with respect to newly created directorships, to
the respective classes to which such directorships are assigned by the board of
directors. The term of office of each director shall begin immediately after his
election and, except as set forth in the Articles of Incorporation as to the
terms of office of the initial directors in each class, the directors in each
class shall hold office until the third succeeding annual meeting of
shareholders after the regular election of directors of that class or until
their successors are elected and qualified and subject to prior death,
resignation, retirement or removal from office of a director. No decrease in the
number of directors constituting the board of directors shall reduce the term of
any incumbent director.
(b) REMOVAL. The entire board of directors of the corporation may be
removed at any time but only by the affirmative vote of the holders of 80% or
more of the outstanding shares of each class of stock of the corporation
entitled to elect one or more directors at a meeting of the shareholders called
for such purpose.
4
<PAGE> 5
16. VACANCIES. Any newly created directorship resulting from an
increase in the number of directors, and any vacancy occurring on the board of
directors through death, resignation, disqualification, disability or any other
cause, may be filled by vote of a majority of the surviving or remaining
directors then in office, although less than a quorum, or by a sole remaining
director. Any director so elected to fill a vacancy shall hold office for the
unexpired portion of the term of the director whose place shall be vacated and
until the election and qualification of his successor.
17. MEETINGS OF THE NEWLY ELECTED BOARD OF DIRECTORS - NOTICE. The
first meeting of each newly elected board, which shall be deemed the annual
meeting of the board, shall be held on the same day as the annual meeting of
shareholders, as soon thereafter as practicable, at such time and place, either
within or without the State of Missouri, as shall be designated by the
president. No notice of such meeting shall be necessary to the continuing or
newly elected directors in order legally to constitute the meeting, provided
that a majority of the whole board shall be present; or the members of the board
may meet at such place and time as shall be fixed by the consent in writing of
all of the directors.
18. NOTICE. (a) REGULAR MEETINGS. Regular meetings of the board of
directors may be held without notice at such place or places, within or without
the State of Missouri, and at such time or times, as the board of directors may
from time to time fix by resolution adopted by the whole board. Any business may
be transacted at a regular meeting.
(b) SPECIAL MEETINGS. Special meetings of the board of directors may
be called by the chairman, the chief executive officer, the president or any two
directors. Notice thereof stating the place, date and hour of the meeting shall
be given to each director either by mail not less than 48 hours before the date
of the meeting, by telephone or telegram on 24 hours' notice, or on such shorter
notice as the person or persons calling such meeting may deem necessary or
appropriate in the circumstances. The place may be within or without the State
of Missouri as designated in the notice. The "call" and the "notice" of any such
meeting shall be deemed synonymous.
19. QUORUM. At all meetings of the board of directors a majority of
the whole board shall, unless a greater number as to any particular matter is
required by statute, by the Articles of Incorporation or by these bylaws,
constitute a quorum for the transaction of business, and the act of a majority
of the directors present at any meeting at which there is a quorum shall be the
act of the board of directors. Less than a quorum may adjourn the meeting
successively until a quorum is present, and no notice of adjournment shall be
required.
The foregoing provisions relating to a quorum for the transaction of
business shall not be affected by the fact that one or more of the directors
have or may have interests in any matter to come before a meeting of the board,
which interests are or might be adverse to the interests of this corporation.
Any such interested director or directors shall at all times be considered as
present for the purpose of determining whether or not a quorum exists, provided
such director or directors are in attendance and do not waive the right to vote.
5
<PAGE> 6
20. NOMINATIONS FOR ELECTION AS DIRECTORS. Only persons who are
nominated in accordance with the following procedures shall be eligible for
election as directors. Nominations of persons for election to the board of
directors may be made at a meeting of shareholders (i) by or at the direction of
the board of directors by any nominating committee or person appointed by the
board or (ii) by any shareholder of the corporation entitled to vote for the
election of directors at the meeting who complies with the notice procedures set
forth in this section 20. Such nominations, other than those made by or at the
direction of the board, shall be made pursuant to timely notice in writing to
the secretary.
To be timely, a shareholder's notice shall be delivered to or mailed
and received at the principal executive offices of the corporation not less than
50 days nor more than 75 days prior to the meeting; provided, however, that if
fewer than 65 days' notice or prior public disclosure of the date of the meeting
is given or made to shareholders, notice by the shareholder to be timely must be
received not later than the close of business on the 15th day following the day
on which such notice of the date of the meeting was mailed or such public
disclosure was made. Such shareholder's notice to the secretary shall set forth
(a) as to each person whom the shareholder proposes to nominate for election or
reelection as a director, such person's name, age, business address, residence
address, and principal occupation or employment, the class and number of shares
of capital stock of the corporation that are beneficially owned by such person,
and any other information relating to such person that is required to be
disclosed in solicitations for proxies for election of directors pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended; and (b) as
to the shareholder giving the notice, such shareholder's name and record address
and the class and number of shares of capital stock of the corporation that are
beneficially owned by such shareholder. The corporation may require any proposed
nominee to furnish such other information as may reasonably be required by the
corporation to determine the eligibility of such proposed nominee to serve as a
director of the corporation. No person shall be eligible for election as a
director of the corporation unless nominated in accordance with the procedures
set forth herein.
The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so declare to the
meeting and the defective nomination shall be disregarded.
21. DIRECTORS' ACTION WITHOUT MEETING. If all the directors severally
or collectively consent in writing to any action to be taken by the directors,
such consents shall have the same force and effect as a unanimous vote of the
directors at a meeting duly held. The secretary shall file such consents with
the minutes of the meetings of the board of directors.
22. WAIVER. Any notice provided or required to be given to the
directors may be waived in writing by any of them, whether before, at, or after
the time stated therein. Attendance of a director at any meeting shall
constitute a waiver of notice of such meeting except where he attends for the
express purpose of objecting to the transaction of any business thereat because
the meeting is not lawfully called or convened.
23. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The corporation may
indemnify any person who was or is a party or is threatened to be made a party
to any
6
<PAGE> 7
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, other than an action by or in the
right of the corporation, by reason of the fact that he is or was a director or
officer of the corporation, or is or was serving at the request of the
corporation, as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise, against expenses, including attorneys' fees,
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
The corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director or officer of the corporation,
or is or was serving at the request of the corporation as a director or officer
of another corporation, partnership, joint venture, trust or other enterprise
against expenses, including attorneys' fees, and amounts paid in settlement
actually and reasonably incurred by him in connection with the defense or
settlement of the action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation; except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable for negligence or misconduct in the performance of his duty to the
corporation unless and only to the extent that the court in which the action or
suit was brought determines upon application that, despite the adjudication of
liability and in view of all the circumstances of the case, the person is fairly
and reasonably entitled to indemnity for such expenses which the court shall
deem proper.
To the extent that a director or officer of the corporation has been
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in the first two unnumbered paragraphs of this section
23, or in defense of any claim, issue or matter therein, he shall be indemnified
against expenses, including attorneys' fees, actually and reasonably incurred by
him in connection with the action, suit or proceeding.
Any indemnification under the first two unnumbered paragraphs of this
section 23, unless ordered by a court, shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification of the
director or officer is proper in the circumstances because he has met the
applicable standard of conduct set forth in this section 23. The determination
shall be made by the board of directors by a majority vote of a quorum
consisting of directors who were not parties to the action, suit or proceeding,
or if such a quorum is not obtainable, or even if obtainable, a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, or by the shareholders.
Expenses incurred in defending a civil or criminal action, suit or
proceeding may be paid by the corporation in advance of the final disposition of
the action, suit or proceeding as
7
<PAGE> 8
authorized by the board of directors in the specific case upon receipt of an
undertaking by or on behalf of the director or officer to repay such amount
unless it shall ultimately be determined that he is entitled to be indemnified
by the corporation as authorized in this section 23.
The indemnification provided by this section 23 shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled either under the Articles of Incorporation or bylaws or any agreement,
vote of shareholders or disinterested directors or otherwise, both as to action
in his official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director or
officer and shall inure to the benefit of the heirs, executors and
administrators of such a person.
The corporation shall have the power to give any further indemnity, in
addition to the indemnity authorized or contemplated under other subsections of
this section 23, to any person who is or was a director or officer or to any
person who is or was serving at the request of the corporation as a director or
officer of another corporation, partnership, joint venture, trust or other
enterprise, provided such further indemnity is either (i) authorized, directed
or provided for in the Articles of Incorporation of the corporation or any duly
adopted amendment thereof or (ii) authorized, directed or provided for in any
bylaw or agreement of the corporation which has been adopted by a vote of the
shareholders of the corporation, and provided further that no such indemnity
shall indemnify any person from or on account of such person's conduct which was
finally adjudged to have been knowingly fraudulent, deliberately dishonest or
willful misconduct. Upon adoption of this bylaw by the shareholders of the
corporation, the corporation may enter into indemnification agreements with each
director who is in office on the date of such adoption and, by vote of or
resolution adopted by a majority of a quorum of disinterested directors, with
each director who is thereafter elected a director of the corporation. The
corporation may enter into indemnification agreements with each officer of the
corporation whom the board of directors, by vote of a majority of a quorum of
disinterested directors, authorizes or may, by resolution adopted by a vote of a
majority of a quorum of disinterested directors, authorize indemnification of
any officer to the same extent as provided in such indemnification agreement,
subject to the same exception as provided therein and such additional exception
as may be set forth in such resolution. Such indemnification agreements shall be
substantially in the form attached as Annex I to the bylaws.
The corporation may purchase and maintain insurance on behalf of any
person who is or was a director or officer of the corporation, or is or was
serving at the request of the corporation as a director or officer of another
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the corporation would have the
power to indemnify him against such liability under the provisions of this
section 23.
For the purpose of this section 23, references to "the corporation"
include all constituent corporations absorbed in a consolidation or merger as
well as the resulting or surviving corporation so that any person who is or was
a director or officer of such a constituent corporation or is or was serving at
the request of such constituent corporation as a director or officer of another
corporation, partnership, joint venture, trust or other enterprise shall stand
in the same position under the provisions of this section 23 with respect to the
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<PAGE> 9
resulting or surviving corporation as he would if he had served the resulting or
surviving corporation in the same capacity.
For purposes of this section 23, the term "other enterprise" shall
include employee benefit plans; the term "fines" shall include any excise taxes
assessed on a person with respect to an employee benefit plan; and the term
"serving at the request of the corporation" shall include any service as a
director or officer of the corporation which imposes duties on, or involves
services by, such director or officer with respect to an employee benefit plan,
its participants, or beneficiaries; and a person who acted in good faith and in
a manner he reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the corporation" as referred to in
this section 23.
24. INTERESTS OF DIRECTORS. In case the corporation enters into
contracts or transacts business with one or more of its directors, or with any
firm of which one or more of its directors are members or with any other
corporation or association of which one or more of its directors are members,
shareholders, directors or officers, such transaction or transactions shall not
be invalidated or in any way affected by the fact that such director or
directors have or may have interests therein which are or might be adverse to
the interests of this corporation; provided that such contract or transaction is
entered into in good faith and authorized or ratified on behalf of this
corporation by the board of directors or by a person or persons (other than the
contracting person) having authority to do so, and if the directors or other
person or persons so authorizing or ratifying shall then be aware of the
interest of such contracting person. In any case in which any transaction
described in this section 24 is under consideration by the board of directors,
the board may, upon the affirmative vote of a majority of the whole board,
exclude from its presence while its deliberations with respect to such
transaction are in progress any director deemed by such majority to have an
interest in such transaction.
25. COMMITTEES. (a) EXECUTIVE COMMITTEE. The board of directors may,
by resolution or resolutions passed by a majority of the whole board, designate
an executive committee, such committee to consist of two or more directors of
the corporation, which committee, to the extent provided in said resolution or
resolutions, shall have and may exercise all of the authority of the board of
directors in the management of the corporation. The executive committee shall
keep regular minutes of its proceedings and the same shall be recorded in the
minute book of the corporation. The secretary or an assistant secretary of the
corporation may act as secretary for the committee if the committee so requests.
(b) AUDIT COMMITTEE. The corporation shall maintain an audit committee
consisting of at least three directors. No member of the audit committee shall
be an employee of the corporation. The audit committee shall use reasonable
efforts to effect the establishment and maintenance by the corporation of
adequate financial reporting and audit procedures. The audit committee shall
annually review and confirm management's proposal for the selection of the
corporation's independent public accounting firm and, following completion of
such firm's audit examination of the corporation's consolidated financial
statements, review with such firm and corporation management, such matters in
connection with the audit as deemed necessary and desirable by the audit
committee. The audit committee shall have such additional duties,
responsibilities, functions and powers as may be delegated to it by the board of
directors of the corporation. The audit committee shall be
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<PAGE> 10
empowered to retain, at the expense of the corporation, independent expert(s) if
it deems this to be necessary.
(c) OTHER COMMITTEES. The board of directors may also, by resolution
or resolutions passed by a majority of the whole board, designate other
committees, with such persons, powers and duties as it deems appropriate and as
are not inconsistent with law.
26. COMPENSATION OF DIRECTORS AND COMMITTEE MEMBERS. By resolution
duly adopted by a majority of the board of directors, directors and members
shall be entitled to receive reasonable annual compensation for services
rendered to the corporation as such, and a fixed sum and expenses of attendance,
if any, may be allowed for attendance at each regular or special meeting of the
board or committee; provided that nothing herein contained shall be construed to
preclude any director or committee member from serving the corporation in any
other capacity and receiving compensation therefor.
OFFICERS
27. (a) ELECTED OFFICERS. The following officers of the corporation
shall be chosen or appointed by election by the board of directors, and shall be
deemed elected officers: a president, a secretary, and a treasurer; also, if the
board desires, a chairman of the board, a vice chairman of the board, a chief
executive officer, one or more vice presidents, one or more assistant
secretaries and one or more assistant treasurers. The chairman of the board, the
vice chairman of the board and the chief executive officer shall be deemed
executive officers of the corporation, and shall be vested with such powers,
duties, and authority as the board of directors may from time to time determine
and as may be set forth in these bylaws.
Any two or more of such offices may be held by the same person, except
the offices of chairman of the board and vice chairman of the board, president
and vice president, and the offices of president and secretary.
An elected officer shall be deemed qualified when he enters upon the
duties of the office to which he has been elected and furnishes any bond
required by the board; but the board may also require of such person his written
acceptance and promise faithfully to discharge the duties of such office.
(b) ELECTION OF OFFICERS. The board of directors at each annual
meeting thereof shall elect a president from among their own number. They shall
also elect at such time a secretary and a treasurer, who need not be directors.
The board then, or from time to time, may elect a chairman of the board, a vice
chairman of the board, a chief executive officer and such vice presidents,
assistant secretaries and assistant treasurers as it may deem advisable or
necessary.
(c) TERM OF OFFICE. Each elected officer of the corporation shall hold
his office for the term for which he was elected, or until he resigns or is
removed by the board, whichever first occurs.
(d) APPOINTMENT OF OFFICERS AND AGENTS - TERMS OF OFFICE. The board
from time to time may also appoint such other officers and agents for the
corporation as it
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<PAGE> 11
shall deem necessary or advisable. All appointed officers and agents shall hold
their respective positions at the pleasure of the board or for such terms as the
board may specify, and they shall exercise such powers and perform such duties
as shall be determined from time to time by the board, or by an elected officer
empowered by the board to make such determinations.
28. REMOVAL. Any officer or agent elected or appointed by the board of
directors, and any employee, may be removed or discharged by the board whenever
in its judgment the best interests of the corporation would be served thereby,
but such removal shall be without a prejudice to the contract rights, if any, of
the person so removed.
29. SALARIES AND COMPENSATION. Salaries and compensation of all
elected officers of the corporation shall be fixed, increased or decreased by
the board of directors, but this power, except as to the salary or compensation
of the chairman of the board, the vice chairman of the board, the chief
executive officer and the president, may, unless prohibited by law, be delegated
by the board to the chairman of the board, the vice chairman of the board, the
chief executive officer, the president or a committee. Salaries and compensation
of all other appointed officers, agents, and employees of the corporation may be
fixed, increased or decreased by the board of directors, but until action is
taken with respect thereto by the board of directors, the same may be fixed,
increased or decreased by the chairman of the board, by the chief executive
officer, by the president or by such other officer or officers as may be
empowered by the board of directors to do so.
30. DELEGATION OF AUTHORITY TO HIRE, DISCHARGE, ETC. The board from
time to time may delegate to the chairman of the board, the vice chairman of the
board, the chief executive officer, the president or other officer or executive
employee of the corporation, authority to hire, discharge, and fix and modify
the duties, salary or other compensation of employees of the corporation under
their jurisdiction, and the board may delegate to such officer or executive
employee similar authority with respect to obtaining and retaining for the
corporation the services of attorneys, accountants and other experts.
31. THE CHAIRMAN OF THE BOARD, THE VICE CHAIRMAN OF THE BOARD, THE
CHIEF EXECUTIVE OFFICER AND THE PRESIDENT. The chairman of the board or the
president shall be elected by the board of directors to be the chief executive
officer of the corporation, or the board of directors may elect a chief
executive officer who is not the chairman of the board or the president, and the
chief executive officer shall have general and active management of the business
of the corporation and shall carry into effect all directions and resolutions of
the board. The chairman of the board, the vice chairman of the board, the chief
executive officer and the president shall be vested with such powers, duties,
and authority as the board of directors may from time to time determine and as
may be set forth in these bylaws. Except as otherwise provided for in these
bylaws, the chairman of the board, or in his absence, the chief executive
officer or president, shall preside at all meetings of the shareholders of the
corporation and at all meetings of the board of directors.
The chairman of the board, vice chairman of the board, the chief
executive officer or president may execute all bonds, notes, debentures,
mortgages, and other contracts requiring a seal, under the seal of the
corporation and may cause the seal to be affixed thereto, and all other
instruments for and in the name of the corporation, except that if by law such
instruments are required to be executed only by the president, he shall execute
them.
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<PAGE> 12
The chairman of the board, vice chairman of the board, chief executive
officer or president, when authorized so to do by the board, may execute powers
of attorney from, for, and in the name of the corporation, to such proper person
or persons as he may deem fit, in order that thereby the business of the
corporation may be furthered or action taken as may be deemed by him necessary
or advisable in furtherance of the interests of the corporation.
The chairman of the board, vice chairman of the board, chief executive
officer or president, except as may be otherwise directed by the board, shall
attend meetings of shareholders of other corporations to represent this
corporation thereat and to vote or take action with respect to the shares of any
such corporation owned by this corporation in such manner as he shall deem to be
for the interests of the corporation or as may be directed by the board.
The chairman of the board, vice chairman of the board, chief executive
officer or president shall have such other or further duties and authority as
may be prescribed elsewhere in these bylaws or from time to time by the board of
directors.";
32. VICE PRESIDENTS. The vice presidents in the order of their
seniority shall, in the absence, disability or inability to act of the chairman
of the board, the vice chairman of the board, the chief executive officer and
the president, perform the duties and exercise the powers of the chairman of the
board, the vice chairman of the board, the chief executive officer and the
president, and shall perform such other duties as the board of directors shall
from time to time prescribe.
33. THE SECRETARY AND ASSISTANT SECRETARIES. The secretary shall
attend all sessions of the board and except as otherwise provided for in these
bylaws, all meetings of the shareholders, and shall record or cause to be
recorded all votes taken and the minutes of all proceedings in a minute book of
the corporation to be kept for that purpose. He shall perform like duties for
the executive and other standing committees when requested by the board or such
committee to do so.
His shall be the principal responsibility to give, or cause to be
given, notice of all meetings of the shareholders and of the board of directors,
but this shall not lessen the authority of others to give such notice as is
authorized elsewhere in these bylaws.
He shall see that all books, records, lists and information, or
duplicates, required to be maintained at the registered or home office of the
corporation in Missouri, or elsewhere, are so maintained.
He shall keep in safe custody the seal of the corporation, and when
duly authorized to do so shall affix the same to any instrument requiring it,
and when so affixed, he shall attest the same by his signature.
He shall perform such other duties and have such other authority as
may be prescribed elsewhere in these bylaws or from time to time by the board of
directors, the chairman of the board or the president, under whose direct
supervision he shall be.
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He shall have the general duties, powers and responsibilities of a
secretary of a corporation.
The assistant secretaries, in the order of their seniority, in the
absence, disability or inability to act of the secretary, shall perform the
duties and exercise the powers of the secretary, and shall perform such other
duties as the board may from time to time prescribe.
34. THE TREASURER AND ASSISTANT TREASURERS. The treasurer shall have
the responsibility for the safekeeping of the funds and securities of the
corporation, and shall keep or cause to be kept, full and accurate accounts of
receipts and disbursements in books belonging to the corporation. He shall keep,
or cause to be kept, all other books of account and accounting records of the
corporation, and shall deposit or cause to be deposited all monies and other
valuable effects in the name and to the credit of the corporation in such
depositories as may be designated by the board of directors.
He shall disburse, or permit to be disbursed, the funds of the
corporation as may be ordered, or authorized generally, by the board, and shall
render to the chief executive officers of the corporation and the directors
whenever they may require it, an account of all his transactions as treasurer
and of those under his jurisdiction, and of the financial condition of the
corporation.
He shall perform such other duties and shall have such other
responsibility and authority as may be prescribed elsewhere in these bylaws or
from time to time by the board of directors.
He shall have the general duties, powers and responsibility of a
treasurer of a corporation, and shall be the chief financial and accounting
officer of the corporation.
The assistant treasurers in the order of their seniority shall, in the
absence, disability or inability to act of the treasurer, perform the duties and
exercise the powers of the treasurer, and shall perform such other duties as the
board of directors shall from time to time prescribe.
35. DUTIES OF OFFICERS MAY BE DELEGATED. If any officer of the
corporation be absent or unable to act, or for any other reason that the board
may deem sufficient, the board may delegate, for the time being, some or all of
the functions, duties, powers and responsibilities of any officer to any other
officer, or to any other agent or employee of the corporation or other
responsible person, provided a majority of the whole board concurs therein.
SHARES OF STOCK
36. CERTIFICATES OF STOCK. The certificates for shares of stock of the
corporation shall be numbered, shall be in such form as may be prescribed by the
board of directors in conformity with law, and shall be entered into the stock
books of the corporation as they are issued, and such entries shall show the
name and address of the person, firm, partnership, corporation or association to
whom each certificate is issued. Each certificate shall have printed, typed or
written thereon the name of the person, firm, partnership, corporation or
association to whom it is issued, and number of shares represented thereby
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<PAGE> 14
and shall be signed by the president or a vice president, and the treasurer or
an assistant treasurer or the secretary or an assistant secretary of the
corporation, and sealed with the seal of the corporation, which seal may be
facsimile, engraved or printed. If the corporation has a registrar, a transfer
agent, or a transfer clerk who actually signs such certificates, the signatures
of any of the other officers above mentioned may be facsimile, engraved or
printed. In case any such officer who has signed or whose facsimile signature
has been placed upon any such certificate shall have ceased to be such officer
before such certificate is issued, such certificate may nevertheless be issued
by the corporation with the same effect as if such officer were an officer at
the date of its issue.
37. TRANSFERS OF SHARES - TRANSFER AGENT - REGISTRAR. Transfers of
shares of stock shall be made on the books of the corporation only by the person
named in the stock certificate or by his attorney lawfully constituted in
writing, and upon surrender of the certificate therefor. The stock record books
and other transfer records shall be in the possession of the secretary or of a
transfer agent or clerk of the corporation. The corporation by resolution of the
board may from time to time appoint a transfer agent and if desired a registrar,
under such arrangements and upon such terms and conditions as the board of
directors deems advisable; but until and unless the board appoints some other
person, firm, or corporation as its transfer agent (and upon the revocation of
any such appointment, thereafter until a new appointment is similarly made) the
secretary shall be the transfer agent or clerk of the corporation, without the
necessity of any formal action of the board of directors and the secretary shall
perform all of the duties thereof.
38. LOST CERTIFICATE. In the case of the loss or destruction of any
outstanding certificate for shares of stock of the corporation, the corporation
may issue a duplicate certificate (plainly marked "duplicate"), in its place,
provided the registered owner thereof or his legal representatives furnish due
proof of loss thereof by affidavit, and (if required by the board of directors,
in its discretion) furnish a bond in such amount and form and with such surety
as may be prescribed by the board. In addition, the board of directors may make
any other requirements which it deems advisable.
39. CLOSING OF TRANSFER BOOKS. The board of directors shall have power
to close the stock transfer books of the corporation for a period not exceeding
fifty days preceding the date of any meeting of the shareholders, or the date
for payment of any dividend, or the date for the allotment of rights, or any
effective date or change or conversion or exchange of capital stock; provided,
however, that in lieu of closing the stock transfer books as aforesaid, the
board of directors may fix in advance a date, not exceeding fifty days preceding
the effective date of any of the above enumerated transactions, as a record
date; and in either case such shareholders and only such shareholders as shall
be shareholders of record on the date of closing the transfer books, or on the
record date so fixed, shall be entitled to receive notice of any such
transaction or to participate in any such transactions notwithstanding any
transfer of any share on the books of the corporation after the date of closing
the transfer books or such record date so fixed.
GENERAL
40. DIVIDENDS. Dividends upon the shares of stock of the corporation,
subject to any applicable provisions of the Articles of Incorporation and of any
applicable laws or
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statutes may be declared by the board of directors at any regular or special
meeting. Dividends may be paid in cash, in property or in shares of its stock
and to the extent and in the manner provided by law out of any available earned
surplus or earnings of the corporation. Liquidating dividends or dividends
representing a distribution of paid-in surplus or a return of capital shall be
made only when and in the manner permitted by law.
41. CREATION OF RESERVES. Before the payment of any dividends, there
may be set aside out of any funds of the corporation available for dividends
such sum or sums as the board of directors from time to time, in their absolute
discretion, think proper as a reserve fund or funds, to meet contingencies, or
for equalizing dividends, or for repairing, or maintaining any property of the
corporation, or for such other purposes as the board of directors shall think
conducive to the interests of the corporation, and the board of directors may
abolish any such reserve in the manner in which it was created.
42. FIXING OF CAPITAL, TRANSFERS OF SURPLUS. Except as may be
specifically otherwise provided in the Articles of Incorporation, the board of
directors is expressly empowered to exercise all authority conferred upon it or
the corporation by any law or statute, and in conformity therewith, relative to:
(i) The determination of what part of the consideration
received for shares of the corporation shall be capital;
(ii) Increasing or reducing capital;
(iii) Transferring surplus to capital or capital to surplus;
(iv) Allocating capital to shares of a particular class of
stock;
(v) The consideration to be received by the corporation for its
shares; and
(vi) All similar or related matters;
provided that any concurrent action or consent by or of the corporation and its
shareholders required to be taken or given pursuant to law, shall be duly taken
or given in connection therewith.
43. CHECKS, NOTES AND MORTGAGES. All checks, drafts, or other
instruments for the payment, disbursement, or transfer of monies or funds of the
corporation may be signed in its behalf by the treasurer of the corporation,
unless otherwise provided by the board of directors. All notes of the
corporation and any mortgages or other forms of security given to secure the
payment of the same may be signed by the president who may cause to be affixed
the corporate seal attested by the secretary or assistant secretary. The board
of directors by resolution adopted by a majority of the whole board from time to
time may authorize any officer or officers or other responsible person or
persons to execute any of the foregoing instruments for and in behalf of the
corporation.
44. FISCAL YEAR. The board of directors may fix and from time to time
change the fiscal year of the corporation. In the absence of action by the board
of directors, the fiscal
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year shall end each year on the same date which the officers of the corporation
elect for the close of its first fiscal period.
45. TRANSACTIONS WITH RELATED PERSONS. The affirmative vote of not
less than 80% of the outstanding shares of the corporation entitled to vote in
an election of directors shall be required for the approval or authorization of
any business transaction with a related person as set forth in the Articles of
Incorporation in the manner provided therein.
46. DIRECTOR'S DUTIES; CONSIDERATION OF TENDER OFFERS. The board of
directors shall have broad discretion and authority in considering and
evaluating tender offers for the stock of this corporation. Directors shall not
be liable for breach of their fiduciary duty to the shareholders merely because
the board votes to accept an offer that is not the highest price per share,
provided, that the directors act in good faith in considering collateral
nonprice factors and the impact on constituencies other than the shareholders
(i.e., effect on employees, corporate existence, corporate creditors, the
community, etc.) and do not act in willful disregard of their duties to the
shareholders or with a purpose, direct or indirect, to perpetuate themselves in
office as directors of the corporation.
47. AMENDMENT OF BYLAWS. (a) BY DIRECTORS. The board of directors may
make, alter, amend, change, add to or repeal these bylaws, or any provision
thereof, at any time.
(b) BY SHAREHOLDERS. These bylaws may be amended, modified, altered,
or repealed by the shareholders, in whole or in part, only at the annual meeting
of shareholders or at the special meeting of shareholders called for such
purpose, only upon the affirmative vote of the holders of not less than 80% of
the outstanding shares of stock of this corporation entitled to vote generally
in the election of directors, provided that an affirmative vote of a majority of
the votes entitled to be cast shall be sufficient to approve any such amendment,
modification, alteration or repeal that has been adopted by a vote of 80% of the
members of the board of directors.
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ANNEX I
INDEMNIFICATION AGREEMENT
THIS AGREEMENT is made this day of ____________, 19__, between H & R
Block, Inc., a Missouri corporation (the "Company"), and _______________ (the
"Director").
WITNESSETH THAT:
WHEREAS, the Director is a member of the Board of Directors of the
Company and in such capacity is performing a valuable service for the Company;
and
WHEREAS, under the authority of Section 351.355 of the Missouri
Revised Statutes of 1978, as amended to date (the "State Statute"), bylaws have
been adopted that provide for the indemnification of the officers, directors,
agents and employees of the Company to a greater extent than provided for by
Subsections 1 through 3 of such State Statute; and
WHEREAS, the bylaws of the Company and the State Statute specifically
provide that they are not exclusive, and thereby contemplate that contracts may
be entered into between the Company and the members of its Board of Directors
with respect to indemnification of such directors; and
WHEREAS, in accordance with the authorization provided by Subsection 7
of the State Statute, the Company has purchased and presently maintains a policy
or policies of Directors or Officers Liability Insurance ("D & O Insurance"),
covering certain liabilities that may be incurred by its directors and officers
in the performance of their services for the Company; and
WHEREAS, recent developments with respect to the terms and
availability of D & O Insurance and with respect to the application, amendment
and enforcement of statutory and bylaw indemnification provisions generally have
raised questions concerning the adequacy and reliability of the protection
afforded to directors thereby; and
WHEREAS, in order to resolve such questions and thereby induce the
Director to serve and continue to serve as a member of the Board of Directors of
the Company, the Company has determined and agreed to enter into this Agreement
with the Director;
NOW, THEREFORE, in consideration of the Director's service and
continued service as a director of the Company after the date hereof, the
parties hereto agree as follows:
1. INDEMNITY OF THE DIRECTOR. Subject only to the exclusions set forth
in Section 3 hereof, the Company hereby agrees as follows:
(a) To hold harmless and indemnify the Director against any and all
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by the Director in connection with
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (including an action by or in the
right of the Company or any action accruing prior to the execution of the
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Agreement) to which the Director is, was or at any time becomes a party, or is
threatened to be made a party, by reason of the fact that the Director is, was
or at any time becomes a director, officer, employee or agent of the Company, or
is or was serving or at any time serves at the request of the Company as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise; and
(b) Otherwise to hold harmless and indemnify the Director to the
fullest extent as may be provided to the Director by the Company under the
nonexclusivity provisions of Section 23 of the Bylaws and Subsection 6 of the
State Statute.
(c) To pay the Director, or such person or entity as the Director may
designate, on a continuing and current basis (and in any event not later than
ten business days following receipt by the Company of the Director's request for
reimbursement) all expenses (including attorneys' fees), costs, fines, etc.,
incurred by or levied upon the Director in connection with any action, suit or
proceeding that may be indemnifiable under the provisions of this Agreement.
2. MAINTENANCE OF INSURANCE AND SELF INSURANCE. (a) The Company
represents that it presently has in force and effect policies of D & O Insurance
with insurance companies and in amounts as follows (the "Insurance Policies"):
<TABLE>
<CAPTION>
INSURER AMOUNT COMPANY CONTRIBUTION
------- ------ --------------------
<S> <C> <C>
National Union $10,000,000 $500,000
</TABLE>
Unless notification is given to the Director pursuant to the provisions of
Section 2(b) hereof, the Company hereby agrees that, so long as the Director
continues to serve as a director of the Company (or shall continue at the
request of the Company to serve as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise) and
thereafter so long as the Director is subject to any possible claim or
threatened, pending or completed action, suit or proceeding, whether civil,
criminal or investigative by reason of the fact that the Director was a director
of the Company (or served in any of said other capacities), the Company will
purchase and maintain in effect for the benefit of the Director one or more
valid, binding and enforceable policy or policies of D & O Insurance providing,
in all respects, coverage at least comparable to that presently provided
pursuant to the Insurance Policies. For purposes of this Agreement, any policy
or policies of D & O Insurance purchased to maintain such coverage shall be
deemed to be the Insurance Policies.
(b) The Company shall not be required to maintain said Insurance
Policies in effect, provided, however, that the Company notifies the Director in
writing within five business days after the making of the decision to not renew
or replace the Insurance Policies, or any portion of the coverage previously
provided by the Insurance Policies.
(c) The maintenance of such insurance shall not diminish, relieve or
replace the Company's liability for indemnification under the provisions of the
State Statute, the Company's bylaws (the "Bylaws") or this Agreement. The
Director's claim for reimbursement in advance of final disposition of an action,
suit or proceeding of expenses which may be
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indemnifiable under the provisions of the State Statute, Bylaws or this
Agreement and payable in advance of final disposition of an action pursuant to
Subsection 6 of the State Statute, Section 23 of the Bylaws, or Section 1(c) of
this Agreement shall not be denied on the basis that such amount may or will be
covered by the Insurance Policies, if such payments from the insurance company
will not be made to the Director within ten business days of such Director's
claim for reimbursement.
3. LIMITATIONS ON ADDITIONAL INDEMNITY. The Company shall be entitled
to reimbursement from the Director for all monies paid to him or her as
indemnification pursuant to this Agreement under the following circumstances:
(a) to the extent of any costs or expenses the Director is actually
reimbursed pursuant to any Insurance Policies purchased and maintained by the
Company pursuant to Section 2 hereof;
(b) if it is determined by a final judgment or other final
adjudication by a court of competent jurisdiction considering the question of
indemnification of the Director that such payment of indemnification is or would
be in violation of applicable law;
(c) on account of any suit in which judgment is rendered against the
Director for an accounting of profits made from the purchase and sale or sale
and purchase by the Director of securities of the Company pursuant to the
provisions of Section 16(b) of the Securities Exchange Act of 1934 and
amendments thereto;
(d) if the Director's conduct is finally adjudged by a court of
competent jurisdiction to have been knowingly fraudulent, deliberately dishonest
or to constitute willful misconduct; or
(e) if it is finally determined by a court of competent jurisdiction
considering the question that the Director's decision to employ independent
legal counsel, pursuant to Section 5(b)(ii) hereof, was not based on a
"reasonable" conclusion that there was a conflict of interest between the
Company and the Director.
4. CONTINUATION OF INDEMNITY. All agreements and obligations of the
Company contained herein shall continue during the period the Director is a
director, officer, employee or agent of the Company (or is or was serving at the
request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise) and shall
continue thereafter so long as the Director is subject to any possible claim or
threatened, pending or completed action, suit or proceeding, whether civil,
criminal or investigative, by reason of the fact that the Director was a
director of the Company or serving in any other capacity referred to herein.
5. NOTIFICATION AND DEFENSE OF CLAIM. Promptly after receipt by the
Director of notice of the commencement of any action, suit or proceeding, the
Director will, if a claim in respect thereof is to be made against the Company
under this Agreement, notify the Company of the commencement thereof; the
failure to promptly notify the Company will not relieve the Company from any
liability that it may have to the Director hereunder, except to the extent the
Company is prejudiced in its defense of such claim as a result of such failure.
Unless otherwise requested by the Board, written notification shall not be
necessary if the Director informs a majority of the Board of the commencement of
any such action, or,
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independent of such notification by the Director, a majority of the Board has
reason to believe such action has been initiated or threatened. With respect to
any such action, suit or proceeding as to which the Director notifies (or is
deemed to have notified) the Company of the commencement thereof:
(a) The Company will be entitled to participate therein at its own
expense;
(b) Except as otherwise provided below, to the extent that it may
wish, the Company, jointly with any other indemnifying party similarly notified,
will be entitled to assume the defense thereof with counsel reasonably
satisfactory to the Director. Subject to the provision below, after notice from
the Company to the Director of its election so to assume the defense thereof,
the Company will not be liable to the Director under this Agreement for any
legal or other expenses subsequently incurred by the Director in connection with
the defense thereof other than reasonable costs of investigation or as otherwise
provided below. The Director shall have the right to employ his or her own
counsel in such action, suit or proceeding, but the fees and expenses of such
counsel incurred after notice from the Company of its assumption of the defense
thereof shall be at the expense of the Director unless (i) the employment of
counsel by the Director has been authorized by the Company, (ii) the Director
reasonably concludes that there may be a conflict of interest between the
Company and the Director in the conduct of the defense of such action and that
such conflict may lead to exposure for the director not otherwise indemnifiable
under the provisions of this Agreement and notifies the Company of such
conclusion and decision to employ separate counsel, or (iii) the Company fails
to employ counsel to assume the defense of such action, in each case the fees
and expenses of counsel shall be at the expense of the Company. The Company
shall not be entitled to assume the defense of any action, suit or proceeding
brought by or on behalf of the Company or as to which the Director reasonably
makes the conclusion provided for in (ii) above; and
(c) The Company shall not be liable to indemnify the Director under
this Agreement for any amounts paid in settlement of any action or claim
effected without its written consent. The company shall not settle any action or
claim in any manner which would impose any penalty or limitation on the Director
without the Director's written consent. Neither the Company nor the Director
will unreasonably withhold their consent to any proposed settlement.
6. REPAYMENT OF EXPENSES. The Director agrees that he or she will
reimburse the Company for all reasonable expenses paid by the Company in
defending any civil or criminal action, suit or proceeding against him or her in
the event and only to the extent that it is ultimately determined by a court of
competent jurisdiction considering the question that the Director is not
entitled to be indemnified by the Company for such expenses under the provisions
of the State Statute, the Bylaws, this Agreement or otherwise.
7. ENFORCEMENT. (a) The Company expressly confirms and agrees that it
has entered into this Agreement and assumed the obligations imposed on the
Company hereby in order to induce the Director to continue as a director of the
Company, and acknowledges that the Director is relying upon this Agreement in
continuing in such capacity.
(b) In the event the Director is required to bring any action to
enforce rights or to collect monies due under this Agreement and is successful
in such action, the Company
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shall reimburse the Director for all of the Director's reasonable fees and
expenses (including attorney's fees) in bringing and pursuing such action.
8. SEPARABILITY. Each of the provisions of this Agreement is a
separate and distinct agreement and independent of the others, so that if any
provision hereof shall be held to be invalid or unenforceable for any reason,
such invalidity of unenforceability shall not affect the validity or
enforceability of the other provisions hereof.
9. MISCELLANEOUS. (a) This Agreement shall be interpreted and enforced
in accordance with the laws of the State of Missouri.
(b) This Agreement shall be binding upon the Director and upon the
Company, its successors and assigns, and shall inure to the benefit of the
Director, his or her heirs, personal representatives and assigns and to the
benefit of the Company, its successors and assigns.
(c) No amendment, modification, termination or cancellation of this
Agreement shall be effective unless in writing signed by both parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
H & R BLOCK, INC.
By ______________________________
By ______________________________
_____________________, the Director
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EXHIBIT 10.2
H&R BLOCK, INC.
1993 LONG-TERM EXECUTIVE COMPENSATION PLAN
(As Amended Through September 8, 1999)
1. PURPOSES. The purposes of this 1993 Long-Term Executive Compensation
Plan are to provide incentives and rewards to those employees largely
responsible for the success and growth of H&R Block, Inc., and its subsidiary
corporations and to assist all such corporations in attracting and retaining
executives and other key employees with experience and ability.
2. DEFINITIONS.
(a) AWARD means one or more of the following: shares of Common Stock,
Restricted Shares, Stock Options, Incentive Stock Options, Stock Appreciation
Rights, Performance Shares, Performance Units and any other rights which may be
granted to a Recipient under the Plan.
(b) COMMON STOCK means the Common Stock, without par value, of the
Company.
(c) COMPANY means H&R Block, Inc., a Missouri corporation, and, unless
the context otherwise requires, includes its subsidiary corporations and their
respective divisions, departments and subsidiaries and the respective divisions,
departments and subsidiaries of such subsidiaries.
(d) INCENTIVE STOCK OPTION means a Stock Option which meets all of the
requirements of an "incentive stock option" as defined in Section 422(b) of the
Internal Revenue Code of 1986, as now in effect or hereafter amended (the
"Internal Revenue Code").
(e) PERFORMANCE PERIOD means that period of time specified by the
Committee during which a Recipient must satisfy any designated performance goals
in order to receive an Award.
(f) PERFORMANCE SHARE means the right to receive, upon satisfying
designated performance goals within a Performance Period, shares of Common
Stock, cash, or a combination of cash and shares of Common Stock, based on the
market value of shares of Common Stock covered by such Performance Shares at the
close of the Performance Period.
(g) PERFORMANCE UNIT means the right to receive, upon satisfying
designated performance goals within a Performance Period, shares of Common
Stock, cash, or a combination of cash and shares of Common Stock.
(h) PLAN means this 1993 Long-Term Executive Compensation Plan, as the
same may be amended from time to time.
(i) RECIPIENT means an employee of the Company who has been granted an
Award under the Plan.
(j) RESTRICTED SHARE means a share of Common Stock issued to a
Recipient hereunder subject to such terms and conditions, including, without
limitation, forfeiture or resale to the Company, and to such restrictions
against sale, transfer or other disposition, as the Committee may determine at
the time of issuance.
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(k) STOCK APPRECIATION RIGHT means the right to receive, upon exercise
of a Stock Appreciation Right granted under this Plan, shares of Common Stock,
cash, or a combination of cash and shares of Common Stock, based on the increase
in the market value of the shares of Common Stock covered by such Stock
Appreciation Right from the initial day of the Performance Period for such Stock
Appreciation Right to the date of exercise.
(l) STOCK OPTION means the right to purchase, upon exercise of a Stock
Option granted under this Plan, shares of the Company's Common Stock.
3. ADMINISTRATION OF THE PLAN. The Plan shall be administered by a
Compensation Committee (the "Committee") consisting of directors of the Company,
to be appointed by and to serve at the pleasure of the Board of Directors of the
Company. A majority of the Committee members shall constitute a quorum and the
acts of a majority of the members present at any meeting at which a quorum is
present, or acts approved in writing by a majority of the Committee, shall be
valid acts of the Committee, however designated, or the Board of Directors of
the Company if the Board has not appointed a Committee.
The Committee shall have full power and authority to construe,
interpret and administer the Plan and, subject to the powers herein specifically
reserved to the Board of Directors and subject to the other provisions of this
Plan, to make determinations which shall be final, conclusive and binding upon
all persons including, without limitation, the Company, the shareholders of the
Company, the Board of Directors, the Recipients and any persons having any
interest in any Awards which may be granted under the Plan. The Committee shall
impose such additional conditions upon the grant and exercise of Awards under
this Plan as may from time to time be deemed necessary or advisable, in the
opinion of counsel to the Company, to comply with applicable laws and
regulations. The Committee from time to time may adopt rules and regulations for
carrying out the Plan and written policies for implementation of the Plan. Such
policies may include, but need not be limited to, the type, size and terms of
Awards to be made to Recipients and the conditions for payment of such Awards.
4. ABSOLUTE DISCRETION. The Committee may, in its sole and absolute
discretion (subject to the Committee's power to delegate certain authority in
accordance with the second paragraph of this Section 4), at any time and from
time to time during the continuance of the Plan, (i) determine which employees
of the Company shall be granted Awards under the Plan, (ii) grant to any
employee so selected such an Award, (iii) determine the type, size and terms of
Awards to be granted (subject to Sections 6, 10 and 11 hereof, as hereafter
amended), (iv) establish objectives and conditions for receipt of Awards, (v)
place conditions or restrictions on the payment or exercise of Awards, and (vi)
do all other things necessary and proper to carry out the intentions of this
Plan; provided, however, that, in each and every case, those Awards which are
Incentive Stock Options shall contain and be subject to those requirements
specified in Section 422 of the Internal Revenue Code and shall be granted only
to those employees eligible thereunder to receive the same.
The Committee may at any time and from time to time delegate to the
Chief Executive Officer of the Company authority to take any or all of the
actions that may be taken by the Committee as specified in this Section 4 or in
other sections of the Plan in connection with the determination of Recipients,
types, sizes, terms and conditions of Awards under the Plan and the grant of any
such Awards, provided that any authority so delegated (a) shall apply only to
Awards to employees of the Company that are not officers of Company under
Regulation Section 240.16a-1(f) promulgated pursuant to Section 16 of the
Securities Exchange Act of 1934, and (b) shall be exercised only in accordance
with the Plan and such rules, regulations, guidelines, and limitations as the
Committee shall prescribe.
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5. ELIGIBILITY. Awards may be granted to any employee of the Company.
No member of the Committee (other than any ex officio member) shall be eligible
for grants of Awards under the Plan. An employee may be granted multiple forms
of Awards under the Plan. Incentive Stock Options may be granted under the Plan
to a Recipient during any calendar year only if the aggregate fair market value
(determined as of the date the Incentive Stock Option is granted) of Common
Stock with respect to which Incentive Stock Options are exercisable for the
first time by such Recipient during any calendar year under the Plan and any
other "incentive stock option plans" (as defined in the Internal Revenue Code)
maintained by the Company does not exceed the sum of $100,000.
6. STOCK SUBJECT TO THE PLAN. The total number of shares of Common
Stock issuable under this Plan may not at any time exceed 13,000,000 shares,
subject to adjustment as provided herein. All of such shares may be issued or
issuable in connection with the exercise of Incentive Stock Options. No more
than an aggregate of five percent (5%) of the total number of shares of Common
Stock issuable under this Plan may be issued or issuable in connection with
Awards that constitute Common Stock, Restricted Shares, Performance Shares and
Performance Units. Shares of Common Stock not actually issued pursuant to an
Award shall be available for future Awards. Shares of Common Stock to be
delivered or purchased under the Plan may be either authorized but unissued
Common Stock or treasury shares. The total number of shares of Common Stock that
may be subject to one or more Awards granted to any one Recipient during a
calendar year may not exceed 350,000, subject to adjustment as provided in
Section 16 of the Plan.
7. AWARDS.
(a) Awards under the Plan may include, but need not be limited to,
shares of Common Stock, Restricted Shares, Stock Options, Incentive Stock
Options, Stock Appreciation Rights, Performance Shares and Performance Units.
The amount of each Award may be based upon the market value of a share of Common
Stock. The Committee may make any other type of Award which it shall determine
is consistent with the objectives and limitations of the Plan.
(b) The Committee may establish performance goals to be achieved within
such Performance Periods as may be selected by it using such measures of the
performance of the Company as it may select as a condition to the receipt of any
Award.
8. VESTING REQUIREMENTS. The Committee may determine that all or a
portion of an Award or a payment to a Recipient pursuant to an Award, in any
form whatsoever, shall be vested at such times and upon such terms as may be
selected by it.
9. DEFERRED PAYMENTS AND DIVIDEND AND INTEREST EQUIVALENTS.
(a) The Committee may determine that the receipt of all or a portion of
an Award or a payment to a Recipient pursuant to an Award, in any form
whatsoever, shall be deferred. Deferrals shall be for such periods and upon such
terms as the Committee may determine.
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(b) The Committee may provide, in its sole and absolute discretion,
that a Recipient to whom an Award is payable in whole or in part at a future
time in shares of Common Stock shall be entitled to receive an amount per share
equal in value to the cash dividends paid per share on issued and outstanding
shares as of the dividend record dates occurring during the period from the date
of the Award to the date of delivery of such share to the Recipient. The
Committee may also authorize, in its sole and absolute discretion, payment of an
amount which a Recipient would have received in interest on (i) any Award
payable at a future time in cash during the period from the date of the Award to
the date of payment, and (ii) any cash dividends paid on issued and outstanding
shares as of the dividend record dates occurring during the period from the date
of an Award to the date of delivery of shares pursuant to the Award. Any amounts
provided under this subsection shall be payable in such manner, at such time or
times, and subject to such terms and conditions as the Committee may determine
in its sole and absolute discretion.
10. STOCK OPTION PRICE. The purchase price per share of Common Stock
under each Stock Option shall be determined by the Committee, but shall not be
less than market value (as determined by the Committee) of one share of Common
Stock on the date the Stock Option or Incentive Stock Option is granted. Payment
for exercise of any Stock Option granted hereunder shall be made (a) in cash, or
(b) by delivery of Common Stock having a market value equal to the aggregate
option price, or (c) by a combination of payment of cash and delivery of Common
Stock in amounts such that the amount of cash plus the market value of the
Common Stock equals the aggregate option price.
11. STOCK APPRECIATION RIGHT VALUE. The base value per share of Common
Stock covered by an Award in the form of a Stock Appreciation Right shall be the
market value of one share of Common Stock on the date the Award is granted.
12. CONTINUATION OF EMPLOYMENT. The Committee shall require that a
Recipient be an employee of the Company at the time an Award is paid or
exercised. The Committee may provide for the termination of an outstanding Award
if a Recipient ceases to be an employee of the Company and may establish such
other provisions with respect to the termination or disposition of an Award on
the death or retirement of a Recipient as it, in its sole discretion, deems
advisable. The Committee shall have the sole power to determine the date of any
circumstances which shall constitute a cessation of employment and to determine
whether such cessation is the result of retirement, death or any other reason.
13. REGISTRATION OF STOCK. Each Award shall be subject to the
requirement that if at any time the Committee shall determine that qualification
or registration under any state or federal law of the shares of Common Stock,
Restricted Shares, Stock Options, Incentive Stock Options, or other securities
thereby covered or the consent or approval of any governmental regulatory body
is necessary or desirable as a condition of or in connection with the granting
of such Award or the purchase of shares thereunder, the Award may not be paid or
exercised in whole or in part unless and until such qualification, registration,
consent or approval shall have been effected or obtained free of any conditions
the Committee, in its discretion, deems unacceptable.
14. EMPLOYMENT STATUS. No Award shall be construed as imposing upon the
Company the obligation to continue the employment of a Recipient. No employee or
other person shall have any claim or right to be granted an Award under the
Plan.
15. ASSIGNABILITY. No Award granted pursuant to the Plan shall be
transferable or assignable by the Recipient other than by will or the laws of
descent and distribution and during the lifetime of the Recipient shall be
exercisable or payable only by or to him or her.
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16. DILUTION OR OTHER ADJUSTMENTS. In the event of any changes in the
capital structure of the Company, including but not limited to a change
resulting from a stock dividend or split-up, or combination or reclassification
of shares, the Board of Directors shall make such equitable adjustments with
respect to Awards or any provisions of this Plan as it deems necessary and
appropriate, including, if necessary, any adjustment in the maximum number of
shares of Common Stock subject to the Plan, the maximum number of shares that
may be subject to one or more Awards granted to any one Recipient during a
calendar year, or the number of shares of Common Stock subject to an outstanding
Award.
17. MERGER, CONSOLIDATION, REORGANIZATION, LIQUIDATION, ETC. If the
Company shall become a party to any corporate merger, consolidation, major
acquisition of property for stock, reorganization, or liquidation, the Board of
Directors shall make such arrangements it deems advisable with respect to
outstanding Awards, which shall be binding upon the Recipients of outstanding
Awards, including, but not limited to, the substitution of new Awards for any
Awards then outstanding, the assumption of any such Awards and the termination
of or payment for such Awards.
18. WITHHOLDING TAXES. The Company shall have the right to deduct from
all Awards hereunder paid in cash any federal, state, local or foreign taxes
required by law to be withheld with respect to such Awards and, with respect to
Awards paid in other than cash, to require the payment (through withholding from
the Recipient's salary or otherwise) of any such taxes. Subject to such
conditions as the Committee may establish, Awards under the Plan payable in
shares of Common Stock may provide that the Recipients thereof may elect, in
accordance with any applicable regulations, to have the Company withhold shares
of Common Stock to satisfy all or part of any such tax withholding obligations,
with the value of such withheld shares of Common Stock based upon their fair
market value on the date the tax withholding is required to be made.
19. COSTS AND EXPENSES. The cost and expenses of administering the Plan
shall be borne by the Company and not charged to any Award nor to any Recipient.
20. FUNDING OF PLAN. The Plan shall be unfunded. The Company shall not
be required to establish any special or separate fund or to make any other
segregation of assets to assure the payment of any Award under the Plan.
21. AWARD CONTRACTS. The Committee shall have the power to specify the
form of Award contracts to be granted from time to time pursuant to and in
accordance with the provisions of the Plan and such contracts shall be final,
conclusive and binding upon the Company, the shareholders of the Company and the
Recipients. No Recipient shall have or acquire any rights under the Plan except
such as are evidenced by a duly executed contract in the form thus specified. No
Recipient shall have any rights as a holder of Common Stock with respect to
Awards hereunder unless and until certificates for shares of Common Stock or
Restricted Shares are issued to the Recipient.
22. GUIDELINES. The Board of Directors of the Company shall have the
power to provide guidelines for administration of the Plan by the Committee and
to make any changes in such guidelines as from time to time the Board deems
necessary.
23. AMENDMENT AND DISCONTINUANCE. The Board of Directors of the Company
shall have the right at any time during the continuance of the Plan to amend,
modify, supplement, suspend or terminate the Plan, provided that in the absence
of the approval of the holders of a majority of the shares of Common Stock of
the Company present in person or by proxy at a duly constituted meeting of
shareholders of the Company, no such amendment, modification or supplement shall
(i) increase the aggregate number of shares which may be issued under the Plan,
unless such increase is by reason of any change in capital structure referred to
in Section 16 hereof, (ii) change the termination date of the Plan
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provided in Section 24, (iii) delete or amend the market value restrictions
contained in Sections 10 and 11 hereof, (iv) materially modify the requirements
as to eligibility for participation in the Plan, or (v) materially increase the
benefits accruing to participants under the Plan, and provided further, that no
amendment, modification or termination of the Plan shall in any manner affect
any Award of any kind theretofore granted under the Plan without the consent of
the Recipient of the Award, unless such amendment, modification or termination
is by reason of any change in capital structure referred to in Section 16 hereof
or unless the same is by reason of the matters referred to in Section 17 hereof.
24. TERMINATION. The Committee may grant Awards at any time prior to
September 7, 2003, on which date this Plan will terminate except as to Awards
then outstanding hereunder, which Awards shall remain in effect until they have
expired according to their terms or until September 7, 2003, whichever first
occurs. No Incentive Stock Option shall be exercisable later than 10 years
following the date it is granted.
25. APPROVAL. This Plan shall take effect upon due approval by the
shareholders of the Company.
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EXHIBIT 10.3
H&R BLOCK, INC.
1999 STOCK OPTION PLAN FOR SEASONAL EMPLOYEES
(AS AMENDED SEPTEMBER 8, 1999)
ARTICLE 1. ESTABLISHMENT OF THE PLAN. H&R BLOCK, INC., a Missouri
corporation (the "Company"), hereby formulates and adopts the 1999 Stock Option
Plan for Seasonal Employees (the "Plan") whereby there may be granted to
seasonal employees of H&R Block Tax Services, Inc. (an indirect subsidiary of
the Company) and the direct and indirect, majority-owned subsidiaries of H&R
Block Tax Services, Inc. (such corporation, such direct and indirect
subsidiaries, and their successor entities, if any, to be referred to herein as
"Tax Services"), options to purchase shares of the Company's Common Stock,
without par value (such shares being hereinafter sometimes referred to for
convenience as "Common Stock" or "stock" or "shares").
ARTICLE 2. PURPOSE OF THE PLAN. The purpose of the Plan is to advance
and promote the interests of the Company, Tax Services and the Company's
stockholders by providing a method whereby seasonal employees of Tax Services
may acquire Common Stock under options to purchase the same subject to the
conditions hereinafter or therein provided. The Plan is further intended to
provide seasonal employees who may be granted such options with additional
incentive to continue in the employ of Tax Services on a seasonal basis and to
increase their efforts to promote the best interests of the Company, Tax
Services and the Company's stockholders.
ARTICLE 3. ADMINISTRATION OF THE PLAN. The Plan shall be administered
by the Compensation Committee of the Board of Directors of the Company (the
"Committee") consisting of three or more directors of the Company, to be
appointed by and to serve at and during the pleasure of the Board of Directors
of the Company. All references herein to the Committee shall be deemed to mean
the Board of Directors of the Company if the Board has not appointed a
Committee. A majority of the Committee shall constitute a quorum and the acts of
a majority of the members present at any meeting at which a quorum is present,
or acts approved in writing by a majority of the Committee, shall be valid acts
of the Committee. The Committee shall have full power and authority to construe,
interpret and administer the Plan and, subject to the powers herein specifically
reserved to the Board of Directors and to the other provisions of this Plan, to
make determinations which shall be final, conclusive and binding upon all
persons, including without limitation the Company, Tax Services, the
stockholders, the Board of Directors and any persons having any interest in any
options which may be granted under the Plan. The Committee may impose such
additional conditions upon the grant and exercise of options under this Plan as
may from time to time be deemed necessary or desirable, in the opinion of
counsel of the Company, to comply with applicable laws and regulations. The
Committee from time to time may adopt rules and regulations for carrying out the
Plan.
ARTICLE 4. ELIGIBILITY. Options shall be granted on June 30 of each
year the Plan is in effect (the "date of grant") only to "Eligible Seasonal
Employees" of Tax Services for such year. The term "Eligible Seasonal Employees"
for any calendar year during which the Plan is in effect shall include all those
employees of Tax Services who (a) are hired to perform for limited periods of
time during such year jobs specifically designated by Tax Services to be
seasonal jobs and (b) have adhered to the working hours agreed upon during such
year.
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ARTICLE 5. STOCK SUBJECT TO THE PLAN. The shares of Common Stock to be
issued upon exercise of the options granted under the Plan shall be made
available, at the discretion of the Board of Directors of the Company, either
from authorized but unissued stock of the Company or from shares that have been
purchased by the Company from any source whatever, but the aggregate number of
shares for which options may be granted under the Plan shall not exceed
6,000,000 shares of Common Stock of the Company. If an option granted under the
Plan shall be surrendered or shall for any reason whatsoever expire or terminate
in whole or in part without the exercise thereof, then the shares of stock which
were subject to any such option shall, if the Plan shall then be in effect, be
available for options thereafter granted under the Plan.
ARTICLE 6. METHOD OF PARTICIPATION. Each Eligible Seasonal Employee who
either (i) is an employee of Tax Services on April 15 (or the next business day
if it falls on a Saturday, Sunday or holiday) of each calendar year the Plan is
in effect, or (ii) has been an employee of Tax Services for at least an
aggregate of 100 working days during the 12-month period ending with the date of
grant, shall be granted an option to purchase one share of Common Stock for each
$100 of the total compensation earned by him or her during and throughout the
12-month period ending with the date of grant (such total compensation during
such period to be referred to herein as "Total Compensation"), provided,
however, that (a) each Eligible Seasonal Employee who is not entitled to an
option grant under the provisions of this Article 6 on June 30, 1999 (regardless
of whether or not such Eligible Seasonal Employee was employed on or before such
date), but who, with respect to any subsequent date of grant during the term of
the Plan, otherwise meets the requirements of this Article 6, shall be granted
as of such subsequent date of grant an option to purchase one share of Common
Stock for each $200 of Total Compensation in lieu of an option to purchase one
share of Common Stock for each $100 of Total Compensation, (b) no employee shall
be granted an option to purchase in excess of 100 of said shares in any calendar
year under the Plan, (c) no employee shall be granted an option if such
employee's Total Compensation for the applicable year is less than $4,000 ($500
for an option granted on June 30, 1999), and (d) any fractional shares which
would otherwise be subject to an option under the Plan shall be adjusted to the
nearest whole number of shares. As promptly as possible after June 30 of each
year the Plan is in effect (but effective as of such date), each Eligible
Seasonal Employee shall be notified in writing of the number of shares optioned
to him or her under the Plan, the option price and the terms and conditions of
said option, as described in Article 9.
ARTICLE 7. ADJUSTMENT UPON CHANGES IN CAPITALIZATION. In the event a
merger, consolidation, reorganization, recapitalization, stock dividend, stock
split, or other change in the corporate structure or capitalization affecting
the Company's capital stock shall occur, an appropriate adjustment shall be made
in (a) the number of shares of stock available for options under the Plan and
subject to outstanding options, (b) the purchase price per share for each
outstanding option, and (c) the provisions of Article 6, provided that, no
adjustment shall be made in the provisions of Article 6 in the event of a stock
dividend or stock split. Any adjustment to the Plan shall be made by the Board
of Directors and, when so made, shall be effective and binding for all purposes
of the Plan and of all options then outstanding.
ARTICLE 8. OPTION PRICE. Each year this Plan is in effect, the purchase
price per share under each option granted during such year shall be equal to the
last reported sale price, regular way, for the Common Stock on the New York
Stock Exchange (or, if the stock is not then traded on such exchange, the last
reported sale price, regular way, on such other national exchange or NASDAQ or
other system on which such stock is traded and reported), in each case on the
date of grant (or if said date falls on a non-business day then on the next
preceding business date on
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which the stock is quoted) of such year.
ARTICLE 9. TERMS AND CONDITIONS OF OPTIONS. The terms and conditions of
each option granted hereunder shall be set forth in a written notice to the
employee to whom such option is granted. Said terms and conditions shall be
consistent with the provisions of the Plan and shall include but not be limited
to the following:
A. CONTINUATION OF EMPLOYMENT. The grant of an option under this Plan
shall not confer on the optionee any right to continue in the employ of Tax
Services or to be employed by the Company or any of its subsidiaries, nor shall
it limit the right of Tax Services to terminate the employment of any optionee
at any time.
B. PERIODS OF EXERCISING OPTION. An option may be exercised only
between the dates of September 1 through November 30 of either of the two
calendar years immediately following the calendar year in which said option was
granted, and said option shall expire as to all shares subject thereto which are
not so exercised.
C. CONDITIONS OF EXERCISING OPTION. If an optionee shall not be an
Eligible Seasonal Employee, as defined in Article 4, for a year in which he or
she would be otherwise entitled to exercise an option under this Plan ("Exercise
Year"), or shall not have earned actual Total Compensation during the 12-month
period ending on June 30 of such Exercise Year which is at least equal to 50% of
the actual Total Compensation earned by him or her during the 12-month period
ending on June 30 of the year in which the option was granted ("Grant Year"), he
or she shall not be entitled to exercise his or her option for such Grant Year;
provided, however, if the optionee shall become a full-time employee of the
Company or any of its subsidiaries (including, but not limited to, Tax Services)
prior to August 1 of such Exercise Year he or she shall be entitled to exercise
said option for such Grant Year, provided he or she is a full-time employee of
the Company or one of its subsidiaries at the time the option is exercised. The
option must be exercised by the optionee in writing (unless otherwise authorized
by the Company) within the periods above specified with respect to all or part
of the shares optioned and accompanied by full payment of the option price
thereof. Only one exercise shall be permitted with respect to a single option.
If an optionee exercises an option for less than all of the shares subject to
such option, the optionee shall lose all rights to exercise the option for the
balance of the shares subject to the option. No optionee will be deemed to be a
holder of any shares subject to an option unless and until certificates for such
shares are issued to him or her under the terms of the Plan. As used herein,
"full-time employee" means an individual in the employ of the Company or one of
its subsidiaries in a job designated by the applicable employer to be a
full-time job.
D. NON-TRANSFERABILITY OF OPTION; TERMINATION UPON DEATH. The option
shall be exercisable only by the optionee and shall not be transferable by him
or her. The option shall terminate upon the death of the optionee.
E. QUALIFICATION OF STOCK. Each option shall be subject to the
requirement that if at any time the Board of Directors of the Company shall
determine, in its discretion, that qualification or registration of the shares
of stock thereby covered under any state or federal law, or the consent or
approval of any governmental regulatory body, is necessary or desirable as a
condition of or in connection with the granting of such option or the purchase
of shares thereunder, the option may not be exercised in whole or in part unless
and until such qualification or registration, consent or approval shall have
been effected or obtained free of any conditions not acceptable to the Board of
Directors of the Company, at its discretion.
ARTICLE 10. AMENDMENT AND DISCONTINUANCE. The Board of Directors of the
Company shall have the right at any time during the continuance of the Plan to
amend, modify, supplement,
A-3
<PAGE> 4
suspend or terminate the Plan, provided that no employee's rights existing at
the effective time of such amendment, modification, supplement, suspension or
termination are adversely affected thereby, and provided further that, in the
absence of the approval of the holders of a majority of the shares of Common
Stock of the Company present in person or by proxy at a duly constituted meeting
of the shareholders of the Company, no such amendment, modification or
supplement shall (i) increase the aggregate number of shares of Common Stock
that may be issued under the Plan, unless such increase is by reason of any
change in the capital structure referred to in Article 7 hereof, (ii) materially
modify the requirements as to eligibility for participation in the Plan, or
(iii) materially increase the benefits accruing to participants under the Plan.
ARTICLE 11. EFFECTIVE DATE; EXPIRATION OF PLAN. The Plan shall be
effective on June 30, 1999 (with the grant of options on that date) and, unless
extended, shall terminate on December 31, 2002, but no termination of the Plan,
whether under the provisions of this Article 11 or otherwise, shall affect the
continuance of any option granted hereunder prior to said date.
A-4
<PAGE> 1
EXHIBIT 10.4
AMENDMENT NO. 2
TO THE
H&R BLOCK DEFERRED COMPENSATION PLAN
FOR EXECUTIVES, AS AMENDED AND RESTATED
H&R Block, Inc. (the "Company") adopted the H&R Block Deferred
Compensation Plan for Executives, as Amended and Restated (the "Plan"),
effective as of January 1, 1999. The Company amended said Plan by Amendment No.
1 effective as of January 1, 1999. The Company continues to retain the right to
amend the Plan pursuant to action by the Company's Board of Directors. The
Company hereby exercises that right. This Amendment No. 2 is effective as of
January 1, 2000.
AMENDMENT
1. Section 2.1.7 of the Plan is amended by deleting the current Section
2.1.7 and replacing it with the following new Section 2.1.7:
2.1.7 "Annual Deferral Amount" means the amount of Base Salary,
and/or Bonus that a Participant elects to defer each Plan Year under a
Permissible Deferral. The amount of Base Salary included in the Annual
Deferral Amount shall be equal to a percentage of the Participant's
Base Salary that is not less than three percent (3%) and either (a)
not greater than fifty percent (50%) for Permissible Deferrals of
persons eligible to participate in the Plan prior to January 1, 2000,
and who continuously remain eligible to make Permissible Deferrals in
Plan Years commencing on or after said date, or (b) not greater than
twenty percent (20%) for Permissible Deferrals of persons first
eligible to participate in the Plan on or after January 1, 2000 (or
who again become eligible to make Permissible Deferral elections
pursuant to Section 3.6(ii) after January 1, 2000). The amount of
Bonus or Bonuses included in the Annual Deferral Amount shall be equal
to (i) a flat dollar amount, expressed in one thousand dollar ($1,000)
increments (not greater than the maximum percentage of the Bonus
specified in (ii), below), or (ii) a percentage of the Bonus or
Bonuses paid during the Plan Year that is not less than five percent
(5%) and either (A) not greater than fifty percent (50%), expressed in
five percent (5%) increments, for Permissible Deferrals of persons
eligible to participate in the Plan prior to January 1, 2000, and who
continuously remain eligible to make Permissible Deferrals in Plan
Years commencing on or after said date, or (B) not greater than twenty
percent (20%) for Permissible Deferrals of persons first eligible to
participate in the Plan on or after January 1, 2000 (or who again
become eligible to make Permissible Deferral elections pursuant to
Section 3.6(ii) after January 1, 2000). In the case of a Participant
who is an employee of both an Accounting Subsidiary and an Accounting
Firm, the calculation of the amount of the Annual Deferral Amount that
the Participant is permitted to elect shall be made by taking into
account the amount of salary and bonus paid to such Participant by the
Accounting Firm, but the actual deferral under the Plan shall only be
made out of the Base Salary and/or Bonus or Bonuses paid by all
Affiliates.
<PAGE> 2
2. Section 4.1.2 of the Plan, as previously amended, is further amended
by (a) inserting in the second sentence of the first paragraph thereof the
phrase "by a Participant who was eligible to participate in the Plan prior to
January 1, 2000" after the existing words and numbers "pursuant to Section
4.1.1" and immediately prior to the first comma in such second sentence; and (b)
adding the following new sentence at the end of the first paragraph thereof:
"For Participants who first become eligible to participate in the Plan
with the Plan Year commencing on January 1, 2000 or thereafter, no
Matching Contributions shall be posted to their Accounts."
3. Except as modified in this Amendment No. 2, the Plan, as previously
amended, shall remain in full force and effect, including the Company's right to
amend or terminate the Plan as set forth in Article 9 of the Plan.
H&R BLOCK, INC.
BY: /s/ Frank L. Salizzoni
-----------------------------------
Its: President and CEO
-----------------------------------
2
<PAGE> 1
EXHIBIT 10.5
AMENDMENT NO. 3
TO THE
H&R BLOCK DEFERRED COMPENSATION PLAN
FOR EXECUTIVES, AS AMENDED AND RESTATED
H&R Block, Inc. (the "Company") adopted the H&R Block Deferred Compensation
Plan for Executives, as Amended and Restated (the "Plan"), effective as of
January 1, 1999. The Company amended said Plan by Amendment No. 1 effective as
of January 1, 1999, and by Amendment No. 2 effective as of January 1, 2000. The
Company continues to retain the right to amend the Plan pursuant to action by
the Company's Board of Directors. The Company hereby exercises that right. This
Amendment No. 3 is effective as of September 8, 1999.
AMENDMENT
1. A new Section 2.1.46 is added, as follows:
"2.1.46 '3-year payout' has the meaning specified in Section 6.3.2.";
and the current Sections 2.1.46 and 2.1.47 are renumbered Sections 2.1.47 and
2.1.48, respectively.
2. Section 3.2 of the Plan is amended by adding the following new
sentence at the end of said Section 3.2:
"A Permissible Deferral election made during an Enrollment Period for
a succeeding Plan Year shall remain in effect for each Plan Year
subsequent to such succeeding Plan Year unless (a) the Participant
changes his or her Permissible Deferral election during a subsequent
Enrollment Period (in which case such changed Permissible Deferral
election shall apply to the next succeeding Plan Year and subsequent
Plan Years unless and until the Permissible Deferral election is
properly changed again), (b) the Committee permits the Participant to
terminate future deferrals or withdraw his or her total Account
pursuant to Section 6.7, or (c) total Permissible Deferrals reach the
limitation set forth in Section 2.1.38."
3. Section 6.2.1 of the Plan is amended by deleting the number "13" in
the second sentence thereof and replacing it with the number "12."
4. Section 6.2.2 of the Plan is amended by deleting the number "13" in
the third sentence thereof and replacing it with the number "12."
5. Section 6.3.2 of the Plan is amended by deleting the current Section
6.3.2 and replacing it with the following new Section 6.3.2:
"6.3.2 If a Change in Control has not occurred, for Participants
who terminate employment with all Affiliates on or after August 1,
1995, but before the Normal Retirement Date or the Early Retirement
Date, for reasons other than Disability or death, payment(s) from the
Account shall be in the form of (a) semimonthly payments over a
three-year period (a "3-
<PAGE> 2
year payout"), or (b) a lump sum, as elected by the Participant in
accordance with Section 6.3.4, provided that, for such Participants in
the Plan as of September 18, 1999, who (i) had elected to receive
payments from the Account in the form of (x) semimonthly payments over
a 10-year period (a "10-year payout"), or (y) semimonthly payments
over a five-year period (a "5-year payout"), pursuant to Section 6.3.2
(as in effect immediately prior to September 8, 1999), and (ii) do not
make a different election after September 8, 1999, pursuant to Section
6.3.4, payments from the Account shall be in the form of such elected
10-year payout or 5-year payout, as the case may be."
6. Section 6.3.4 of the Plan is amended by deleting the current Section
6.3.4 and replacing it with the following new Section 6.3.4:
"6.3.4 An election under Section 6.3.2 for a 3-year payout or a
lump-sum payout shall be made by the Participant at the time of the
Participant's first Permissible Deferral election, and may be changed
by the Participant no more than once in every 12-consecutive-month
period thereafter. If no election under Section 6.3.2 is made by a
Participant eligible to make such an election, payment for the Account
shall be in the form of a lump sum. If a Participant participated in
the Plan prior to September 8, 1999, and made an election for a 10-
year payout or a 5-year payout pursuant to Section 6.3.2, as such
Section existed prior to September 8, 1999, such Participant may elect
a 3-year payout or a lump-sum payout during or after the first
Enrollment Period commencing after September 8, 1999, provided that
any such Participant may not change such election more than once in
every 12-consecutive-month period after such new election, and,
provided further, that once any such Participant has elected a 3-year
payout or a lump-sum payout pursuant to this Section 6.3.4, such
Participant may not again elect a 10-year payout or a 5-year payout.
Upon termination of employment before the Normal Retirement Date or
the Early Retirement Date for reasons other than death or disability,
payouts from the Account (with respect to all Permissible Deferral
elections made by the Participant) shall be in accordance with the
most recent election made pursuant to this Section 6.3.4 (or, if
applicable, pursuant to Section 6.3.2, as such Section existed prior
to September 8, 1999) not less than 12 months prior to such
termination of employment."
7. Section 6.3.5 of the Plan is amended by deleting the current Section
6.3.5 and replacing it with the following new Section 6.3.5:
"6.3.5 If an eligible Participant has elected a 10-year payout or
a 5-year payout pursuant to Section 6.3.2 (as such Section 6.3.2
existed prior to September 8, 1999), or if an eligible Participant has
elected a 3-year payout pursuant to Section 6.3.4. and the amount of
each semimonthly installment, as initially calculated, is less than
$500 (such calculation to be accomplished by amortizing the aggregate
of the Participant's Account balances over the payment period using no
crediting rate), the form of payment(s) for such Participant shall be
a 5-year payout in lieu of an
2
<PAGE> 3
elected 10-year payout (unless the amount of each semimonthly
installment under a 5-year payout, as so calculated, is also less than
$500, in which case the form of payment will be a single lump sum), or
a lump sum in lieu of an elected 5-year payout, or a lump sum in lieu
or an elected 3-year payout, as the case may be."
8. Section 6.3.6 of the Plan is amended by deleting the current clause
(1) in the first sentence of such Section and replacing it with the following
new clause (1):
"(1) elects a 10-year payout, a 5-year payout, or a 3-year payout, and
any such payout is not automatically converted to a lump sum pursuant
to Section 6.3.5, and".
9. Section 6.4.3 of the Plan is amended by deleting the current Section
6.4.3 and replacing it with the following new Section 6.4.3:
"6.4.3 The amount of each level payment for the Initial Payment
Period, if any, shall be calculated using the balance in the Account
as of the beginning of the Initial Payment Period and amortizing such
balance over the remaining Overall Payment Period (a) using an assumed
interest rate equal to the rate of one-year United States Treasury
notes for each Participant receiving payments of benefits pursuant to
Section 6.2 prior to September 8, 1999, said rate to be determined
once each Plan Year and to be the rate in effect as of the September
30 immediately preceding the payment period to which it applies, as
published by Solomon Brothers, Inc., or any successor thereto, or as
determined by the Chief Financial Officer of the Company (the "Assumed
Interest Rate"), and (b) using an assumed interest rate of zero
percent (0%) for all other Participants. The amount of each level
payment for each Plan Year Payment Period shall be calculated by
taking the balance in the Account as of November 30 of the Plan Year
immediately prior to such Plan Year Payment Period, subtracting the
benefit payments made during the portion of such preceding Plan Year
following November 30, and amortizing the difference over the
remaining Overall Payment Period (x) using the Assumed Interest Rate
for each Participant receiving payments of benefits pursuant to
Section 6.2 prior to September 8, 1999, and (y) using an assumed
interest rate of zero percent (0%) for all other Participants. The
amount of each level payment for the Remainder Payment Period, if any,
shall be calculated by taking the balance in the Account as of
November 30 of the Plan Year immediately prior to the Remainder
Payment Period, subtracting the benefit payments made during the
portion of such preceding Plan Year following November 30, and
amortizing the difference over the Remainder Payment Period using an
assumed interest rate of zero percent (0%) per annum. If the actual
crediting rate for the Remainder Payment Period is more than zero
percent, the additional gain resulting from the difference in
crediting rates shall be paid to the Participant in a single payment
within six months after the last day of the Remainder Payment Period."
3
<PAGE> 4
10. Except as modified in this Amendment No. 3, the Plan, as previously
amended, shall remain in full force and effect, including the Company's right to
amend or terminate the Plan as set forth in Article 9 of the Plan.
H&R BLOCK, INC.
By: /s/ Frank L. Salizzonl
------------------------------
Its: Chief Executive Officer
------------------------------
4
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND THE CONSOLIDATED STATEMENTS OF OPERATIONS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-2000
<PERIOD-END> OCT-31-1999
<CASH> 168,182
<SECURITIES> 43,831
<RECEIVABLES> 801,346
<ALLOWANCES> 73,608
<INVENTORY> 0
<CURRENT-ASSETS> 1,108,949
<PP&E> 135,695<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,273,515
<CURRENT-LIABILITIES> 868,208
<BONDS> 0
0
0
<COMMON> 1,089
<OTHER-SE> 947,569
<TOTAL-LIABILITY-AND-EQUITY> 2,273,515
<SALES> 0
<TOTAL-REVENUES> 331,506
<CGS> 0
<TOTAL-COSTS> 468,763
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (131,954)
<INCOME-TAX> (50,143)
<INCOME-CONTINUING> (81,811)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (81,811)
<EPS-BASIC> (.84)
<EPS-DILUTED> (.84)
<FN>
<F1>PP&E BALANCE IS NET OF ACCUMULATED DEPRECIATION AND AMORTIZATION.
</FN>
</TABLE>
