<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement. [ ] Confidential, for use of the
Commission only (as permitted by
Rule 14a-6(e)(2)).
[X] Definitive proxy statement.
[ ] Definitive additional materials.
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12.
H&R BLOCK, INC.
--------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)
Payment of filing fee (check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
--------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
--------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
--------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
--------------------------------------------------------------------------------
(5) Total fee paid:
--------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
--------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
--------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
[H&R BLOCK LOGO], Inc.
4400 Main Street
Kansas City, Missouri 64111
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
to be held September 13, 2000
The annual meeting of shareholders of H&R Block, Inc., a Missouri
corporation (the "Company"), will be held at the Nelson-Atkins Museum of Art,
4525 Oak Street, Kansas City, Missouri, at 9:00 a.m., Kansas City time, on
Wednesday, September 13, 2000. Shareholders attending the meeting are asked to
park on the east side of the parking lot that is north of the Museum and enter
the Museum's east entrance. The meeting will be held for the purpose of
considering and acting upon the following:
1. The election of (a) four Class II directors to serve
three-year terms; (b) one Class I director to serve a two-year
term; and (c) one Class III director to serve a one-year term
(See page 2);
2. Approval of the H&R Block, Inc. 2000 Employee Stock Purchase
Plan (See page 20);
3. Approval of the H&R Block Short-Term Incentive Plan, as
amended (See page 23);
4. Ratification of the appointment of PricewaterhouseCoopers LLP
as the Company's independent auditors for the year ending
April 30, 2001 (See page 27); and
5. The transaction of such other business as may properly come
before the meeting or any adjournments thereof;
all as set forth in the proxy statement accompanying this Notice.
The Board of Directors has fixed the close of business on July 10, 2000
as the record date for determining shareholders of the Company entitled to
notice of and to vote at the meeting.
By Order of the Board of Directors
JAMES H. INGRAHAM
Secretary
Kansas City, Missouri
July 28, 2000
A PROXY FOR THE ANNUAL MEETING IS ENCLOSED HEREWITH. PLEASE DATE AND
SIGN THE PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE. IF
YOU ARE PRESENT AT THE MEETING AND DESIRE TO VOTE IN PERSON, THE PROXY WILL NOT
BE USED. THEREFORE, PLEASE RETURN THE SIGNED PROXY EVEN IF YOU PLAN TO ATTEND
THE MEETING.
<PAGE> 3
PROXY STATEMENT
The accompanying proxy is solicited by the Board of Directors of H&R
Block, Inc. (the "Company"), 4400 Main Street, Kansas City, Missouri 64111, for
use at the annual meeting of shareholders to be held on September 13, 2000, or
at any adjournment of that meeting, for the purposes set forth in the foregoing
notice. All costs of solicitation will be borne by the Company. In addition to
solicitation by mail, proxies may be solicited personally or by telephone or
telegram by regular employees of the Company's subsidiaries. The Company has
retained ChaseMellon Shareholder Services, L.L.C. to assist in the solicitation
of proxies on behalf of the Board of Directors for a fee of $5,500, plus
reimbursement of reasonable expenses. Further, brokers and other custodians,
nominees and fiduciaries will be requested to forward soliciting material to
their principals and the Company will reimburse them for the expense of doing
so.
A shareholder giving a proxy has the power to revoke it at any time
before it is exercised. A proxy may be revoked by filing with the Secretary of
the Company a revoking instrument or a duly- executed proxy bearing a later
date. The powers of the proxy holders will be suspended if the person executing
the proxy is present at the meeting and elects to vote in person. Subject to
such revocation or suspension, shares represented by properly executed proxies
received by the Board of Directors will be counted at the meeting and will be
voted in accordance with the shareholder's directions. If the form of proxy is
signed and returned and the shareholder has made no specifications with respect
to voting matters, the shares will be voted in accordance with the
recommendations of the Board of Directors.
QUORUM, VOTING PROCEDURES
A majority of the outstanding shares entitled to vote at the meeting,
represented in person or by proxy, shall constitute a quorum at such meeting.
Shares represented by a proxy that directs that the shares abstain from voting
or that a vote be withheld on a matter shall be deemed to be represented at the
meeting for quorum purposes. Shares represented by proxy as to which no voting
instructions are given as to matters to be voted upon shall be deemed to be
represented at the meeting for quorum purposes.
Shareholders do not have cumulative voting rights with respect to the
election of directors. For all matters to be voted upon at the meeting, the
affirmative vote of a majority of shares present in person or represented by
proxy, and entitled to vote on the matter, is necessary for election or
approval. For purposes of determining the number of shares present in person or
represented by proxy on a voting matter, all votes cast "for," "against,"
"abstain" or "withhold authority" are included. "Broker non-votes," which occur
when brokers or other nominees are prohibited from exercising discretionary
voting authority for beneficial owners who have not provided voting
instructions, are not counted for the purpose of determining the number of
shares present in person or represented by proxy on a voting matter.
OUTSTANDING VOTING SECURITIES AND DATE OF MAILING
At the close of business on July 10, 2000, the Company's outstanding
voting securities consisted of 92,297,566 shares of Common Stock.
The proxy statement and accompanying form of proxy are first being sent
to shareholders on or about July 28, 2000.
<PAGE> 4
ELECTION OF DIRECTORS
(ITEM 1 ON FORM OF PROXY)
The Company's Articles of Incorporation and Bylaws provide that the
number of directors to constitute the Board of Directors shall be not fewer than
nine nor more than 15, with the exact number to be fixed by a resolution adopted
by the affirmative vote of a majority of the whole Board. Effective September 8,
1999, the Board fixed the number of directors to constitute the Board of
Directors at 11. Effective October 13, 1999, the Board fixed the number of
directors to constitute the Board at 10 following the death of director Marvin
L. Rich. The Articles of Incorporation and Bylaws further provide that the Board
of Directors shall be divided into three classes: Class I, Class II and Class
III, with each class to consist, as nearly as possible, of one-third of the
members of the Board. The term of office of one class of directors shall expire
at each annual meeting of shareholders. Directors elected at an annual meeting
of shareholders to succeed those whose terms expire shall be identified as being
of the same class as those directors they succeed and shall be elected for a
term to expire at the third annual meeting of shareholders after their election.
Nominations of persons for election to the Board of Directors may be
made at a meeting of shareholders only (i) by or at the direction of the Board
of Directors or (ii) by any shareholder of the Company entitled to vote for the
election of directors at the meeting who complies with the notice procedures set
forth in the Company's Bylaws.
At the annual meeting of shareholders to be held on September 13, 2000,
four Class II directors will be elected to hold office for three years and until
their successors are elected and shall have qualified. G. Kenneth Baum, Mark A.
Ernst, Henry F. Frigon, and Roger W. Hale have been nominated for election as
Class II directors of the Company. Such nominees are all currently Class II
directors of the Company. In addition, one Class I director will be elected to
fill the vacancy created by the retirement of Henry W. Bloch, and one Class III
director will be elected for a one-year term to fill the vacancy created by the
retirement of Morton I. Sosland. Each such retirement is effective on September
13, 2000. Thomas M. Bloch and Rayford Wilkins, Jr. have been nominated by the
Board of Directors for election as a Class I and a Class III director,
respectively. The shares voted by the proxies will be voted for the election of
all six nominees unless authority to do so is withheld as provided in the form
of proxy. All nominees have consented to serve if elected and the Board of
Directors has no reason to believe that any of the nominees will be unable to
accept the office of director, but if such contingency should arise, it is the
intention of the proxies to vote for such person or persons as the Board of
Directors may recommend.
The nominees for election as Class I, II and III directors and the
current Class I and Class III directors are listed in alphabetical order in the
following table. Donna R. Ecton and Louis W. Smith serve as Class III directors
with terms scheduled to expire at the annual meeting of shareholders in 2001.
Robert E. Davis and Frank L. Salizzoni serve as Class I directors with terms
scheduled to expire at the annual meeting of shareholders in 2002.
<TABLE>
<CAPTION>
COMMON STOCK
(AND PERCENT SOLE SHARED
NAME, AGE AND PRINCIPAL OF CLASS) VOTING AND VOTING AND
OCCUPATION OR EMPLOYMENT DIRECTOR BENEFICIALLY INVESTMENT INVESTMENT
DURING THE PAST 5 YEARS SINCE OWNED(1) POWERS POWERS
---------------------------- --------- ------------- ---------- ----------
<S> <C> <C> <C> <C>
G. Kenneth Baum (70) 1961 105,133(3) 105,133(3) -0-
Chairman of the Board, (.11%)
George K. Baum Group, Inc.,
investment company(2)
</TABLE>
2
<PAGE> 5
<TABLE>
<CAPTION>
COMMON STOCK
(AND PERCENT SOLE SHARED
NAME, AGE AND PRINCIPAL OF CLASS) VOTING AND VOTING AND
OCCUPATION OR EMPLOYMENT DIRECTOR BENEFICIALLY INVESTMENT INVESTMENT
DURING THE PAST 5 YEARS SINCE OWNED(1) POWERS POWERS
---------------------------- --------- ------------- ---------- ----------
<S> <C> <C> <C> <C>
Henry W. Bloch (77) 1955 2,613,878(3) 2,516,678(3) 97,200
Chairman of the Board (2.76%)
of the Company (4)
Thomas M. Bloch (46) Nominee 121,056 2,056 119,000
Educator (2)(5) (.13%)
Robert E. Davis (69) 1981 27,533(3) 27,333(3) 200
Partner, Axess Corporation, (.03%)
diversified manufacturing (6)
Donna R. Ecton (53) 1993 10,633(3) 10,633(3) -0-
Chairman, President and (.01%)
Chief Executive Officer,
EEI Inc., consultants to
investors and management (2)(7)
Mark A. Ernst (42) 1999 98,000(3) 98,000(3) -0-
President and Chief Operating (.10%)
Officer of the Company (8)
Henry F. Frigon (65) 1992 21,333(3) 13,333(3) 8,000
Chairman and Chief Executive (.02%)
Officer, CARSTAR, Inc., a
national collision repair
service provider (2)(9)
Roger W. Hale (57) 1991 19,552(3) 19,552(3) -0-
Chairman and Chief Executive (.02%)
Officer, LG&E Energy
Corporation, a diversified
energy services company (2)(10)
Frank L. Salizzoni (62) 1988 421,000(3) 413,000(3) 8,000
Chief Executive (.44%)
Officer of the Company (2)(11)
Louis W. Smith (57) 1998 3,000(3) 3,000(3) -0-
President and Chief Executive (0%)
Officer, Ewing Marion
Kauffman Foundation, a
not-for-profit charitable
organization (2)(12)
</TABLE>
3
<PAGE> 6
<TABLE>
<CAPTION>
COMMON STOCK
(AND PERCENT SOLE SHARED
NAME, AGE AND PRINCIPAL OF CLASS) VOTING AND VOTING AND
OCCUPATION OR EMPLOYMENT DIRECTOR BENEFICIALLY INVESTMENT INVESTMENT
DURING THE PAST 5 YEARS SINCE OWNED(1) POWERS POWERS
---------------------------- --------- ------------- ---------- ----------
<S> <C> <C> <C> <C>
Morton I. Sosland (75) 1963 180,758(3) 31,218(3) 149,540
Chairman of the Board, Sosland (.19%)
Companies, Inc., publishers(2)(13)
Rayford Wilkins, Jr. (48)
President, SBC Business Nominee -0- -0- -0-
Communications Services, (0%)
SBC Communications, Inc.,
telecommunications company(14)
</TABLE>
(1) As of June 1, 2000. For purposes of this disclosure, the Securities and
Exchange Commission has defined "beneficial ownership" to include
securities over which the individual has sole or shared investment or
voting power regardless of the economic incidents of ownership. The shares
reported in the table include shares held by certain family members of the
directors or in trusts or custodianships for such members (directly or
through nominees). The reported shares also include 8,000 shares held by a
charitable foundation of which Mr. Salizzoni is an officer; 37,748 shares
held by a family investment limited partnership of which Mr. Sosland is a
limited partner and 95,792 shares held by a corporation of which Mr.
Sosland is an officer and a director. The respective directors have
disclaimed any beneficial ownership of those shares held by or for their
family members, Mr. Salizzoni has disclaimed any beneficial ownership of
those shares held in the name of the charitable foundation of which he is
an officer, and Mr. Sosland has disclaimed any beneficial ownership of
those shares held by the corporation of which he is an officer and a
director.
(2) With respect to other directorships held by the above persons in any
company with a class of securities registered pursuant to Section 12 of
the Securities Exchange Act of 1934 or subject to the requirements of
Section 15(d) of said Act, Mr. Baum is a director of Interstate Bakeries
Corporation and JPS Packaging, Inc.; Mr. Thomas Bloch is a director of
Business Men's Assurance Company of America; Ms. Ecton is a director of
Vencor, Inc.; Mr. Frigon is a director of Buckeye Technologies, Inc.,
Dimon, Inc., Sypress Solutions, Inc. and Corporate Wings, Inc.; Mr. Hale
is a director of Global Telesystems Group, Inc. and LG&E Energy Corp.; Mr.
Salizzoni is a director of Flight Options, Inc. and Orbital Sciences
Corporation; Mr. Smith is a director of Western Resources, Inc. and Sprint
Corporation; and Mr. Sosland is a director of Kansas City Southern
Industries, Inc.
(3) Includes shares which on June 1, 2000 the specified directors had the
right to purchase as of June 30, 2000 pursuant to options granted in
connection with the Company's stock option plans, as follows: Mr. Baum,
22,333 shares; Mr. Henry Bloch, 3,334 shares; Mr. Davis, 18,333 shares;
Ms. Ecton, 10,333 shares; Mr. Ernst, 50,000 shares; Mr. Frigon, 12,333
shares; Mr. Hale, 18,333 shares; Mr. Salizzoni, 402,000 shares; Mr. Smith,
1,000 shares; and Mr. Sosland, 9,667 shares.
(4) Mr. Henry Bloch has announced his retirement as Chairman of the Board and
director of the Company effective September 13, 2000.
(5) Mr. Thomas Bloch has served as an educator, Vice Chairman of University
Academy, Kansas City, Missouri, and President of the Youth Service
Alliance of Greater Kansas City since October 1995.
4
<PAGE> 7
He served as President and Chief Executive Officer of the Company from
August 1992 until August 1995 and as a director of the Company from 1983
until August 1995.
(6) Mr. Davis served as a Managing Director of Axess Corporation, Newark,
Delaware, from March 1991 until August 1997.
(7) Ms. Ecton has served as the Chairman, President and Chief Executive
Officer of EEI Inc., Paradise Valley, Arizona, since July 1998. Ms. Ecton
served as Chief Operating Officer of PETsMART, Inc., Phoenix, Arizona,
from December 1996 until May 1998. She was Chairman of Business Mail
Express, Inc., Malvern, Pennsylvania, from June 1995 until December 1996,
and President and Chief Executive Officer of such corporation from
February 1995 until December 1996.
(8) Mr. Ernst has served as Chief Operating Officer of the Company since
September 1998 and as President of the Company since September 1999. He
served as the Executive Vice President of the Company from September 1998
until September 1999. The Board of Directors of the Company has approved a
succession plan pursuant to which Mr. Ernst will become President and
Chief Executive Officer of the Company effective January 1, 2001. He
served as Senior Vice President, Third Party and International
Distribution, Senior Vice President, WorkPlace Financial Services and Vice
President, Retail Services Group, of American Express Company,
Minneapolis, Minnesota, from July 1997 through June 1998, November 1995
through July 1997, and December 1993 until November 1995, respectively.
(9) Mr. Frigon has served as the Chairman and Chief Executive Officer of
CARSTAR, Inc., Overland Park, Kansas, since July 1998. He served as the
interim Chairman of the Board of CompuServe Corporation, a computer
network and online services company, from June 1996 until October 1996. He
retired in December of 1994 from Hallmark Cards Incorporated, Kansas City,
Missouri, a greeting card company, where he served as Executive Vice
President-Corporate Development & Strategy and Chief Financial Officer.
(10) Mr. Hale has served as Chairman and Chief Executive Officer of LG&E Energy
Corporation, Louisville, Kentucky, since August 1990.
(11) Mr. Salizzoni has served as the Company's Chief Executive Officer since
June 1996. Mr. Salizzoni served as the Company's President from June 1996
until September 1999. The Board of Directors has approved a succession
plan pursuant to which Mr. Salizzoni will serve as Chairman of the Board
and Chief Executive Officer of the Company from September 13, 2000 through
December 31, 2000, and as Chairman of the Board thereafter. He served as
Chairman of the Board of CompuServe Corporation from October 1996 until
January 1998. He served as President and Chief Operating Officer of USAir,
Inc. and USAir Group, Inc., Pittsburgh, Pennsylvania, airline, from March
1994 until April 1996.
(12) Mr. Smith has served as President and Chief Executive Officer of the Ewing
Marion Kauffman Foundation, Kansas City, Missouri, since July 1997. He
served as President and Chief Operating Officer of such Foundation from
July 1995 through June 1997.
(13) Mr. Sosland will retire as a director of the Company effective September
13, 2000.
(14) Mr. Wilkins has served as President of SBC Business Communications
Services, San Antonio, Texas, since October 1999. He served as President
and CEO of Southwestern Bell Telephone Co., San Antonio, Texas, from July
1999 until October 1999. Mr. Wilkins served as President of Business
Communications Services, Pacific Bell Telephone Company, San Ramon,
California, from August 1997 until July 1999. He also served as Vice
President and General Manager of Southwestern Bell Telephone Co., Kansas
City, Missouri, from August 1993 until August 1997.
5
<PAGE> 8
DIRECTORS' MEETINGS, COMPENSATION AND COMMITTEES
The Board of Directors held nine meetings during the 2000 fiscal year,
and 15 meetings of the standing Board committees were held during such fiscal
year (including two joint committee meetings). Each of the incumbent directors
attended at least 75% of the aggregate of (1) the total number of meetings of
the Board held during the time in which he or she served as a director in such
year and (2) the total number of meetings of the Board committees on which he or
she served that were held during the time in which he or she served on such
committees in such year.
Directors, excluding those who are employed by the Company or its
subsidiaries, receive an annual director's fee of $28,000, meeting fees of
$1,700 for each Board meeting attended, committee chairman fees of $1,500 for
each committee meeting that they chair, and meeting fees of $1,100 for each
committee meeting attended in a capacity other than as a chairman.
In accordance with the provisions of the H&R Block Deferred
Compensation Plan for Directors, as amended, eligible non-employee directors may
defer their retainers and/or meeting fees. Deferrals are placed in an account
maintained by the Company for each director and such deferrals are fully vested
at all times. Gains or losses are posted to each account in accordance with the
participant's selection among fixed rate, variable rate and Company Common Stock
investment alternatives. Payment of benefits occurs in cash upon termination of
the participant's services as a director, upon his or her death or, if he or she
first became eligible to participate in the Plan at age 68 or older, upon
attainment of age 75. The account balance is generally paid out in approximately
equal monthly installments over a 10-year period after the occurrence of the
event which results in the benefit distribution.
Pursuant to the H&R Block Stock Plan for Non-Employee Directors,
eligible non-employee directors have the opportunity to receive payment of their
retainers and/or meeting fees on a deferred basis in shares of Common Stock of
the Company. The retainers and/or fees are initially paid in the form of stock
units. The stock units in the directors' accounts are fully vested at all times.
Payment of the stock units must be deferred at least one year and the director
shall select the date of payment, which may be upon termination of service as a
director. The maximum number of shares of Common Stock that may be issued under
the Stock Plan is 300,000 shares.
The 1989 Stock Option Plan for Outside Directors, as amended, provides
for the grant of stock options to directors of the Company who are not employees
of the Company or any of its subsidiaries. The Plan specifies that nonqualified
stock options are to be automatically granted to outside directors of the
Company serving as such on June 30 of each year in which the Plan is in effect.
Each stock option granted to an outside director of the Company pursuant to the
Plan is for 3,000 shares of the Company's Common Stock, without par value, and
the purchase price per share is equal to the last reported sale price for the
Common Stock on the New York Stock Exchange on the date of grant. The maximum
number of shares of Common Stock as to which options may be granted under the
Plan is 300,000 shares.
Options for 3,000 shares each, with an option price of $50 per share,
were granted to Ms. Ecton and to Messrs. Baum, Davis, Frigon, Hale, Smith and
Sosland on June 30, 1999. Subject to certain exceptions, the outstanding stock
options may not be exercised until at least one year after the date of grant,
and then may be exercised only in increments in any one year of up to one-third
of the aggregate number of shares subject to the option. Vesting is accelerated
in the event of death, retirement or removal as a director without cause. All
outstanding options expire ten years after the date of grant.
The Company also offers to its non-employee directors free income tax
return preparation services by H&R Block Premium and free business travel
insurance in connection with Company-related travel.
6
<PAGE> 9
The standing committees of the Board include the Executive Committee,
the Audit Committee, the Compensation Committee, the Finance Committee, the
Nominating Committee and the Strategy & Development Committee. Mr. Henry Bloch,
Chairman of the Board of the Company, and Mr. Salizzoni, Chief Executive Officer
of the Company, are currently nonvoting ex officio members of the Finance
Committee and the Strategy & Development Committee.
The Executive Committee, whose members are Mr. Henry Bloch (Chairman)
and Messrs. Baum, Salizzoni, Smith and Sosland, held no meetings during fiscal
year 2000. The primary function of the Executive Committee is to control and
manage, between meetings of the Board, the property and business of the Company
in all matters in which exclusive authority has not been given to the entire
Board of Directors or in which specific direction has not been given by the
Board.
The Audit Committee, whose members are Ms. Ecton (Chairman) and Messrs.
Davis, Hale and Smith, held five meetings during the 2000 fiscal year. The
functions of the Committee include, among other things, reviewing the Company's
risk management process and adherence to significant internal controls;
reviewing and approving the services and fees of the Company's independent
auditors, including any non-audit services provided by them; making
recommendations to the Board of Directors with respect to the employment,
retention or replacement of such auditors, as well as monitoring the
independence of such auditors; reviewing the scope of the annual audit;
reviewing and discussing with management and the independent auditors the
audited financial statements and accounting principles; reviewing and approving
the Company's internal audit plan and the appointment and replacement of the
Director of Internal Audit; and assisting the Board of Directors in fulfilling
its oversight responsibilities with respect to the Company's financial reporting
process and related matters. A copy of the Audit Committee Charter adopted by
the Committee and approved by the Board of Directors in March 2000 is set forth
in Appendix A to this proxy statement.
The Compensation Committee, whose members are Mr. Davis (Chairman), Ms.
Ecton and Messrs. Smith and Sosland, held two meetings during fiscal year 2000.
The functions of the Committee primarily include reviewing the compensation of
the executive officers of the Company and its subsidiaries, recommending to the
Board of Directors the salaries and any bonus or cash incentive plans for such
executive officers, and administering the Company's long-term incentive
compensation plans. See the Compensation Committee Report on Executive
Compensation under "COMPENSATION OF EXECUTIVE OFFICERS," below.
The Finance Committee, whose members are Messrs. Baum (Chairman), Davis
and Frigon, held four meetings during the 2000 fiscal year, two of which were
joint meetings with the Strategy & Development Committee. The primary duty of
the Finance Committee is to provide advice to management and the Board of
Directors concerning the financial structure of the Company, the funding of the
operations of the Company and its subsidiaries, and the investment of Company
funds.
The Nominating Committee, whose members are Mr. Frigon (Chairman), Mr.
Davis, Ms. Ecton and Mr. Hale, held three meetings during the 2000 fiscal year.
The Nominating Committee is responsible for the initiation of nominations for
election as a director of the Company.
The Strategy & Development Committee, whose members are Messrs. Hale
(Chairman), Baum, Frigon and Sosland, held three meetings during the 2000 fiscal
year, two of which were joint meetings with the Finance Committee. The functions
of the Strategy & Development Committee include, among other things, determining
appropriate areas of business development and expansion for the Company,
developing acquisition and divestiture strategies, and recommending to the Board
of Directors the acquisition and/or divestiture of those businesses which in the
Committee's judgment would best serve the interests of the Company.
7
<PAGE> 10
INFORMATION REGARDING SECURITY HOLDERS
PRINCIPAL SECURITY HOLDERS
The following table sets forth the name, address and share ownership of
each person or organization known to the Company to be the beneficial owner of
more than 5% of the outstanding Common Stock of the Company. Information
provided is based upon Schedule 13G filings.
<TABLE>
<CAPTION>
PERCENT OF
SHARES COMMON
NAME AND ADDRESS BENEFICIALLY STOCK
OF BENEFICIAL OWNER OWNED OUTSTANDING
------------------- ----- -----------
<S> <C> <C>
FMR Corp. 8,496,365 8.64%
82 Devonshire Street
Boston, Massachusetts 02109
</TABLE>
Information as to the number of shares and the percent of common stock
outstanding is as of June 30, 2000 and is furnished in reliance on the Schedule
13G/A of FMR Corp., a parent holding company. The Schedule 13G/A indicates that
such number of shares includes 285,170 shares with sole voting power, 8,496,365
shares with sole dispositive power and no shares with either shared voting power
or shared dispositive power. The relevant subsidiaries of FMR Corp. identified
by FMR Corp. are Fidelity Management & Research Company (a registered investment
adviser reporting beneficial ownership of 7,880,495 shares), Fidelity Management
Trust Company (a bank reporting beneficial ownership of 443,260 shares), and
Fidelity International Limited (foreign-based subsidiaries reporting beneficial
ownership of 172,610 shares).
SECURITY OWNERSHIP OF MANAGEMENT
The following table shows the beneficial ownership of Common Stock of
the Company of those executive officers of the Company listed in the Summary
Compensation Table, under "COMPENSATION OF EXECUTIVE OFFICERS," who are not
directors of the Company, as well as the beneficial ownership of Common Stock of
all directors and executive officers of the Company as a group as of June 1,
2000. Information regarding individual directors is contained in the table
above, under "ELECTION OF DIRECTORS." No directors or executive officers of the
Company own any shares of Preferred Stock of the Company.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY PERCENT OF
NAME OF BENEFICIAL OWNER OWNED CLASS
------------------------ ------------ ----------
<S> <C> <C>
Robert E. Dubrish 46,000(1) .05%
Terrence E. Putney 4,950(1) .01%
Thomas L. Zimmerman 117,200(1) .12%
All directors and officers 3,991,397(2)(3)(4) 4.18%
as a group (31 persons) (4)
</TABLE>
(1) Includes shares which the specified officers had the right to purchase as
of June 30, 2000 pursuant to options granted in connection with the
Company's 1984 Long-Term Executive Compensation Plan or its 1993 Long-Term
Executive Compensation Plan, as follows: Mr. Dubrish, 46,000 shares; Mr.
Putney, 4,000 shares; and Mr. Zimmerman, 115,000 shares.
8
<PAGE> 11
(2) Includes shares held by certain family members of such directors and
officers or in trusts or custodianships for such members (directly or
through nominees). Also includes 969,499 shares which such directors and
officers have the right to purchase as of June 30, 2000 pursuant to options
granted in connection with the Company's stock option plans.
(3) Includes 3,727,857 shares held with sole voting and investment powers and
263,540 shares held with shared voting and investment powers.
(4) Includes persons, and shares beneficially owned by such persons, who served
as executive officers for all or a portion of fiscal 2000.
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table sets forth for the fiscal year ended April 30, 2000
and for the two previous fiscal years, the annual, long-term and other
compensation paid to the Company's Chief Executive Officer serving as such at
the end of such year and to each of the four highest paid executive officers of
the Company (other than the Chief Executive Officer) who was serving as an
executive officer of the Company at the end of such year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
-------------------------------
Annual Compensation Awards Pay-
outs
----------------------------------------------------------------------------
Name and Principal Fiscal Salary Bonus ($) Other Annual Restricted Securities LTIP All Other
Position Year ($) Compensation Stock Underlying Pay- Compensa-
($) Award(s) Options outs tion($)
($) (#)(1) ($)
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Frank L. Salizzoni 2000 645,833 158,392 3,021(3) 0 70,000 0 82,096(4)
Chief Executive Officer(2) 1999 566,667 575,000 0 0 75,000 0 99,635(4)
1998 565,833 469,775 10,064(3) 0 90,000 0 98,025(4)
--------------------------------------------------------------------------------------------------------------------
Mark A. Ernst 2000 475,909 240,287 27 0 60,000 0 21,478(8)
President and Chief 1999 266,667 351,840 129,919(6) 1,417,500(7) 150,000 0 404(8)
Operating Officer(5) 1998 0 0 0 0 0 0 0
--------------------------------------------------------------------------------------------------------------------
Robert E. Dubrish 2000 307,339 220,875 0 0 24,000 0 24,086(10)
President and Chief Exec- 1999 291,445 264,600 0 0 24,000 0 29,542(10)
utive Officer, Option One 1998 242,070 240,800 0 0 30,000 0 5,321(10)
Mortgage Corporation (9)
--------------------------------------------------------------------------------------------------------------------
Terrence E. Putney 2000 223,813 214,490 0 0 5,000 0 12,349(12)
Vice President, HRB 1999 205,500 95,114 0 0 6,000 0 1,713(12)
Business Services, Inc.(11) 1998 0 0 0 0 0 0 0
--------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 12
<TABLE>
<CAPTION>
Long-Term Compensation
-------------------------------
Annual Compensation Awards Pay-
outs
------------------------------------------------------------------------------------------
Fiscal Salary Bonus ($) Other Annual Restricted Securities LTIP All Other
Year ($) Compensation Stock Underlying Pay- Compensation
($) Award(s) Options outs ($)
(#)(1)
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Thomas L. Zimmerman 2000 293,333 70,618 27 0 25,000 0 46,969(13)
President, H&R Block Tax 1999 281,667 188,214 40 0 36,000 0 22,746(13)
Services, Inc. 1998 266,667 157,988 40 0 45,000 0 15,348(13)
---------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTES TO SUMMARY COMPENSATION TABLE:
(1) Stock options were granted pursuant to the Company's 1993 Long-Term
Executive Compensation Plan.
(2) Mr. Salizzoni served as President and Chief Executive Officer of the
Company during fiscal year 2000 until September 8, 1999 and as Chief
Executive Officer thereafter.
(3) For fiscal year 2000, this figure includes payment by the Company of $3,021
for fees incurred by Mr. Salizzoni for personal income tax preparation, as
well as amounts reimbursed for the payment of taxes incurred by him in
connection with the Company's payment of such fees. For fiscal year 1998,
this figure includes payments by the Company of $9,289 for fees incurred by
Mr. Salizzoni for personal income tax return preparation and tax
consultation services, as well as amounts reimbursed for the payment of
taxes incurred by him in connection with the Company's payment of such
fees, and the payment of $775 by the Company for a doctor's physical exam
of Mr. Salizzoni.
(4) Includes Company matching contributions under the Company's deferred
compensation plan for executives ("DCP") in fiscal years 2000, 1999 and
1998 of $48,369, $78,930 and $90,417, respectively; the $765 (2000), $1,985
(1999), and $2,137 (1998) dollar value of "above-market" interest earned on
deferred compensation under the DCP; Company matching contributions under
the Company's 401(k) savings plan in fiscal years 2000, 1999 and 1998 of
$2,400, $1,330 and $1,844, respectively; contributions under the Company's
profit-sharing plan in fiscal years 2000 and 1999 of $10,400 and $9,600,
respectively; $5,775 and $4,689 in insurance premiums paid by the Company
in fiscal years 2000 and 1999, respectively, with respect to term life
insurance maintained for the benefit of Mr. Salizzoni; and $14,387 (2000),
$3,101 (1999) and $3,627 (1998) economic value of the death benefit
provided by the Company's Executive Survivor Plan ("ESP"). The imputed
income reported from the ESP represents the portion of the premium paid by
the Company pursuant to the ESP that is attributable to term life insurance
coverage for the executive officer. The ESP provides only an insurance
benefit with no cash compensation element to the executive officer.
(5) Mr. Ernst's employment by a subsidiary of the Company commenced in
September 1998. He was elected President of the Company effective September
8, 1999 and has served as Chief Operating Officer of the Company since
September 1998.
(6) Includes the $129,901 payment by the Company of certain relocation-related
expenses and reimbursement in such year for the payment of taxes incurred
in connection with the payment of such expenses.
(7) Represents the dollar value of 36,000 shares of restricted Common Stock of
the Company granted to Mr. Ernst on September 1, 1998, calculated by
multiplying $39.375, the fair market value of a share
10
<PAGE> 13
of Common Stock on the date of the award, by the number of shares awarded.
The shares vest in one-third annual increments beginning one year after the
grant date. As of April 30, 2000, Mr. Ernst's restricted shares, excluding
the 12,000 shares that vested on September 1, 1999, had a fair market value
of $986,250. Mr. Ernst earned dividends totaling $28,800 (including
dividends on the 12,000 shares that vested on September 1, 1999) on the
restricted stock during fiscal year 2000.
(8) For fiscal year 2000, this figure includes the Company's matching
contributions under the Company's DCP of $16,527, the Company's matching
contributions under the 401(k) savings plan of $1,549, $567 in insurance
premiums paid by the Company with respect to term life insurance maintained
for the benefit of Mr. Ernst, and the $2,835 economic value of the death
benefit provided by the Company's ESP. For fiscal year 1999, this figure
includes the Company's matching contributions under the Company's 401(k)
savings plan of $225 and $179 in insurance premiums paid by the Company
with respect to term life insurance maintained for the benefit of Mr.
Ernst.
(9) Mr. Dubrish commenced employment with a subsidiary of the Company on June
17, 1997, the date on which the Company acquired Option One Mortgage
Corporation.
(10) This figure includes Company matching contributions under the DCP of
$18,690 (2000), $24,156 (1999) and $2,357 (1998); Company matching
contributions under the Option One 401(k) savings plan in fiscal years
2000, 1999 and 1998 of $4,178, $4,800 and $2,823, respectively; and the
$1,218 (2000), $586 (1999) and $141 (1998) economic value of the death
benefit provided by the Company's ESP.
(11) Mr. Putney commenced employment with a subsidiary of the Company in May
1998. He served as President of HRB Business Services, Inc. from May 1998
through June 2000.
(12) Includes Company matching contributions under the Company's 401(k) savings
plan in fiscal years 2000 and 1999 of $1,197 and $1,523, respectively;
Company matching contributions under the DCP in fiscal year 2000 of $9,848;
$420 in insurance premiums paid by the Company in fiscal year 2000 with
respect to term life insurance maintained for the benefit of Mr. Putney;
and the $884 (2000) and $190 (1999) economic value of the death benefit
provided by the Company's ESP.
(13) Includes contributions under the Company's profit-sharing plan in fiscal
years 2000, 1999 and 1998 of $10,400, $9,600 and $7,500, respectively;
Company matching contributions under the Company's 401(k) savings plan in
each of fiscal years 2000, 1999 and 1998 of $2,400, $1,310 and $2,722,
respectively; $620 (2000) and $522 (1999) in insurance premiums paid by the
Company with respect to term life insurance maintained for the benefit of
Mr. Zimmerman; Company matching contributions under the DCP of $30,097 in
fiscal 2000 and $5,938 in fiscal 1999; $2,293 (2000), $4,760 (1999) and
$5,126 (1998) dollar value of "above-market" interest earned on deferred
compensation under the DCP; and the $1,159 (2000) and $617 (1999) economic
value of the death benefit provided by the Company's ESP in fiscal year
2000.
STOCK OPTION GRANT TABLE
The following table summarizes options to purchase the Company's Common
Stock granted during the fiscal year ended April 30, 2000 to the executive
officers named in the Summary Compensation Table, above (the "Named Officers"):
11
<PAGE> 14
STOCK OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Name Individual Grants Potential Realizable
Value at Assumed Annual
Rates of Stock Price
Appreciation for Option
Term(1)
------------------------------------------------------------------------------
Number of % of Total Exercise Expiration 5% ($) 10% ($)
Securities Options Price Date
Underlying Granted to ($/Sh)
Options Employees
Granted in Fiscal
(#)(2) Year
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Frank L. Salizzoni............... 70,000 1.38% $50.00 6/30/09 $2,486,188 $6,485,908
Mark A. Ernst.................... 60,000 1.19% $50.00 6/30/09 $2,131,018 $5,559,350
Robert E. Dubrish................ 24,000 0.47% $50.00 6/30/09 $ 852,407 $2,223,740
Terrence E. Putney............... 5,000 0.10% $50.00 6/30/09 $ 177,585 $ 463,279
Thomas L. Zimmerman.............. 25,000 0.49% $50.00 6/30/09 $ 887,924 $2,316,396
</TABLE>
NOTES:
(1) The amounts shown as potential realizable values on the options identified
in the table are based on arbitrarily assumed annualized rates of
appreciation in the price of the Company's Common Stock of five percent and
ten percent over the term of the options, as set forth in the rules of the
Securities and Exchange Commission relating to proxy disclosure. Actual
gains, if any, on stock option exercises are dependent on the future
performance of the Common Stock. There can be no assurance that the
potential realizable values reflected in this table will be achieved.
(2) Stock option grants consisted of nonqualified stock options, incentive
stock options or a combination of the two types of options. No stock
appreciation rights were granted during fiscal year 2000. Options were
granted under the 1993 Long-Term Executive Compensation Plan. The exercise
price for each option is the fair market value of a share of Common Stock
on the date of grant. Options granted to the Named Officers become
exercisable three years after the date of grant, at which time they are
exercisable on a cumulative basis at maximum annual rates of 40%, 30% and
30% of the total number of shares subject to the option. The stock options
become fully exercisable (a) at any time after the Named Officer reaches
the age of 65, retires, and more than one year has elapsed since the date
of grant, or (b) upon a change in control of the Company not less than six
months after the date of grant. The Named Officer must be employed by the
Company or one of its subsidiary corporations at the time of exercise,
except that the exercise of the options may take place for limited time
periods after the termination of employment in the event of death,
retirement, disability or termination without cause. All options expire ten
years after the date of grant.
OPTION EXERCISES AND FISCAL YEAR END VALUES
The following table summarizes the value realized on the exercise of
options during the fiscal year ended April 30, 2000 and presents the value of
unexercised options as of such date for the Named Officers. The value of
unexercised in-the-money options at fiscal year end is calculated by determining
the difference between the fair market value of the securities underlying the
options at the fiscal year-end and the exercise price of the options multiplied
by the number of shares underlying such options.
12
<PAGE> 15
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options at
Options at FY-End (#) FY-End ($)
Name Shares Value Exercisable (E)/ Exercisable (E)/
Acquired on Realized ($) Unexercisable (U) Unexercisable (U)
Exercise (#)
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Frank L. Salizzoni 8,000 224,990 402,000(E) 4,486,250(E)
95,000(U) 0(U)
-----------------------------------------------------------------------------------------------------------------
Mark A. Ernst -0- -0- 50,000(E) 84,375(E)
160,000(U) 0(U)
-----------------------------------------------------------------------------------------------------------------
Robert E. Dubrish -0- -0- 46,000(E) 286,875(E)
32,000(U) 0(U)
-----------------------------------------------------------------------------------------------------------------
Terrence E. Putney -0- -0- 4,000(E) 0(E)
7,000(U) 0(U)
-----------------------------------------------------------------------------------------------------------------
Thomas L. Zimmerman 1,200 40,875 115,000(E) 808,688(E)
37,000(U) 0(U)
-----------------------------------------------------------------------------------------------------------------
</TABLE>
EMPLOYMENT AGREEMENT AND CHANGE-IN-CONTROL ARRANGEMENTS
Frank L. Salizzoni is subject to an Employment Agreement dated October
11, 1996 with HRB Management, Inc., an indirect subsidiary of the Company, which
provides for an annual renewal unless notice of non-renewal is delivered within
45 days prior to the anniversary date. The Agreement provides for a base salary
of $500,000 for the first year and for additional salary not to exceed $150,000
on an annual basis. After the first year, base salary, any additional salary and
incentive bonus compensation are to be determined by the Compensation Committee.
The Agreement provides that it may be terminated by the Company for "cause" and
by Mr. Salizzoni for "good reason," in each case as defined in the Agreement.
"Good reason" is defined to include a change in control. If the Agreement is
terminated by the Company without "cause" or by Mr. Salizzoni for "good reason,"
the Company is obligated to continue to pay Mr. Salizzoni's salary and bonuses
and provide all other benefits for a period of two years following such
termination. In addition, all outstanding stock options are to vest and be
exercisable for such two-year period.
Mark A. Ernst is subject to an Employment Agreement with HRB
Management, Inc., an indirect subsidiary of the Company, dated July 16, 1998,
whereby effective September 1, 1998 he was employed as the Executive Vice
President and Chief Operating Officer of the Company. The Agreement provides for
a base salary of $400,000 for his first year of employment and for participation
in the Company's 1999 fiscal year Short-Term Incentive Plan, with a target award
of $240,000 and any actual award payment as prorated by the number of months he
is actually employed by the Company. After the first year, base salary, any
additional salary and incentive bonus compensation are to be determined by the
Compensation Committee. The Agreement provides that it may be terminated by
either party upon 45 days' prior written notice, by the Company for "cause" and
by Mr. Ernst for "good reason," in each case as defined in the Agreement. "Good
reason" is defined to include a substantial reduction in Mr. Ernst's duties, the
failure of the Company to elect him as President and Chief Executive Officer by
a specified date and a change in control. If the Agreement is terminated by the
Company without "cause" or by Mr. Ernst for "good reason," the Company is
obligated to continue to pay Mr. Ernst's salary and bonuses and provide all
other benefits for a period of two years following such termination. In
addition, all outstanding stock options become fully vested and are exercisable
for the three-month period following termination, and any restrictions upon
stock held by Mr. Ernst are lifted and such stock becomes fully
13
<PAGE> 16
vested upon the date of termination. The Agreement was amended effective July 1,
2000, to modify one of the grounds upon which Mr. Ernst may terminate his
employment for "good reason." The amendment changed the date upon which he must
be elected President and Chief Executive Officer of the Company from September
1, 1999 to January 1, 2001.
Terrence E. Putney is subject to an Employment Agreement dated May 15,
1998 with DMJK Business Services, Inc., a wholly owned subsidiary of HRB
Business Services, Inc. and an indirect subsidiary of the Company. The Agreement
provides for a base salary of $191,157 for the first year. After the first year,
the DMJK Compensation Committee will determine any base salary and any bonus
compensation. The Agreement expires on May 15, 2003, if not sooner terminated
with or without "cause" (as defined in the Agreement) by DMJK or Mr. Putney,
upon the death or disability of Mr. Putney or upon termination of the
Management Services Agreement dated May 15, 1998, by and among DMJK, Donnelly
Meiners Jordan Kline P.C. ("Donnelly P.C.") and each of the shareholders of
Donnelly P.C. Upon expiration of the initial five-year term, the Agreement
continues under the same terms from year to year subject to termination with or
without "cause" upon 90 days' written notice by either party. If the Agreement
is terminated, DMJK is obligated to pay Mr. Putney any compensation due for any
periods up to and through the date of termination.
Thomas L. Zimmerman is subject to an Executive's Agreement dated
January 20, 1998 and fully executed on November 1, 1999 with H&R Block Tax
Services, Inc., an indirect subsidiary of the Company. The Agreement provides
for a base salary of $275,000 for the first year and also provides that Mr.
Zimmerman is eligible to participate in the Company's Short-Term Incentive Plan.
After the first year, base salary, any additional salary and incentive bonus
compensation are to be determined by the Compensation Committee. The Agreement
provides that it may be terminated without notice in the event of any of the
following: misconduct by Mr. Zimmerman that interferes with or prejudices the
proper conduct of the Company's business or which may result in harm to the
Company or any of its affiliates; his disobedience, insubordination or failure
to discharge his duties; his breach of the confidentiality provisions or
restrictive covenants in the Agreement; his suspension by the Internal Revenue
Service from participation in the Electronic Filing Program; or the inability of
the Company to participate in any activity subject to governmental regulation
due to any action or inaction on the part of Mr. Zimmerman. If the Agreement is
terminated pursuant to any of the aforementioned circumstances, the Company is
obligated to pay Mr. Zimmerman severance pay in the amount of one month's salary
for each year of service with the Company or an affiliate of the Company up to a
maximum of one year's salary.
Stock option agreements entered into on or after June 30, 1996 between
the Company and the recipients of incremental stock options granted pursuant to
the 1993 Long-Term Executive Compensation Plan contain provisions that
accelerate the vesting of options held more than six months in the event of
certain changes in control. For purposes of such agreements, changes in control
include (i) the purchase or other acquisition by a person, entity or group of
persons of beneficial ownership of 20% or more of the Company's voting
securities, (ii) the turnover of more than a majority of the directors on the
Board of Directors as a result of a proxy contest or series of contests, or
(iii) approval by the Company's shareholders of (A) a reorganization or
consolidation such that the shareholders immediately prior to the reorganization
or consolidation do not, immediately after such reorganization or consolidation,
own more than 50% of the voting securities of the reorganized or consolidated
organization, or (B) a liquidation or dissolution of the Company, or (C) the
sale of all or substantially all of the assets of the Company. Agreements
entered into prior to January 31, 1998 expressly stated that any sale,
distribution or other disposition by the Company of all or substantially all of
the common stock or assets of CompuServe Corporation held by the Company would
not constitute a change in control.
14
<PAGE> 17
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The following non-employee directors serve on the Compensation
Committee of the Company's Board of Directors: Robert E. Davis, Donna R. Ecton,
Louis W. Smith and Morton I. Sosland. No directors on the Compensation Committee
(a) are or have been officers or employees of the Company or any of its
subsidiaries, or (b) had any relationships requiring disclosure in the proxy
statement.
PERFORMANCE GRAPH
The graph below sets forth for the five-year period ended April 30,
2000, the cumulative total shareholder return to the Company's shareholders, as
well as the cumulative total return of the Standard & Poor's 500 Stock Index and
the cumulative total return of the Standard & Poor's Service (Commercial &
Consumer) Index, the published industry index to which the Company is currently
assigned by Standard & Poor's. The performance graph assumes that $100 was
invested at the market close on April 30, 1995 and that dividends were
reinvested. The data for the graph was furnished by Research Data Group, Inc.
The Company has been advised that the Standard & Poor's Service (Commercial &
Consumer) Group consists of five corporations, including the Company.
TOTAL RETURN TO SHAREHOLDERS
[LINE GRAPH]
<TABLE>
<CAPTION>
Base
Period Cumulative Total Return
-------- -------------------------------------------------------
COMPANY/INDEX April-95 April-96 April-97 April-98 April-99 April-00
---------------------------------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
H & R BLOCK, INC. 100.00 86.51 81.90 116.58 127.36 113.26
S & P 5OO 100.00 130.22 162.95 229.86 280.02 308.39
S & P SERVICES (COMMERCIAL & CONSUMER) 100.00 125.73 128.74 190.18 146.21 103.22
</TABLE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16 of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers to file reports of ownership and
changes in ownership of the Company's Common Stock. To the best of the Company's
knowledge, all required reports were filed on time and all transactions by the
Company's directors and executive officers were reported on time.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
COMPENSATION PHILOSOPHY
The Company continues to be strongly committed to maximizing
shareholder value through consistent growth and profitability. Superior
performance by the executive officers and management team
15
<PAGE> 18
of the Company and its subsidiary corporations is an essential element to
reaching that goal. As such, it is the philosophy of the Company to ensure that
executive compensation is directly linked to sustained improvements in corporate
performance and increases in shareholder value as measured by the Company's
stock price and dividend history. It is the Compensation Committee's
responsibility to review the Company's executive compensation program and
policies each year and to recommend to the non-employee members of the Board of
Directors the compensation of the Company's executive officers. The objectives
that serve as guidelines for the Compensation Committee in connection with
compensation decisions are as follows:
- Provide a competitive total compensation program that enables the
Company and its subsidiary corporations to attract and retain the key
executives needed to accomplish the Company's goals.
- Integrate executive compensation programs with the Company's annual and
long-term business objectives and focus executive behavior on the
fulfillment of those objectives.
- Provide variable compensation opportunities that are directly related
to the performance of the Company and that align executive compensation
with the interests of the Company's shareholders.
COMPENSATION PROGRAM
The Company's executive compensation program has been designed to
ensure that pay levels and incentive opportunities for executives are
competitive and reflect the performance of both the individual executive and the
Company. In designing compensation programs for executives and determining
executive officer salaries, the Committee takes into consideration information
provided by compensation consultants and surveys with respect to compensation
paid to executives holding positions with similar responsibilities in
organizations of comparable size. In connection with the determination of fiscal
year 2000 compensation, a thorough compensation study was conducted by the
Company with an outside consultant. The resulting components of the compensation
program for executives are described below.
BASE SALARY. Base salaries are determined by reference to an
individual's salary grade and corresponding salary range. For fiscal year 2000
salaries, salary grade levels were determined as a part of the compensation
study completed at the beginning of such fiscal year by comparing jobs to market
pay practices, where applicable, as well as an assessment of the internal worth
of the job. The primary factor considered in determining the appropriate salary
for fiscal year 2000 within a particular salary range was the individual
performance of the executive. The individual salaries of executive officers are
reviewed annually by the Committee.
SHORT-TERM INCENTIVE COMPENSATION. The Company's short-term incentive
program consists of two parts, objective incentive compensation, usually under
the H&R Block Short-Term Incentive Plan, based upon objective, performance-based
criteria, and discretionary incentive compensation. The heavier emphasis (80% of
targeted incentive compensation in most cases) is placed upon the objective,
performance-based incentive compensation.
Objective incentive compensation specifically relates executive pay to
Company performance. Cash bonuses under such a program provide financial rewards
solely for the achievement of substantive business results. Under the Short-Term
Incentive Plan and other short-term incentive programs, the Committee
establishes performance goals for the Company and the subsidiaries and divisions
thereof, as well as competitive target bonus awards for the participants
(usually a percentage of salary). The Committee specifies the performance goals
applicable to each participant and the portion of the target
16
<PAGE> 19
award to which each performance goal applies. The compensation study found that
target bonus awards under the Company's short-term incentive programs were in
line with market average, and, in some cases, slightly higher than market
average. As such, most employees did not see a change in the percentage used to
calculate the target bonus award for fiscal year 2000.
Bonuses under objective incentive programs are paid after the end of a
fiscal year only if the Company (or a subsidiary or division of the Company) has
met the performance goal, or performance goals, established by the Compensation
Committee for such fiscal year and only if the executive remained in the employ
of the Company or one of its subsidiary corporations at the end of such year.
The Committee must first review and approve the payout of each bonus for an
executive officer. One factor upon which bonus compensation for executive
officers was dependent for fiscal year 2000 under the objective short-term
incentive program was the degree to which targeted year-over-year growth in
pretax profits was attained by the Company on a consolidated basis (at least 20%
of each executive officer's targeted short-term incentive compensation). For
some executive officers, year-over-year growth in pretax earnings by an
applicable operating subsidiary of the Company was a performance criterion. A
portion of short-term incentive compensation for some executive officers was
also dependent on the attainment of year-over-year revenue goals of the Company
or a subsidiary of the Company. Other objective criteria for some executive
officers for fiscal year 2000 included return on equity and return on capital.
Under the H&R Block Short-Term Incentive Plan and other short-term
incentive programs approved by the Compensation Committee, participants can earn
more than the target award (up to 200%) if actual results exceed the performance
targets.
The Compensation Committee and the Board of Directors have approved,
subject to shareholder approval at the annual meeting of shareholders on
September 13, 2000, proposed amendments to the H&R Block Short-Term Incentive
Plan that would provide additional flexibility to the Compensation Committee
with respect to objective performance targets and schedules to be used in
determining actual incentive payouts applicable to different criteria, as well
as exceptions to the rule requiring employment through the end of the
performance period in the case of death, disability or retirement during such
period. See "APPROVAL OF AMENDED H&R BLOCK SHORT-TERM INCENTIVE PLAN," below.
As was the case for fiscal year 1999, for fiscal year 2000, the
Compensation Committee determined that a portion of overall short-term incentive
compensation should be based upon discretionary criteria. As such, executive
officers were eligible to receive discretionary incentive compensation outside
of the objective short-term incentive program. For most executive officers, 20%
of the executive's overall targeted short-term incentive compensation related to
the performance of the executive's department or business unit (10%) and to
individual performance (10%), as assessed by senior management of the Company
and approved by the Committee. For some executive officers involved in new
strategic initiatives, discretionary criteria constituted 80% of overall
short-term incentive criteria approved by the Committee. Actual incentive
payouts under the discretionary plan could be from 0% to 200% of the target
award.
DEFERRED COMPENSATION. The Company offers to its executive officers and
to key employees of its subsidiaries a deferred compensation plan designed to
enhance the participants' financial security upon retirement. Subject to annual
deferral limits, the plan offers participants the opportunity to defer an
aggregate of $1 million of base salary during the time of his or her
participation in the plan. On an annual basis, the Company contributes $.25 for
each dollar of salary or bonus deferred (up to a maximum of 25% of salary and
25% of bonus in that year) for executives who became eligible to participate in
the plan prior to August 1, 1999 (with no Company match for newly eligible
participants) and vesting in such
17
<PAGE> 20
Company contributions is based on the length of employment with the Company
following the commencement of participation in the plan. Gains or losses are
posted to a participant's account in accordance with his or her selection of
various fixed rate, variable rate and Company stock investment alternatives. The
plan is unfunded and benefits are paid upon termination of employment, except in
cases of disability or hardship.
LONG-TERM INCENTIVE COMPENSATION. The Company encourages stock
ownership by executive officers of the Company, but has not established target
levels for equity holdings by executives. Long-term incentive awards which are
tied to the Company's Common Stock, such as stock options, are designed to
encourage stock ownership. Stock options provide incentive to executives by
giving them a strong economic interest in maximizing stock price appreciation,
thereby better aligning their interests with those of the Company's
shareholders. Under the Company's 1993 Long-Term Executive Compensation Plan,
option exercise prices are set at 100% of the fair market value of the stock on
the date of grant and the options generally expire after ten years. Options
granted to executive officers in fiscal year 2000 provide that they are not
exercisable until three years after the date of grant (as opposed to one year in
prior fiscal years), at which time they become exercisable over a three-year
period on a cumulative basis at the maximum annual rates of 40%, 30% and 30% of
the total number of shares subject to the option. The Committee believes that
awards containing such vesting provisions encourage executive officers to remain
with the Company over a period of years and to build long-term shareholder
value. The grant of options to executive officers of the Company is
discretionary with the Compensation Committee and the Committee has generally
awarded stock options to executive officers on an annual basis. The number of
shares subject to any stock option grant is determined by an analysis of the
executive's level of responsibility and prior year's performance. The
compensation study completed at the beginning of fiscal year 2000 indicated that
the Company's practice in recent years regarding the use of stock options was
above the market. As a result of this factor, as well as the increase in the
number of executives and key employees in recent years through acquisitions and
otherwise, the Committee in most cases reduced the number of shares subject to
each incumbent executive officer's stock option granted in fiscal year 2000
(compared to the prior year). The Compensation Committee believes that stock
options have been effective in attracting, retaining and rewarding executives
and key employees of the Company and its subsidiary corporations over the years.
In a few cases in fiscal year 2000, the Compensation Committee awarded
to executive officers as an incentive to join the Company shares of restricted
Common Stock pursuant to the 1993 Long-Term Executive Compensation Plan. The
restricted shares are subject to forfeiture and may not be transferred by the
executive until certain time restrictions lapse. In each case, the restricted
shares agreement between the Company and the executive officer provides that
one-third of the restricted shares vest on each of the first three anniversaries
following the employment commencement date. In addition, each agreement provides
that, prior to the time such restricted shares vest, (i) such restricted shares
are nontransferable, and (ii) the officer is entitled to receive any cash
dividends payable with respect to unvested restricted shares and vote such
unvested restricted shares at any meeting of shareholders of the Company.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
The salary, short-term incentive compensation and long-term incentive
compensation of the Chief Executive Officer are determined by the Committee
substantially in conformity with the policies described above for all other
executives of the Company.
Frank L. Salizzoni became President and Chief Executive Officer of
the Company in June 1996. With the election of Mark A. Ernst as President of the
Company effective September 8, 1999, Mr. Salizzoni's title changed to Chief
Executive Officer as of that date. His initial compensation in
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<PAGE> 21
1996 was determined by negotiation with Mr. Salizzoni and he is a party to an
employment agreement with a subsidiary of the Company as a result of such
negotiations. As a part of its annual review of executive compensation in June
1999, Mr. Salizzoni's annual base salary was increased from $575,000 to
$660,000, effective July 1, 1999, in recognition of his and the Company's
performance for the fiscal year ended April 30, 1999.
As Chief Executive Officer of the Company, Mr. Salizzoni has responsibility
for the general and active management of the business of the Company and its
subsidiaries. Therefore, 100% of his target award for fiscal year 2000 under the
objective short-term incentive program ($323,400) related to the Company's
achievement of its targeted year-over-year growth in consolidated fiscal year
pretax profits. In accordance with the schedule for determining the incentive
payout for the consolidated pretax profit criterion utilized for all executive
officers, Mr. Salizzoni was eligible for an incentive payout in the range of 0%
to 200% of target, based upon year-over-year profit growth of 7% to 30% (with
the incentive payout at the target award upon 15% growth). Based upon the
results achieved by the Company, Mr. Salizzoni was entitled to bonus
compensation of $19,792 (6.12% of target) under the short-term incentive
program.
Mr. Salizzoni was eligible to receive discretionary incentive compensation
for fiscal year 2000 in addition to compensation under the objective program. A
target award of $138,600 was established for Mr. Salizzoni for the discretionary
bonus and the actual cash payout was to be an amount between 0% and 200% of the
target award, with the determination of such payout to be made by the
Compensation Committee at its sole discretion, based upon its assessment of the
individual performance of Mr. Salizzoni during fiscal year 2000. Accordingly,
the Compensation Committee determined that Mr. Salizzoni's performance during
fiscal year 2000 merited a payout of $138,600 (100% of target). The Committee's
determination was based in part on Mr. Salizzoni's efforts in the acquisitions
and integration of OLDE Financial Corporation and RSM McGladrey, Inc. and the
Company's successes during the fiscal year in moving toward its strategic goal
of becoming the preferred tax and financial partner for its customers. The
Committee did not award any amount in excess of the target discretionary award
because consolidated earnings for the fiscal year fell short of the Company's
expectations.
Mr. Salizzoni was granted an option to purchase 70,000 shares of stock at
an option price of $50 per share, the last quoted market price for the Company's
Common Stock on June 30, 1999, the date of grant. Such option has a term of ten
years and vests in 40%, 30% and 30% annual increments beginning on the third
anniversary of the date of grant. Mr. Salizzoni had been granted a stock option
to purchase 75,000 shares of stock on the previous June 30. The reduction in the
number of shares subject to his fiscal year 2000 option from the prior year was
consistent with reductions to option grants for most executive officers for such
year.
TAX CONSIDERATIONS
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), and Treasury Regulations relating thereto limit to $1 million the
Company's federal income tax deduction for compensation paid to any one
executive officer named in the Summary Compensation Table of the Company's proxy
statement, subject to certain transition rules and exceptions for specified
types of compensation.
To date, Code Section 162(m) has not limited the deductibility of the
Company's compensation of its executive officers under its current compensation
policies. The Committee believes that it is in the Company's and shareholders'
best interests to maximize tax deductibility only when practicable and
consistent with the Committee's overall compensation philosophy, the needs of
the Company and shareholder interests.
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<PAGE> 22
The Committee believes the 1993 Long-Term Executive Compensation Plan and
the H&R Block Short-Term Incentive Plan satisfy the requirements for exemption
under Section 162(m). In order to enable more objective, performance-based
short-term incentive compensation to be exempt under Section 162(m), the
Committee and the Board of Directors have approved amendments to the Short-Term
Incentive Plan, subject to shareholder approval, that will allow greater
flexibility to the Committee under the Plan during the current and future years.
COMPENSATION COMMITTEE
Robert E. Davis, Chairman
Donna R. Ecton
Louis W. Smith
Morton I. Sosland
APPROVAL OF THE H&R BLOCK, INC. 2000 EMPLOYEE STOCK PURCHASE PLAN
(ITEM 2 ON FORM OF PROXY)
INTRODUCTION
On June 28, 2000, the Board of Directors adopted, subject to approval by
the Company's shareholders, the H&R Block, Inc. 2000 Employee Stock Purchase
Plan (the "Plan"). The Plan provides a means for employees of subsidiaries of
the Company that are designated by the Company to participate in the Plan
("Participating Subsidiaries") to authorize payroll deductions on a voluntary
basis to be used for the periodic purchase of the Company's common stock
("Common Stock") at a 10% discount to its fair market value. The Plan is
intended to qualify as an "employee stock purchase plan" under Section 423 of
the Internal Revenue Code of 1986, as amended (the "Code").
The Board of Directors believes that the Plan will encourage broader stock
ownership by employees of Participating Subsidiaries and thereby provide an
incentive for employees to contribute to the continued profitability and success
of the Company. The Board believes that employees' continuing economic interest,
as stockholders, in the performance and success of the Company will enhance the
entrepreneurial spirit of the Company, which may greatly contribute to the
long-term growth and profitability of the Company. The Plan also is intended to
benefit the Company as a tool for recruiting and retaining high quality
employees.
MATERIAL FEATURES OF THE PLAN
The material features of the Plan are summarized below. The summary is
qualified in its entirety by reference to the specific provisions of the Plan,
the full text of which is set forth as Appendix B to this proxy statement.
SHARES SUBJECT TO THE PLAN. The aggregate number of shares of Common Stock
that may be issued and purchased under the Plan may not exceed 3,000,000 shares,
subject to adjustment in the event of certain changes in the capital structure
of the Company. Shares needed to satisfy purchases under the Plan may be
authorized but unissued shares or previously issued shares reacquired and held
by the Company.
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<PAGE> 23
ADMINISTRATION. The Plan is administered by a committee appointed by the
Board of Directors, except to the extent the Board elects to administer the
Plan. The Board or such committee has full power, authority, and discretion to
interpret the Plan, adopt rules, regulations and guidelines for administration
of the Plan, and make all determinations under the Plan. Presently, the
Compensation Committee of the Board (the "Committee") serves as the
administrator of the Plan.
ELIGIBILITY. An employee of a Participating Subsidiary is eligible to
participate in the Plan if the employee has been continuously employed by the
Participating Subsidiary for at least 12 months, is customarily employed more
than 20 hours per week, and is customarily employed more than five months per
year ("Eligible Employee"), unless such employee owns 5% or more of the total
combined voting power or value of all outstanding shares of all classes of
securities of the Company or any of its subsidiaries. As of July 1, 2000,
approximately 4,000 employees were eligible to participate in the Plan.
OPERATION OF THE PLAN. An Eligible Employee who elects to participate in
the Plan must enroll at least 15 calendar days prior to the commencement of an
"Option Period" or by such other date as the administrator may prescribe.
Generally, an "Option Period" is a six-month period beginning January 1 and July
1, respectively, and ending June 30 and December 31, respectively. After initial
enrollment in the Plan, a participant will automatically be enrolled for
subsequent Option Periods, unless the participant withdraws from the Plan.
Upon enrollment in the Plan, a participant must elect a rate at which he or
she will make payroll contributions for the purchase of Common Stock. A
participant may elect to make contributions in an amount not less than 1% and
not more than 10% of such participant's after-tax "Compensation." "Compensation"
is all compensation paid to such participant plus amounts contributed by such
participant to the Participating Subsidiary's 401(k) plan, nonqualified deferred
compensation plan and cafeteria plan, and excludes payments under stock option
plans and other employee benefit plans, bonuses, reimbursements and other
expense allowances, fringe benefits (cash and noncash) and moving expenses. A
participant may prospectively increase or decrease the contribution rate by
giving at least two weeks' prior notice to the Company.
At the end of each Option Period, all funds accumulated in a participant's
account during the Option Period will be used to purchase shares of Common Stock
at a purchase price equal to the lesser of 90% of the fair market value of the
Common Stock (a) on the first trading day within the Option Period or (b) on the
last trading day within such Option Period. No participant may purchase under
the Plan, together with any other employee stock purchase plans of the Company,
shares of Common Stock having an aggregate fair market value in excess of
$25,000 in any calendar year.
Shares purchased by a participant under the Plan will be credited to an
account maintained by a custodian for such participant. Initially, the custodian
is ChaseMellon Shareholder Services, L.L.C. Dividends paid on Common Stock
credited to participants' accounts automatically will be reinvested in
additional shares by the custodian (no discount will apply to such dividend
reinvestment purchases).
Participants have the exclusive right to vote or direct the shares credited
to their accounts, and are permitted to withdraw or sell such shares without
restriction six months after the end of the Option Period in which the shares
were purchased. Participants' rights under the Plan are nontransferable except
pursuant to the laws of descent and distribution.
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<PAGE> 24
A participant may voluntarily withdraw from the Plan by notifying the
Company at any time prior to the end of an Option Period. Upon withdrawal from
the Plan, the participant's option to purchase Common Stock will terminate, and
the entire amount contributed to the Plan by such participant during the Option
Period will be refunded to him or her without interest. If a participant
terminates employment with the Company for any reason, the participant will be
deemed to have withdrawn from the Plan as of the date of such termination of
employment.
AMENDMENT AND TERMINATION OF THE PLAN. The Board of Directors or the
Committee may amend the Plan, but must obtain the approval of a majority of the
votes cast at a duly held meeting of the Company's shareholders for any
amendment that (a) increases the number of shares reserved for purchase under
the Plan, unless such increase is by reason of a change in the capital structure
of the Company, (b) changes the designation of corporations whose employees may
participate in the Plan, (c) materially modifies the eligibility requirements
for participation in the Plan, or (d) materially increases the benefits accruing
to participants under the Plan. The Board or the Committee may terminate the
Plan at any time.
FEDERAL INCOME TAX CONSEQUENCES
A participant will not incur federal income tax as a result of
participating in the Plan or as a result of the purchase of Common Stock at the
purchase price. A participant who, either through sale, gift or transfer (other
than because of a corporate reorganization), disposes of Common Stock during his
or her lifetime at least two years after the first day of the Option Period in
which the shares were acquired under the Plan at a gain, or dies before
disposition of the shares, will recognize (a) ordinary income in an amount equal
to the excess of the fair market value of the Common Stock on the first day of
the Option Period over the price paid for the Common Stock, and (b) long-term
capital gain equal to the amount by which the sales price exceeds the fair
market value of the Common Stock on the first day of the Option Period. A
participant who disposes of Common Stock during his or her lifetime less than
two years after the first day of the Option Period in which the shares were
acquired under the Plan at a price that is less than the purchase price will not
recognize any ordinary income due to the sale, but will have a capital loss
equal to the excess of the price paid for the Common Stock over the sales price.
A participant who disposes of such shares before two years have expired will
have (a) ordinary income generally equal to the difference between the purchase
price and the fair market value of the Common Stock on the date of purchase and
(b) long-term or short-term capital gain (depending on how long the participant
held the shares) on the excess, if any, of the fair market value of the Common
Stock on the date of sale over the purchase price on the date of purchase.
The Company generally will not be entitled to a business expense deduction
in connection with the sale of shares of Common Stock under the Plan, unless a
participant disposes of Common Stock received under the Plan before expiration
of the two-year holding period described above. In that case, the Company will
be entitled to a compensation expense deduction to the extent ordinary income is
recognized by the participant.
EFFECTIVE DATE. The Plan shall be effective as of September 13, 2000,
subject to its approval by shareholders of the Company at the annual meeting.
Subject to such approval, the initial Option Period will commence on such date
and end on December 31, 2000.
VOTE REQUIRED. The affirmative vote of the holders of a majority of the
shares of Common Stock represented and entitled to vote on this proposal at the
annual meeting of shareholders will constitute approval of the Plan.
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<PAGE> 25
RECOMMENDATION OF THE BOARD OF DIRECTORS "FOR" THIS PROPOSAL.
THE BOARD OF DIRECTORS RECOMMENDS APPROVAL OF THE H&R BLOCK, INC. 2000 EMPLOYEE
STOCK PURCHASE PLAN, AND PROXIES SOLICITED BY THE BOARD WILL BE SO VOTED IN THE
ABSENCE OF INSTRUCTIONS TO THE CONTRARY.
APPROVAL OF AMENDED H&R BLOCK SHORT-TERM INCENTIVE PLAN
(ITEM 3 ON FORM OF PROXY)
INTRODUCTION
The Board of Directors adopted the H&R Block Short-Term Incentive Plan (the
"Plan") in June 1996 and the Plan was approved by the Company's shareholders at
the 1996 annual meeting of shareholders. The Board recommends amendments to the
Plan to (1) add return on equity and return on capital to the list of eligible
performance criteria upon which short-term incentive awards may be based; (2)
allow the Compensation Committee of the Board of Directors ("Committee"), the
administrator of the Plan, to authorize payouts of short-term incentive awards
for a performance period to employee participants who terminate employment
during the performance period due to death, disability or retirement; and (3)
allow the Committee discretion to determine payout schedules applicable to
specific performance criteria. The Board believes that the Plan has enabled, and
will enable, the Company and its subsidiaries to attract and retain highly
qualified individuals as executive officers and to obtain from such officers the
best possible performance in order to achieve particular business objectives
established for the Company.
The Plan also allows the Company to include in the compensation package of
an executive officer a bonus component intended to qualify as performance-based
compensation under Section 162(m) of the Internal Revenue Code of 1986, as
amended ("Code"). Section 162(m) provides that compensation in excess of $1
million paid for any tax year to a corporation's chief executive officer and the
four other highest paid executive officers at the end of such year will not be
deductible by the corporation for federal income tax purposes unless certain
conditions are met. Two such conditions are that the compensation must qualify
as "performance-based compensation" and that the shareholders of the corporation
must approve the material terms of the performance goals under which such
compensation is to be paid. The Plan satisfies these conditions.
The Board believes that the amendments will allow the Board greater
flexibility in establishing performance criteria applicable to target awards
under the Plan, in determining the actual award payouts, and in paying awards in
the event of death, disability or retirement, while preserving the deductibility
of executive compensation under Code Section 162(m). Accordingly, the Board has
approved the amendments to the Plan and is submitting the Plan, as so amended,
to the shareholders for their approval.
SUMMARY OF THE PLAN AND THE PROPOSED AMENDMENTS
The primary features of the Plan and the proposed amendments are summarized
below. The summary is qualified in its entirety by reference to the specific
provisions of the Plan, as it is proposed to be amended, the full text of which
is set forth as Appendix C to this proxy statement.
The Plan is administered by the Committee, which is composed of "outside
directors" within the meaning of Section 162(m) of the Code. The Committee has
authority to determine the terms and
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<PAGE> 26
conditions of awards granted to eligible persons under the Plan. Awards under
the Plan are in the form of cash compensation and may be granted only to
employees of the Company or its subsidiaries who are at the level of Assistant
Vice President or a more senior level and who are selected for participation by
the Committee. At present, a total of 416 officers are eligible for selection by
the Committee for participation. The Committee may grant annual
performance-based awards with respect to each fiscal year of the Company, or a
portion thereof (a "Performance Period"). Within 90 days after the beginning of
a Performance Period, the Committee establishes performance goals for the
Company and its subsidiaries for the Performance Period and specific target
awards for each participant selected by the Committee. The Committee specifies
the performance goals applicable to each participant for each Performance
Period, as well as the portion of the target award to which each performance
goal applies. Awards are nontransferable otherwise than by will or by the laws
of descent and distribution.
The Plan specifies that performance goals established by the Committee each
year must be based on one or more of the following business criteria: (a)
earnings, (b) revenues, (c) sales of products, services or accounts, (d) numbers
of income tax returns prepared, (e) margins, (f) earnings per share, and (g)
total shareholder return. For any Performance Period, performance goals may be
measured on an absolute basis or relative to internal goals, or relative to
levels attained in fiscal years prior to the Performance Period.
One of the proposed amendments to the Plan would add two new criteria to
the list of criteria set forth in Section 2.2 of the Plan upon which performance
goals established by the Committee may be based - return on equity and return on
capital. These criteria measure the amount earned by shareholders on their
investment in the Company and the amount earned by the Company on capital
invested in the business, respectively. Approval of the amendments would allow
the Committee greater flexibility in determining appropriate performance
criteria for specific Performance Periods.
The Plan currently specifies that a participant must remain in the
continuous employ of the Company or one or more of its subsidiaries through the
end of a Performance Period in order to be eligible to receive payment of an
award. This provision is included in the Plan primarily to assist the Company
and its subsidiaries in retaining their executive officers through the end of
Performance Periods. However, the Board believes that there may be certain
limited circumstances where the Committee may determine it is appropriate to pay
an award in full or in part even if a participant does not remain employed
through the end of the Performance Period. Accordingly, the Board has approved
an amendment to Section 2.3 of the Plan that will give the Committee discretion
to pay in full or on a prorated basis an award determined in accordance with the
Plan to a participant whose employment terminates during the Performance Period
due to death, disability or retirement. The amendment provides that "disability"
shall be as defined in the employment practices or policies of the applicable
subsidiary of the Company in effect at the time of termination of employment,
and that "retirement" shall mean termination of employment with all subsidiaries
of the Company by the Participant after either attainment of age 65 or
attainment of age 55 and the completion of at least ten (10) years of employment
with the Company or its subsidiaries.
Following the end of a Performance Period, the Committee certifies the
extent to which each performance goal has been achieved and then, in order to
arrive at the actual award payout, determines a performance percentage for each
goal to be multiplied by the portion of the target award to which the goal
relates. The Plan currently provides that the performance percentage for all
performance targets must be determined in accordance with the following
schedule:
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<PAGE> 27
<TABLE>
<CAPTION>
% of Performance Performance
Target Achieved Percentage
--------------- ----------
<S> <C>
Under 90% 0%
90% 50%
95% 90%
100% 100%
105% 120%
110% 140%
115% 170%
120% and above 200%
</TABLE>
It is proposed that the Plan be amended to eliminate the schedule in
Section 2.4 of the Plan (as set forth above) applicable to all performance
targets and give to the Compensation Committee discretion to establish with
respect to each performance target and each Performance Period a schedule or
other objective method ("Performance Schedule") of determining the applicable
performance percentage to be used in arriving at the actual award payout. The
Committee will be required to establish such Performance Schedule within 90 days
after the beginning of the Performance Period. Consistent with the schedule in
the current Plan, the amendment provides that any Performance Schedule
established by the Committee may not provide for a performance percentage in
excess of 200%. This proposed amendment will give the Committee the ability to
establish different Performance Schedules for different performance targets.
For fiscal year 2001, the Committee established 11 different Performance
Schedules for 11 different performance goals, each Schedule specifying a minimum
level of performance by the Company or a segment of the Company (threshold) that
must be exceeded for any award to be paid with respect to the applicable goal,
the target level of performance that must be met before the target award is paid
and the level of performance that must be achieved for the maximum award (200%
of target) to be paid. The minimum, target and maximum percentages in the
Performance Schedules vary widely by performance goal based on the Committee's
analysis of the specific criterion and the expectations of the Company relating
thereto. For example, the Committee determined that year-over-year growth in the
Company's earnings per share must exceed 15% before any award for that
performance goal is paid. The Committee's analyses of other performance goals,
however, resulted in Performance Schedules with thresholds ranging from 5%
growth to 20% growth.
The aggregate amount of all awards under the Plan to any one participant
for any Performance Period may not exceed $1,000,000. Payment of awards takes
place as soon as administratively feasible following certification by the
Committee of the extent to which performance goals have been achieved and the
determination of the actual awards payable.
In the event of a recapitalization, reorganization, merger, acquisition,
divestiture, consolidation, spin-off, split-off, combination, liquidation,
dissolution, sale of assets, or other similar corporate transaction or event;
changes in applicable tax laws or accounting principles; or any unusual,
extraordinary or nonrecurring events involving the Company that distort the
performance criteria applicable to any performance goal, the Committee must
adjust the calculation of the performance criteria and the applicable
performance goals as necessary to prevent reduction or enlargement of
participants' awards under the Plan for such Performance Period attributable to
such transaction or event.
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<PAGE> 28
The Board of Directors of the Company may at any time and from time to time
alter, amend, suspend or terminate the Plan in whole or in part, without
shareholder approval.
PLAN BENEFITS UNDER THE AMENDED PLAN
The Committee has designated the eligible officers of the Company who will
participate in the Plan for the fiscal year 2001 Performance Period as those
persons who have been designated by the Board of Directors as executive officers
of the Company pursuant to the provisions of Rule 3b-7 under the Securities
Exchange Act of 1934, as amended, other than those executive officers employed
by accounting firm subsidiaries (which have different incentive programs). The
Committee has also established target awards for the fiscal year 2001 for those
executive officers serving as such as of June 21, 2000. The following table sets
forth the amounts which would be paid to the individuals and groups referred to
below pursuant to awards made under the Plan at the specified levels of
attainment of performance goals established by the Committee. Non-employee
directors of the Company are not eligible to participate in the Plan and
employees who are not "executive officers" of the Company, as designated by the
Board of Directors, will not participate in the Plan in fiscal year 2001.
PLAN BENEFITS TABLE
ESTIMATED FUTURE PAYOUTS
------------------------
<TABLE>
<CAPTION>
NAME AND
PRINCIPAL POSITION THRESHOLD TARGET MAXIMUM
----------------------- --------- ---------- ----------
<S> <C> <C> <C>
Frank L. Salizzoni $0 $ 248,267 $ 496,534
Chief Executive Officer
Mark A. Ernst $0 $ 257,250 $ 514,500
President and Chief
Operating Officer
Robert E. Dubrish $0 $ 128,000 $ 256,000
President and Chief
Executive Officer,
Option One Mortgage
Corporation
Thomas L. Zimmerman $0 $ 132,000 $ 264,000
President, H&R Block
Tax Services, Inc.
All Executive Officers $0 $1,659,687 $3,319,374
</TABLE>
NOTE: Each participant has from one to five of the 11 specified performance
goals upon which the incentive payout is based, as determined by the Committee.
The actual award relating to each objective performance goal will be calculated
based on the specific level of performance achieved.
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<PAGE> 29
SHAREHOLDER APPROVAL REQUIREMENTS; RECOMMENDATION OF THE BOARD OF DIRECTORS
"FOR" THIS PROPOSAL
The proposal must be approved by a majority of the shares present in person
or represented by proxy at the meeting. If the proposal is not approved by a
majority of such shares, the amendments to the Plan will not be made and the
Plan will continue to exist in its current form.
The Board believes that approval of the Plan, as proposed to be amended,
will assist the Company in the manner specified above and, as a result, will
promote the interests of the Company and its shareholders.
THE BOARD OF DIRECTORS RECOMMENDS APPROVAL OF THE H&R BLOCK SHORT-TERM INCENTIVE
PLAN, AS AMENDED, AND PROXIES SOLICITED BY THE BOARD WILL BE SO VOTED IN THE
ABSENCE OF INSTRUCTIONS TO THE CONTRARY.
APPOINTMENT OF AUDITORS
(ITEM 4 ON FORM OF PROXY)
Subject to ratification by the shareholders at the annual meeting, the
Board of Directors has appointed PricewaterhouseCoopers LLP as the Company's
independent auditors for the year ending April 30, 2001. PricewaterhouseCoopers
LLP served as the independent auditor for the Company for the fiscal year ended
April 30, 2000 and the Company agreed to pay such firm $451,100 in connection
therewith. Representatives of PricewaterhouseCoopers LLP are expected to be
present at the 2000 annual meeting, will be afforded an opportunity to make a
statement if they so desire, and will be available to respond to appropriate
questions by the shareholders.
PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE VOTED FOR RATIFICATION OF
THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP IN THE ABSENCE OF INSTRUCTIONS TO
THE CONTRARY.
SHAREHOLDER PROPOSALS
Recommendations for nominees to be elected to the Board of Directors and
proposals of shareholders intended to be presented at the next annual meeting
scheduled to be held on Wednesday, September 12, 2001 must be submitted in
writing to the Secretary of the Company, H&R Block, Inc., 4400 Main Street,
Kansas City, Missouri 64111. Shareholder proposals must be received by the
Secretary no later than March 30, 2001 in order to be included in next year's
proxy statement and form of proxy.
Shareholders may present proposals which are proper subjects for
consideration at an annual meeting, even if the proposals are not submitted by
the deadline for inclusion in the proxy statement. To do so, the shareholder
must comply with the procedures specified in the Company's Bylaws and applicable
rules and regulations of the Securities and Exchange Commission. For business to
be properly brought before the annual meeting scheduled for September 12, 2001,
such notice must be delivered to or mailed and received by the Secretary of the
Company at the address set forth above not later than the close of business on
June 13, 2001. 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
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<PAGE> 30
proposing such business, (iii) the class and number of shares of the Company
that are beneficially owned by the shareholder, and (iv) any material interest
of the shareholder in such business. If the Company does not receive proper and
timely notice of a shareholder proposal, the proxies shall have the right to
exercise discretionary authority with respect to such proposal at the annual
meeting.
OTHER MATTERS
The Board of Directors knows of no other matters which will be presented at
the meeting, but if other matters do properly come before the meeting, it is
intended that the persons named in the proxy will vote according to their best
judgment.
By Order of the Board of Directors
JAMES H. INGRAHAM
Secretary
July 28, 2000
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APPENDIX A
H&R BLOCK, INC.
AUDIT COMMITTEE CHARTER
ROLE OF THE AUDIT COMMITTEE
The role of the Audit Committee is to assist the Board of Directors in
fulfilling its oversight responsibilities with respect to the Company's
financial reporting, control and audit functions. The role of the Audit
Committee also includes encouragement of strong, positive working relationships
and free and open communication among the directors, the independent auditor,
the internal auditors, counsel and the Company's management.
COMMITTEE COMPOSITION
- The Audit Committee shall consist of at least three directors, all of whom
have no relationship to the Company that may interfere with the exercise of
their independence from management and the Company. References to "Company"
in this Charter shall refer to the Company and all of its subsidiaries.
- The Board of Directors shall make determinations of independence with
respect to possible appointees and shall appoint the members of the Audit
Committee and its Chairman. The Board shall apply the rules and
restrictions of the New York Stock Exchange relating to independence and
consider employment, officer, business, family and other relationships in
making such determinations and appointments.
- Each member of the Audit Committee shall be financially literate, as such
qualification is interpreted by the Board of Directors in its business
judgment, or must become financially literate within a reasonable period of
time after his or her appointment to the Audit Committee.
- At least one member of the Audit Committee must have accounting or related
financial management expertise, as the Board of Directors interprets such
qualification in its business judgment.
- The Audit Committee shall cause to be filed with the New York Stock
Exchange annually after the Board of Directors appoints the Audit
Committee, and at any time when the composition of the Audit Committee
changes, a Written Affirmation in the form required by the Listed Company
Manual of the New York Stock Exchange.
AUDIT COMMITTEE MEETINGS
- The Audit Committee shall hold at least four regular meetings annually, and
shall meet more frequently as deemed necessary to fulfill the
responsibilities prescribed in this Charter or by the Board of Directors.
Special meetings of the Committee may be called by the Chairman of the
Audit Committee.
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- The Committee shall periodically and at least annually meet with the
independent auditor, the Director of Internal Audit (or person with similar
responsibilities) and management of the Company in separate executive
sessions to discuss any matters that the Committee or each such group or
person believes should be discussed privately.
- The Committee shall request members of management, counsel, the Internal
Audit Department and the Company's independent auditor, as applicable, to
participate in Committee meetings, as deemed appropriate by the Committee.
Periodically and at least annually the Committee shall meet in private
session with only Committee members.
- The Committee shall periodically report on its meetings and other
activities to the Board of Directors, shall keep accurate minutes of its
meetings and shall present such minutes to the Board of Directors for its
approval.
RESPONSIBILITIES AND DUTIES
CHARTER/REPORT
- The Audit Committee Charter and any revisions thereto shall be approved by
the Board of Directors.
- The Audit Committee shall review and reassess the adequacy of the Audit
Committee Charter on an annual basis, or more frequently as needs dictate,
and recommend to the Board of Directors any revisions considered
appropriate.
- The Audit Committee Charter shall be included as an appendix to the
Company's proxy statement in accordance with the rules and regulations
promulgated by the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as such rules and regulations may be modified or
supplemented from time to time ("SEC Rules").
- The Committee shall prepare and publish in the Company's proxy statement an
Audit Committee Report as and when required by SEC Rules.
INDEPENDENT AUDITOR AND OTHER INDEPENDENT ACCOUNTANTS
The independent auditor for the Company is ultimately accountable to the Board
of Directors and the Audit Committee of the Company.
The Audit Committee shall:
- Recommend to the Board of Directors the appointment, retention, discharge
or replacement of the independent auditor.
- Receive from the independent auditor the letter regarding the auditor's
independence required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees), as such Standard may be
modified or supplemented from time to time.
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- Periodically and at least annually evaluate and discuss with the
independent auditor such auditor's independence, effectiveness and
performance, including any disclosed relationships or services that may
impact the objectivity and independence of the independent auditor.
- Recommend to the Board of Directors any appropriate action in response to
the independent auditor's report regarding independence to satisfy the
Committee and/or the Board of the independent auditor's independence.
- Approve the audit plan, the scope of the audit and the fees of the
independent auditor on an annual basis or as otherwise necessary, and
approve any modifications thereto.
- Review and approve management's plans to engage the independent auditor to
perform management consulting services and the projected fees associated
with such engagements.
- Review the extent to which independent public accountants other than the
principal independent auditor are to be used by the Company and the
rationale for such use.
INTERNAL AUDITORS
The Audit Committee shall:
- Review and approve the appointment, replacement, reassignment or dismissal
of the Director of Internal Audit (or person with similar responsibilities)
and periodically and at least annually review the performance of the
Director of Internal Audit.
- At least annually review and approve the internal audit plan, and
periodically ensure adequate resources are available to execute the plan.
- Review the results of completed internal audits with the Director of
Internal Audit and monitor corrective actions taken by management, as
deemed appropriate.
- Review with the independent auditor its assessment of Internal Audit
Department practices and objectivity.
FINANCIAL REPORTING AND RISK CONTROL
The Audit Committee shall:
- Review the coordination of audit efforts of the Internal Audit Department
and the independent auditor to assure completeness of coverage, reduction
of redundant efforts, and the effective use of audit resources.
- Review and discuss with management and the independent auditor the audited
financial statements of the Company, including the independent auditor's
report under Independence Standards Board Standard No. 1 and matters
required to be discussed under the Statements of Auditing Standard No. 61.
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- Review with the independent auditor the independent auditor's evaluation of
the Company's financial, accounting and internal audit personnel, and the
cooperation and access to required information received by the independent
auditor during the course of the audit.
- Review any significant disagreement between management and either the
independent auditor or the Internal Audit Department in connection with the
preparation of the financial statements.
- Review (a) changes in the Company's accounting principles or financial
reporting policies, (b) the accounting treatment accorded significant
transactions, (c) any significant accounting issues, including any second
opinions sought by management on accounting issues, and (d) the Company's
use of reserves and accruals, as reported by management and the independent
auditor.
- Discuss with the independent auditor and management the auditor's judgments
about the quality and acceptability of the Company's accounting principles
as applied in its financial reporting. If the independent auditor
identifies any matters relating to such quality and acceptability in
connection with its review of financial information, the Audit Committee
shall receive from the independent auditor or management communication
about such matters.
- Make recommendations to the Board of Directors as to whether the audited
financial statements should be included in the Company's Annual Report on
Form 10-K for the last fiscal year for filing with the Securities and
Exchange Commission.
- Receive from management and the independent auditor timely analysis of
significant current financial reporting issues.
- Review with management and the independent auditor and assess the Company's
financial risks, the Company's risk management process, and adherence to
significant internal controls.
ETHICAL AND LEGAL COMPLIANCE AND OTHER RESPONSIBILITIES
The Audit Committee shall:
- Establish, review and update (or cause management to update) periodically
the H&R Block, Inc. Code of Business Ethics & Conduct (the "Code") and
assure that management has established a system to enforce the Code.
- Review and approve the appointment, replacement, reassignment or dismissal
of the Ethics Program Director under the Code and periodically review his
or her performance.
- Review reports concerning compliance of the Company's directors,
management, associates and others to whom the Code applies.
- Review the results of the Internal Audit Department's annual audit of
corporate officer expenses and perquisites.
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- Review with the Company's General Counsel and, when appropriate, outside
counsel legal compliance matters and any legal matter that could have a
significant impact on the Company's financial statements.
- Conduct or authorize investigations into any matters within the scope of
the Committee's responsibilities, and retain independent advisors at the
expense of the Company, when needed, to assist in the conduct of any
investigation.
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APPENDIX B
H&R BLOCK, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
SECTION 1. PURPOSE OF PLAN
The H&R Block, Inc. 2000 Employee Stock Purchase Plan (the "Plan") is
designed to encourage and assist employees of the subsidiaries of H&R Block,
Inc. (collectively, H&R Block, Inc. ("Block") and such subsidiaries shall be
referred to as the "Company") to acquire an equity interest in Block through the
purchase of shares of Block common stock, without par value ("Common Stock").
This Plan is intended to constitute an "employee stock purchase plan" within the
meaning of Section 423 of the Internal Revenue Code (the "Code").
SECTION 2. ADMINISTRATION OF THE PLAN
The Plan shall be administered by Block's Board of Directors (the
"Board") or by a committee of the Board (the "Committee") appointed by the Board
and serving at its pleasure (the Board or any such Committee being herein
referred to as the "Administrator"). Until such time as the Board shall
determine otherwise, the Compensation Committee of the Board shall serve as
Administrator. The Administrator shall have full power and authority, not
inconsistent with the express provisions of the Plan, to administer and
interpret the Plan, including the authority to:
(i) grant options and authorize the issuance of shares;
(ii) make and amend all rules, regulations, guidelines, procedures and
policies for administering the Plan;
(iii) decide all questions and settle all disputes that may arise in
connection with the Plan;
(iv) appoint persons and entities to act as designated representatives on
its behalf in administering the Plan pursuant to its provisions (in
which case the term "Administrator" as used herein shall include such
persons or entities to the extent of such appointment);
(v) establish accounts with a person or entity appointed pursuant to
(iv) above ("Custodian") to hold Common Stock purchased under the Plan
("Stock Account");
(vi) cause Block to enter into a written agreement with the Custodian
setting forth the terms and conditions upon which Stock Accounts shall
be governed ("Custodial Agreement"); and
(vii) require Participants to hold shares of Common Stock under the Plan in
Stock Accounts (in which case each Participant's decision to
participate in the Plan shall constitute the appointment of such
Custodian as custodial agent for the purpose of holding such shares)
until such time as shall be specified in the Custodial Agreement.
All interpretations, decisions and determinations made by the
Administrator shall be binding on all persons concerned.
SECTION 3. NATURE AND NUMBER OF SHARES
The Common Stock subject to issuance under the terms of the Plan shall
be authorized but unissued shares or previously issued shares reacquired and
held by the Company. The aggregate number of shares that may be issued under the
Plan shall not exceed three million (3,000,000) shares of Common Stock.
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In the event of any reorganization, recapitalization, stock split,
reverse stock split, stock dividend, combination of shares, exchange of shares,
merger, consolidation, offering of rights or other similar change in the capital
structure of the Company, the Board or the Committee may make such adjustment,
if any, as it deems appropriate in the number, kind and purchase price of the
shares available for purchase under the Plan and in the maximum number of shares
which may be issued under the Plan.
SECTION 4. ELIGIBILITY
Each individual employed by a Participating Subsidiary (as hereinafter
defined), except as provided below, shall be eligible to participate in the Plan
("Employee"). The following individuals shall be excluded from participation:
(a) Persons who, as of the date of grant of an Option (as defined
below), have been continuously employed by the Participating Subsidiary for less
than twelve (12) consecutive months;
(b) Persons who, immediately upon the grant of an Option, own directly
or indirectly, or hold options or rights to acquire, an aggregate of five
percent (5%) or more of the total combined voting power or value of all
outstanding shares of all classes of Block or any Subsidiary; and
(c) Persons who are customarily employed by the Company less than
twenty (20) hours per week or for not more than five (5) months in any calendar
year.
For purposes of the Plan, a "Subsidiary" is any corporation or other
entity in which Block owns, directly or indirectly, stock (or other ownership
interests) possessing fifty percent (50%) or more of the total combined voting
power of all classes of stock (or other ownership interests). A "Participating
Subsidiary" is any Subsidiary meeting the requirements above that is designated
by the Board or the Committee as a subsidiary whose employees are eligible to
participate in the Plan.
SECTION 5. ENROLLMENT AND WITHDRAWAL
Each eligible Employee may enroll or re-enroll in the Plan as of the
first day of any Option Period (as hereinafter defined) after the Employee first
becomes eligible to participate. To enroll, an Employee must complete and sign
an enrollment form (including a payroll deduction authorization) in a form
acceptable to the Administrator and submit it to the Company, or use such other
means to enroll as is authorized by the Administrator, at least 15 business days
prior to the commencement of such Option Period or by such other date as the
Administrator may prescribe. Participation in the Plan is voluntary. A
"Participant" shall be an Employee enrolled in the Plan.
A Participant will automatically be enrolled in all future Option
Periods unless the Participant withdraws from the Plan. If a Participant
withdraws from the Plan, he or she will cease to be a Participant and may only
participate in future Option Periods if he or she re-enrolls in the Plan. Any
Participant may withdraw from the Plan by notifying the Company at any time
during the Option Period prior to the Purchase Date (as defined below). Upon
such a withdrawal, the entire amount contributed to the Plan by the Participant
(and not yet used to purchase Common Stock) will be refunded without interest as
soon as administratively practicable.
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SECTION 6. GRANT OF OPTIONS
Under the Plan, each "Option Period" shall be a period of approximately
six (6) months beginning on January 1 and July 1, respectively, and ending on
June 30 and December 31, respectively, or such other period as the Board or the
Committee may designate from time to time.
Each person who is a Participant on the first day of an Option Period
(the "Grant Date") will as of such day be granted an option for the Period (the
"Option"). Such Option will be for the number of whole and fractional shares of
Common Stock to be determined by dividing (i) the balance credited to the
Participant's Payment Account (as defined in Section 7(b)) during such Option
Period by means of payroll deduction (or such other means deemed acceptable by
the Administrator) as of the Purchase Date (as determined under Section 8 below)
by (ii) the purchase price per share of the Common Stock as determined under
Section 8.
In no event shall a Participant be entitled to purchase, for any Option
Period, more than the lesser of (i) the number of shares obtained by dividing
$25,000 by the fair market value of a share of Common Stock on the Grant Date
for such Option Period, or (ii) the maximum number of shares permitted to be
purchased under Section 7(c) below.
The Administrator will reduce, on a substantially proportionate basis,
the number of shares of Common Stock receivable by each Participant upon
exercise of his or her Option for an Option Period in the event that the number
of shares then available under the Plan is otherwise insufficient, and will
return to the Participant without interest any remaining unused balance in the
Participant's Payment Account as soon as administratively practicable.
SECTION 7. METHOD OF PAYMENT
(a) Form of Payment. Payment for shares shall be made in installments
through after-tax payroll deductions over the Option Period, with such
deductions taken from pay periods ending during the Option Period, or in such
other form of payment deemed acceptable by the Administrator.
Subject to the limits below and in Section 8, each Participant may
elect through payroll withholding during the Option Period (or such other means
deemed acceptable by the Company) to have credited to his or her Payment Account
an amount not less than one percent (1%) and not greater than ten percent (10%)
of Compensation (as defined below); provided that the Administrator from time to
time before an enrollment date may establish limits other than those herein
described for all purchases to occur during the relevant Option Period.
For purposes of the Plan, "Compensation" shall mean all compensation
paid to the Participant by the Company and currently includible in his or her
income, including such amounts as commissions, overtime, and other amounts
includible in the general definition of compensation provided in Treasury
Regulation ss.1.415-2(d)(1), plus any amount that would be so included but for
the fact that it was contributed to (a) a qualified plan pursuant to an elective
deferral under Section 401(k) of the Code, (b) a nonqualified deferred
compensation plan, and/or (c) a cafeteria plan on a before-tax basis pursuant to
an election under Section 125 of the Code, but not including (i) payments under
stock option plans and other employee benefit plans or other amounts excluded
from the definition of compensation provided in the Treasury Regulations under
Section 415 of the Code, (ii) bonuses or compensation paid under short-term
incentive plans, and (iii) reimbursements or other expense allowances, fringe
benefits (cash and noncash), moving expenses, payments of benefits under
nonqualified deferred compensation plans, and welfare benefits.
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A Participant may increase or decrease the rate of withholding on a
prospective basis effective as to future pay periods within an Option Period by
giving not less than two (2) weeks' prior written notice (in a form acceptable
to the Administrator) to the Company.
(b) Accounts. A "Payment Account" means the book entry account
maintained by the Company or Administrator to record the amount of Participant's
payments made pursuant to Section 7(a) and any cash amount carried forward from
an Option Period to the Grant Date for the next Option Period pursuant to
Section 9. All payments by each Participant shall be credited to such
Participant's Payment Account pending the purchase of Common Stock in accordance
with the provisions of the Plan. All such amounts in the Payment Account shall
be assets of the Company and may be used by the Company for any corporate
purpose. No interest will be paid on amounts credited to a Participant's Payment
Account.
(c) Limits on Purchase. In no event shall the rights of any Participant
to purchase shares (under this Plan and under any other stock purchase plans of
Block or any Subsidiary) accrue at a rate that exceeds $25,000 as measured by
the fair market value of such shares (determined in the case of each such share
as of the date of grant of the related option) for the calendar year.
SECTION 8. PURCHASE PRICE
The purchase price of Common Stock issued pursuant to the exercise of
an Option shall be ninety percent (90%) of the lower of the fair market value of
Common Stock on (a) the Grant Date for the Option Period, or (b) the last
trading day of the Option Period (the "Purchase Date").
Fair market value shall mean the closing price of Common Stock on the
New York Stock Exchange or other national securities exchange on which the
Common Stock is then principally traded or, if that measure of price is not
available, on a composite index of such exchanges or, if that measure of price
is not available, in a national market system for securities. In the event that
there are no sales of Common Stock on any such exchange or market on the Grant
Date, the fair market value of the Common Stock shall be deemed to be the
closing sales price on the next following day on which Common Stock was sold on
any such exchange or market. In the event that there are no sales of Common
Stock on any such exchange or market on the Purchase Date, the fair market value
of the Common Stock shall be deemed to be the closing sales price on the next
preceding day on which Common Stock was sold on any such exchange or market. In
the event that the Common Stock is not listed on any such market or exchange on
the Grant or Purchase Dates, a reasonable valuation of the fair market value of
the Common Stock on such dates shall be made by the Administrator.
SECTION 9. EXERCISE OF OPTIONS; SIX-MONTH HOLDING PERIOD
If an Employee is a Participant in the Plan on a Purchase Date, he or
she will be deemed to have exercised the Option granted to him or her for the
period ending on that Purchase Date. Upon such exercise, the Company will apply
the balance of the Participant's Payment Account to the purchase of the number
of whole or fractional shares of Common Stock determined under Section 6 and, as
soon as practicable thereafter, will issue and deliver said whole shares to the
Participant (unless Stock Accounts are established by the Administrator pursuant
to Section 2 of the Plan). Any cash remaining in the Participant's Payment
Account and the cash value of any fractional shares of Common Stock shall either
be carried forward to the next Grant Date (without interest) and become a part
of the Payment Account for the Option Period to which such next Grant Date
applies, or, upon written request of the Participant to the Administrator, be
paid to Participant without interest (unless Stock Accounts are established by
the Administrator pursuant to Section 2 of the Plan).
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Notwithstanding anything herein to the contrary, Block's obligation to
issue and deliver whole shares of Common Stock under the Plan will be subject to
the approval required by any governmental authority in connection with the
authorization, issuance, sale or transfer of said shares, to any requirements of
any national securities exchange applicable thereto, and to compliance by Block
with other applicable legal requirements in effect from time to time.
Any shares of Common Stock issued under the Plan may not be sold,
transferred or assigned for a period of six months after the date issued. Each
certificate representing shares of Common Stock issued under this Plan during
such six-month period shall bear the following legend:
"The Shares represented by this certificate may not be sold,
transferred or assigned, and the issuer shall not be required to give
effect to any attempted sale, transfer or assignment, until a date that
is more than six months after the date of issuance of this
certificate.";
or such other legend as shall be approved by the Administrator.
SECTION 10. TERMINATION OF EMPLOYMENT
Subject to Section 11, upon the termination of a Participant's
employment with the Company for any reason, the Participant's Payment Account
balance shall be frozen to future accruals and the Participant shall be
withdrawn from Plan participation and cease to be a Participant. Upon the
cessation of participation, any Option held by the Participant under the Plan
will be deemed cancelled, the balance of the Participant's Payment Account will
be returned to the Participant or, in the case of death, refunded in accordance
with Section 11, without interest, as soon as administratively practicable and
the Participant will have no further rights under the Plan.
SECTION 11. DEATH OF A PARTICIPANT
Each Participant may designate one or more beneficiaries who, in the
event of the Participant's death, would receive any Common Stock and/or cash
credited to the Participant under the Plan. In the case of a Participant who is
married at the time of death, the Administrator may condition any designation of
a beneficiary other than the Participant's spouse on the written consent of such
spouse. A designation of beneficiary and election may be changed by the
Participant at any time. Any such designation or change in designation, if made
in accordance with the Plan and in a form and manner that is acceptable to the
Administrator, shall be effective upon receipt by the Company and shall be the
exclusive means of designating a beneficiary under the Plan. In the absence of a
proper beneficiary designation under the Plan, the balance in the deceased
Participant's Payment Account under the Plan will be refunded without interest
to his or her estate.
As soon as administratively feasible after the death of a Participant,
any Common Stock and/or cash credited to the Participant under the Plan shall be
delivered to the Participant's designated beneficiaries or, in the absence of
such designation, to the executor, administrator or other legal representative
of the Participant's estate. Such delivery and payment shall relieve the Company
of further liability to the deceased Participant or his or her beneficiaries
with respect to the Plan. If more than one beneficiary is designated, each
beneficiary shall receive an equal portion of the Payment Account and, if any,
the Stock Account, unless the Participant has given express contrary
instructions.
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SECTION 12. ASSIGNMENT
Except as provided in Section 11 above, funds, securities, rights or
other property held for the account of a Participant shall not be sold, pledged,
assigned, transferred, or hypothecated in any way (whether by operation of law
or otherwise) and shall not be subject to sale under execution, attachment, or
similar process. A Participant's right to purchase shares under the Plan shall
be exercisable during the Participant's lifetime only by the Participant. If
this provision is violated, the Participant's election to purchase Common Stock
shall terminate and the only obligation of the Company remaining under the Plan
will be to refund to the Participant the amount then credited to his or her
Payment Account and deliver to Participant any whole shares of Common Stock
credited to him or her under any Stock Account.
SECTION 13. EQUAL RIGHTS AND PRIVILEGES
All eligible Employees shall have equal rights and privileges with
respect to the Plan so that the Plan qualifies as an "employee stock purchase
plan" within the meaning of Section 423 or any successor provisions of the Code
and related regulations. Any provision of the Plan that is inconsistent with
Section 423 or any successor provision of the Code shall without further act of
amendment by the Company be reformed to comply with the requirements of Section
423. This Section 13 shall take precedence over all other provisions of the
Plan.
SECTION 14. RIGHTS AS STOCKHOLDER
A Participant shall have no rights as a stockholder under an Option
until he or she becomes a stockholder as herein provided. A Participant will
become a stockholder with respect to shares for which payment has been completed
as provided in Section 8 as of the close of business on the Purchase Date for
the Option Period.
SECTION 15. MODIFICATION AND TERMINATION OF THE PLAN
The Board or the Committee may terminate the Plan at any time and may
at any time and from time to time amend the Plan in any manner permitted by law.
No amendment shall be effective unless within one (1) year after it is adopted
by the Board it is approved by Block's shareholders in the manner prescribed
under the Treasury Regulations under Section 423 of the Code, if such amendment
would:
(i) increase the number of shares reserved for purchase under the
Plan, unless such increase is by reason of any change in the
capital structure of the Company referred to in Section 3
hereof;
(ii) change the designation of corporations or other entities whose
employees may be offered Options under the Plan, except as
permitted under Treasury Regulations ss.1.423-2(c)(4);
(iii) materially modify the requirements as to eligibility for
participation in the Plan; or
(iv) materially increase the benefits accruing to Participants
under the Plan.
In the event the Plan is terminated, the Board or Committee may elect
to terminate all outstanding Options either immediately or upon completion of
the purchase of shares on the next Purchase Date, unless the Board has
determined that the right to make all such purchases shall expire on some other
designated date occurring prior to the next Purchase Date. If Options are
terminated prior to expiration, all funds contributed to the Plan that have not
been used to purchase shares shall be returned without interest to the
Participants.
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SECTION 16. BOARD AND SHAREHOLDER APPROVAL; EFFECTIVE DATE
This Plan was adopted by the Board on June 28, 2000. The Effective Date
of the Plan shall be September 13, 2000, subject to shareholder approval at the
annual meeting of shareholders of H&R Block, Inc. in calendar year 2000. In the
event shareholder approval of the Plan is not obtained in the manner prescribed
under Treasury Regulations under Section 423 of the Code, Participants will
receive a full refund of any amounts credited to their Payment Accounts as soon
as administratively practicable.
SECTION 17. OTHER PROVISIONS
Options and other documentation under the Plan shall contain such other
provisions as the Administrator shall deem advisable, provided that no such
provision shall conflict with the express terms of the Plan.
SECTION 18. EMPLOYMENT RIGHTS
Nothing contained in the provisions of the Plan shall be construed to
give to any individual the right to be retained in the employ of the Company or
to interfere with the right of the Company to discharge any employee at any
time.
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APPENDIX C
H&R BLOCK SHORT-TERM INCENTIVE PLAN
(AS AMENDED)
ARTICLE I
GENERAL
Section 1.1 Purpose.
The purpose of the H&R Block Short-Term Incentive Plan (the "Plan") is
to attract and retain highly qualified individuals as executive officers; to
obtain from each the best possible performance in order to achieve particular
business objectives established for H&R Block, Inc. (the "Company") and its
subsidiaries; and to include in their compensation package a bonus component
intended to qualify as performance-based compensation under Section 162(m) of
the Internal Revenue Code of 1986, as amended (the "Code"), which compensation
would be deductible by the Company under the Code.
Section 1.2 Administration.
The Plan shall be administered by the Compensation Committee of the
Company's Board of Directors (the "Committee") consisting of at least two
members, each of whom shall be an "outside director" within the meaning of
Section 162(m) of the Code. The Committee shall adopt such rules and guidelines
as it may deem appropriate in order to carry out the purpose of the Plan. All
questions of interpretation, administration and application of the Plan shall be
determined by a majority of the members of the Committee then in office, except
that the Committee may authorize any one or more of its members, or any officer
of the Company, to execute and deliver documents on behalf of the Committee. The
determination of the majority shall be final and binding in all matters relating
to the Plan. The Committee shall have authority to determine the terms and
conditions of the Awards granted to eligible persons specified in Section 1.3
below.
Section 1.3 Eligibility.
Awards may be granted only to employees of the Company or any of its
subsidiaries who are at the level of Assistant Vice President or at a more
senior level and who are selected for participation in the Plan by the
Committee. A qualifying employee so selected shall be a "Participant" in the
Plan.
ARTICLE II
AWARDS
Section 2.1 Awards.
The Committee may grant annual performance-based awards ("Awards") to
Participants with respect to each fiscal year of the Company, or a portion
thereof (each such fiscal year or a portion thereof to constitute a "Performance
Period"), subject to the terms and conditions of the Plan. Awards shall be in
the form of cash compensation. Within 90 days after the beginning of a
Performance Period, the Committee shall establish (a) performance goals and
objectives ("Performance Targets") for the Company and the subsidiaries and
divisions thereof for such Performance Period, (b) target awards ("Target
Awards") for each Participant, which shall be a specified dollar amount, and (c)
schedules or other
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objective methods for determining the applicable performance percentage
("Performance Percentage") to be multiplied by each portion of the Target Award
to which a Performance Target relates in arriving at the actual Award payout
amount pursuant to Section 2.4 ("Performance Schedules"). The Committee shall
specify the Performance Targets applicable to each Participant for each
Performance Period and shall further specify the portion of the Target Award to
which each Performance Target shall apply. In no event shall a Performance
Schedule include a Performance Percentage in excess of 200%.
Section 2.2 Performance Targets.
Performance Targets established by the Committee each year shall be
based of one or more of the following business criteria: (a) earnings, (b)
revenues, (c) sales of products, services or accounts, (d) numbers of income tax
returns prepared, (e) margins, (f) earnings per share, (g) return on equity, (h)
return on capital, and (i) total shareholder return. For any Performance Period,
Performance Targets may be measured on an absolute basis or relative to internal
goals, or relative to levels attained in fiscal years prior to the Performance
Period.
Section 2.3 Employment Requirement.
To be eligible to receive payment of an Award, the Participant must
have remained in the continuous employ of the Company or its subsidiaries
through the end of the applicable Performance Period, provided that, in the
event the Participant's employment terminates during the Performance Period due
to death, disability or retirement, the Committee may, at its sole discretion,
authorize the Company or the applicable subsidiary to pay in full or on a
prorated basis an Award determined in accordance with Sections 2.4 and 2.5. For
purposes of this Section 2.3, (a) "disability" shall be as defined in the
employment practices or policies of the applicable subsidiary of the Company in
effect at the time of termination of employment, and (b) "retirement" shall mean
termination of employment with all subsidiaries of the Company by the
Participant after either attainment of age 65 or attainment of age 55 and the
completion of at least ten (10) years of employment with the Company or its
subsidiaries.
Section 2.4 Determination of Awards.
In the manner required by Section 162(m) of the Code, the Committee
shall, promptly after the date on which the necessary financial or other
information for a particular Performance Period becomes available, certify the
extent to which Performance Targets have been achieved. Using the Performance
Schedules, the Committee shall determine the Performance Percentage applicable
to each Performance Target and multiply the portion of the Target Award to which
the Performance Target relates by such Performance Percentage in order to arrive
at the actual Award payout for such portion.
At the time Target Awards are determined, the Committee may specify
that the Performance Percentage attributable to any one or more portions of a
Participant's Target Award may not exceed the Performance Percentage
attributable to any other portion of the Participant's Target Award. In the
event such specification is made, actual Award payouts shall be determined
accordingly.
Section 2.5 Limitations on Awards.
The aggregate amount of all Awards under the Plan to any Participant
for any Performance Period shall not exceed $1,000,000.
C-2
<PAGE> 45
Section 2.6 Payment of Awards.
Payment of Awards shall be made by the Company or the applicable
employer subsidiary as soon as administratively practical following the
certification by the Committee of the extent to which the applicable Performance
Targets have been achieved and the determination of the actual Awards in
accordance with Sections 2.4 and 2.5. All Awards under the Plan are subject to
withholding, where applicable, for federal, state and local taxes.
Section 2.7 Adjustment of Awards.
In the event of the occurrence during the Performance Period of any
recapitalization, reorganization, merger, acquisition, divestiture,
consolidation, spin-off, split-off, combination, liquidation, dissolution, sale
of assets, other similar corporate transaction or event, any changes in
applicable tax laws or accounting principles, or any unusual, extraordinary or
nonrecurring events involving the Company which distorts the performance
criteria applicable to any Performance Target, the Committee shall adjust the
calculation of the performance criteria, and the applicable Performance Targets
as is necessary to prevent reduction or enlargement of Participants' Awards
under the Plan for such Performance Period attributable to such transaction or
event. Such adjustments shall be conclusive and binding for all purposes.
ARTICLE III
MISCELLANEOUS
Section 3.1 No Rights to Awards or Continued Employment.
No employee of the Company or any of its subsidiaries shall have any
claim or right to receive Awards under the Plan. Neither the Plan nor any action
taken under the Plan shall be construed as giving any employee any right to be
retained by the Company or any subsidiary of the Company.
Section 3.2 No Limits on Other Awards and Plans.
Nothing contained in this Plan shall prohibit the Company or any of its
subsidiaries from establishing other special awards or incentive compensation
plans providing for the payment of incentive compensation to employees of the
Company and its subsidiaries, including any Participants.
Section 3.3 Restriction on Transfer.
The rights of a Participant with respect to Awards under the Plan shall
not be transferable by the Participant other than by will or the laws of descent
and distribution.
Section 3.4 Source of Payments.
The Company and its subsidiaries shall not have any obligation to
establish any separate fund or trust or other segregation of assets to provide
for payments under the Plan. To the extent any person acquires any rights to
receive payments hereunder from the Company or any of its subsidiaries, such
rights shall be no greater than those of an unsecured creditor.
C-3
<PAGE> 46
Section 3.5 Effective Date; Term; Amendment.
The Plan is effective as of June 19, 1996, subject to approval by the
Company's shareholders at the Company's 1996 annual meeting of shareholders, and
shall remain in effect until such time as it shall be terminated by the Board of
Directors of the Company. If approval of the Plan meeting the requirements of
Section 162(m) of the Code is not obtained at the 1996 annual meeting of
shareholders of the Company, then the Plan shall not be effective and any Award
made on or after June 19, 1996, shall be void ab initio. The Board of Directors
may at any time and from time to time alter, amend, suspend or terminate the
Plan in whole or in part.
Section 3.6 Prohibited or Unenforceable Provisions.
Any provision of the Plan that is prohibited or unenforceable shall be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions of the Plan.
Section 3.7 Section 162(m) Provisions.
Any Awards under the Plan shall be subject to the applicable
restrictions imposed by Code Section 162(m) and the Treasury Regulations
promulgated thereunder, notwithstanding any other provisions of the Plan to the
contrary.
Section 3.8 Governing Law.
The Plan and all rights and Awards hereunder shall be construed in
accordance with and governed by the laws of the State of Missouri.
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<PAGE> 47
H&R BLOCK, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND WILL BE VOTED AS
SPECIFIED ON THE REVERSE SIDE HEREOF. IF NO SUCH SPECIFICATION IS MADE, IT WILL
BE VOTED FOR EACH OF THE PROPOSALS.
The undersigned hereby appoints Donna R. Ecton, Frank L. Salizzoni and Louis W.
Smith, and each of them, the proxies (acting by a majority or, if only one be
present, then that one shall have all of the powers hereunder), each with full
power of substitution, for and in the name of the undersigned to represent and
to vote all shares of stock of H&R BLOCK, INC., a Missouri corporation, of the
undersigned at the annual meeting of shareholders of said corporation to be held
at the Nelson-Atkins Museum of Art, 4525 Oak Street, Kansas City, Missouri, on
September 13, 2000, commencing at 9:00 a.m., Kansas City time, and at any
adjournment thereof, notice of said meeting and the proxy statement furnished
therewith having been received by the undersigned; and, without limiting the
authority hereinabove given, said proxies or proxy are expressly authorized to
vote in accordance with the undersigned's direction as to those matters set
forth on the reverse side hereof and in accordance with their best judgment in
connection with the transaction of such other business, if any, as may properly
come before the meeting.
BE SURE TO SIGN AND DATE THE REVERSE SIDE OF THIS FORM
--------------------------------------------------------------------------------
/\ PLEASE DETACH PROXY HERE, SIGN AND MAIL /\
July 28, 2000
Dear Shareholder:
The annual meeting of shareholders of H&R Block, Inc. will be held at
the Nelson-Atkins Museum of Art, 4525 Oak Street, Kansas City, Missouri, at 9:00
a.m., Kansas City time, on Wednesday, September 13, 2000.
It is important that your shares are represented at this meeting.
Whether or not you plan to attend the meeting in person, please review the
enclosed proxy materials, complete the proxy form attached above, and return it
promptly in the envelope provided.
<PAGE> 48
<TABLE>
<S><C>
Please mark /X/
your votes as
indicated in
this example
1. ELECTION OF DIRECTORS. INSTRUCTION: To withhold authority to vote for any individual nominee(s), clearly cross out
his (their) name(s) below.
FOR WITHHOLD NOMINEES ARE: FOR CLASS II DIRECTORS, G. KENNETH BAUM, MARK A. ERNST, HENRY F. FRIGON AND
all nominees listed AUTHORITY ROGER W. HALE
to the right (except to vote for FOR CLASS I DIRECTOR, THOMAS M. BLOCH
as marked to nominee(s) FOR CLASS III DIRECTOR, RAYFORD WILKINS, JR.
the contrary) listed
/ / / /
2. APPROVAL OF THE H&R BLOCK, INC. 2000 3. APPROVAL OF THE H&R BLOCK SHORT-TERM 4. RATIFICATION OF THE APPOINTMENT OF
EMPLOYEE STOCK PURCHASE PLAN. INCENTIVE PLAN, AS AMENDED. PRICEWATERHOUSECOOPERS LLP AS THE COMPANY'S
INDEPENDENT AUDITORS FOR THE YEAR ENDING
FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN APRIL 30, 2001.
/ / / / / / / / / / / /
FOR AGAINST ABSTAIN
/ / / / / /
Dated , 2000
----------------------------
----------------------------------------
SIGNATURE
----------------------------------------
SIGNATURE OF SHAREHOLDER(S)
(Please date and sign exactly as name
appears at the left and return in the
enclosed postage paid envelope. If
shares are owned in joint names, all
joint owners should sign.)
</TABLE>
--------------------------------------------------------------------------------
/\ PLEASE DETACH PROXY HERE, SIGN AND MAIL /\
IT IS IMPORTANT THAT YOUR SHARES ARE REPRESENTED AT THIS MEETING, WHETHER OR NOT
YOU ATTEND THE MEETING IN PERSON. TO MAKE SURE THAT YOUR SHARES ARE REPRESENTED,
WE URGE YOU TO COMPLETE, DETACH AND MAIL THE PROXY FORM ABOVE AS SOON AS
POSSIBLE.
