10-Q
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-Q
|
|
|
(Mark One)
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[X]
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended January 31, 2009
|
OR
|
[ ]
|
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file
number 1-6089
H&R
BLOCK, Inc.
(Exact name of registrant as
specified in its charter)
|
|
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MISSOURI
(State or other jurisdiction
of
incorporation or organization)
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|
44-0607856
(I.R.S. Employer
Identification No.)
|
One
H&R Block Way
Kansas
City, Missouri 64105
(Address of principal executive
offices, including zip code)
(816) 854-3000
(Registrants telephone
number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes Ö No
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one) :
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Large accelerated
filer Ö
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Accelerated filer
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Non-accelerated filer
|
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Smaller Reporting company
|
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|
|
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|
(Do not check if a smaller reporting company)
|
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange Act).
Yes No Ö
The number of shares outstanding of the registrants Common
Stock, without par value, at the close of business on
February 28, 2009 was 339,666,500 shares.
Form 10-Q
for the Period Ended January 31, 2009
Table of
Contents
CONDENSED
CONSOLIDATED BALANCE
SHEETS (amounts
in 000s, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
January 31,
2009
|
|
|
April 30,
2008
|
|
|
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|
(Unaudited)
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,269,203
|
|
|
$
|
664,897
|
|
Cash and cash equivalents restricted
|
|
|
75,893
|
|
|
|
7,031
|
|
Receivables, less allowance for doubtful accounts
of $85,327 and $120,155
|
|
|
2,642,951
|
|
|
|
534,229
|
|
Prepaid expenses and other current assets
|
|
|
425,042
|
|
|
|
420,738
|
|
Assets of discontinued operations, held for sale
|
|
|
-
|
|
|
|
987,592
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
4,413,089
|
|
|
|
2,614,487
|
|
Mortgage loans held for investment, less allowance
for loan losses of $75,615 and $45,401
|
|
|
781,755
|
|
|
|
966,301
|
|
Property and equipment, at cost, less accumulated depreciation
and amortization of $642,220 and $620,460
|
|
|
383,704
|
|
|
|
363,664
|
|
Intangible assets, net
|
|
|
394,106
|
|
|
|
147,368
|
|
Goodwill
|
|
|
848,443
|
|
|
|
831,314
|
|
Other assets
|
|
|
480,795
|
|
|
|
700,291
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
7,301,892
|
|
|
$
|
5,623,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
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Liabilities:
|
|
|
|
|
|
|
|
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Short-term borrowings
|
|
$
|
690,485
|
|
|
$
|
-
|
|
Customer banking deposits
|
|
|
2,115,708
|
|
|
|
785,624
|
|
Accounts payable, accrued expenses and other current liabilities
|
|
|
734,755
|
|
|
|
739,887
|
|
Accrued salaries, wages and payroll taxes
|
|
|
206,959
|
|
|
|
365,712
|
|
Accrued income taxes
|
|
|
143,791
|
|
|
|
439,380
|
|
Current portion of long-term debt
|
|
|
9,030
|
|
|
|
7,286
|
|
Federal Home Loan Bank borrowings
|
|
|
104,000
|
|
|
|
129,000
|
|
Liabilities of discontinued operations, held for sale
|
|
|
-
|
|
|
|
644,446
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
4,004,728
|
|
|
|
3,111,335
|
|
Long-term debt
|
|
|
2,002,647
|
|
|
|
1,031,784
|
|
Other noncurrent liabilities
|
|
|
454,512
|
|
|
|
492,488
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
6,461,887
|
|
|
|
4,635,607
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
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Stockholders equity:
|
|
|
|
|
|
|
|
|
Common stock, no par, stated value $.01 per share,
800,000,000 shares authorized,
shares issued of 444,176,510 and 435,890,796
|
|
|
4,442
|
|
|
|
4,359
|
|
Additional paid-in capital
|
|
|
835,329
|
|
|
|
695,959
|
|
Accumulated other comprehensive income (loss)
|
|
|
(16,614
|
)
|
|
|
2,486
|
|
Retained earnings
|
|
|
2,015,650
|
|
|
|
2,384,449
|
|
Less treasury shares, at cost
|
|
|
(1,998,802
|
)
|
|
|
(2,099,435
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
840,005
|
|
|
|
987,818
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
7,301,892
|
|
|
$
|
5,623,425
|
|
|
|
|
|
|
|
|
|
|
See Notes to
Condensed Consolidated Financial Statements
1
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF
OPERATIONS AND COMPREHENSIVE INCOME (LOSS) |
(unaudited,
amounts in 000s,
except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
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Three Months Ended
January 31,
|
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Nine Months Ended
January 31,
|
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|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service revenues
|
|
$
|
799,687
|
|
|
$
|
710,250
|
|
|
$
|
1,356,744
|
|
|
$
|
1,267,924
|
|
Other revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product and other revenues
|
|
|
135,155
|
|
|
|
137,444
|
|
|
|
166,582
|
|
|
|
176,232
|
|
Interest income
|
|
|
58,604
|
|
|
|
47,110
|
|
|
|
93,498
|
|
|
|
101,358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
993,446
|
|
|
|
894,804
|
|
|
|
1,616,824
|
|
|
|
1,545,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services
|
|
|
572,854
|
|
|
|
552,807
|
|
|
|
1,272,762
|
|
|
|
1,264,880
|
|
Cost of other revenues
|
|
|
111,713
|
|
|
|
96,234
|
|
|
|
216,890
|
|
|
|
194,929
|
|
Selling, general and administrative
|
|
|
208,814
|
|
|
|
247,320
|
|
|
|
464,054
|
|
|
|
514,403
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
893,381
|
|
|
|
896,361
|
|
|
|
1,953,706
|
|
|
|
1,974,212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
100,065
|
|
|
|
(1,557
|
)
|
|
|
(336,882
|
)
|
|
|
(428,698
|
)
|
Other income (expense), net
|
|
|
1,674
|
|
|
|
1,973
|
|
|
|
(1,802
|
)
|
|
|
19,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
(benefit)
|
|
|
101,739
|
|
|
|
416
|
|
|
|
(338,684
|
)
|
|
|
(408,906
|
)
|
Income taxes (benefit)
|
|
|
34,909
|
|
|
|
(6,674
|
)
|
|
|
(143,930
|
)
|
|
|
(168,893
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
|
66,830
|
|
|
|
7,090
|
|
|
|
(194,754
|
)
|
|
|
(240,013
|
)
|
Net loss from discontinued operations
|
|
|
(19,467
|
)
|
|
|
(54,448
|
)
|
|
|
(26,476
|
)
|
|
|
(612,196
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
47,363
|
|
|
$
|
(47,358
|
)
|
|
$
|
(221,230
|
)
|
|
$
|
(852,209
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
$
|
0.20
|
|
|
$
|
0.02
|
|
|
$
|
(0.59
|
)
|
|
$
|
(0.74
|
)
|
Net loss from discontinued operations
|
|
|
(0.06
|
)
|
|
|
(0.17
|
)
|
|
|
(0.08
|
)
|
|
|
(1.89
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
0.14
|
|
|
$
|
(0.15
|
)
|
|
$
|
(0.67
|
)
|
|
$
|
(2.63
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic shares
|
|
|
337,338
|
|
|
|
325,074
|
|
|
|
331,429
|
|
|
|
324,544
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
$
|
0.20
|
|
|
$
|
0.02
|
|
|
$
|
(0.59
|
)
|
|
$
|
(0.74
|
)
|
Net loss from discontinued operations
|
|
|
(0.06
|
)
|
|
|
(0.16
|
)
|
|
|
(0.08
|
)
|
|
|
(1.89
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
0.14
|
|
|
$
|
(0.14
|
)
|
|
$
|
(0.67
|
)
|
|
$
|
(2.63
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted shares
|
|
|
338,687
|
|
|
|
327,202
|
|
|
|
331,429
|
|
|
|
324,544
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends per share
|
|
$
|
0.15
|
|
|
$
|
0.14
|
|
|
$
|
0.44
|
|
|
$
|
0.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
47,363
|
|
|
$
|
(47,358
|
)
|
|
$
|
(221,230
|
)
|
|
$
|
(852,209
|
)
|
Change in unrealized gain on available-for-sale securities, net
|
|
|
(1,707
|
)
|
|
|
381
|
|
|
|
(4,271
|
)
|
|
|
1,544
|
|
Change in foreign currency translation adjustments
|
|
|
(3,671
|
)
|
|
|
(1,860
|
)
|
|
|
(14,829
|
)
|
|
|
(572
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
41,985
|
|
|
$
|
(48,837
|
)
|
|
$
|
(240,330
|
)
|
|
$
|
(851,237
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to
Condensed Consolidated Financial Statements
2
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS |
(unaudited,
amounts in 000s)
|
|
|
|
|
|
|
|
|
|
Nine
Months Ended January 31,
|
|
2009
|
|
|
2008
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(221,230
|
)
|
|
$
|
(852,209
|
)
|
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
90,455
|
|
|
|
82,710
|
|
Stock-based compensation
|
|
|
20,364
|
|
|
|
30,131
|
|
Change in participation in tax client loans receivable
|
|
|
(1,048,993
|
)
|
|
|
(1,693,506
|
)
|
Operating cash flows of discontinued operations
|
|
|
99,425
|
|
|
|
(34,297
|
)
|
Other, net of business acquisitions
|
|
|
(1,363,583
|
)
|
|
|
(872,946
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(2,423,562
|
)
|
|
|
(3,340,117
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Principal repayments on mortgage loans held for investment, net
|
|
|
72,150
|
|
|
|
106,721
|
|
Purchases of property and equipment, net
|
|
|
(73,913
|
)
|
|
|
(77,226
|
)
|
Payments made for business acquisitions, net of cash acquired
|
|
|
(290,868
|
)
|
|
|
(23,835
|
)
|
Net cash provided by (used in) investing activities of
discontinued operations:
|
|
|
|
|
|
|
|
|
Proceeds from sale of operating unit, net
|
|
|
303,983
|
|
|
|
-
|
|
Other
|
|
|
(48,917
|
)
|
|
|
(1,675
|
)
|
Other, net
|
|
|
23,839
|
|
|
|
7,382
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(13,726
|
)
|
|
|
11,367
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Repayments of commercial paper
|
|
|
-
|
|
|
|
(5,125,279
|
)
|
Proceeds from issuance of commercial paper
|
|
|
-
|
|
|
|
4,133,197
|
|
Repayments of other short-term borrowings
|
|
|
(928,983
|
)
|
|
|
(2,161,177
|
)
|
Proceeds from other short-term borrowings
|
|
|
2,565,281
|
|
|
|
5,097,662
|
|
Proceeds from issuance of Senior Notes
|
|
|
-
|
|
|
|
599,376
|
|
Customer deposits, net
|
|
|
1,326,584
|
|
|
|
828,872
|
|
Dividends paid
|
|
|
(147,569
|
)
|
|
|
(137,049
|
)
|
Acquisition of treasury shares
|
|
|
(7,387
|
)
|
|
|
(7,237
|
)
|
Proceeds from exercise of stock options
|
|
|
69,891
|
|
|
|
14,527
|
|
Proceeds from issuance of common stock, net
|
|
|
141,450
|
|
|
|
-
|
|
Net cash provided by financing activities of discontinued
operations
|
|
|
4,783
|
|
|
|
634,208
|
|
Other, net
|
|
|
17,544
|
|
|
|
(32,331
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
3,041,594
|
|
|
|
3,844,769
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
604,306
|
|
|
|
516,019
|
|
Cash and cash equivalents at beginning of the period
|
|
|
664,897
|
|
|
|
816,917
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of the period
|
|
$
|
1,269,203
|
|
|
$
|
1,332,936
|
|
|
|
|
|
|
|
|
|
|
Supplementary cash flow data:
|
|
|
|
|
|
|
|
|
Income taxes paid, net of refunds received of $156,522 and
$89,865
|
|
$
|
(13,006
|
)
|
|
$
|
(55,975
|
)
|
Interest paid on borrowings
|
|
|
70,891
|
|
|
|
129,694
|
|
Interest paid on deposits
|
|
|
11,484
|
|
|
|
39,498
|
|
Non-cash investing activities:
|
|
|
|
|
|
|
|
|
Foreclosed assets
|
|
|
62,774
|
|
|
|
-
|
|
See Notes to
Condensed Consolidated Financial Statements
3
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS EQUITY |
(unaudited,
amounts in 000s,
except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
|
|
|
Additional
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Preferred Stock
|
|
|
Paid-in
|
|
|
Comprehensive
|
|
|
Retained
|
|
|
Treasury Stock
|
|
|
Total
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Income (Loss)
|
|
|
Earnings
|
|
|
Shares
|
|
|
Amount
|
|
|
Equity
|
|
|
|
|
Balances at April 30, 2007
|
|
|
435,891
|
|
|
$
|
4,359
|
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
676,766
|
|
|
$
|
(1,320
|
)
|
|
$
|
2,886,440
|
|
|
|
(112,672
|
)
|
|
$
|
(2,151,746
|
)
|
|
$
|
1,414,499
|
|
Remeasurement of uncertain tax positions upon adoption of
FIN 48
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(9,716
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(9,716
|
)
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(852,209
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(852,209
|
)
|
Unrealized translation loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(572
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(572
|
)
|
Change in net unrealized gain on available-for-sale securities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,544
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,544
|
|
Stock-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
37,150
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
37,150
|
|
Shares issued for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option exercises
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(8,815
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
1,072
|
|
|
|
20,478
|
|
|
|
11,663
|
|
Nonvested shares
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(20,058
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
938
|
|
|
|
17,917
|
|
|
|
(2,141
|
)
|
ESPP
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(65
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
412
|
|
|
|
7,872
|
|
|
|
7,807
|
|
Acquisitions
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
35
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8
|
|
|
|
158
|
|
|
|
193
|
|
Acquisition of treasury shares
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(325
|
)
|
|
|
(7,237
|
)
|
|
|
(7,237
|
)
|
Cash dividends paid $0.42 per share
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(137,049
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(137,049
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at January 31, 2008
|
|
|
435,891
|
|
|
$
|
4,359
|
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
685,013
|
|
|
$
|
(348
|
)
|
|
$
|
1,887,466
|
|
|
|
(110,567
|
)
|
|
$
|
(2,112,558
|
)
|
|
$
|
463,932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at April 30, 2008
|
|
|
435,891
|
|
|
$
|
4,359
|
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
695,959
|
|
|
$
|
2,486
|
|
|
$
|
2,384,449
|
|
|
|
(109,880
|
)
|
|
$
|
(2,099,435
|
)
|
|
$
|
987,818
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(221,230
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(221,230
|
)
|
Unrealized translation loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(14,829
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(14,829
|
)
|
Change in net unrealized gain on available-for-sale securities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,271
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,271
|
)
|
Proceeds from common stock issuance, net of expenses
|
|
|
8,286
|
|
|
|
83
|
|
|
|
-
|
|
|
|
-
|
|
|
|
141,367
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
141,450
|
|
Stock-based compensation-
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
25,769
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
25,769
|
|
Shares issued for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option exercises
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(7,023
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
4,341
|
|
|
|
82,954
|
|
|
|
75,931
|
|
Nonvested shares
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(20,345
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
1,011
|
|
|
|
19,326
|
|
|
|
(1,019
|
)
|
ESPP
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(423
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
292
|
|
|
|
5,577
|
|
|
|
5,154
|
|
Acquisitions
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
25
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9
|
|
|
|
163
|
|
|
|
188
|
|
Acquisition of treasury shares
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(355
|
)
|
|
|
(7,387
|
)
|
|
|
(7,387
|
)
|
Cash dividends paid $0.44 per share
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(147,569
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(147,569
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at January 31, 2009
|
|
|
444,177
|
|
|
$
|
4,442
|
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
835,329
|
|
|
$
|
(16,614
|
)
|
|
$
|
2,015,650
|
|
|
|
(104,582
|
)
|
|
$
|
(1,998,802
|
)
|
|
$
|
840,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to
Condensed Consolidated Financial Statements
4
|
|
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS |
(unaudited)
|
|
|
1.
|
Summary of
Significant Accounting Policies
|
Basis of Presentation
The condensed consolidated balance sheet as of January 31,
2009, the condensed consolidated statements of operations and
comprehensive income (loss) for the three and nine months ended
January 31, 2009 and 2008, the condensed consolidated
statements of cash flows for the nine months ended
January 31, 2009 and 2008, and the condensed consolidated
statements of stockholders equity for the nine months
ended January 31, 2009 and 2008 have been prepared by the
Company, without audit. In the opinion of management, all
adjustments, which include only normal recurring adjustments,
necessary to present fairly the financial position, results of
operations, cash flows and changes in stockholders equity
at January 31, 2009 and for all periods presented have been
made.
H&R Block, the Company,
we, our and us are used
interchangeably to refer to H&R Block, Inc. or to H&R
Block, Inc. and its subsidiaries, as appropriate to the context.
Certain reclassifications have been made to prior year amounts
to conform to the current year presentation. These
reclassifications had no effect on our results of operations or
stockholders equity as previously reported. Effective
November 1, 2008, we sold H&R Block Financial
Advisors, Inc. (HRBFA) to Ameriprise Financial, Inc.
(Ameriprise). As of January 31, 2009, HRBFA and its direct
corporate parent are presented as discontinued operations in the
condensed consolidated financial statements. All periods
presented have been reclassified to reflect our discontinued
operations. See additional discussion in note 17.
Certain information and footnote disclosures normally included
in financial statements prepared in accordance with
U.S. generally accepted accounting principles have been
condensed or omitted. These condensed consolidated financial
statements should be read in conjunction with the financial
statements and notes thereto included in our April 30, 2008
Annual Report to Shareholders on
Form 10-K.
All amounts presented herein as of April 30, 2008 or for
the year then ended, are derived from our April 30, 2008
Annual Report to Shareholders on
Form 10-K.
Management Estimates
The preparation of financial statements in conformity with
U.S. generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from
those estimates.
Seasonality of
Business
Our operating revenues are seasonal in nature with peak revenues
occurring in the months of January through April. Therefore,
results for interim periods are not indicative of results to be
expected for the full year.
Concentrations of
Risk
Cash deposits in bank accounts in excess of insured or
guaranteed limits are exposed to loss in the event of
nonperformance by the financial institution. We had cash
deposits in excess of these limits of approximately
$30 million at January 31, 2009. We have not
historically experienced any losses on bank deposits. In
addition to cash deposits with financial institutions, we had
investments totaling approximately $1 billion and $110
million in federal funds sold and money market funds,
respectively, at January 31, 2009.
Our mortgage loans held for investment include concentrations of
loans to borrowers in certain states, which may result in
increased exposure to loss as a result of changes in real estate
values and underlying economic or market conditions related to a
particular geographical location. Approximately 50% of our
mortgage loan portfolio consists of loans to borrowers located
in the states of Florida, California and New York.
5
|
|
2.
|
Earnings (Loss)
Per Share and Stockholders Equity
|
Basic and diluted loss per share is computed using the weighted
average shares outstanding during each period. The dilutive
effect of potential common shares is included in diluted
earnings per share except in those periods with a loss from
continuing operations. The computations of basic and diluted
earnings (loss) per share from continuing operations are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in 000s, except
|
|
|
|
|
|
|
|
|
|
per share amounts)
|
|
|
|
|
|
Three Months
Ended
|
|
|
Nine Months Ended
|
|
|
|
January 31,
|
|
|
January 31,
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Net income (loss) from continuing operations
|
|
$
|
66,830
|
|
|
$
|
7,090
|
|
|
$
|
(194,754
|
)
|
|
$
|
(240,013
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average common shares
|
|
|
337,338
|
|
|
|
325,074
|
|
|
|
331,429
|
|
|
|
324,544
|
|
Potential dilutive shares from stock options and nonvested shares
|
|
|
1,347
|
|
|
|
2,126
|
|
|
|
-
|
|
|
|
-
|
|
Convertible preferred stock
|
|
|
2
|
|
|
|
2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive weighted average common shares
|
|
|
338,687
|
|
|
|
327,202
|
|
|
|
331,429
|
|
|
|
324,544
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.20
|
|
|
$
|
0.02
|
|
|
$
|
(0.59
|
)
|
|
$
|
(0.74
|
)
|
Diluted
|
|
|
0.20
|
|
|
|
0.02
|
|
|
|
(0.59
|
)
|
|
|
(0.74
|
)
|
|
|
Diluted earnings per share excludes the impact of shares of
common stock issuable upon the lapse of certain restrictions or
the exercise of options to purchase 16.0 million shares and
18.0 million shares for the three months ended
January 31, 2009 and 2008, respectively, as the effect
would be antidilutive. Diluted earnings per share excludes the
impact of shares of common stock issuable upon the lapse of
certain restrictions or the exercise of options to purchase
20.2 million shares and 24.8 million shares for the
nine months ended January 31, 2009 and 2008, respectively,
as the effect would be antidilutive due to the net loss from
continuing operations during each period.
The weighted average shares outstanding for the three and nine
months ended January 31, 2009 increased to
337.3 million and 331.4 million, respectively, from
325.1 million and 324.5 million for the three and nine
months ended January 31, 2008, respectively, primarily due
to the issuance of shares of our common stock in October 2008.
On October 27, 2008, we sold 8.3 million shares of our
common stock, without par value, at a price of $17.50 per share
in a registered direct offering through subscription agreements
with selected institutional investors. We received net proceeds
of $141.5 million, after deducting placement agent fees and
other offering expenses.
During the nine months ended January 31, 2009 and 2008, we
issued 5.7 million and 2.4 million shares of common
stock, respectively, due to the exercise of stock options,
employee stock purchases and vesting of nonvested shares.
During the nine months ended January 31, 2009, we acquired
0.4 million shares of our common stock, which represent
shares swapped or surrendered to us in connection with the
vesting of nonvested shares and the exercise of stock options,
at an aggregate cost of $7.4 million. During the nine
months ended January 31, 2008, we acquired 0.3 million
shares of our common stock, which represent shares swapped or
surrendered to us in connection with the vesting of nonvested
shares and the exercise of stock options, at an aggregate cost
of $7.2 million.
During the nine months ended January 31, 2009, we granted
5.1 million stock options and 1.0 million nonvested
shares and units in accordance with our stock-based compensation
plans. The weighted average fair value of options granted was
$3.80 for manager options and $2.83 for options granted to our
seasonal associates. At January 31, 2009, the total
unrecognized compensation cost for options and nonvested shares
and units was $12.2 million and $17.5 million,
respectively.
Effective November 3, 2008, we acquired the assets and
franchise rights of our last major independent franchise
operator for an aggregate purchase price of $278.6 million.
Results related to the acquired business have been included in
our condensed consolidated financial statements since
November 3, 2008. Pro forma results of operations have not
been presented as the effects of this acquisition were not
material
6
to our results. The accompanying balance sheet reflects a
preliminary allocation of the purchase price to assets acquired
and liabilities assumed as follows:
|
|
|
|
|
|
|
|
|
(in 000s)
|
|
|
Property and equipment
|
|
$
|
6,169
|
|
|
|
Goodwill
|
|
|
16,062
|
|
|
|
Reacquired franchise rights
|
|
|
177,386
|
|
|
|
Franchise agreements
|
|
|
54,977
|
|
|
|
Customer relationships
|
|
|
24,264
|
|
|
|
Noncompete agreements
|
|
|
756
|
|
|
|
Other
|
|
|
735
|
|
|
|
Liabilities
|
|
|
(1,740
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
278,609
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill recognized in this transaction is included in the Tax
Services segment and is deductible for tax purposes.
Receivables related to our continuing operations consist of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in 000s)
|
|
|
|
|
|
January 31,
2009
|
|
|
January 31,
2008
|
|
|
April 30,
2008
|
|
|
|
|
Participation in tax client loans
|
|
$
|
1,122,347
|
|
|
$
|
1,763,030
|
|
|
$
|
73,354
|
|
Emerald Advance lines of credit
|
|
|
688,663
|
|
|
|
361,263
|
|
|
|
5,115
|
|
Business Services accounts receivable
|
|
|
335,893
|
|
|
|
257,010
|
|
|
|
320,377
|
|
Receivables for tax-related fees
|
|
|
309,379
|
|
|
|
117,328
|
|
|
|
47,301
|
|
Royalties from franchisees
|
|
|
80,603
|
|
|
|
68,573
|
|
|
|
1,784
|
|
Loans to franchisees
|
|
|
66,317
|
|
|
|
71,349
|
|
|
|
53,536
|
|
Other
|
|
|
125,076
|
|
|
|
119,740
|
|
|
|
152,917
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,728,278
|
|
|
|
2,758,293
|
|
|
|
654,384
|
|
Allowance for doubtful accounts
|
|
|
(85,327
|
)
|
|
|
(78,847
|
)
|
|
|
(120,155
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,642,951
|
|
|
$
|
2,679,446
|
|
|
$
|
534,229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.
|
Mortgage Loans
Held for Investment
|
The composition of our mortgage loan portfolio as of
January 31, 2009 and April 30, 2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in 000s)
|
|
|
|
|
|
January 31, 2009
|
|
|
April 30, 2008
|
|
|
|
|
|
Amount
|
|
|
% of
Total
|
|
|
Amount
|
|
|
% of
Total
|
|
|
|
|
Adjustable-rate loans
|
|
$
|
566,475
|
|
|
|
67
|
%
|
|
$
|
715,919
|
|
|
|
71
|
%
|
Fixed-rate loans
|
|
|
284,727
|
|
|
|
33
|
%
|
|
|
288,721
|
|
|
|
29
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
851,202
|
|
|
|
100
|
%
|
|
|
1,004,640
|
|
|
|
100
|
%
|
Unamortized deferred fees and costs
|
|
|
6,168
|
|
|
|
|
|
|
|
7,062
|
|
|
|
|
|
Less: Allowance for loan losses
|
|
|
(75,615
|
)
|
|
|
|
|
|
|
(45,401
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
781,755
|
|
|
|
|
|
|
$
|
966,301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Activity in the allowance for mortgage loan losses for the nine
months ended January 31, 2009 and 2008 is as follows:
(in
000s)
|
|
|
|
|
|
|
|
|
|
|
|
Nine
Months Ended January 31,
|
|
2009
|
|
|
2008
|
|
|
|
|
|
Balance at beginning of the period
|
|
$
|
45,401
|
|
|
$
|
3,448
|
|
|
|
Provision
|
|
|
51,953
|
|
|
|
12,345
|
|
|
|
Recoveries
|
|
|
50
|
|
|
|
999
|
|
|
|
Charge-offs
|
|
|
(21,789
|
)
|
|
|
(932
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of the period
|
|
$
|
75,615
|
|
|
$
|
15,860
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
The loan loss provision increased significantly during the
current period as a result of declining collateral values due to
a decline in residential home prices, and increasing
delinquencies occurring in our portfolio. Our loan loss reserve
as a percent of mortgage loans was 8.82% at January 31,
2009, compared to 4.49% at April 30, 2008.
In cases where we modify a loan and in so doing grant a
concession to a borrower experiencing financial difficulty, the
modification is considered a troubled debt restructuring (TDR).
TDR loans totaled $153.7 million and $37.2 million at
January 31, 2009 and April 30, 2008, respectively.
Loans 60 days past due are considered impaired. Impaired
and TDR loans at January 31, 2009 and April 30, 2008
totaled $258.2 million and $128.9 million,
respectively.
|
|
6.
|
Goodwill and
Intangible Assets
|
Changes in the carrying amount of goodwill of continuing
operations for the nine months ended January 31, 2009
consist of the following:
(in
000s)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30,
2008
|
|
|
Additions
|
|
|
Impairment
|
|
|
Other
|
|
|
January 31,
2009
|
|
|
|
|
Tax Services
|
|
$
|
431,981
|
|
|
$
|
19,820
|
|
|
$
|
(2,188
|
)
|
|
$
|
(3,506
|
)
|
|
$
|
446,107
|
|
Business Services
|
|
|
399,333
|
|
|
|
3,003
|
|
|
|
-
|
|
|
|
-
|
|
|
|
402,336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
831,314
|
|
|
$
|
22,823
|
|
|
$
|
(2,188
|
)
|
|
$
|
(3,506
|
)
|
|
$
|
848,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We test goodwill for impairment annually at the beginning of our
fourth quarter, or more frequently if events occur indicating it
is more likely than not the fair value of a reporting
units net assets has been reduced below its carrying value.
During the nine months ended January 31, 2009, we recorded
a $2.2 million impairment in our Tax Services segment
relating to the goodwill of a small digital business acquired in
fiscal year 2005. No other events indicating possible impairment
of goodwill were identified during the nine months ended
January 31, 2009.
Intangible assets of continuing operations consist of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in 000s)
|
|
|
|
|
|
January 31, 2009
|
|
|
April 30, 2008
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Net
|
|
|
Amount
|
|
|
Amortization
|
|
|
Net
|
|
|
|
|
Tax Services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
72,535
|
|
|
$
|
(24,462
|
)
|
|
$
|
48,073
|
|
|
$
|
46,479
|
|
|
$
|
(22,007
|
)
|
|
$
|
24,472
|
|
Noncompete agreements
|
|
|
23,261
|
|
|
|
(20,587
|
)
|
|
|
2,674
|
|
|
|
22,966
|
|
|
|
(19,981
|
)
|
|
|
2,985
|
|
Reacquired franchise rights
|
|
|
177,386
|
|
|
|
-
|
|
|
|
177,386
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Franchise agreements
|
|
|
54,977
|
|
|
|
(611
|
)
|
|
|
54,366
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Purchased technology
|
|
|
12,500
|
|
|
|
(3,751
|
)
|
|
|
8,749
|
|
|
|
12,500
|
|
|
|
(2,283
|
)
|
|
|
10,217
|
|
Trade name
|
|
|
1,025
|
|
|
|
(192
|
)
|
|
|
833
|
|
|
|
1,025
|
|
|
|
(117
|
)
|
|
|
908
|
|
Business Services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
|
146,040
|
|
|
|
(108,508
|
)
|
|
|
37,532
|
|
|
|
143,402
|
|
|
|
(100,346
|
)
|
|
|
43,056
|
|
Noncompete agreements
|
|
|
33,068
|
|
|
|
(19,344
|
)
|
|
|
13,724
|
|
|
|
32,303
|
|
|
|
(17,589
|
)
|
|
|
14,714
|
|
Trade name amortizing
|
|
|
2,600
|
|
|
|
(2,600
|
)
|
|
|
-
|
|
|
|
3,290
|
|
|
|
(3,043
|
)
|
|
|
247
|
|
Trade name
non-amortizing
|
|
|
55,637
|
|
|
|
(4,868
|
)
|
|
|
50,769
|
|
|
|
55,637
|
|
|
|
(4,868
|
)
|
|
|
50,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
579,029
|
|
|
$
|
(184,923
|
)
|
|
$
|
394,106
|
|
|
$
|
317,602
|
|
|
$
|
(170,234
|
)
|
|
$
|
147,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangible assets of continuing operations for
the three and nine months ended January 31, 2009 was
$6.8 million and $20.4 million, respectively, and
$5.5 million and $17.7 million for the three and nine
months ended January 31, 2008, respectively. Estimated
amortization of intangible assets for fiscal years 2009 through
2013 is $26.8 million, $29.9 million,
$28.0 million, $25.2 million and $21.1 million,
respectively.
8
Borrowings of continuing operations consist of the following:
(in
000s)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31,
2009
|
|
|
January 31,
2008
|
|
|
April 30,
2008
|
|
|
|
|
Short-term borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
HSBC credit facility
|
|
$
|
690,485
|
|
|
$
|
1,683,317
|
|
|
$
|
-
|
|
Other credit facilities
|
|
|
-
|
|
|
|
28,168
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
690,485
|
|
|
$
|
1,711,485
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
CLOC borrowings, due August 2010
|
|
$
|
970,813
|
|
|
$
|
1,800,000
|
|
|
$
|
-
|
|
Senior Notes, 7.875%, due January 2013
|
|
|
599,507
|
|
|
|
599,383
|
|
|
|
599,414
|
|
Senior Notes, 5.125%, due October 2014
|
|
|
398,648
|
|
|
|
398,412
|
|
|
|
398,471
|
|
Other
|
|
|
42,709
|
|
|
|
23,948
|
|
|
|
41,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,011,677
|
|
|
|
2,821,743
|
|
|
|
1,039,070
|
|
Less: Current portion
|
|
|
(9,030
|
)
|
|
|
(8,332
|
)
|
|
|
(7,286
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,002,647
|
|
|
$
|
2,813,411
|
|
|
$
|
1,031,784
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At January 31, 2009, we maintained $2.0 billion in
revolving credit facilities to support commercial paper issuance
and for general corporate purposes. These unsecured committed
lines of credit (CLOCs), and outstanding borrowings thereunder,
have a maturity date of August 2010 and an annual facility fee
in a range of six to fifteen basis points per annum, based on
our credit ratings. We had $970.8 million outstanding as of
January 31, 2009 to support working capital requirements
primarily arising from off-season operating losses, to pay
dividends and acquire businesses. These borrowings are included
in long-term debt on our condensed consolidated balance sheet
due to their contractual maturity date. The CLOCs, among other
things, require we maintain at least $650.0 million of net
worth on the last day of any fiscal quarter. We had net worth of
$840.0 million at January 31, 2009.
Lehman Brothers Bank, FSB (Lehman) is a participating lender in
our $2.0 billion CLOCs, with a $50.0 million credit
commitment. In September 2008, Lehmans parent company
declared bankruptcy. Since then, Lehman has not honored any
funding requests under these facilities, thereby effectively
reducing our available liquidity under our CLOCs to
$1.95 billion. We do not expect this change to have a
material impact on our liquidity.
We entered into a committed line of credit agreement with HSBC
Finance Corporation (HSBC) effective January 14, 2009 for
use as a funding source for the purchase of refund anticipation
loan (RAL) participations. This line provides funding totaling
$2.5 billion through March 30, 2009 and
$120.0 million thereafter through June 30, 2009. This
line is subject to various covenants that are similar to our
primary CLOCs, and is secured by our RAL participations. At
January 31, 2009, there was $690.5 million outstanding
on this facility. Our contract with HSBC provides for them to
fund RALs through 2011, with an option to renew, at our
discretion, through 2013. We have also had a contract each of
the last two years under which HSBC has funded our participation
interest in RALs.
H&R Block Bank (HRB Bank) is a member of the Federal Home
Loan Bank (FHLB) of Des Moines, which extends credit to member
banks based on eligible collateral. At January 31, 2009,
HRB Bank had total FHLB advance capacity of $434.1 million.
There was $104.0 million outstanding on this facility,
leaving remaining availability of $330.1 million. Mortgage
loans held for investment of $698.6 million serve as
eligible collateral and are used to determine total capacity.
We file a consolidated federal income tax return in the United
States and file tax returns in various state and foreign
jurisdictions. Consolidated tax returns for the years 1999
through 2007 are currently under examination by the Internal
Revenue Service (IRS). Tax years prior to 1999 are closed by
statute. Historically, tax returns in various foreign and state
jurisdictions are examined and settled upon completion of the
exam.
9
During the three and nine months ended January 31, 2009, we
accrued an additional $2.9 million and $6.9 million,
respectively, of interest and penalties related to our uncertain
tax positions. We had unrecognized tax benefits of
$128.3 million and $137.6 million at January 31,
2009 and April 30, 2008, respectively. The unrecognized tax
benefits decreased $9.3 million in the current year, due
primarily to settlement payments. We have classified the
liability for unrecognized tax benefits, including corresponding
accrued interest, as long-term at January 31, 2009, which
is included in other noncurrent liabilities on the condensed
consolidated balance sheet. Amounts that we expect to pay, or
for which statutes expire, within the next twelve months have
been included in accounts payable, accrued expenses and other
current liabilities on the condensed consolidated balance sheet.
During the third quarter of fiscal year 2009 we received tax
refunds of $156.5 million, the majority of which was
recorded as a receivable included in other assets on our
condensed consolidated financial statements as of April 30,
2008.
Based upon the expiration of statutes of limitations, payments
of tax and other factors in several jurisdictions, we believe it
is reasonably possible that the total amount of previously
unrecognized tax benefits may decrease by approximately $6 to
$7 million within twelve months of January 31, 2009.
|
|
9.
|
Interest Income
and Expense
|
The following table shows the components of interest income and
expense of our continuing operations. Operating interest expense
is included in cost of other revenues, and interest expense on
acquisition debt is included in other income (expense), net on
our condensed consolidated statements of operations.
(in
000s)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
|
Nine Months Ended
|
|
|
|
January 31,
|
|
|
January 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans, net
|
|
$
|
11,131
|
|
|
$
|
17,198
|
|
|
$
|
36,494
|
|
|
$
|
60,140
|
|
Emerald Advance lines of credit
|
|
|
43,311
|
|
|
|
19,516
|
|
|
|
44,539
|
|
|
|
19,516
|
|
Other
|
|
|
4,162
|
|
|
|
10,396
|
|
|
|
12,465
|
|
|
|
21,702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
58,604
|
|
|
$
|
47,110
|
|
|
$
|
93,498
|
|
|
$
|
101,358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings
|
|
$
|
21,623
|
|
|
$
|
21,014
|
|
|
$
|
60,849
|
|
|
$
|
41,674
|
|
Deposits
|
|
|
3,719
|
|
|
|
11,464
|
|
|
|
11,646
|
|
|
|
37,928
|
|
FHLB advances
|
|
|
1,326
|
|
|
|
1,349
|
|
|
|
3,981
|
|
|
|
4,709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,668
|
|
|
|
33,827
|
|
|
|
76,476
|
|
|
|
84,311
|
|
Interest expense acquisition debt
|
|
|
392
|
|
|
|
624
|
|
|
|
1,221
|
|
|
|
1,871
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
$
|
27,060
|
|
|
$
|
34,451
|
|
|
$
|
77,697
|
|
|
$
|
86,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On May 1, 2008, we adopted Statement of Financial
Accounting Standards No. 157, Fair Value
Measurements (SFAS 157). SFAS 157 defines fair
value, establishes a framework for measuring fair value and
expands disclosure requirements for fair value measurements. We
elected to defer the application of SFAS 157 for
nonfinancial assets and nonfinancial liabilities until fiscal
year 2010, as provided for by FASB Staff Position
FAS 157-2,
Effective Date of FASB Statement No. 157
(FSP 157-2).
The adoption of SFAS 157 did not have an impact on our
consolidated results of operations or financial position.
Fair Value Hierarchy
SFAS 157 establishes a fair value hierarchy that
prioritizes the inputs used to measure fair value into three
broad levels, considering the relative reliability of the
inputs, as follows:
|
|
|
|
n
|
Level 1 Quoted prices in active markets for
identical assets or liabilities. An active market for the asset
or liability is a market in which transactions for the asset or
liability occur with sufficient frequency and volume to provide
pricing information on an ongoing basis.
|
10
|
|
|
|
n
|
Level 2 Quoted prices for similar instruments
in active markets, quoted prices for identical or similar
instruments in markets that are not active, and model-based
valuations in which all significant inputs are observable in the
market.
|
|
n
|
Level 3 Valuation is modeled using significant
inputs that are unobservable in the market. These unobservable
inputs reflect our own estimates of assumptions that market
participants would use in pricing the asset or liability.
|
Estimation of Fair
Value
The following is a description of the valuation methodologies
used for assets and liabilities measured at fair value and the
general classification of these instruments pursuant to the fair
value hierarchy.
|
|
|
|
n
|
Available-for-sale securities Available-for-sale
securities are carried at fair value on a recurring basis. When
available, fair value is based on quoted prices in an active
market and as such, would be classified as Level 1. If
quoted market prices are not available, fair values are
estimated using quoted prices of securities with similar
characteristics, discounted cash flows or other pricing models.
Available-for-sale securities that we classify as Level 2
include certain agency and non-agency mortgage-backed
securities, U.S. states and political subdivisions debt
securities and other debt and equity securities.
|
|
n
|
Mortgage loans held for sale The fair values of
loans held for sale are generally based on observable market
prices of securities that have loan collateral or interests in
loans that are similar to the held-for-sale loans, or whole loan
sale prices if formally committed. These loans are classified as
Level 2.
|
|
n
|
Residual interests in securitizations Determination
of the fair value of residual interests in securitizations
requires the use of unobservable inputs. We value these
securities using a discounted cash flow approach that
incorporates expectations of prepayment speeds and expectations
of delinquencies and losses. Risk-adjusted discount rates are
based on quotes from third party sources. These assets are
classified as Level 3.
|
Assets and
Liabilities Measured at Fair Value on a Recurring Basis
The following table presents for each hierarchy level the
financial assets of our continuing operations that are measured
at fair value on a recurring basis at January 31, 2009:
(dollars
in 000s)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
|
|
Available-for-sale securities
|
|
$
|
45,640
|
|
|
$
|
2,975
|
|
|
$
|
42,665
|
|
|
$
|
-
|
|
Mortgage loans held for sale
|
|
|
9,596
|
|
|
|
-
|
|
|
|
9,596
|
|
|
|
-
|
|
Residual interests in securitizations
|
|
|
5,122
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
60,358
|
|
|
$
|
2,975
|
|
|
$
|
52,261
|
|
|
$
|
5,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a percentage of total assets
|
|
|
0.8%
|
|
|
|
0.0%
|
|
|
|
0.7%
|
|
|
|
0.1%
|
|
|
|
The following table presents changes in Level 3 financial
assets measured at fair value on a recurring basis:
(in
000s)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
|
Nine Months Ended
|
|
|
|
|
|
January 31,
2009
|
|
|
January 31,
2009
|
|
|
|
|
|
Fair value, beginning of period
|
|
$
|
9,487
|
|
|
$
|
16,678
|
|
|
|
Losses:
|
|
|
|
|
|
|
|
|
|
|
Included in earnings
|
|
|
(931
|
)
|
|
|
(6,153
|
)
|
|
|
Included in other comprehensive income (loss)
|
|
|
(2,604
|
)
|
|
|
(2,920
|
)
|
|
|
Cash received
|
|
|
(830
|
)
|
|
|
(2,483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value, end of period
|
|
$
|
5,122
|
|
|
$
|
5,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans held for sale are included in prepaid expenses
and other current assets, and available-for-sale securities and
residual interests in securitizations are included in other
assets on our condensed consolidated balance sheets.
Fair Value Option
We adopted Statement of Financial Accounting Standards
No. 159, The Fair Value Option for Financial Assets
and Financial Liabilities (SFAS 159) on
May 1, 2008. SFAS 159 permits an instrument by
11
instrument irrevocable election to account for selected
financial assets and financial liabilities at fair value. We did
not elect to apply the fair value option to any eligible
financial assets or financial liabilities on May 1, 2008 or
during the nine months ended January 31, 2009. Subsequent
to the initial adoption, we may elect to account for selected
financial assets and financial liabilities at fair value. Such
an election could be made at the time an eligible financial
asset, financial liability or firm commitment is recognized or
when certain specified reconsideration events occur.
|
|
11.
|
Other Noncurrent
Assets and Liabilities
|
We have deferred compensation plans that permit directors and
certain employees to defer portions of their compensation and
accrue income on the deferred amounts. Included in other
noncurrent liabilities is $122.3 million and
$155.1 million at January 31, 2009 and April 30,
2008, respectively, reflecting our obligation under these plans.
We may purchase whole-life insurance contracts on certain
director and employee participants to recover distributions made
or to be made under the plans. The cash surrender value of the
policies and other assets held by the Deferred Compensation
Trust is recorded in other noncurrent assets and totaled
$112.9 million and $163.1 million at January 31,
2009 and April 30, 2008, respectively. These assets are
restricted, as they are only available to fund the related
liability. The decrease in value of these assets and liabilities
are primarily due to current market conditions. Losses on
certain invested assets are not deductible for income taxes and
therefore have had an impact on our income tax rates in the
current fiscal year.
|
|
12.
|
Regulatory
Requirements
|
HRB Bank and the Company are subject to various regulatory
requirements, including capital guidelines for HRB Bank,
administered by federal banking agencies. Failure to meet
minimum capital requirements can trigger certain mandatory and
possibly additional discretionary actions by regulators that, if
undertaken, could have a direct material effect on HRB Bank and
our consolidated financial statements. All savings associations
are subject to the capital adequacy guidelines and the
regulatory framework for prompt corrective action. HRB Bank must
meet specific capital guidelines that involve quantitative
measures of HRB Banks assets, liabilities and certain
off-balance sheet items, as calculated under regulatory
accounting practices. HRB Banks capital amounts and
classification are also subject to qualitative judgments by the
regulators about components, risk weightings and other factors.
HRB Bank files its regulatory Thrift Financial Report (TFR) on a
calendar quarter basis with the Office of Thrift Supervision
(OTS).
Quantitative measures established by regulation to ensure
capital adequacy require HRB Bank to maintain minimum amounts
and ratios of tangible equity, total risk-based capital and
Tier 1 capital, as set forth in the table below. In
addition to these minimum ratio requirements, HRB Bank is
required to continually maintain a 12.0% minimum leverage ratio
as a condition of its charter-approval order through fiscal year
2009. This condition was extended through fiscal year 2012 as a
result of a Supervisory Directive issued on May 29, 2007.
As of January 31, 2009, HRB Banks leverage ratio was
13.8%.
As of December 31, 2008, our most recent TFR filing, HRB
Bank was a well capitalized institution under the
prompt corrective action provisions of the Federal Deposit
Insurance Corporation (FDIC). The five capital categories are:
(1) well capitalized (total risk-based capital
ratio of 10%, Tier 1 Risk-based capital ratio of 6% and
leverage ratio of 5%); (2) adequately
capitalized; (3) undercapitalized;
(4) significantly undercapitalized; and
(5) critically undercapitalized. There are no
conditions or events since December 31, 2008 that
management believes have changed HRB Banks category.
12
The following table sets forth HRB Banks regulatory
capital requirements at December 31, 2008, as calculated in
the most recently filed TFR:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in 000s)
|
|
|
|
|
|
|
|
|
|
|
|
To Be Well
|
|
|
|
|
|
|
|
|
|
Capitalized
|
|
|
|
|
|
|
For Capital
Adequacy
|
|
|
Under Prompt
|
|
|
|
Actual
|
|
|
Purposes
|
|
|
Corrective Action
Provisions
|
|
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
|
|
Total risk-based capital
ratio(1)
|
|
$
|
268,259
|
|
|
|
22.1%
|
|
|
$
|
97,294
|
|
|
|
8.0%
|
|
|
$
|
121,617
|
|
|
|
10.0%
|
|
Tier 1 risk-based capital
ratio(2)
|
|
$
|
252,471
|
|
|
|
20.8%
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
$
|
72,970
|
|
|
|
6.0%
|
|
Tier 1 capital ratio
(leverage)(3)
|
|
$
|
252,471
|
|
|
|
13.3%
|
|
|
$
|
228,368
|
|
|
|
12.0%
|
|
|
$
|
95,153
|
|
|
|
5.0%
|
|
Tangible equity
ratio(4)
|
|
$
|
252,471
|
|
|
|
13.3%
|
|
|
$
|
28,546
|
|
|
|
1.5%
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
|
(1) |
|
Total
risk-based capital divided by risk-weighted assets.
|
(2) |
|
Tier 1
(core) capital less deduction for low-level recourse and
residual interest divided by risk-weighted assets.
|
(3) |
|
Tier 1
(core) capital divided by adjusted total assets.
|
(4) |
|
Tangible
capital divided by tangible assets.
|
Block Financial LLC (BFC) made an additional capital
contribution to HRB Bank of $245.0 million during the nine
months ended January 31, 2009. This contribution was
necessary for HRB Bank to meet its capital requirements due to
seasonal fluctuations in its balance sheet. During the three
months ended January 31, 2009, we submitted an application
to the OTS requesting that HRB Bank be allowed to pay dividends
to BFC in an amount that will not exceed the capital necessary
to continuously maintain HRB Banks required 12.0% leverage
ratio. The OTS approved our application on January 12, 2009.
|
|
13.
|
Commitments and
Contingencies
|
Changes in the deferred revenue liability related to our Peace
of Mind (POM) program, the current portion of which is included
in accounts payable, accrued expenses and other current
liabilities and the long-term portion of which is included in
other noncurrent liabilities in the condensed consolidated
balance sheets, are as follows:
|
|
|
|
|
|
|
|
|
|
|
(in 000s)
|
|
Nine
Months Ended January 31,
|
|
2009
|
|
|
2008
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
140,583
|
|
|
$
|
142,173
|
|
|
|
Amounts deferred for new guarantees issued
|
|
|
23,480
|
|
|
|
19,672
|
|
|
|
Revenue recognized on previous deferrals
|
|
|
(56,375
|
)
|
|
|
(56,881
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
107,688
|
|
|
$
|
104,964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes certain of our other contractual
obligations and commitments:
|
|
|
|
|
|
|
|
|
|
|
(in 000s)
|
|
As of
|
|
January 31,
2009
|
|
|
April 30,
2008
|
|
|
|
|
|
Franchise Equity Lines of Credit
|
|
$
|
83,863
|
|
|
$
|
79,134
|
|
|
|
Contingent business acquisition obligations
|
|
|
29,103
|
|
|
|
24,288
|
|
|
|
Media advertising purchase obligation
|
|
|
59,715
|
|
|
|
19,043
|
|
|
|
|
|
We routinely enter into contracts that include embedded
indemnifications that have characteristics similar to
guarantees. Other guarantees and indemnifications of the Company
and its subsidiaries include obligations to protect
counterparties from losses arising from the following:
(1) tax, legal and other risks related to the purchase or
disposition of businesses; (2) penalties and interest
assessed by federal and state taxing authorities in connection
with tax returns prepared for clients; (3) indemnification
of our directors and officers; and (4) third-party claims
relating to various arrangements in the normal course of
business. Typically, there is no stated maximum payment related
to these indemnifications, and the terms of the indemnities may
vary and in many cases are limited only by the applicable
statute of limitations. The likelihood of any claims being
asserted against us and the ultimate liability related to any
such claims, if any, is difficult to predict. While we cannot
provide assurance we will ultimately prevail in the event any
13
such claims are asserted, we believe the fair value of
guarantees and indemnifications relating to our continuing
operations is not material as of January 31, 2009.
Discontinued
Operations
Sand Canyon Corporation (SCC), formerly Option One Mortgage
Corporation, maintains recourse with respect to loans previously
sold or securitized under indemnification of loss provisions
relating to breach of representations and warranties made to
purchasers or insurers. As a result, SCC may be required to
repurchase loans or otherwise indemnify third-parties for
losses. These representations and warranties and corresponding
repurchase obligations generally are not subject to stated
limits or a stated term and, therefore, may continue for the
foreseeable future. SCC has established a liability related to
potential losses under these indemnifications and monitors the
adequacy of the repurchase liability on an ongoing basis. To the
extent that future claim volumes differ from current estimates,
or the value of mortgage loans and residential home prices
change, future losses may be different than these estimates and
those differences may be significant.
The following table summarizes SCCs loan repurchase and
indemnification activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in 000s)
|
|
|
|
Nine Months Ended
|
|
|
Year Ended
|
|
|
|
|
|
January 31, 2009
|
|
|
January 31, 2008
|
|
|
April 30, 2008
|
|
|
|
|
|
Loan repurchase and indemnification
liability at end of period
|
|
$
|
213,120
|
|
|
$
|
68,969
|
|
|
$
|
243,066
|
|
|
|
Loans repurchased and indemnification payments during the period
|
|
|
38,290
|
|
|
|
480,943
|
|
|
|
515,370
|
|
|
|
Reserves added during the period
|
|
|
-
|
|
|
|
379,440
|
|
|
|
582,373
|
|
|
|
|
|
As described more fully in note 17, we entered into
indemnifications in connection with our November 2008 sale of
HRBFA and recorded a liability with an estimated fair value of
$15.5 million at January 31, 2009.
We have recorded a restructuring liability which primarily
relates to estimated lease obligations for vacant space
resulting from office closings and employee severance costs for
our discontinued mortgage businesses. These liabilities are
included in accounts payable, accrued expenses and other current
liabilities and accrued salaries, wages and payroll taxes on our
condensed consolidated balance sheet, respectively. Actual
results could differ from these estimates. Changes in our
restructuring liability during the nine months ended
January 31, 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in 000s)
|
|
|
|
|
|
Accrual Balance as
of
|
|
|
Cash
|
|
|
Other
|
|
|
Accrual Balance as
of
|
|
|
|
April 30,
2008
|
|
|
Payments
|
|
|
Adjustments
|
|
|
January 31,
2009
|
|
|
|
|
Employee severance costs
|
|
$
|
4,807
|
|
|
$
|
(4,871
|
)
|
|
$
|
428
|
|
|
$
|
364
|
|
Contract termination costs
|
|
|
23,113
|
|
|
|
(12,054
|
)
|
|
|
1,779
|
|
|
|
12,838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
27,920
|
|
|
$
|
(16,925
|
)
|
|
$
|
2,207
|
|
|
$
|
13,202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14.
|
Litigation and
Related Contingencies
|
We are party to investigations, legal claims and lawsuits
arising out of our business operations. We accrue our best
estimate of the probable loss upon resolution of investigations,
legal claims and lawsuits, which totaled $10.5 million and
$11.5 million at January 31, 2009 and April 30,
2008, respectively. With respect to most of the matters
described below, we have concluded that a loss is not probable
and therefore no liability has been recorded.
RAL Litigation
We have been named as a defendant in numerous lawsuits
throughout the country regarding our refund anticipation loan
programs (collectively, RAL Cases). The RAL Cases
have involved a variety of legal theories asserted by
plaintiffs. These theories include allegations that, among other
things: disclosures in the RAL applications were inadequate,
misleading and untimely; the RAL interest rates were usurious
and unconscionable; we did not disclose that we would receive
part of the finance charges paid by the customer for such loans;
untrue, misleading or deceptive statements in marketing RALs;
breach of state
14
laws on credit service organizations; breach of contract, unjust
enrichment, unfair and deceptive acts or practices; violations
of the federal Racketeer Influenced and Corrupt Organizations
Act; violations of the federal Fair Debt Collection Practices
Act and unfair competition regarding debt collection activities;
and that we owe, and breached, a fiduciary duty to our customers
in connection with the RAL program.
The amounts claimed in the RAL Cases have been very substantial
in some instances, with one settlement resulting in a pretax
expense of $43.5 million in fiscal year 2003 (the
Texas RAL Settlement) and other settlements
resulting in a combined pretax expense in fiscal year 2006 of
$70.2 million. On December 31, 2008, we reached a
settlement with the California attorney general in the case
entitled The People of California v. H&R Block,
Inc., H&R Block Services, Inc., H&R Block Enterprises,
Inc., H&R Block Tax Services, Inc., Block Financial
Corporation, HRB Royalty, Inc., and Does 1 through 50, Case
No., CGC-06-449461, in the California Superior Court,
San Francisco County (the California AG Case).
Pursuant to the terms of the settlement, we agreed to pay
$2.45 million in restitution to certain clients who
obtained a refund anticipation loan or a refund anticipation
check, $500,000 in civil penalties and $1.9 million in fees
and costs.
Following settlement of the California AG Case, we have one
remaining putative RAL class action. We believe we have
meritorious defenses to this RAL Case and we intend to defend it
vigorously. There can be no assurances, however, as to the
outcome of the pending RAL Case or regarding the impact of the
pending RAL Case on our financial statements. There were no
other significant developments regarding the RAL Cases during
the three months ended January 31, 2009.
Peace of Mind
Litigation
We are defendants in lawsuits regarding our Peace of Mind
program (collectively, the POM Cases), under which
our applicable tax return preparation subsidiary assumes
liability for additional tax assessments attributable to tax
return preparation error. The POM Cases are described below.
Lorie J. Marshall, et al. v. H&R Block Tax Services,
Inc., et al., Case
No. 08-CV-591
in the U.S. District Court for the Southern District of
Illinois, is a class action case originally filed in the Circuit
Court of Madison County, Illinois on January 18, 2002, in
which class certification was granted on August 27, 2003.
The plaintiffs allege that the sale of POM guarantees
constitutes (1) statutory fraud by selling insurance
without a license, (2) an unfair trade practice, by
omission and by cramming (i.e., charging customers
for the guarantee even though they did not request it or want
it), and (3) a breach of fiduciary duty. The court has
certified plaintiff classes consisting of all persons who reside
in 13 specified states and who from January 1, 1997 to
final judgment (1) were charged a separate fee for POM by
H&R Block; (2) were charged a separate fee
for POM by an H&R Block entity not licensed to
sell insurance; or (3) had an unsolicited charge for POM
posted to their bills by H&R Block. Persons who
received the POM guarantee through an H&R Block Premium
office were excluded from the plaintiff class. In August 2008,
we removed the case from state court in Madison County, Illinois
to the U.S. District Court for the Southern District of
Illinois. On December 17, 2008, the case was remanded back
to state court. We have filed a petition to appeal this ruling.
There is one other putative class action pending against us in
Texas that involves the POM guarantee. This case is pending
before the same judge that presided over the Texas RAL
Settlement, involves the same plaintiffs attorneys that
are involved in the Marshall litigation in Illinois, and
contains allegations similar to those in the Marshall case. No
class has been certified in this case.
We believe we have meritorious defenses to the claims in the POM
Cases, and we intend to defend them vigorously. The amounts
claimed in the POM Cases are substantial, and there can be no
assurances as to the outcome of these pending actions
individually or in the aggregate.
Express IRA
Litigation
On March 15, 2006, the New York Attorney General filed a
lawsuit in the Supreme Court of the State of New York, County of
New York (Index No. 06/401110) entitled The People of
New York v. H&R Block, Inc. and H&R Block
Financial Advisors, Inc. et al. The complaint alleged
fraudulent business practices, deceptive acts and practices,
common law fraud and breach of fiduciary duty with respect to
the Express IRA product and sought equitable relief,
disgorgement of profits, damages and restitution, civil
penalties and punitive damages. On July 12, 2007, the
Supreme Court of the State of New York issued a ruling that
dismissed all defendants other than HRBFA and the claims of
common law fraud. The intermediate
15
appellate court reversed this ruling on January 6, 2009. We
filed a petition for appeal with the highest state appellate
court on January 30, 2009. We believe we have meritorious
defenses to the claims in this case, and we intend to defend
this case vigorously, but there are no assurances as to its
outcome.
On January 2, 2008, the Mississippi Attorney General filed
a lawsuit in the Chancery Court of Hinds County, Mississippi
First Judicial District (Case No. G 2008 6 S
2) entitled Jim Hood, Attorney for the State of
Mississippi v. H&R Block, Inc., et al. The
complaint alleged fraudulent business practices, deceptive acts
and practices, common law fraud and breach of fiduciary duty
with respect to the Express IRA product and sought equitable
relief, disgorgement of profits, damages and restitution, civil
penalties and punitive damages. The defendants have filed a
motion to dismiss. We believe we have meritorious defenses to
the claims in this case, and we intend to defend this case
vigorously, but there are no assurances as to its outcome.
In addition to the New York and Mississippi Attorney General
actions, a number of civil actions were filed against HRBFA and
us concerning the Express IRA product, the first of which was
filed on March 17, 2006. Except for two cases pending in
state court, all of the civil actions have been consolidated by
the panel for Multi-District Litigation into a single action
styled In re H&R Block, Inc. Express IRA Marketing
Litigation in the United States District Court for the
Western District of Missouri.
Although we sold HRBFA effective November 1, 2008, we
remain responsible for the Express IRA litigation through an
indemnification agreement with Ameriprise. See additional
discussion in note 17. The amounts claimed in these cases
are substantial. We believe we have meritorious defenses to the
claims in these cases, and we intend to defend these cases
vigorously, but there are no assurances as to their outcome.
Securities Litigation
On April 6, 2007, a putative class action styled In re
H&R Block Securities Litigation was filed against the
Company and certain of its officers in the United States
District Court for the Western District of Missouri. The
complaint alleges, among other things, deceptive, material and
misleading financial statements and failure to prepare financial
statements in accordance with generally accepted accounting
principles. The complaint sought unspecified damages and
equitable relief. The court dismissed the complaint on
February 19, 2008, and plaintiffs appealed the dismissal on
March 18, 2008. In addition, plaintiffs in a shareholder
derivative action that was consolidated into the securities
litigation filed a separate appeal on March 18, 2008,
contending that the derivative action was improperly
consolidated. The derivative action is Iron Workers Local 16
Pension Fund v. H&R Block, et al., in the United
States District Court for the Western District of Missouri, Case
No.06-cv-00466-ODS (instituted on June 8, 2006) and
was brought against certain of our directors and officers
purportedly on behalf of the Company. The derivative action
alleges breach of fiduciary duty, abuse of control, gross
mismanagement, waste, and unjust enrichment pertaining to
(1) our restatement of financial results in fiscal year
2006 due to errors in determining our state effective income tax
rate and (2) certain of our products and business
activities. We believe we have meritorious defenses to the
claims in these cases and intend to defend this litigation
vigorously. We currently do not believe that we will incur a
material loss with respect to this litigation.
RSM McGladrey
Litigation
RSM McGladrey Business Services, Inc. and certain of its
subsidiaries are parties to a putative class action filed on
July 11, 2006 and entitled Do Rights Plant
Growers, et al. v. RSM EquiCo, Inc., et al. Case
No. 06 CC00137, in the California Superior Court, Orange
County. The complaint contains allegations regarding business
valuation services provided by RSM EquiCo, Inc., including
fraud, negligent misrepresentation, breach of contract, breach
of implied covenant of good faith and fair dealing, breach of
fiduciary duty and unfair competition and seeks unspecified
damages, restitution and equitable relief. A hearing on
plaintiffs motion for class certification is scheduled for
March 6, 2009. We intend to defend this case vigorously.
The amount claimed in this action is substantial and there can
be no assurance regarding the outcome and resolution of this
matter. It is reasonably possible that we could incur losses
with respect to this litigation, although an estimate of such
losses cannot be made in light of the early stage of the
litigation.
RSM McGladrey, Inc. (RSM) has a relationship with certain public
accounting firms (collectively, the Attest Firms)
pursuant to which (1) some RSM employees are also partners
or employees of the Attest Firms, (2) many clients of the
Attest Firms are also RSM clients, and (3) our RSM
McGladrey brand is
16
closely linked to the Attest Firms. The Attest Firms are parties
to claims and lawsuits (collectively, Attest Firm
Claims) arising in the normal course of business.
Judgments or settlements arising from Attest Firm Claims
exceeding the Attest Firms insurance coverage could have a
direct adverse effect on Attest Firm operations and could impair
RSMs ability to attract and retain clients and quality
professionals. For example, accounting and auditing firms
(including one of the Attest Firms) recently have become subject
to claims based on losses their clients suffered from
investments in investment funds managed by third parties.
Although RSM may not have a direct liability for significant
Attest Firm Claims, such Attest Firm Claims could have a
material adverse effect on RSMs operations and impair the
value of our investment in RSM. There is no assurance regarding
the outcome of the Attest Firm Claims.
Litigation and
Claims Pertaining to Discontinued Mortgage Operations
Although mortgage loan origination activities were terminated
and the loan servicing business was sold during fiscal year
2008, SCC remains subject to investigations, claims and lawsuits
pertaining to its loan origination and servicing activities that
occurred prior to such termination and sale. These
investigations, claims and lawsuits include actions by state
attorneys general, other state regulators, municipalities,
individual plaintiffs, and cases in which plaintiffs seek to
represent a class of others alleged to be similarly situated.
Among other things, these investigations, claims and lawsuits
allege discriminatory or unfair and deceptive loan origination
and servicing practices, public nuisance, fraud, and violations
of the Truth in Lending Act, Equal Credit Opportunity Act and
the Fair Housing Act. In the current non-prime mortgage
environment, the number of these investigations, claims and
lawsuits has increased over historical experience and is likely
to continue at increased levels. The amounts claimed in these
investigations, claims and lawsuits are substantial in some
instances, and the ultimate resulting liability is difficult to
predict. In the event of unfavorable outcomes, the amounts SCC
may be required to pay in the discharge of liabilities or
settlements could be substantial and, because SCCs
operating results are included in our consolidated financial
statements, could have a material adverse impact on our
consolidated results of operations.
On June 3, 2008, the Massachusetts Attorney General filed a
lawsuit in the Superior Court of Suffolk County, Massachusetts
(Case
No. 08-2474-BLS)
entitled Commonwealth of Massachusetts v. H&R
Block, Inc., et al., alleging unfair, deceptive and
discriminatory origination and servicing of mortgage loans and
seeking equitable relief, disgorgement of profits, restitution
and statutory penalties. On November 10, 2008, the court
granted a preliminary injunction limiting the ability of the
owner of SCCs former loan servicing business to initiate
or advance foreclosure actions against certain loans originated
by SCC or its subsidiaries without (1) advance notice to
the Massachusetts Attorney General and (2) if the Attorney
General objects to foreclosure, approval by the court. The
preliminary injunction generally applies to loans meeting all of
the following four characteristics: (1) adjustable rate
mortgages with an introductory period of three years or less,
(2) the borrower has a debt-to-income ratio generally
exceeding 50 percent, (3) an introductory interest
rate at least 2 percent lower than the fully indexed rate
(unless the debt-to-income ratio is 55% or greater) and
(4) loan-to-value ratio of 97 percent or certain
prepayment penalties. We have appealed this preliminary
injunction. We believe we have meritorious defenses to the
claims in this case, and we intend to defend this case
vigorously, but there are no assurances as to its outcome.
SCC also remains subject to potential claims for indemnification
and loan repurchases pertaining to loans previously sold. In the
current non-prime mortgage environment, it is likely that the
frequency of repurchase and indemnification claims may increase
over historical experience and give rise to additional
litigation. In some instances, H&R Block, Inc. was required
to guarantee SCCs obligations. The amounts involved in
these potential claims may be substantial, and the ultimate
resulting liability is difficult to predict. In the event of
unfavorable outcomes, the amounts SCC may be required to pay in
the discharge or settlement of these claims could be substantial
and, because SCCs operating results are included in our
consolidated financial statements, could have a material adverse
impact on our consolidated results of operations.
Other Claims and
Litigation
We are from time to time party to investigations, claims and
lawsuits not discussed herein arising out of our business
operations. These investigations, claims and lawsuits include
actions by state attorneys
17
general, other state regulators, individual plaintiffs, and
cases in which plaintiffs seek to represent a class of others
similarly situated. Some of these investigations, claims and
lawsuits pertain to RALs, the electronic filing of
customers income tax returns, the POM guarantee program,
wage and hour claims and investment products. We believe we have
meritorious defenses to each of these claims, and we are
defending or intend to defend them vigorously. The amounts
claimed in these claims and lawsuits are substantial in some
instances, and the ultimate liability with respect to such
litigation and claims is difficult to predict. In the event of
an unfavorable outcome, the amounts we may be required to pay in
the discharge of liabilities or settlements could be material.
In addition to the aforementioned types of cases, we are party
to claims and lawsuits that we consider to be ordinary, routine
litigation incidental to our business, including claims and
lawsuits (collectively, Other Claims) concerning the
preparation of customers income tax returns, the fees
charged customers for various products and services,
relationships with franchisees, intellectual property disputes,
employment matters and contract disputes. While we cannot
provide assurance that we will ultimately prevail in each
instance, we believe the amount, if any, we are required to pay
in the discharge of liabilities or settlements in these Other
Claims will not have a material adverse effect on our
consolidated operating results, financial position or cash flows.
Results of our continuing operations by reportable operating
segment are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in 000s)
|
|
|
|
|
|
Three Months
Ended
|
|
|
Nine Months Ended
|
|
|
|
January 31,
|
|
|
January 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax Services
|
|
$
|
761,735
|
|
|
$
|
661,787
|
|
|
$
|
936,104
|
|
|
$
|
822,454
|
|
Business Services
|
|
|
185,177
|
|
|
|
191,884
|
|
|
|
592,873
|
|
|
|
623,755
|
|
Consumer Financial Services
|
|
|
45,195
|
|
|
|
39,305
|
|
|
|
80,980
|
|
|
|
89,608
|
|
Corporate
|
|
|
1,339
|
|
|
|
1,828
|
|
|
|
6,867
|
|
|
|
9,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
993,446
|
|
|
$
|
894,804
|
|
|
$
|
1,616,824
|
|
|
$
|
1,545,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax Services
|
|
$
|
130,443
|
|
|
$
|
45,879
|
|
|
$
|
(218,045
|
)
|
|
$
|
(325,559
|
)
|
Business Services
|
|
|
10,695
|
|
|
|
6,614
|
|
|
|
23,481
|
|
|
|
16,489
|
|
Consumer Financial Services
|
|
|
(3,268
|
)
|
|
|
12,318
|
|
|
|
(36,014
|
)
|
|
|
12,751
|
|
Corporate
|
|
|
(36,131
|
)
|
|
|
(64,395
|
)
|
|
|
(108,106
|
)
|
|
|
(112,587
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
(benefit)
|
|
$
|
101,739
|
|
|
$
|
416
|
|
|
$
|
(338,684
|
)
|
|
$
|
(408,906
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of January 31, 2009, the financial results of HRBFA are
presented as discontinued operations. Accordingly, all periods
presented above for our Consumer Financial Services segment have
been revised to exclude results for discontinued businesses, and
now reflect only the results of HRB Bank.
|
|
16.
|
Accounting
Pronouncements
|
In June 2008, FASB Staff Position on
EITF 03-6-1,
Determining Whether Instruments Granted in Share-Based
Payment Transactions are Participating Securities
(FSP 03-6-1)
was issued.
FSP 03-6-1
addresses whether instruments granted in share-based payment
transactions are participating securities prior to vesting and,
therefore, should be included in the process of allocating
earnings for purposes of computing earnings per share. This
guidance is effective for financial statements issued for fiscal
years and the related interim periods beginning after
December 15, 2008. Early application is not permitted. The
provisions of
FSP 03-6-1
are effective for our first fiscal quarter of 2010. We are
currently evaluating what effect
FSP 03-6-1
will have on our consolidated financial statements.
In December 2007, Statement of Financial Accounting Standards
No. 141(R), Business Combinations,
(SFAS 141R), and Statement of Financial Accounting
Standards No. 160, Non-Controlling Interests in
Consolidated Financial Statements An Amendment of
ARB No. 51 (SFAS 160) were issued. These
18
standards will require an acquiring entity to recognize all the
assets acquired and liabilities assumed in a transaction,
including non-controlling interests, at the acquisition-date
fair value with limited exceptions. SFAS 141R will require
acquisition-related expenses to be expensed and will generally
require contingent consideration to be recorded as a liability
at the time of acquisition. Under SFAS 141R, subsequent
changes to deferred tax valuation allowances relating to
acquired businesses and acquired liabilities for uncertain tax
positions will no longer be applied to goodwill but will instead
be typically recognized as an adjustment to income tax expense.
The provisions of these standards are effective as of the
beginning of our fiscal year 2010.
We are currently evaluating what effect the adoption of
SFAS 141R and SFAS 160 will have on our consolidated
financial statements.
As discussed in note 10, we adopted SFAS 157 and
SFAS 159 as of May 1, 2008.
|
|
17.
|
Discontinued
Operations
|
Effective November 1, 2008, we sold HRB Financial
Corporation, including our securities brokerage business
formerly conducted through HRBFA, to Ameriprise. As a result of
this transaction, we received cash proceeds, net of selling
costs, of $304.0 million, plus repayment of net
intercompany liabilities of $46.6 million. The carrying
value of our investment in this business at the date of
disposition was $293.7 million. We deferred recognition of
a portion of the sale proceeds totaling $7.0 million, which
represents the estimated value of an ongoing collaboration
arrangement with our Tax Services businesses.
In connection with the sale, we indemnified Ameriprise against
certain losses relating to pre-acquisition contingencies,
including matters involving compliance with ERISA and the Fair
Labor Standards Act, tax matters, and certain pending
litigation. Certain indemnities are subject to a maximum
aggregate payment of $31.5 million, while other indemnities
are not subject to any stated limit. The indemnities are not
subject to a stated term. FASB Interpretation No. 45,
Guarantors Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of
Others, requires that we recognize a liability for the
estimated fair value of guarantee and indemnification
obligations at the inception of the arrangement. We have
estimated an aggregate fair value of $15.5 million relating
to the Ameriprise indemnifications and recorded a liability in
that amount as of the date of sale. Subsequent changes in the
estimated fair value of these indemnification obligations will
be recorded in discontinued operations.
The transaction resulted in a capital loss for income tax
purposes and, with the exception of benefits of approximately
$10 million recorded during the quarter ended
October 31, 2008, is not currently expected to result in a
tax benefit. Net of selling expenses, deferrals, and
indemnification liabilities, we recorded a loss during the
quarter ended January 31, 2009 in connection with the
disposition of this business totaling $12.2 million.
At January 31, 2009, HRBFA had $21.2 million invested
in the Reserve Primary Fund (Reserve Fund), a money market fund.
That balance was reduced to $14.5 million at
February 20, 2009, reflecting an additional fund
distribution as of that date. The Reserve Fund is currently in
orderly liquidation under the supervision of the Securities and
Exchange Commission (SEC) and its net asset value has fallen
below its stated value of $1.00 per share. The most recent net
asset values communicated by the Reserve Fund were $0.97 per
share as of February 26, 2009. However, the Reserve Fund
has indicated that it has established a special
reserve for contingent damages and defense costs relating
to pending litigation and, accordingly, fund distributions are
currently being made at $0.917 per share. This asset was sold to
Ameriprise in connection with the sale of HRBRA at a
contractually agreed to value of $0.92 per share. Although this
investment is no longer reported in our balance sheet we are
subject to contingent gains or losses, through post-closing
purchase price adjustments, to the extent ultimate redemptions
from the Reserve Fund are greater or less than $0.92 per share.
Assuming HRBFA recovered its invested principal in full, we
would recognize a gain at that time of approximately
$8 million. Assuming HRBFA received no further
distributions from the Reserve Fund, we would ultimately record
additional losses of approximately $7 million.
As of January 31, 2009, the results of operations of HRBFA
and its direct corporate parent are presented as discontinued
operations in the condensed consolidated financial statements.
All periods presented reflect our discontinued operations.
19
Overhead costs which would have previously been allocated to
discontinued businesses totaled $4.6 million for the nine
months ended January 31, 2009 and $4.0 million and
$11.6 million for the three and nine months ended
January 31, 2008, respectively. These amounts are included
in continuing operations.
The financial results of discontinued operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in 000s)
|
|
|
Three Months Ended
January 31,
|
|
|
Nine Months Ended
January 31,
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
Net revenue
|
|
$
|
609
|
|
|
$
|
109,363
|
|
|
$
|
130,205
|
|
|
$
|
(52,777
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax loss
|
|
$
|
(20,054
|
)
|
|
$
|
(93,440
|
)
|
|
$
|
(47,443
|
)
|
|
$
|
(978,000
|
)
|
|
|
Income tax benefit
|
|
|
(587
|
)
|
|
|
(38,992
|
)
|
|
|
(20,967
|
)
|
|
|
(365,804
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from discontinued operations
|
|
$
|
(19,467
|
)
|
|
$
|
(54,448
|
)
|
|
$
|
(26,476
|
)
|
|
$
|
(612,196
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During fiscal year 2008, we exited the mortgage business
operated through a subsidiary and sold the related loan
servicing business. Our discontinued operations include pretax
losses related to our mortgage business of $7.9 million and
$17.5 million for the three and nine months ended
January 31, 2009, respectively, compared to
$97.0 million and $977.9 million, respectively, in the
prior year.
|
|
18.
|
Condensed
Consolidating Financial Statements
|
BFC is an indirect, wholly-owned consolidated subsidiary of the
Company. BFC is the Issuer and the Company is the Guarantor of
the Senior Notes issued on January 11, 2008 and
October 26, 2004, our CLOCs, the $500.0 million credit
facility entered into in April 2007 and other indebtedness
issued from time to time. These condensed consolidating
financial statements have been prepared using the equity method
of accounting. Earnings of subsidiaries are, therefore,
reflected in the Companys investment in subsidiaries
account. The elimination entries eliminate investments in
subsidiaries, related stockholders equity and other
intercompany balances and transactions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed
Consolidating Income Statements
|
|
|
(in 000s)
|
|
|
|
Three
Months Ended
|
|
H&R
Block, Inc.
|
|
|
BFC
|
|
|
Other
|
|
|
|
|
|
Consolidated
|
|
January 31, 2009
|
|
(Guarantor)
|
|
|
(Issuer)
|
|
|
Subsidiaries
|
|
|
Elims
|
|
|
H&R Block
|
|
|
|
Total revenues
|
|
$
|
-
|
|
|
$
|
85,044
|
|
|
$
|
908,466
|
|
|
$
|
(64
|
)
|
|
$
|
993,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services
|
|
|
-
|
|
|
|
10,615
|
|
|
|
562,233
|
|
|
|
6
|
|
|
|
572,854
|
|
Cost of other revenues
|
|
|
-
|
|
|
|
69,128
|
|
|
|
42,586
|
|
|
|
(1
|
)
|
|
|
111,713
|
|
Selling, general and administrative
|
|
|
-
|
|
|
|
44,125
|
|
|
|
164,791
|
|
|
|
(102
|
)
|
|
|
208,814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
-
|
|
|
|
123,868
|
|
|
|
769,610
|
|
|
|
(97
|
)
|
|
|
893,381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
-
|
|
|
|
(38,824
|
)
|
|
|
138,856
|
|
|
|
33
|
|
|
|
100,065
|
|
Other income (expense), net
|
|
|
101,739
|
|
|
|
(1,968
|
)
|
|
|
3,610
|
|
|
|
(101,707
|
)
|
|
|
1,674
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before taxes (benefit)
|
|
|
101,739
|
|
|
|
(40,792
|
)
|
|
|
142,466
|
|
|
|
(101,674
|
)
|
|
|
101,739
|
|
Income taxes (benefit)
|
|
|
34,909
|
|
|
|
(16,013
|
)
|
|
|
50,942
|
|
|
|
(34,929
|
)
|
|
|
34,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
|
66,830
|
|
|
|
(24,779
|
)
|
|
|
91,524
|
|
|
|
(66,745
|
)
|
|
|
66,830
|
|
Net loss from discontinued operations
|
|
|
(19,467
|
)
|
|
|
(20,113
|
)
|
|
|
-
|
|
|
|
20,113
|
|
|
|
(19,467
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
47,363
|
|
|
$
|
(44,892
|
)
|
|
$
|
91,524
|
|
|
$
|
(46,632
|
)
|
|
$
|
47,363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
H&R
Block, Inc.
|
|
|
BFC
|
|
|
Other
|
|
|
|
|
|
Consolidated
|
|
January 31, 2008
|
|
(Guarantor)
|
|
|
(Issuer)
|
|
|
Subsidiaries
|
|
|
Elims
|
|
|
H&R Block
|
|
|
|
Total revenues
|
|
$
|
-
|
|
|
$
|
133,343
|
|
|
$
|
774,765
|
|
|
$
|
(13,304
|
)
|
|
$
|
894,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services
|
|
|
-
|
|
|
|
18,742
|
|
|
|
534,018
|
|
|
|
47
|
|
|
|
552,807
|
|
Cost of other revenues
|
|
|
-
|
|
|
|
77,067
|
|
|
|
19,167
|
|
|
|
-
|
|
|
|
96,234
|
|
Selling, general and administrative
|
|
|
-
|
|
|
|
114,620
|
|
|
|
144,566
|
|
|
|
(11,866
|
)
|
|
|
247,320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
-
|
|
|
|
210,429
|
|
|
|
697,751
|
|
|
|
(11,819
|
)
|
|
|
896,361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
-
|
|
|
|
(77,086
|
)
|
|
|
77,014
|
|
|
|
(1,485
|
)
|
|
|
(1,557
|
)
|
Other income, net
|
|
|
416
|
|
|
|
9
|
|
|
|
1,964
|
|
|
|
(416
|
)
|
|
|
1,973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before taxes (benefit)
|
|
|
416
|
|
|
|
(77,077
|
)
|
|
|
78,978
|
|
|
|
(1,901
|
)
|
|
|
416
|
|
Income taxes (benefit)
|
|
|
(6,674
|
)
|
|
|
(33,637
|
)
|
|
|
27,299
|
|
|
|
6,338
|
|
|
|
(6,674
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
|
7,090
|
|
|
|
(43,440
|
)
|
|
|
51,679
|
|
|
|
(8,239
|
)
|
|
|
7,090
|
|
Net loss from discontinued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
operations
|
|
|
(54,448
|
)
|
|
|
(54,589
|
)
|
|
|
(2,622
|
)
|
|
|
57,211
|
|
|
|
(54,448
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(47,358
|
)
|
|
$
|
(98,029
|
)
|
|
$
|
49,057
|
|
|
$
|
48,972
|
|
|
$
|
(47,358
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
Months Ended
|
|
H&R
Block, Inc.
|
|
|
BFC
|
|
|
Other
|
|
|
|
|
|
Consolidated
|
|
January 31, 2009
|
|
(Guarantor)
|
|
|
(Issuer)
|
|
|
Subsidiaries
|
|
|
Elims
|
|
|
H&R Block
|
|
|
|
Total revenues
|
|
$
|
-
|
|
|
$
|
124,145
|
|
|
$
|
1,495,472
|
|
|
$
|
(2,793
|
)
|
|
$
|
1,616,824
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services
|
|
|
-
|
|
|
|
17,886
|
|
|
|
1,254,854
|
|
|
|
22
|
|
|
|
1,272,762
|
|
Cost of other revenues
|
|
|
-
|
|
|
|
154,301
|
|
|
|
62,621
|
|
|
|
(32
|
)
|
|
|
216,890
|
|
Selling, general and administrative
|
|
|
-
|
|
|
|
74,669
|
|
|
|
389,669
|
|
|
|
(284
|
)
|
|
|
464,054
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
-
|
|
|
|
246,856
|
|
|
|
1,707,144
|
|
|
|
(294
|
)
|
|
|
1,953,706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
-
|
|
|
|
(122,711
|
)
|
|
|
(211,672
|
)
|
|
|
(2,499
|
)
|
|
|
(336,882
|
)
|
Other income (expense), net
|
|
|
(338,684
|
)
|
|
|
(5,858
|
)
|
|
|
4,024
|
|
|
|
338,716
|
|
|
|
(1,802
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before tax benefit
|
|
|
(338,684
|
)
|
|
|
(128,569
|
)
|
|
|
(207,648
|
)
|
|
|
336,217
|
|
|
|
(338,684
|
)
|
Income tax benefit
|
|
|
(143,930
|
)
|
|
|
(50,553
|
)
|
|
|
(92,329
|
)
|
|
|
142,882
|
|
|
|
(143,930
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations
|
|
|
(194,754
|
)
|
|
|
(78,016
|
)
|
|
|
(115,319
|
)
|
|
|
193,335
|
|
|
|
(194,754
|
)
|
Net loss from discontinued operations
|
|
|
(26,476
|
)
|
|
|
(28,577
|
)
|
|
|
-
|
|
|
|
28,577
|
|
|
|
(26,476
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(221,230
|
)
|
|
$
|
(106,593
|
)
|
|
$
|
(115,319
|
)
|
|
$
|
221,912
|
|
|
$
|
(221,230
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
Months Ended
|
|
H&R
Block, Inc.
|
|
|
BFC
|
|
|
Other
|
|
|
|
|
|
Consolidated
|
|
January 31, 2008
|
|
(Guarantor)
|
|
|
(Issuer)
|
|
|
Subsidiaries
|
|
|
Elims
|
|
|
H&R Block
|
|
|
|
Total revenues
|
|
$
|
-
|
|
|
$
|
260,871
|
|
|
$
|
1,301,716
|
|
|
$
|
(17,073
|
)
|
|
$
|
1,545,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services
|
|
|
-
|
|
|
|
33,652
|
|
|
|
1,231,236
|
|
|
|
(8
|
)
|
|
|
1,264,880
|
|
Cost of other revenues
|
|
|
-
|
|
|
|
160,703
|
|
|
|
34,226
|
|
|
|
-
|
|
|
|
194,929
|
|
Selling, general and administrative
|
|
|
-
|
|
|
|
148,423
|
|
|
|
377,934
|
|
|
|
(11,954
|
)
|
|
|
514,403
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
-
|
|
|
|
342,778
|
|
|
|
1,643,396
|
|
|
|
(11,962
|
)
|
|
|
1,974,212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
-
|
|
|
|
(81,907
|
)
|
|
|
(341,680
|
)
|
|
|
(5,111
|
)
|
|
|
(428,698
|
)
|
Other income (expense), net
|
|
|
(408,906
|
)
|
|
|
(12
|
)
|
|
|
19,804
|
|
|
|
408,906
|
|
|
|
19,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before tax benefit
|
|
|
(408,906
|
)
|
|
|
(81,919
|
)
|
|
|
(321,876
|
)
|
|
|
403,795
|
|
|
|
(408,906
|
)
|
Income tax benefit
|
|
|
(168,893
|
)
|
|
|
(36,432
|
)
|
|
|
(130,398
|
)
|
|
|
166,830
|
|
|
|
(168,893
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations
|
|
|
(240,013
|
)
|
|
|
(45,487
|
)
|
|
|
(191,478
|
)
|
|
|
236,965
|
|
|
|
(240,013
|
)
|
Net loss from discontinued operations
|
|
|
(612,196
|
)
|
|
|
(609,192
|
)
|
|
|
(6,212
|
)
|
|
|
615,404
|
|
|
|
(612,196
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(852,209
|
)
|
|
$
|
(654,679
|
)
|
|
$
|
(197,690
|
)
|
|
$
|
852,369
|
|
|
$
|
(852,209
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed
Consolidating Balance Sheets
|
|
|
(in 000s)
|
|
|
|
|
|
H&R Block,
Inc.
|
|
|
BFC
|
|
|
Other
|
|
|
|
|
|
Consolidated
|
|
January 31,
2009
|
|
(Guarantor)
|
|
|
(Issuer)
|
|
|
Subsidiaries
|
|
|
Elims
|
|
|
H&R
Block
|
|
|
|
Cash & cash equivalents
|
|
$
|
-
|
|
|
$
|
1,014,130
|
|
|
$
|
255,411
|
|
|
$
|
(338
|
)
|
|
$
|
1,269,203
|
|
Cash & cash equivalents restricted
|
|
|
-
|
|
|
|
66,070
|
|
|
|
9,823
|
|
|
|
-
|
|
|
|
75,893
|
|
Receivables, net
|
|
|
1,175
|
|
|
|
1,866,003
|
|
|
|
775,773
|
|
|
|
-
|
|
|
|
2,642,951
|
|
Mortgage loans held for investment
|
|
|
-
|
|
|
|
781,755
|
|
|
|
-
|
|
|
|
-
|
|
|
|
781,755
|
|
Intangible assets and goodwill, net
|
|
|
-
|
|
|
|
-
|
|
|
|
1,242,549
|
|
|
|
-
|
|
|
|
1,242,549
|
|
Investments in subsidiaries
|
|
|
2,633,648
|
|
|
|
-
|
|
|
|
254
|
|
|
|
(2,633,648
|
)
|
|
|
254
|
|
Other assets
|
|
|
-
|
|
|
|
364,244
|
|
|
|
925,006
|
|
|
|
37
|
|
|
|
1,289,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,634,823
|
|
|
$
|
4,092,202
|
|
|
$
|
3,208,816
|
|
|
$
|
(2,633,949
|
)
|
|
$
|
7,301,892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings
|
|
$
|
-
|
|
|
$
|
690,485
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
690,485
|
|
Customer deposits
|
|
|
-
|
|
|
|
2,116,046
|
|
|
|
-
|
|
|
|
(338
|
)
|
|
|
2,115,708
|
|
Long-term debt
|
|
|
-
|
|
|
|
1,968,967
|
|
|
|
42,710
|
|
|
|
-
|
|
|
|
2,011,677
|
|
FHLB borrowings
|
|
|
-
|
|
|
|
104,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
104,000
|
|
Other liabilities
|
|
|
245
|
|
|
|
163,894
|
|
|
|
1,375,840
|
|
|
|
38
|
|
|
|
1,540,017
|
|
Net intercompany advances
|
|
|
1,794,573
|
|
|
|
(1,083,579
|
)
|
|
|
(710,993
|
)
|
|
|
(1
|
)
|
|
|
-
|
|
Stockholders equity
|
|
|
840,005
|
|
|
|
132,389
|
|
|
|
2,501,259
|
|
|
|
(2,633,648
|
)
|
|
|
840,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
2,634,823
|
|
|
$
|
4,092,202
|
|
|
$
|
3,208,816
|
|
|
$
|
(2,633,949
|
)
|
|
$
|
7,301,892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
H&R Block,
Inc.
|
|
|
BFC
|
|
|
Other
|
|
|
|
|
|
Consolidated
|
|
April 30,
2008
|
|
(Guarantor)
|
|
|
(Issuer)
|
|
|
Subsidiaries
|
|
|
Elims
|
|
|
H&R
Block
|
|
|
|
Cash & cash equivalents
|
|
$
|
-
|
|
|
$
|
34,611
|
|
|
$
|
630,933
|
|
|
$
|
(647
|
)
|
|
$
|
664,897
|
|
Cash & cash equivalents restricted
|
|
|
-
|
|
|
|
6,214
|
|
|
|
817
|
|
|
|
-
|
|
|
|
7,031
|
|
Receivables, net
|
|
|
139
|
|
|
|
122,756
|
|
|
|
411,334
|
|
|
|
-
|
|
|
|
534,229
|
|
Mortgage loans held for investment
|
|
|
-
|
|
|
|
966,301
|
|
|
|
-
|
|
|
|
-
|
|
|
|
966,301
|
|
Intangible assets and goodwill, net
|
|
|
-
|
|
|
|
-
|
|
|
|
978,682
|
|
|
|
-
|
|
|
|
978,682
|
|
Investments in subsidiaries
|
|
|
4,131,345
|
|
|
|
-
|
|
|
|
322
|
|
|
|
(4,131,345
|
)
|
|
|
322
|
|
Assets of discontinued operations
|
|
|
-
|
|
|
|
987,592
|
|
|
|
-
|
|
|
|
-
|
|
|
|
987,592
|
|
Other assets
|
|
|
-
|
|
|
|
514,463
|
|
|
|
969,896
|
|
|
|
12
|
|
|
|
1,484,371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
4,131,484
|
|
|
$
|
2,631,937
|
|
|
$
|
2,991,984
|
|
|
$
|
(4,131,980
|
)
|
|
$
|
5,623,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer deposits
|
|
$
|
-
|
|
|
$
|
786,271
|
|
|
$
|
-
|
|
|
$
|
(647
|
)
|
|
$
|
785,624
|
|
Long-term debt
|
|
|
-
|
|
|
|
997,885
|
|
|
|
41,185
|
|
|
|
-
|
|
|
|
1,039,070
|
|
FHLB borrowings
|
|
|
-
|
|
|
|
129,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
129,000
|
|
Liabilities of discontinued operations
|
|
|
-
|
|
|
|
644,446
|
|
|
|
-
|
|
|
|
-
|
|
|
|
644,446
|
|
Other liabilities
|
|
|
2
|
|
|
|
466,236
|
|
|
|
1,571,178
|
|
|
|
51
|
|
|
|
2,037,467
|
|
Net intercompany advances
|
|
|
3,143,664
|
|
|
|
(632,522
|
)
|
|
|
(2,511,103
|
)
|
|
|
(39
|
)
|
|
|
-
|
|
Stockholders equity
|
|
|
987,818
|
|
|
|
240,621
|
|
|
|
3,890,724
|
|
|
|
(4,131,345
|
)
|
|
|
987,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
4,131,484
|
|
|
$
|
2,631,937
|
|
|
$
|
2,991,984
|
|
|
$
|
(4,131,980
|
)
|
|
$
|
5,623,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed
Consolidating Statements of Cash Flows
|
|
|
(in 000s)
|
|
|
|
Nine
Months Ended
|
|
H&R
Block, Inc.
|
|
|
BFC
|
|
|
Other
|
|
|
|
|
|
Consolidated
|
|
January 31, 2009
|
|
(Guarantor)
|
|
|
(Issuer)
|
|
|
Subsidiaries
|
|
|
Elims
|
|
|
H&R Block
|
|
|
|
Net cash used in operating activities:
|
|
$
|
(3,360
|
)
|
|
$
|
(1,868,531
|
)
|
|
$
|
(551,671
|
)
|
|
$
|
-
|
|
|
$
|
(2,423,562
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans originated for investment, net
|
|
|
-
|
|
|
|
72,150
|
|
|
|
-
|
|
|
|
-
|
|
|
|
72,150
|
|
Purchase property & equipment
|
|
|
-
|
|
|
|
(5,366
|
)
|
|
|
(68,547
|
)
|
|
|
-
|
|
|
|
(73,913
|
)
|
Payments for business acquisitions
|
|
|
-
|
|
|
|
-
|
|
|
|
(290,868
|
)
|
|
|
-
|
|
|
|
(290,868
|
)
|
Net intercompany advances
|
|
|
(71,691
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
71,691
|
|
|
|
-
|
|
Investing cash flows of discontinued operations
|
|
|
-
|
|
|
|
255,066
|
|
|
|
-
|
|
|
|
-
|
|
|
|
255,066
|
|
Other, net
|
|
|
-
|
|
|
|
7,483
|
|
|
|
16,356
|
|
|
|
-
|
|
|
|
23,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(71,691
|
)
|
|
|
329,333
|
|
|
|
(343,059
|
)
|
|
|
71,691
|
|
|
|
(13,726
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of short-term borrowings
|
|
|
-
|
|
|
|
(928,983
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(928,983
|
)
|
Proceeds from short-term borrowings
|
|
|
-
|
|
|
|
2,565,281
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,565,281
|
|
Customer deposits
|
|
|
-
|
|
|
|
1,326,275
|
|
|
|
-
|
|
|
|
309
|
|
|
|
1,326,584
|
|
Dividends paid
|
|
|
(147,569
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(147,569
|
)
|
Acquisition of treasury shares
|
|
|
(7,387
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(7,387
|
)
|
Proceeds from stock options
|
|
|
69,891
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
69,891
|
|
Proceeds from issuance of stock
|
|
|
141,450
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
141,450
|
|
Net intercompany advances
|
|
|
-
|
|
|
|
(448,639
|
)
|
|
|
520,330
|
|
|
|
(71,691
|
)
|
|
|
-
|
|
Financing cash flows of discontinued operations
|
|
|
-
|
|
|
|
4,783
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,783
|
|
Other, net
|
|
|
18,666
|
|
|
|
-
|
|
|
|
(1,122
|
)
|
|
|
-
|
|
|
|
17,544
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
75,051
|
|
|
|
2,518,717
|
|
|
|
519,208
|
|
|
|
(71,382
|
)
|
|
|
3,041,594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
-
|
|
|
|
979,519
|
|
|
|
(375,522
|
)
|
|
|
309
|
|
|
|
604,306
|
|
Cash beginning of period
|
|
|
-
|
|
|
|
34,611
|
|
|
|
630,933
|
|
|
|
(647
|
)
|
|
|
664,897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash end of period
|
|
$
|
-
|
|
|
$
|
1,014,130
|
|
|
$
|
255,411
|
|
|
$
|
(338
|
)
|
|
$
|
1,269,203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
Months Ended
|
|
H&R
Block, Inc.
|
|
|
BFC
|
|
|
Other
|
|
|
|
|
|
Consolidated
|
|
January 31, 2008
|
|
(Guarantor)
|
|
|
(Issuer)
|
|
|
Subsidiaries
|
|
|
Elims
|
|
|
H&R Block
|
|
|
|
Net cash provided by (used in) operating activities:
|
|
$
|
35,374
|
|
|
$
|
(2,786,795
|
)
|
|
$
|
(588,696
|
)
|
|
$
|
-
|
|
|
$
|
(3,340,117
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans originated for investment, net
|
|
|
-
|
|
|
|
106,721
|
|
|
|
-
|
|
|
|
-
|
|
|
|
106,721
|
|
Purchase property & equipment
|
|
|
-
|
|
|
|
3,007
|
|
|
|
(80,233
|
)
|
|
|
-
|
|
|
|
(77,226
|
)
|
Payments for business acquisitions
|
|
|
-
|
|
|
|
-
|
|
|
|
(23,835
|
)
|
|
|
-
|
|
|
|
(23,835
|
)
|
Net intercompany advances
|
|
|
89,728
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(89,728
|
)
|
|
|
-
|
|
Investing cash flows from discontinued operations
|
|
|
-
|
|
|
|
(5,424
|
)
|
|
|
3,749
|
|
|
|
-
|
|
|
|
(1,675
|
)
|
Other, net
|
|
|
-
|
|
|
|
7,046
|
|
|
|
336
|
|
|
|
-
|
|
|
|
7,382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
89,728
|
|
|
|
111,350
|
|
|
|
(99,983
|
)
|
|
|
(89,728
|
)
|
|
|
11,367
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of commercial paper
|
|
|
-
|
|
|
|
(5,125,279
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,125,279
|
)
|
Proceeds from commercial paper
|
|
|
-
|
|
|
|
4,133,197
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,133,197
|
|
Repayments of other borrowings
|
|
|
-
|
|
|
|
(2,161,177
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,161,177
|
)
|
Proceeds from other borrowings
|
|
|
-
|
|
|
|
5,097,662
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,097,662
|
|
Proceeds from issuance of LT debt
|
|
|
-
|
|
|
|
599,376
|
|
|
|
-
|
|
|
|
-
|
|
|
|
599,376
|
|
Customer deposits
|
|
|
-
|
|
|
|
828,872
|
|
|
|
-
|
|
|
|
-
|
|
|
|
828,872
|
|
Dividends paid
|
|
|
(137,049
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(137,049
|
)
|
Acquisition of treasury shares
|
|
|
(7,237
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(7,237
|
)
|
Proceeds from stock options
|
|
|
14,527
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
14,527
|
|
Net intercompany advances
|
|
|
-
|
|
|
|
(469,856
|
)
|
|
|
380,128
|
|
|
|
89,728
|
|
|
|
-
|
|
Financing cash flows of discontinued operations
|
|
|
-
|
|
|
|
634,208
|
|
|
|
-
|
|
|
|
-
|
|
|
|
634,208
|
|
Other, net
|
|
|
4,657
|
|
|
|
(4,428
|
)
|
|
|
(32,560
|
)
|
|
|
-
|
|
|
|
(32,331
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(125,102
|
)
|
|
|
3,532,575
|
|
|
|
347,568
|
|
|
|
89,728
|
|
|
|
3,844,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
-
|
|
|
|
857,130
|
|
|
|
(341,111
|
)
|
|
|
-
|
|
|
|
516,019
|
|
Cash beginning of period
|
|
|
-
|
|
|
|
60,197
|
|
|
|
756,720
|
|
|
|
-
|
|
|
|
816,917
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash end of period
|
|
$
|
-
|
|
|
$
|
917,327
|
|
|
$
|
415,609
|
|
|
$
|
-
|
|
|
$
|
1,332,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
|
|
ITEM 2. |
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
RESULTS OF
OPERATIONS
H&R Block provides tax services, banking services and
business and consulting services. Our Tax Services segment
provides income tax return preparation services, electronic
filing services and other services and products related to
income tax return preparation to the general public primarily in
the United States, Canada and Australia. Our Business Services
segment consists of RSM McGladrey, Inc. (RSM), a national
accounting, tax and business consulting firm primarily serving
mid-sized businesses. Our Consumer Financial Services segment
offers retail banking through H&R Block Bank (HRB Bank).
On August 12, 2008, we announced the signing of a
definitive agreement to sell H&R Block Financial Advisors,
Inc. (HRBFA) to Ameriprise Financial, Inc. (Ameriprise), and
completed the disposition of this business effective
November 1, 2008. As of January 31, 2009, the results
of operations of HRBFA and its direct corporate parent are
presented as discontinued operations in the condensed
consolidated financial statements. All periods presented have
been reclassified to reflect our discontinued operations. See
additional discussion in note 17 to our condensed
consolidated financial statements.
TAX
SERVICES
This segment primarily consists of our income tax preparation
businesses retail, online and software.
Additionally, this segment includes commercial tax businesses,
which provide tax preparation software to CPAs and other tax
preparers.
|
|
|
|
|
|
|
|
|
|
|
Tax
Services Operating Statistics (U.S. only)
|
|
|
|
Period
November 1 through January 31,
|
|
2009
|
|
|
2008
|
|
|
|
Tax returns prepared (in 000s):
|
|
|
|
|
|
|
|
|
Company-owned operations
(1)
|
|
|
2,579
|
|
|
|
2,430
|
|
Franchise operations
|
|
|
1,339
|
|
|
|
1,427
|
|
|
|
|
|
|
|
|
|
|
Total retail operations
|
|
|
3,918
|
|
|
|
3,857
|
|
|
|
|
|
|
|
|
|
|
Software
|
|
|
780
|
|
|
|
799
|
|
Online
|
|
|
643
|
|
|
|
396
|
|
Free File Alliance
|
|
|
178
|
|
|
|
306
|
|
|
|
|
|
|
|
|
|
|
Total digital tax solutions
|
|
|
1,601
|
|
|
|
1,501
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,519
|
|
|
|
5,358
|
|
|
|
|
|
|
|
|
|
|
Net average fee per tax return prepared:
(2)
|
|
|
|
|
|
|
|
|
Company-owned operations
|
|
$
|
202.07
|
|
|
$
|
181.19
|
|
Franchise operations
|
|
|
171.67
|
|
|
|
157.91
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
191.68
|
|
|
$
|
172.58
|
|
|
|
|
|
|
|
|
|
|
Offices:
|
|
|
|
|
|
|
|
|
Company-owned
|
|
|
7,029
|
|
|
|
6,835
|
|
Company-owned shared locations
(3)
|
|
|
1,542
|
|
|
|
1,478
|
|
|
|
|
|
|
|
|
|
|
Total company-owned offices
|
|
|
8,571
|
|
|
|
8,313
|
|
|
|
|
|
|
|
|
|
|
Franchise
|
|
|
3,565
|
|
|
|
3,812
|
|
Franchise shared locations
(3)
|
|
|
787
|
|
|
|
913
|
|
|
|
|
|
|
|
|
|
|
Total franchise offices
|
|
|
4,352
|
|
|
|
4,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,923
|
|
|
|
13,038
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Fiscal
year 2009 returns include approximately 139,000 returns prepared
in offices of our last major independent franchise operator,
which we acquired in November 2008. Tax returns prepared by this
franchise operator in fiscal year 2008 are presented within
franchise operations for that year.
|
(2) |
|
Calculated
as net tax preparation fees divided by retail tax returns
prepared.
|
(3) |
|
Shared
locations include offices located within Wal-Mart, Sears and
other third-party businesses.
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax
Services Operating Results
|
|
|
(in 000s)
|
|
|
|
|
|
Three Months Ended
January 31,
|
|
|
Nine Months Ended
January 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
Service revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax preparation fees
|
|
$
|
534,389
|
|
|
$
|
455,036
|
|
|
$
|
620,728
|
|
|
$
|
529,423
|
|
Other services
|
|
|
75,435
|
|
|
|
65,766
|
|
|
|
146,719
|
|
|
|
134,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
609,824
|
|
|
|
520,802
|
|
|
|
767,447
|
|
|
|
664,116
|
|
Royalties
|
|
|
72,980
|
|
|
|
61,350
|
|
|
|
81,963
|
|
|
|
69,111
|
|
Loan participation and related fees
|
|
|
36,123
|
|
|
|
40,584
|
|
|
|
36,123
|
|
|
|
41,737
|
|
Other
|
|
|
42,808
|
|
|
|
39,051
|
|
|
|
50,571
|
|
|
|
47,490
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
761,735
|
|
|
|
661,787
|
|
|
|
936,104
|
|
|
|
822,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and benefits
|
|
|
251,578
|
|
|
|
236,048
|
|
|
|
359,459
|
|
|
|
343,661
|
|
Occupancy
|
|
|
93,474
|
|
|
|
90,818
|
|
|
|
253,761
|
|
|
|
245,886
|
|
Depreciation
|
|
|
9,758
|
|
|
|
9,399
|
|
|
|
25,963
|
|
|
|
26,009
|
|
Other
|
|
|
73,753
|
|
|
|
74,943
|
|
|
|
166,828
|
|
|
|
176,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
428,563
|
|
|
|
411,208
|
|
|
|
806,011
|
|
|
|
791,966
|
|
Cost of other revenues, selling,
general and administrative
|
|
|
202,729
|
|
|
|
204,700
|
|
|
|
348,138
|
|
|
|
356,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
631,292
|
|
|
|
615,908
|
|
|
|
1,154,149
|
|
|
|
1,148,013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax income (loss)
|
|
$
|
130,443
|
|
|
$
|
45,879
|
|
|
$
|
(218,045
|
)
|
|
$
|
(325,559
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months
ended January 31, 2009 compared to January 31,
2008
Tax Services revenues increased $99.9 million, or
15.1%, for the three months ended January 31, 2009 compared
to the prior year. Tax preparation fees increased
$79.4 million, or 17.4%, primarily due to a 6.1% increase
in U.S. retail tax returns prepared in company-owned
offices and an 11.5% increase in the net average fee per
U.S. retail tax return. The increase in returns prepared in
company-owned offices is primarily due to the November 2008
acquisition of our last major independent franchise operator.
See note 3 to the condensed consolidated financial
statements for additional information. Excluding operating
results attributable to the acquired franchise operator, tax
returns prepared in company-owned offices increased 0.5% over
the prior year and tax preparation fees increased
$52.5 million. Increases in our net average fee are due to
a combination of planned pricing increases, higher tax return
complexity and lower discounts.
The business of our Tax Services segment is highly seasonal and
results for our third quarter represent only a small portion of
the tax season. Results reported in our third quarter were
positively impacted by a shift of two peak days of tax
preparation volume, as compared to prior year results, from
February to January. Therefore, third quarter results may not be
indicative of the results we expect for the entire fiscal year.
We do not expect to maintain this level of revenue or tax return
growth throughout the remainder of the tax season. Tax returns
prepared in company-owned and franchise offices through
February 28, 2009 decreased 3.9% from the prior year,
adjusted to exclude the effects of leap year in fiscal 2008. We
also expect the increase in the net average fee to moderate
throughout the remainder of the tax season.
Other service revenue increased $9.7 million, or 14.7%,
primarily due to $8.7 million in additional license fees
earned from bank products, mainly refund anticipation checks
(RACs). Revenues from our online tax preparation and
e-filing
services were essentially flat, as an increase in clients was
offset by the elimination of separate
e-filing
fees related to our software units.
Royalty revenue increased $11.6 million, or 19.0%, from the
prior year primarily due to an increase in franchise revenues
and an increase in royalty rates at sub-franchises of the
acquired franchise operator.
Loan participation and related fees decreased $4.5 million,
or 11.0%, due to a decline in refund anticipation loan (RAL)
volume, as more clients elected to receive RACs.
Other revenues increased $3.8 million, or 9.6%, primarily
due to an increase of $12.6 million in fees earned in
connection with the Emerald Advance loan program, under which,
this segment shares in the revenues and expenses associated with
the program. This increase was partially offset by a decline in
software sales.
26
Total expenses increased $15.4 million, or 2.5%, for the
three months ended January 31, 2009. Cost of services
increased $17.4 million, or 4.2%, from the prior year, due
to higher compensation and benefits. Compensation and benefits
increased $15.5 million, or 6.6%, primarily due to a 9.9%
increase in commission-based wages resulting from a
corresponding increase in tax preparation revenues. Cost of
other revenues, selling, general and administrative expenses
decreased slightly from the prior year, as declines in corporate
wages and corporate shared services were offset by a
$14.7 million increase in marketing expenses. Bad debt
expense related to lending products was essentially flat
compared to the prior year, as the negative impact of the
elimination of cross-collect practices by lending banks in the
prior year was offset in the current year by higher bad debt
expense due to higher numbers of Emerald Advance lines of credit.
Pretax income for the three months ended January 31, 2009
was $130.4 million, compared to income of
$45.9 million in the prior year.
Nine months ended
January 31, 2009 compared to January 31,
2008
Tax Services revenues increased $113.7 million, or
13.8%, for the nine months ended January 31, 2009 compared
to the prior year. Tax preparation fees increased
$91.3 million, or 17.2%, primarily due to a 6.6% increase
in our U.S. retail tax returns prepared in company-owned
offices and an 11.2% increase in the net average fee per
U.S. retail tax return. The increase in tax returns
prepared is primarily due to the acquisition of our last major
independent franchise operator, as discussed above. Excluding
operating results attributable to the acquired franchise
operator, tax returns prepared increased 1.3% over the prior
year.
Other service revenue increased $12.0 million, or 8.9%,
primarily due to $9.1 million in additional license fees
earned from bank products, mainly RACs. Additionally, we earned
$4.8 million in connection with an agreement with HRB Bank
for the H&R Block Emerald Prepaid
MasterCard®,
under which, this segment shares in the revenues and expenses
associated with this program.
Royalty revenue increased $12.9 million, or 18.6%, from the
prior year primarily due to an increase in franchisee revenues
and certain royalty rates, as discussed above.
Loan participation and related fees decreased $5.6 million,
or 13.5%, due to a decline in RAL volume, as more clients
elected to receive RACs.
Other revenues increased $3.1 million, or 6.5%, primarily
due to $13.1 million in incremental fees earned in
connection with the Emerald Advance loan program. This increase
was partially offset by a decline in software sales.
Total expenses increased $6.1 million, or 0.5%, for the
nine months ended January 31, 2009. Cost of services
increased $14.0 million, or 1.8%, over the prior year, due
to higher compensation and benefits and occupancy expenses,
partially offset by declines in other expenses. Compensation and
benefits increased $15.8 million, or 4.6%, primarily as a
result of an 8.9% increase in commission-based wages. Occupancy
expenses increased $7.9 million, or 3.2%, primarily as a
result of higher rent and utilities expenses due to a 3.1%
increase in company-owned offices under lease and a 2.9%
increase in the average rent. Other cost of services decreased
$9.6 million, or 5.4%, primarily due to a $6.5 million
decline in supplies expenses as our tax training schools move to
more computer-based training. Cost of other revenues, selling,
general and administrative expenses decreased $7.9 million
from the prior year, as declines in RAL bad debt expense,
corporate wages and corporate shared services were partially
offset by a $17.4 million increase in marketing expenses.
Bad debt expense related to our RAL program declined primarily
due to the elimination of cross-collect practices by lending
banks and changes implemented by the IRS in the prior year, both
of which resulted in higher expenses in the prior year.
The pretax loss for the nine months ended January 31, 2009
was $218.0 million, compared to a loss of
$325.6 million in the prior year.
27
BUSINESS
SERVICES
This segment offers accounting, tax and consulting services to
middle-market companies.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business
Services Operating Statistics
|
|
|
|
|
|
Three Months Ended
January 31,
|
|
|
Nine Months Ended
January 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
Accounting, tax and consulting:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chargeable hours
|
|
|
923,321
|
|
|
|
984,851
|
|
|
|
3,075,623
|
|
|
|
3,297,153
|
|
Chargeable hours per person
|
|
|
301
|
|
|
|
319
|
|
|
|
905
|
|
|
|
918
|
|
Net billed rate per hour
|
|
$
|
150
|
|
|
$
|
144
|
|
|
$
|
147
|
|
|
$
|
145
|
|
Average margin per person
|
|
$
|
22,556
|
|
|
$
|
23,463
|
|
|
$
|
66,162
|
|
|
$
|
67,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business
Services Operating Results
|
|
|
(in 000s)
|
|
|
|
|
|
Three Months Ended
January 31,
|
|
|
Nine Months Ended
January 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
Tax services
|
|
$
|
78,267
|
|
|
$
|
76,222
|
|
|
$
|
265,137
|
|
|
$
|
256,048
|
|
Business consulting
|
|
|
60,366
|
|
|
|
59,369
|
|
|
|
187,123
|
|
|
|
175,461
|
|
Accounting services
|
|
|
13,904
|
|
|
|
12,513
|
|
|
|
40,285
|
|
|
|
42,198
|
|
Capital markets
|
|
|
4,762
|
|
|
|
9,770
|
|
|
|
15,545
|
|
|
|
33,717
|
|
Leased employee revenue
|
|
|
2
|
|
|
|
3,581
|
|
|
|
52
|
|
|
|
25,077
|
|
Reimbursed expenses
|
|
|
5,883
|
|
|
|
3,356
|
|
|
|
14,418
|
|
|
|
13,923
|
|
Other
|
|
|
21,993
|
|
|
|
27,073
|
|
|
|
70,313
|
|
|
|
77,331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
185,177
|
|
|
|
191,884
|
|
|
|
592,873
|
|
|
|
623,755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and benefits
|
|
|
99,498
|
|
|
|
107,093
|
|
|
|
341,540
|
|
|
|
364,388
|
|
Occupancy
|
|
|
20,423
|
|
|
|
19,138
|
|
|
|
60,017
|
|
|
|
54,814
|
|
Other
|
|
|
15,969
|
|
|
|
16,166
|
|
|
|
46,290
|
|
|
|
59,723
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
135,890
|
|
|
|
142,397
|
|
|
|
447,847
|
|
|
|
478,925
|
|
Amortization of intangible assets
|
|
|
3,177
|
|
|
|
3,372
|
|
|
|
9,946
|
|
|
|
10,572
|
|
Selling, general and administrative
|
|
|
35,415
|
|
|
|
39,501
|
|
|
|
111,599
|
|
|
|
117,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
174,482
|
|
|
|
185,270
|
|
|
|
569,392
|
|
|
|
607,266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax income
|
|
$
|
10,695
|
|
|
$
|
6,614
|
|
|
$
|
23,481
|
|
|
$
|
16,489
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months
ended January 31, 2009 compared to January 31,
2008
Business Services revenues for the three months ended
January 31, 2009 declined $6.7 million, or 3.5% from
the prior year.
Revenues from core tax, consulting and accounting services
increased $4.4 million, or 3.0%, over the prior year,
however, these increases were offset by declines in other
revenues.
Capital markets revenues decreased $5.0 million, or 51.3%,
primarily due to a 68.8% decline in the number of transactions
closed in the current year.
Leased employee revenue decreased $3.6 million primarily
due to a change in organizational structure between the
businesses we acquired from American Express Tax and Business
Services, Inc. (AmexTBS) and the attest firms that, while not
affiliates of our company, also serve our clients. Employees we
previously leased to the attest firms were transferred to the
separate attest practices in the prior fiscal year. As a result,
we no longer record the revenues and expenses associated with
leasing these employees.
Other revenue declined $5.1 million, or 18.8%, primarily
due to a decrease in outside contractor services performed for
our clients.
Total expenses decreased $10.8 million, or 5.8%, from the
prior year. Compensation and benefits decreased
$7.6 million, or 7.1%, due to lower commissions related to
capital markets and the change in organizational structure with
AmexTBS discussed above. Selling, general and administrative
expenses decreased $4.1 million primarily as a result of
our cost reduction program.
Pretax income for the three months ended January 31, 2009
was $10.7 million compared to $6.6 million in the
prior year.
28
Nine months ended
January 31, 2009 compared to January 31,
2008
Business Services revenues for the nine months ended
January 31, 2009 declined $30.9 million, or 5.0% from
the prior year.
Tax revenues increased $9.1 million due to increases in net
billed rate per hour. Business consulting revenues increased
$11.7 million primarily due to a large one-time financial
institutions engagement. Capital markets revenues decreased
$18.2 million, or 53.9%, primarily due to a 43.2% decline
in the number of transactions closed in the current year.
Leased employee revenue decreased $25.0 million primarily
due to a change in organizational structure with AmexTBS, as
discussed above.
Other revenue declined $7.0 million, or 9.1%, primarily due
to a decrease in outside contractor services performed for our
clients.
Total expenses decreased $37.9 million, or 6.2%, from the
prior year. Compensation and benefits and other cost of revenues
decreased primarily due to reductions in commissions related to
capital markets and the change in organizational structure with
AmexTBS as discussed above. Selling, general and administrative
expenses decreased $6.2 million primarily as a result of
our cost reduction program.
Pretax income for the nine months ended January 31, 2009
was $23.5 million compared to $16.5 million in the
prior year.
CONSUMER
FINANCIAL SERVICES
This segment is engaged in providing retail banking offerings to
Tax Services clients through HRB Bank. HRB Bank offers
traditional banking services including prepaid debit card
accounts, checking and savings accounts, individual retirement
accounts and certificates of deposit. This segment previously
included HRBFA, which has been presented as a discontinued
operation in the accompanying condensed consolidated financial
statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
Financial Services Operating Statistics
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
January 31,
|
|
|
Nine Months Ended
January 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
Annualized net interest margin
(1)
|
|
|
6.32%
|
|
|
|
4.65%
|
|
|
|
4.56%
|
|
|
|
3.09%
|
|
Annualized pretax return on
average assets
(2)
|
|
|
(0.72)%
|
|
|
|
3.47%
|
|
|
|
(3.65)%
|
|
|
|
1.23%
|
|
Total assets (in 000s)
|
|
$
|
2,610,019
|
|
|
$
|
2,395,156
|
|
|
$
|
2,610,019
|
|
|
$
|
2,395,156
|
|
Mortgage loans held for investment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan loss reserve as a% of mortgage loans
|
|
|
8.82%
|
|
|
|
1.49%
|
|
|
|
8.82%
|
|
|
|
1.49%
|
|
Delinquency rate (30+ days)
|
|
|
16.29%
|
|
|
|
7.13%
|
|
|
|
16.29%
|
|
|
|
7.13%
|
|
|
|
|
|
|
(1) |
|
Defined
as annualized net interest revenue divided by average bank
earning assets. See Reconciliation of
Non-GAAP Financial Information at the end of
Part I, Item 2.
|
(2) |
|
Defined
as annualized pretax banking income divided by average bank
assets. See Reconciliation of Non-GAAP Financial
Information at the end of Part I, Item 2.
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
Financial Services Operating Results
|
|
|
(in 000s)
|
|
|
|
|
|
Three Months Ended
January 31,
|
|
|
Nine Months Ended
January 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans
|
|
$
|
11,131
|
|
|
$
|
17,198
|
|
|
$
|
36,494
|
|
|
$
|
60,140
|
|
Other
|
|
|
21,193
|
|
|
|
11,881
|
|
|
|
23,467
|
|
|
|
13,913
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,324
|
|
|
|
29,079
|
|
|
|
59,961
|
|
|
|
74,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
3,719
|
|
|
|
11,464
|
|
|
|
11,646
|
|
|
|
37,928
|
|
FHLB advances
|
|
|
1,326
|
|
|
|
1,349
|
|
|
|
3,981
|
|
|
|
4,709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,045
|
|
|
|
12,813
|
|
|
|
15,627
|
|
|
|
42,637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
27,279
|
|
|
|
16,266
|
|
|
|
44,334
|
|
|
|
31,416
|
|
Provision for loan loss reserves
|
|
|
(13,870
|
)
|
|
|
(419
|
)
|
|
|
(51,953
|
)
|
|
|
(12,345
|
)
|
Other
|
|
|
12,871
|
|
|
|
10,225
|
|
|
|
21,019
|
|
|
|
15,555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
(1)
|
|
|
26,280
|
|
|
|
26,072
|
|
|
|
13,400
|
|
|
|
34,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expenses
|
|
|
29,548
|
|
|
|
13,754
|
|
|
|
49,414
|
|
|
|
21,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax income (loss)
|
|
$
|
(3,268
|
)
|
|
$
|
12,318
|
|
|
$
|
(36,014
|
)
|
|
$
|
12,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Total
revenues, less provision for loan loss reserves on mortgage
loans held for investment and interest expense.
|
Three months
ended January 31, 2009 compared to January 31,
2008
Consumer Financial Services revenues, net of interest
expense and provision for loan loss reserves, for the three
months ended January 31, 2009 was essentially flat compared
to the prior year.
Net interest income increased $11.0 million, or 67.7%, over
the prior year, primarily due to an $11.2 million increase
in interest income received on our Emerald Advance loan program
resulting from higher volumes. Interest income on mortgage loans
held for investment and interest expense on deposits declined
$6.1 million and $7.7 million, respectively, due to
lower interest rates and lower average balances in the
corresponding asset or liability. Interest income on mortgage
loans held for investment is also declining due to an increase
in non-accrual loans from $44.8 million at January 31,
2008 to $258.2 million at January 31, 2009. The
following table summarizes the key drivers of net interest
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in 000s)
|
|
|
Average Balance
|
|
|
Average Rate Earned
(Paid)
|
Three
Months Ended January 31,
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
Loans
|
|
$
|
870,060
|
|
|
$
|
1,089,566
|
|
|
|
5.12
|
%
|
|
|
6
|
.31%
|
Emerald Advance lines of credit
|
|
|
375,255
|
|
|
|
171,925
|
|
|
|
36.00
|
%
|
|
|
36
|
.00%
|
Investments
|
|
|
545,825
|
|
|
|
154,498
|
|
|
|
0.21
|
%
|
|
|
4
|
.20%
|
Deposits
|
|
|
1,311,362
|
|
|
|
989,113
|
|
|
|
(1.13
|
%)
|
|
|
(4
|
.60%)
|
|
|
Our non-performing assets consist of the following:
|
|
|
|
|
|
|
(in 000s)
|
|
|
January 31,
|
|
April 30,
|
Balance
at
|
|
2009
|
|
2008
|
|
Impaired loans
|
|
$
|
258,157
|
|
$
|
128,941
|
Real estate owned
(1)
|
|
|
51,919
|
|
|
350
|
|
|
|
|
|
|
|
Total non-performing assets
|
|
$
|
310,076
|
|
$
|
129,291
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes
loans accounted for as in-substance foreclosures of
$39.7 million at January 31, 2009.
|
30
Detail of our mortgage loans held for investment and the related
allowance at January 31, 2009 and April 30, 2008 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in 000s)
|
|
|
|
Outstanding
|
|
|
Loan Loss
|
|
|
%30+Days
|
|
|
|
|
|
|
Principal
Balance
|
|
|
Allowance
|
|
|
Past
Due
|
|
|
Average
FICO
|
|
|
|
As of January 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased from SCC
|
|
$
|
547,832
|
|
|
$
|
71,880
|
|
|
|
23.39
|
%
|
|
|
639
|
|
All other
|
|
|
303,370
|
|
|
|
3,735
|
|
|
|
3.07
|
%
|
|
|
717
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
851,202
|
|
|
$
|
75,615
|
|
|
|
16.29
|
%
|
|
|
667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of April 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased from SCC
|
|
$
|
683,889
|
|
|
$
|
43,769
|
|
|
|
17.53
|
%
|
|
|
664
|
|
All other
|
|
|
320,751
|
|
|
|
1,632
|
|
|
|
2.07
|
%
|
|
|
721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,004,640
|
|
|
$
|
45,401
|
|
|
|
11.71
|
%
|
|
|
682
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans held for investment include loans originated by
our affiliate, Sand Canyon Corporation (SCC), and purchased by
HRB Bank totaling $547.8 million, or approximately 64% of
the total loan portfolio at January 31, 2009. Loans
originated by and purchased from SCC have characteristics which
are representative of Alt-A loans loans to customers
who have credit ratings above sub-prime, but may not conform to
government-sponsored standards. As such, we have experienced
higher rates of delinquency and have greater exposure to loss
with respect to this segment of our loan portfolio. Cumulative
losses on our original loan portfolio purchased from SCC and
retained for investment, including losses on loans now
classified as other real estate, totaled approximately 15% at
January 31, 2009. Our remaining loan portfolio totaled
$303.4 million and is characteristic of a prime loan
portfolio, and we believe subject to a lower loss exposure.
We recorded a provision for loan losses on our mortgage loans
held for investment of $13.9 million during the current
quarter, compared to $0.4 million in the prior year. Our
loan loss provision increased as a result of continued declines
in residential home prices, particularly in certain states where
we have a higher concentration of loans, as well as reserves on
modified loans. Our allowance for loan losses as a percent of
mortgage loans was 8.82%, or $75.6 million, at
January 31, 2009, compared to 4.49%, or $45.4 million,
at April 30, 2008. This allowance represents our best
estimate of credit losses inherent in the loan portfolio as of
the balance sheet dates.
We record a specific loss allowance for each loan greater than
60 days past due based upon the estimated value of the
underlying collateral. Our specific loan loss allowance
reflected an average loss severity of 36% at January 31,
2009.
We record a loan loss allowance for loans less than 60 days
past due on a pooled basis. In estimating our loan loss
allowance for all remaining loans, we stratify the loan
portfolio based on our view of risk associated with various
elements of the pool and assign estimated loss rates based on
those risks. Loss rates are based primarily on historical
experience and our assessment of economic and market conditions.
Loss rates consider both the rate at which loans will become
delinquent (frequency) and the amount of loss that will
ultimately be realized upon occurrence of a liquidation of
collateral (severity). At January 31, 2009 and
April 30, 2008 our weighted average frequency assumption
was approximately 13% and 14%, respectively, and included a
frequency assumption of approximately 17% relating to the SCC
segment of our portfolio. Our weighted average severity
assumption increased to 40% at January 31, 2009 from 37.5%
at October 31, 2008 and 22% at April 30, 2008, due to
declining collateral values during the current year.
For modified loans that we determine meet the definition of a
troubled debt restructuring, we record impairment equal to the
difference between the principal balance of the loan and the
present value of expected future cash flows discounted at the
loans effective interest rate. However, if we assess that
foreclosure of a modified loan is probable, we record impairment
based upon the estimated fair value of the underlying collateral.
Residential real estate markets are experiencing significant
declines in property values and mortgage default rates are
increasing. If adverse market trends continue, including trends
within our portfolio specifically, we may be required to record
additional loan loss provisions, and those losses may be
significant.
Non-interest expenses increased $15.8 million from the
prior year, primarily due to increases in expenses related to
our Emerald Advance loan program.
31
The pretax loss for the three months ended January 31, 2009
was $3.3 million compared to prior year income of
$12.3 million.
Nine months ended
January 31, 2009 compared to January 31,
2008
Consumer Financial Services revenues, net of interest
expense and provision for loan loss reserves, for the nine
months ended January 31, 2009 decreased $21.2 million
from the prior year.
Net interest income increased $12.9 million from the prior
year primarily due to an $11.9 million increase in interest
income received on our Emerald Advance loan program resulting
from higher volumes. Interest income on mortgage loans held for
investment and interest expense on deposits declined
$23.6 million and $26.3 million, respectively, due to
lower interest rates and lower average balances in the
corresponding asset or liability. The following table summarizes
the key drivers of net interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in 000s)
|
|
|
|
Average Balance
|
|
|
Average Rate Earned
(Paid)
|
|
Nine
Months Ended January 31,
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
Loans
|
|
$
|
918,803
|
|
|
$
|
1,207,583
|
|
|
|
5.30%
|
|
|
|
6.64%
|
|
Emerald Advance lines of credit
|
|
|
128,352
|
|
|
|
57,930
|
|
|
|
36.00%
|
|
|
|
36.00%
|
|
Investments
|
|
|
246,698
|
|
|
|
103,979
|
|
|
|
0.72%
|
|
|
|
4.77%
|
|
Deposits
|
|
|
908,671
|
|
|
|
991,127
|
|
|
|
(1.69%)
|
|
|
|
(5.06%)
|
|
|
|
We recorded a provision for loan losses on our mortgage loans
held for investment of $52.0 million during the current
year, compared to $12.3 million in the prior year. Our loan
loss provision increased primarily as a result of steep and
abrupt declines in residential home prices, as well as
increasing delinquencies occurring in our portfolio.
Non-interest expenses increased $27.5 million from the
prior year, primarily due to a $5.7 million write-down to
fair value recorded on real estate owned and increases in
expenses related to our Emerald Advance loan program.
The pretax loss for the nine months ended January 31, 2009
was $36.0 million compared to prior year income of
$12.8 million.
Mortgage Loans
Held for Investment and Related Assets
State
Concentrations
Concentrations of loans to borrowers located in a single state
may result in increased exposure to loss as a result of changes
in real estate values and underlying economic or market
conditions related to a particular geographical location. The
table below presents outstanding loans by certain state
concentrations for our mortgage loans held for investment
portfolio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in 000s)
|
|
|
|
Loans Purchased
|
|
|
Loans Purchased
|
|
|
|
|
|
Percent
|
|
|
Delinquency
|
|
|
|
From
SCC
|
|
|
From
Others
|
|
|
Total
|
|
|
of
Total
|
|
|
Rate
(30+ Days)
|
|
|
|
Florida
|
|
$
|
70,259
|
|
|
$
|
93,094
|
|
|
$
|
163,353
|
|
|
|
19
|
%
|
|
|
17.09
|
%
|
California
|
|
|
128,582
|
|
|
|
15,130
|
|
|
|
143,712
|
|
|
|
17
|
%
|
|
|
25.71
|
%
|
New York
|
|
|
104,792
|
|
|
|
8,555
|
|
|
|
113,347
|
|
|
|
13
|
%
|
|
|
16.78
|
%
|
Wisconsin
|
|
|
2,247
|
|
|
|
72,352
|
|
|
|
74,599
|
|
|
|
9
|
%
|
|
|
1.77
|
%
|
All others
|
|
|
241,952
|
|
|
|
114,239
|
|
|
|
356,191
|
|
|
|
42
|
%
|
|
|
14.97
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
547,832
|
|
|
$
|
303,370
|
|
|
$
|
851,202
|
|
|
|
100
|
%
|
|
|
16.29
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
Real Estate
Owned
Amounts classified as real estate owned as of January 31,
2009 and April 30, 2008 totaled $51.9 million and
$0.3 million, respectively. The table below presents
activity related to our real estate owned:
|
|
|
|
|
(in 000s)
|
|
Nine
Months Ended January 31,
|
|
2009
|
|
|
|
Balance, beginning of the period
|
|
$
|
350
|
|
Additions
|
|
|
62,774
|
|
Sales
|
|
|
(5,506
|
)
|
Writedowns
|
|
|
(5,699
|
)
|
|
|
|
|
|
Balance, end of the period
|
|
$
|
51,919
|
|
|
|
|
|
|
|
|
CORPORATE,
ELIMINATIONS AND INCOME TAXES ON CONTINUING OPERATIONS
Three months
ended January 31, 2009 compared to January 31,
2008
The pretax loss recorded in our corporate operations for the
three months ended January 31, 2009 was $36.1 million
compared to $64.4 million in the prior year. The decreased
loss is primarily due to severance-related costs of
$20.4 million recorded in the prior year, coupled with
benefits resulting from the cost reduction program implemented
in fiscal year 2008.
Our effective tax rate for continuing operations was 34.3% for
the three months ended January 31, 2009. The rate for the
current quarter was lower than expected primarily due to
benefits recorded as a result of adjustments of our prior year
estimated tax provision to actual federal and state returns
filed, as well as a net benefit recorded in the quarter
resulting from adjustments to our estimated annual effective tax
rate. We expect our effective tax rate for full fiscal year 2009
to be approximately 40%. In the prior year, we also recorded
certain discrete tax benefits, resulting in a net tax benefit of
$6.7 million on pretax income of $0.4 million.
Nine months ended
January 31, 2009 compared to January 31,
2008
The pretax loss recorded in our corporate operations for the
nine months ended January 31, 2009 was $108.1 million
compared to $112.6 million in the prior year. The decreased
loss is primarily due to severance-related costs recorded in the
prior year and benefits resulting from the cost reduction
program implemented in fiscal year 2008. These improvements were
partially offset by lower investment income and increased
interest expense, as our corporate operations absorbed current
year financing costs for all long-term debt.
Our effective tax rate for continuing operations was 42.5% and
41.3% for the nine months ended January 31, 2009 and 2008,
respectively. Our effective tax rate increased primarily due to
changes in our estimated state tax rate and non-deductible
investment losses. We expect our effective tax rate for full
fiscal year 2009 to be approximately 40%.
DISCONTINUED
OPERATIONS
On August 12, 2008, we announced the signing of a
definitive agreement to sell HRBFA to Ameriprise. The
disposition of this business was completed effective
November 1, 2008. As of January 31, 2009, the results
of operations of HRBFA and its direct corporate parent are
presented as discontinued operations in the condensed
consolidated financial statements. All periods presented have
been reclassified to reflect our discontinued operations. See
additional discussion in note 17 to our condensed
consolidated financial statements.
Discontinued operations also includes the wind-down of our
mortgage loan origination business and the sale of our mortgage
loan servicing business in the prior year. Also included in the
prior year are the results of three smaller lines of business
previously reported in our Business Services segment.
Three months
ended January 31, 2009 compared to January 31,
2008
The pretax loss of our discontinued operations for the three
months ended January 31, 2009 was $20.1 million
compared to a loss of $93.4 million in the prior year. The
loss from discontinued operations for the prior year period
included significant losses from our former mortgage loan
businesses, including impairments of residual interests of
$14.7 million and losses relating to loan repurchase
obligations of $49.5 million.
33
Losses from discontinued operations in the current quarter
consist primarily of a $15.5 million charge relating to the
estimated fair value of indemnification obligations undertaken
in connection with the disposition of HRBFA, as discussed in
note 17 to the condensed consolidated financial statements,
and ongoing wind-down costs associated with our former mortgage
businesses.
As discussed below, the disposition of HRBFA resulted in a
capital loss for income tax purposes, and therefore, we recorded
no tax benefit on reported losses during the quarter incurred in
connection with the sale. As such, our effective tax rate for
discontinued operations was 2.9% for the three months ended
January 31, 2009 compared with 41.7% for the three months
ended January 31, 2008.
Nine months ended
January 31, 2009 compared to January 31,
2008
The pretax loss of our discontinued operations for the nine
months ended January 31, 2009 was $47.4 million
compared to a loss of $978.0 million in the prior year. The
loss from discontinued operations for the prior year period
resulted from significant losses from our former mortgage loan
businesses, including impairments of residual interests of
$125.9 million, losses relating to loan repurchase
obligations of $379.4 million and losses on the sale of
mortgage loans totaling $118.9 million.
Losses from discontinued operations in the current year consist
primarily of the $15.5 million indemnification obligation,
as discussed above, and ongoing wind-down costs associated with
our former mortgage businesses.
During the current year, we recorded a deferred tax asset
totaling $165 million, representing the difference between
the tax and book basis in the stock of our brokerage business
sold to Ameriprise in November. For tax purposes, we incurred a
capital loss upon disposition of that business, which generally
can only be utilized to the extent we realize capital gains
within five years subsequent to the date of the loss. We
dont currently expect to be able to realize a tax benefit
for substantially all of this loss and, therefore, recorded a
valuation allowance of $155 million, resulting in a net tax
benefit during our second fiscal quarter of approximately
$10 million.
Our effective tax rate for discontinued operations was 44.2% and
37.4% for the nine months ended January 31, 2009 and 2008,
respectively. As discussed above, our effective tax rate
increased primarily due to second quarter tax benefits of
$10 million recognized in connection with the disposition
of HRBFA.
FINANCIAL
CONDITION
These comments should be read in conjunction with the condensed
consolidated balance sheets, condensed consolidated statements
of cash flows and condensed consolidated statements of
stockholders equity found on pages 1, 3 and 4,
respectively.
CAPITAL
RESOURCES & LIQUIDITY BY SEGMENT
Our sources of capital include cash from operations, issuances
of common stock and debt. We use capital primarily to fund
working capital, pay dividends, acquire businesses and
repurchase treasury shares. Our operations are highly seasonal
and therefore generally require the use of cash to fund
operating losses during the period May through December.
Given the likely availability of a number of liquidity options
discussed herein, including borrowing capacity under our
unsecured committed lines of credit (CLOCs), we believe, that in
the absence of any unexpected developments, our existing sources
of capital at January 31, 2009 are sufficient to meet our
operating needs.
Cash From
Operations. Cash used in operating activities for the
first nine months of fiscal year 2009 totaled $2.4 billion,
compared with $3.3 billion for the same period last year.
The decline was due primarily to lower losses and reduced
working capital requirements of our discontinued businesses.
Debt.
We borrow under our CLOCs to support working capital
requirements primarily arising from off-season operating losses
in our Tax Services and Business Services segments, pay
dividends, acquire businesses and repurchase treasury shares. We
had $970.8 million outstanding under our CLOCs at
January 31, 2009 compared to $1.8 billion at
January 31, 2008. See additional discussion in
Borrowings.
We entered into a committed line of credit agreement with HSBC
Finance Corporation (HSBC) effective January 14, 2009 for
use as a funding source for the purchase of RAL participations.
This line provides funding totaling $2.5 billion through
March 30, 2009 and $120.0 million thereafter through
June 30, 2009. This line is
34
subject to various covenants that are similar to our primary
CLOCs, and is secured by our RAL participations. At
January 31, 2009, there was $690.5 million outstanding
on this facility.
Issuance of
Common Stock. On October 27, 2008, we sold
8.3 million shares of our common stock, without par value,
at a price of $17.50 per share in a registered direct offering
through subscription agreements with selected institutional
investors. We received net proceeds of $141.5 million,
after deducting placement agent fees and other offering
expenses. The purpose of the equity offering was to ensure we
maintained adequate equity levels, as a condition of our CLOCs,
during our off-season. Proceeds were used for general corporate
purposes.
Proceeds from the issuance of common stock in accordance with
our stock-based compensation plans totaled $80.1 million
and $17.4 million for the nine months ended
January 31, 2009 and 2008, respectively.
Dividends.
Dividends paid totaled $147.6 million and
$137.0 million for the nine months ended January 31,
2009 and 2008, respectively.
Share
Repurchases. In June 2008, our Board of Directors
rescinded previous authorizations to repurchase shares of our
common stock, and approved an authorization to purchase up to
$2.0 billion of our common stock over the next four years.
We did not repurchase shares during the nine months ended
January 31, 2009.
Restricted
Cash. We hold certain cash balances that are
restricted as to use. Cash and cash equivalents
restricted totaled $75.9 million at January 31, 2009
compared to $7.0 million at April 30, 2008. At
January 31, 2009, our corporate operations held
$69.4 million of this total, primarily as a requirement of
our $2.5 billion line with HSBC Finance Corporation.
Segment Cash
Flows. A condensed consolidating statement of cash
flows by segment for the nine months ended January 31, 2009
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in 000s)
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax
|
|
|
Business
|
|
|
Financial
|
|
|
|
|
|
Discontinued
|
|
|
Consolidated
|
|
|
|
Services
|
|
|
Services
|
|
|
Services
|
|
|
Corporate
|
|
|
Operations
|
|
|
H&R
Block
|
|
|
|
Cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations
|
|
$
|
(1,824,397
|
)
|
|
$
|
(21,612
|
)
|
|
$
|
(647,605
|
)
|
|
$
|
(2,897
|
)
|
|
$
|
72,949
|
|
|
$
|
(2,423,562
|
)
|
Investing
|
|
|
(313,389
|
)
|
|
|
(21,009
|
)
|
|
|
77,116
|
|
|
|
(11,510
|
)
|
|
|
255,066
|
|
|
|
(13,726
|
)
|
Financing
|
|
|
(9,807
|
)
|
|
|
809
|
|
|
|
1,300,875
|
|
|
|
1,744,934
|
|
|
|
4,783
|
|
|
|
3,041,594
|
|
Net intercompany
|
|
|
2,137,931
|
|
|
|
31,080
|
|
|
|
261,992
|
|
|
|
(2,098,205
|
)
|
|
|
(332,798
|
)
|
|
|
|
|
|
|
Tax
Services. Tax Services has historically been our
largest provider of annual operating cash flows. The seasonal
nature of Tax Services generally results in a large positive
operating cash flow in our fourth quarter. Tax Services used
$1.8 billion in its current nine-month operations for
off-season working capital requirements, including the purchase
of participation interests in RALs. This segment also used
$313.4 million in investing activities primarily related to
the acquisition of our last major franchise operator.
Business
Services. Business Services funding requirements are
largely related to receivables for completed work and work
in process. We provide funding sufficient to cover this
segments working capital needs. This segment used
$21.6 million in operating cash flows during the first nine
months of the year for off-season working capital requirements.
Business Services used $21.0 million in investing
activities primarily related to capital expenditures.
Consumer
Financial Services. In the first nine months of
fiscal year 2009, Consumer Financial Services used
$647.6 million in operating cash flows primarily relating
to advances under Emerald Advance lines of credit. This segment
also provided $77.1 million in investing activities
primarily from principal payments received on mortgage loans
held for investment and provided $1.3 billion in financing
activities due to Emerald Card deposits relating to tax client
refunds.
HRB Bank is a member of the Federal Home Loan Bank (FHLB) of Des
Moines, which extends credit to member banks based on eligible
collateral. At January 31, 2009, HRB Bank had total FHLB
advance capacity of $434.1 million. There was
$104.0 million outstanding on this facility, leaving
remaining availability of $330.1 million. Mortgage loans
held for investment of $698.6 million serve as eligible
collateral and are used to determine total capacity.
35
BORROWINGS
The following chart provides the debt ratings for Block
Financial LLC (BFC) as of January 31, 2009 and
April 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2009
|
|
|
|
|
|
April 30, 2008
|
|
|
|
|
|
|
Short-term
|
|
|
Long-term
|
|
|
Outlook
|
|
|
Short-term
|
|
|
Long-term
|
|
|
Outlook
|
|
|
|
Moodys
|
|
|
P-2
|
|
|
|
Baa1
|
|
|
|
Stable
|
|
|
|
P-2
|
|
|
|
Baa1
|
|
|
|
Negative
|
|
S&P
|
|
|
A-2
|
|
|
|
BBB
|
|
|
|
Positive
|
|
|
|
A-3
|
|
|
|
BBB-
|
|
|
|
Negative
|
|
Fitch
|
|
|
F2
|
|
|
|
BBB
|
|
|
|
Stable
|
|
|
|
F3
|
|
|
|
BBB
|
|
|
|
Negative
|
|
DBRS
|
|
|
R-2 (high
|
)
|
|
|
BBB (high
|
)
|
|
|
Positive
|
|
|
|
R-2 (high
|
)
|
|
|
BBB (high
|
)
|
|
|
Negative
|
|
|
|
At January 31, 2009, we maintained $2.0 billion in
revolving credit facilities to support commercial paper issuance
and for general corporate purposes. These CLOCs, and outstanding
borrowings thereunder, have a maturity date of August 2010 and
an annual facility fee in a range of six to fifteen basis points
per annum, based on our credit ratings. We had
$970.8 million outstanding as of January 31, 2009 to
support working capital requirements primarily arising from
off-season operating losses, to pay dividends and acquire
businesses. These borrowings are included in long-term debt on
our condensed consolidated balance sheet due to their
contractual maturity date. The CLOCs, among other things,
require we maintain at least $650.0 million of net worth on
the last day of any fiscal quarter. We had net worth of
$840.0 million at January 31, 2009.
Lehman Brothers Bank, FSB (Lehman) is a participating lender in
our $2.0 billion CLOCs, with a $50.0 million credit
commitment. In September 2008, Lehmans parent company
declared bankruptcy. Since then, Lehman has not honored any
funding requests under these facilities, thereby effectively
reducing our available liquidity under our CLOCs to
$1.95 billion. We do not expect this change to have a
material impact on our liquidity.
We entered into a committed line of credit agreement with HSBC
effective January 14, 2009 for use as a funding source for
the purchase of RAL participations. This line provides funding
totaling $2.5 billion through March 30, 2009 and
$120.0 million thereafter through June 30, 2009. This
line is subject to various covenants that are similar to our
primary CLOCs, and is secured by our RAL participations. At
January 31, 2009, there was $690.5 million outstanding
on this facility. Our contract with HSBC provides for them to
fund RALs through 2011, with an option to renew, at our
discretion, through 2013. We have also had a contract each of
the last two years under which HSBC has funded our participation
interest in RALs.
Other than the changes outlined above, there have been no
material changes in our borrowings from those reported at
April 30, 2008 in our Annual Report on
Form 10-K.
CONTRACTUAL
OBLIGATIONS AND COMMERCIAL COMMITMENTS
There have been no material changes in our contractual
obligations and commercial commitments from those reported at
April 30, 2008 in our Annual Report on
Form 10-K.
REGULATORY
ENVIRONMENT
Effective October 27, 2008, the Financial Industry
Regulatory Authority approved our request to sell HRBFA to
Ameriprise, and that disposition was completed effective
November 1, 2008.
There have been no other material changes in our regulatory
environment from those reported at April 30, 2008 in our
Annual Report on
Form 10-K.
FORWARD-LOOKING
INFORMATION
This report and other documents filed with the Securities and
Exchange Commission (SEC) may contain forward-looking
statements. In addition, our senior management may make
forward-looking statements orally to analysts, investors, the
media and others. Forward-looking statements can be identified
by the fact that they do not relate strictly to historical or
current facts. They often include words such as
expects, anticipates,
intends, plans, believes,
seeks, estimates, will,
would, should, could or
may. Forward-looking statements provide
managements current expectations or predictions of future
conditions, events or results. They may include projections of
revenues, income, earnings per share, capital expenditures,
dividends, liquidity, capital structure or other financial
items, descriptions of managements plans or objectives for
future operations, products or services, or descriptions of
assumptions underlying any of the above. They are not guarantees
of future performance. By their nature, forward-looking
statements are subject to risks and
36
uncertainties. These statements speak only as of the date made
and management does not undertake to update them to reflect
changes or events occurring after that date except as required
by federal securities laws.
RECONCILIATION OF
NON-GAAP FINANCIAL INFORMATION
We report our financial results in accordance with generally
accepted accounting principles (GAAP). However, we believe
certain non-GAAP performance measures and ratios used in
managing the business may provide additional meaningful
comparisons between current year results and prior periods.
Reconciliations to GAAP financial measures are provided below.
These non-GAAP financial measures should be viewed in addition
to, not as an alternative for, our reported GAAP results.
|
|
Banking
Ratios |
(dollars in 000s)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
January 31,
|
|
Nine Months Ended
January 31,
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
Net Interest Margin annualized:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest revenue
|
|
$
|
27,279
|
|
$
|
16,266
|
|
$
|
44,334
|
|
$
|
31,416
|
Net interest revenue annualized
|
|
$
|
109,116
|
|
$
|
65,064
|
|
$
|
59,112
|
|
$
|
41,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Divided by average earning assets
|
|
$
|
1,724,636
|
|
$
|
1,398,583
|
|
$
|
1,297,427
|
|
$
|
1,357,562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.32%
|
|
|
4.65%
|
|
|
4.56%
|
|
|
3.09%
|
Return on Average Assets annualized:
|
|
|
|
|
|
|
|
|
|
|
|
|
Pretax income (loss)
|
|
$
|
(3,268)
|
|
$
|
12,318
|
|
$
|
(36,014)
|
|
$
|
12,751
|
Pretax income (loss) annualized
|
|
$
|
(13,072)
|
|
$
|
49,272
|
|
$
|
(48,019)
|
|
$
|
17,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Divided by average assets
|
|
$
|
1,810,957
|
|
$
|
1,420,599
|
|
$
|
1,314,452
|
|
$
|
1,379,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.72%)
|
|
|
3.47%
|
|
|
(3.65%)
|
|
|
1.23%
|
There have been no material changes in our market risks from
those reported at April 30, 2008 in our Annual Report on
Form 10-K.
EVALUATION OF
DISCLOSURE CONTROLS AND PROCEDURES
As of the end of the period covered by this
Form 10-Q,
we evaluated the effectiveness of the design and operation of
our disclosure controls and procedures. The controls evaluation
was done under the supervision and with the participation of
management, including our Chief Executive Officer and Chief
Financial Officer. Based on this evaluation, we have concluded
that our disclosure controls and procedures were effective as of
the end of the period covered by this Quarterly Report on
Form 10-Q.
CHANGES IN
INTERNAL CONTROL OVER FINANCIAL REPORTING
There were no changes that materially affected, or are
reasonably likely to materially affect, our internal control
over financial reporting.
37
The information below should be read in conjunction with the
information included in note 14 to our condensed
consolidated financial statements.
RAL Litigation
We have been named as a defendant in numerous lawsuits
throughout the country regarding our refund anticipation loan
programs (collectively, RAL Cases). The RAL Cases
have involved a variety of legal theories asserted by
plaintiffs. These theories include allegations that, among other
things: disclosures in the RAL applications were inadequate,
misleading and untimely; the RAL interest rates were usurious
and unconscionable; we did not disclose that we would receive
part of the finance charges paid by the customer for such loans;
untrue, misleading or deceptive statements in marketing RALs;
breach of state laws on credit service organizations; breach of
contract, unjust enrichment, unfair and deceptive acts or
practices; violations of the federal Racketeer Influenced and
Corrupt Organizations Act; violations of the federal Fair Debt
Collection Practices Act and unfair competition regarding debt
collection activities; and that we owe, and breached, a
fiduciary duty to our customers in connection with the RAL
program.
The amounts claimed in the RAL Cases have been very substantial
in some instances, with one settlement resulting in a pretax
expense of $43.5 million in fiscal year 2003 (the
Texas RAL Settlement) and other settlements
resulting in a combined pretax expense in fiscal year 2006 of
$70.2 million. On December 31, 2008, we reached a
settlement with the California attorney general in the case
entitled The People of California v. H&R Block,
Inc., H&R Block Services, Inc., H&R Block Enterprises,
Inc., H&R Block Tax Services, Inc., Block Financial
Corporation, HRB Royalty, Inc., and Does 1 through 50, Case
No., CGC-06-449461, in the California Superior Court,
San Francisco County (the California AG Case).
Pursuant to the terms of the settlement, we agreed to pay
$2.5 million in restitution to certain clients who obtained
a refund anticipation loan or a refund anticipation check,
$0.5 million in civil penalties and $1.9 million in
fees and costs.
Following settlement of the California AG Case, we have one
remaining putative RAL class action. We believe we have
meritorious defenses to this RAL Case and we intend to defend it
vigorously. There can be no assurances, however, as to the
outcome of the pending RAL Case or regarding the impact of the
pending RAL Case on our financial statements. There were no
other significant developments regarding the RAL Cases during
the three months ended January 31, 2009.
Peace of Mind
Litigation
We are defendants in lawsuits regarding our Peace of Mind
program (collectively, the POM Cases), under which
our applicable tax return preparation subsidiary assumes
liability for additional tax assessments attributable to tax
return preparation error. The POM Cases are described below.
Lorie J. Marshall, et al. v. H&R Block Tax
Services, Inc., et al., Case
No. 08-CV-591
in the U.S. District Court for the Southern District of
Illinois, is a class action case originally filed in the Circuit
Court of Madison County, Illinois on January 18, 2002, in
which class certification was granted on August 27, 2003.
The plaintiffs allege that the sale of POM guarantees
constitutes (1) statutory fraud by selling insurance
without a license, (2) an unfair trade practice, by
omission and by cramming (i.e., charging customers
for the guarantee even though they did not request it or want
it), and (3) a breach of fiduciary duty. The court has
certified plaintiff classes consisting of all persons who reside
in 13 specified states and who from January 1, 1997 to
final judgment (1) were charged a separate fee for POM by
H&R Block; (2) were charged a separate fee
for POM by an H&R Block entity not licensed to
sell insurance; or (3) had an unsolicited charge for POM
posted to their bills by H&R Block. Persons who
received the POM guarantee through an H&R Block Premium
office were excluded from the plaintiff class. In August 2008,
we removed the case from state court in Madison County, Illinois
to the U.S. District Court for the Southern District of
Illinois. On December 17, 2008, the case was remanded back
to state court. We have filed a petition to appeal this ruling.
There is one other putative class action pending against us in
Texas that involves the POM guarantee. This case is pending
before the same judge that presided over the Texas RAL
Settlement, involves the same plaintiffs attorneys that
are involved in the Marshall litigation in Illinois, and
contains allegations similar to those in the Marshall case. No
class has been certified in this case.
38
We believe we have meritorious defenses to the claims in the POM
Cases, and we intend to defend them vigorously. The amounts
claimed in the POM Cases are substantial, and there can be no
assurances as to the outcome of these pending actions
individually or in the aggregate.
Express IRA
Litigation
On March 15, 2006, the New York Attorney General filed a
lawsuit in the Supreme Court of the State of New York, County of
New York (Index No. 06/401110) entitled The People of
New York v. H&R Block, Inc. and H&R Block
Financial Advisors, Inc. et al. The complaint alleged
fraudulent business practices, deceptive acts and practices,
common law fraud and breach of fiduciary duty with respect to
the Express IRA product and sought equitable relief,
disgorgement of profits, damages and restitution, civil
penalties and punitive damages. On July 12, 2007, the
Supreme Court of the State of New York issued a ruling that
dismissed all defendants other than HRBFA and the claims of
common law fraud. The intermediate appellate court reversed this
ruling on January 6, 2009. We filed a petition for appeal
with the highest state appellate court on January 30, 2009.
We believe we have meritorious defenses to the claims in this
case, and we intend to defend this case vigorously, but there
are no assurances as to its outcome.
On January 2, 2008, the Mississippi Attorney General filed
a lawsuit in the Chancery Court of Hinds County, Mississippi
First Judicial District (Case No. G 2008 6 S
2) entitled Jim Hood, Attorney for the State of
Mississippi v. H&R Block, Inc., et al. The
complaint alleged fraudulent business practices, deceptive acts
and practices, common law fraud and breach of fiduciary duty
with respect to the Express IRA product and sought equitable
relief, disgorgement of profits, damages and restitution, civil
penalties and punitive damages. The defendants have filed a
motion to dismiss. We believe we have meritorious defenses to
the claims in this case, and we intend to defend this case
vigorously, but there are no assurances as to its outcome.
In addition to the New York and Mississippi Attorney General
actions, a number of civil actions were filed against HRBFA and
us concerning the Express IRA product, the first of which was
filed on March 17, 2006. Except for two cases pending in
state court, all of the civil actions have been consolidated by
the panel for Multi-District Litigation into a single action
styled In re H&R Block, Inc. Express IRA Marketing
Litigation in the United States District Court for the
Western District of Missouri.
Although we sold HRBFA effective November 1, 2008, we
remain responsible for the Express IRA litigation through an
indemnification agreement with Ameriprise. The amounts claimed
in these cases are substantial. We believe we have meritorious
defenses to the claims in these cases, and we intend to defend
these cases vigorously, but there are no assurances as to their
outcome.
Securities Litigation
On April 6, 2007, a putative class action styled In re
H&R Block Securities Litigation was filed against the
Company and certain of its officers in the United States
District Court for the Western District of Missouri. The
complaint alleges, among other things, deceptive, material and
misleading financial statements and failure to prepare financial
statements in accordance with generally accepted accounting
principles. The complaint sought unspecified damages and
equitable relief. The court dismissed the complaint on
February 19, 2008, and plaintiffs appealed the dismissal on
March 18, 2008. In addition, plaintiffs in a shareholder
derivative action that was consolidated into the securities
litigation filed a separate appeal on March 18, 2008,
contending that the derivative action was improperly
consolidated. The derivative action is Iron Workers Local 16
Pension Fund v. H&R Block, et al., in the United
States District Court for the Western District of Missouri, Case
No. 06-cv-00466-ODS
(instituted on June 8, 2006) and was brought against
certain of our directors and officers purportedly on behalf of
the Company. The derivative action alleges breach of fiduciary
duty, abuse of control, gross mismanagement, waste, and unjust
enrichment pertaining to (1) our restatement of financial
results in fiscal year 2006 due to errors in determining our
state effective income tax rate and (2) certain of our
products and business activities. We believe we have meritorious
defenses to the claims in these cases and intend to defend this
litigation vigorously. We currently do not believe that we will
incur a material loss with respect to this litigation.
RSM McGladrey
Litigation
RSM McGladrey Business Services, Inc. and certain of its
subsidiaries are parties to a putative class action filed on
July 11, 2006 and entitled Do Rights Plant
Growers, et al. v. RSM EquiCo, Inc., et al. Case
No. 06 CC00137, in the California Superior Court, Orange
County. The complaint contains allegations regarding
39
business valuation services provided by RSM EquiCo, Inc.,
including fraud, negligent misrepresentation, breach of
contract, breach of implied covenant of good faith and fair
dealing, breach of fiduciary duty and unfair competition and
seeks unspecified damages, restitution and equitable relief. A
hearing on plaintiffs motion for class certification is
scheduled for March 6, 2009. We intend to defend this case
vigorously. The amount claimed in this action is substantial and
there can be no assurance regarding the outcome and resolution
of this matter. It is reasonably possible that we could incur
losses with respect to this litigation, although an estimate of
such losses cannot be made in light of the early stage of the
litigation.
RSM McGladrey, Inc. (RSM) has a relationship with certain public
accounting firms (collectively, the Attest Firms)
pursuant to which (1) some RSM employees are also partners
or employees of the Attest Firms, (2) many clients of the
Attest Firms are also RSM clients, and (3) our RSM
McGladrey brand is closely linked to the Attest Firms. The
Attest Firms are parties to claims and lawsuits (collectively,
Attest Firm Claims) arising in the normal course of
business. Judgments or settlements arising from Attest Firm
Claims exceeding the Attest Firms insurance coverage could
have a direct adverse effect on Attest Firm operations and could
impair RSMs ability to attract and retain clients and
quality professionals. For example, accounting and auditing
firms (including one of the Attest Firms) recently have become
subject to claims based on losses their clients suffered from
investments in investment funds managed by third parties.
Although RSM may not have a direct liability for significant
Attest Firm Claims, such Attest Firm Claims could have a
material adverse effect on RSMs operations and impair the
value of our investment in RSM. There is no assurance regarding
the outcome of the Attest Firm Claims.
Litigation and
Claims Pertaining to Discontinued Mortgage Operations
Although mortgage loan origination activities were terminated
and the loan servicing business was sold during fiscal year
2008, SCC remains subject to investigations, claims and lawsuits
pertaining to its loan origination and servicing activities that
occurred prior to such termination and sale. These
investigations, claims and lawsuits include actions by state
attorneys general, other state regulators, municipalities,
individual plaintiffs, and cases in which plaintiffs seek to
represent a class of others alleged to be similarly situated.
Among other things, these investigations, claims and lawsuits
allege discriminatory or unfair and deceptive loan origination
and servicing practices, public nuisance, fraud, and violations
of the Truth in Lending Act, Equal Credit Opportunity Act and
the Fair Housing Act. In the current non-prime mortgage
environment, the number of these investigations, claims and
lawsuits has increased over historical experience and is likely
to continue at increased levels. The amounts claimed in these
investigations, claims and lawsuits are substantial in some
instances, and the ultimate resulting liability is difficult to
predict. In the event of unfavorable outcomes, the amounts SCC
may be required to pay in the discharge of liabilities or
settlements could be substantial and, because SCCs
operating results are included in our consolidated financial
statements, could have a material adverse impact on our
consolidated results of operations.
On June 3, 2008, the Massachusetts Attorney General filed a
lawsuit in the Superior Court of Suffolk County, Massachusetts
(Case
No. 08-2474-BLS)
entitled Commonwealth of Massachusetts v. H&R
Block, Inc., et al., alleging unfair, deceptive and
discriminatory origination and servicing of mortgage loans and
seeking equitable relief, disgorgement of profits, restitution
and statutory penalties. On November 10, 2008, the court
granted a preliminary injunction limiting the ability of the
owner of SCCs former loan servicing business to initiate
or advance foreclosure actions against certain loans originated
by SCC or its subsidiaries without (i) advance notice to
the Massachusetts Attorney General and (ii) if the Attorney
General objects to foreclosure, approval by the court. The
preliminary injunction generally applies to loans meeting all of
the following four characteristics: (1) adjustable rate
mortgages with an introductory period of three years or less,
(2) the borrower has a debt-to-income ratio generally
exceeding 50 percent, (3) an introductory interest
rate at least 2 percent lower than the fully indexed rate
(unless the debt-to-income ratio is 55% or greater) and
(4) loan-to-value ratio of 97 percent or certain
prepayment penalties. We have appealed this preliminary
injunction. We believe we have meritorious defenses to the
claims in this case, and we intend to defend this case
vigorously, but there are no assurances as to its outcome.
SCC also remains subject to potential claims for indemnification
and loan repurchases pertaining to loans previously sold. In the
current non-prime mortgage environment, it is likely that the
frequency of repurchase and indemnification claims may increase
over historical experience and give rise to additional
litigation. In some instances, H&R Block, Inc. was required
to guarantee SCCs obligations. The amounts involved in
these
40
potential claims may be substantial, and the ultimate resulting
liability is difficult to predict. In the event of unfavorable
outcomes, the amounts SCC may be required to pay in the
discharge or settlement of these claims could be substantial
and, because SCCs operating results are included in our
consolidated financial statements, could have a material adverse
impact on our consolidated results of operations.
Other Claims and
Litigation
We are from time to time party to investigations, claims and
lawsuits not discussed herein arising out of our business
operations. These investigations, claims and lawsuits include
actions by state attorneys general, other state regulators,
individual plaintiffs, and cases in which plaintiffs seek to
represent a class of others similarly situated. Some of these
investigations, claims and lawsuits pertain to RALs, the
electronic filing of customers income tax returns, the POM
guarantee program, wage and hour claims and investment products.
We believe we have meritorious defenses to each of these claims,
and we are defending or intend to defend them vigorously. The
amounts claimed in these claims and lawsuits are substantial in
some instances, and the ultimate liability with respect to such
litigation and claims is difficult to predict. In the event of
an unfavorable outcome, the amounts we may be required to pay in
the discharge of liabilities or settlements could be material.
In addition to the aforementioned types of cases, we are party
to claims and lawsuits that we consider to be ordinary, routine
litigation incidental to our business, including claims and
lawsuits (collectively, Other Claims) concerning the
preparation of customers income tax returns, the fees
charged customers for various products and services,
relationships with franchisees, intellectual property disputes,
employment matters and contract disputes. While we cannot
provide assurance that we will ultimately prevail in each
instance, we believe the amount, if any, we are required to pay
in the discharge of liabilities or settlements in these Other
Claims will not have a material adverse effect on our
consolidated operating results, financial position or cash flows.
Our businesses
may be adversely affected by conditions in the global financial
markets and economic conditions generally.
Our business may be materially affected by conditions in the
global financial markets and economic conditions generally, and
these conditions may change suddenly and dramatically. For
example, the capital and credit markets have been experiencing
extreme volatility and disruption, which have reached
unprecedented levels this year. Difficulties in the mortgage and
broader credit markets in the United States and elsewhere
resulted in a relatively sudden and substantial decrease in the
availability of credit and a corresponding increase in funding
costs. We cannot predict how long these conditions will exist or
how our business or financial statements may be affected.
Increases in interest rates or credit spreads, as well as
limitations on the availability of credit, such as has occurred
recently, may affect our ability to borrow in excess of our
current commitments on a secured or unsecured basis, which may
adversely affect our liquidity and results of operations. This
could increase our cost of funding, which could reduce our
profitability.
In addition, the downturn in the residential housing market,
rising unemployment and an increase in mortgage defaults has,
and may continue, to negatively impact our operating results. An
economic recession will likely reduce the ability of our
borrowers to repay mortgage loans, and declining home values
would increase the severity of loss we may incur in the event of
default.
In response to the current financial markets, legislation has
been proposed to allow mortgage loan cram-downs,
which would empower courts to modify the terms of mortgage loans
including a reduction in the principal amount to reflect lower
underlying property values. This could result in our writing
down the balance of those mortgage loans in bankruptcy to
reflect their current collateral values. The availability of
principal reductions or other mortgage loan modifications could
make bankruptcy a more attractive option for troubled borrowers,
leading to increased bankruptcy filings and accelerated defaults.
In addition to mortgage loans, we also extend secured and
unsecured credit to other customers, including refund
anticipation loans and Emerald Advance lines of credit to our
tax preparation customers. We may incur significant losses on
credit we extend, which in turn could reduce our profitability.
Other than the item discussed above, there have been no material
changes in our risk factors from those reported at
April 30, 2008 in our Annual Report on
Form 10-K.
41
A summary of our purchases of H&R Block common stock during
the third quarter of fiscal year 2009 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in 000s, except per
share amounts)
|
|
|
|
|
|
|
Total Number of
Shares
|
|
Maximum $Value
|
|
|
Total
|
|
Average
|
|
Purchased as Part
of
|
|
of Shares that
May
|
|
|
Number of Shares
|
|
Price Paid
|
|
Publicly
Announced
|
|
Be Purchased
Under
|
|
|
Purchased
(1)
|
|
per
Share
|
|
Plans
or Programs
(2)
|
|
the
Plans or Programs
(2)
|
|
|
November 1 November 30
|
|
|
147
|
|
$
|
19.35
|
|
|
-
|
|
$
|
2,000,000
|
December 1 December 31
|
|
|
-
|
|
$
|
-
|
|
|
-
|
|
$
|
2,000,000
|
January 1 January 31
|
|
|
4
|
|
$
|
22.41
|
|
|
-
|
|
$
|
2,000,000
|
|
|
|
|
|
(1) |
|
We
purchased 150,358 shares in connection with the funding of
employee income tax withholding obligations arising upon the
exercise of stock options or the lapse of restrictions on
nonvested shares.
|
|
(2) |
|
In
June 2008, our Board of Directors rescinded previous
authorizations to repurchase shares of our common stock, and
approved an authorization to purchase up to $2.0 billion of
our common stock over the next four years.
|
|
|
|
|
|
|
10
|
.1
|
|
Third Amendment to Program Contracts dated as of December 5,
2008 by and among HSBC Bank USA, HSBC Trust Company (Delaware),
N.A., HSBC Taxpayer Financial Services Inc., Beneficial
Franchise Company Inc., HRB Tax Group, Inc., H&R Block Tax
Services LLC, H&R Block Enterprises LLC, H&R Block
Eastern Enterprises, Inc., HRB Digital LLC, Block Financial LLC,
HRB Innovations, Inc., HSBC Finance Corporation, and H&R
Block, Inc.*
|
|
10
|
.2
|
|
Credit and Guarantee Agreement dated as of January 14, 2009,
among Block Financial LLC, H&R Block, Inc. and HSBC Finance
Corporation.
|
|
10
|
.3
|
|
Separation and Release Agreement dated January 21, 2009 between
RSM McGladrey Business Services and Steven Tait.**
|
|
10
|
.4
|
|
H&R Block, Inc. Deferred Compensation Plan for Executives
(amended and restated effective December 31, 2008).**
|
|
31
|
.1
|
|
Certification by Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
|
|
31
|
.2
|
|
Certification by Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
|
|
32
|
.1
|
|
Certification by Chief Executive Officer furnished pursuant to
18 U.S.C. 1350, as adopted by Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
32
|
.2
|
|
Certification by Chief Financial Officer furnished pursuant to
18 U.S.C. 1350, as adopted by Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
*
|
|
Confidential
information has been omitted from this exhibit and filed
separately with the Commission pursuant to a confidential
treatment request under
Rule 24b-2.
|
|
**
|
|
Indicates
management contracts, compensatory plans or arrangements.
|
42
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
H&R BLOCK, INC.
Russell P. Smyth
President and Chief Executive Officer
March 6, 2009
Becky S. Shulman
Senior Vice President, Treasurer and
Chief Financial Officer
March 6, 2009
Jeffrey T. Brown
Vice President and
Corporate Controller
March 6, 2009
43
EX-10.1
Exhibit 10.1
EXECUTION COPY
THIRD AMENDMENT TO
PROGRAM CONTRACTS
NOTE: CERTAIN MATERIAL HAS BEEN OMMITTED FROM THIS AGREEMENT PURSUANT TO A REQUEST FOR
CONFIDENTIAL TREATMENT UNDER RULE 24b-2. THE LOCATIONS OF THESE OMISSIONS ARE INDICATED
THROUGHOUT THE AGREEMENT BY THE FOLLOWING MARKINGS: [***].
This Third Amendment to Program Contracts (this Third Amendment), dated as of
December 5, 2008, is made by and among the following parties (collectively, the Parties):
HSBC Bank USA, National Association, a national banking association (HSBC NA);
HSBC Trust Company (Delaware), N.A., a national banking association (HSBC Trust);
HSBC Taxpayer Financial Services Inc., a Delaware corporation (HSBC TFS);
Beneficial Franchise Company Inc., a Delaware corporation (Beneficial Franchise);
HRB Tax Group, Inc., formerly H&R Block Services, Inc., a Missouri corporation (Block
Services) and successor by assignment of H&R Block Associates, L.P.s, a Delaware
limited partnership, (Block Enterprises) rights and obligations under the Program
Contracts;
H&R Block Tax Services LLC, a Delaware limited liability company, successor by merger to
H&R Block Tax Services, Inc., a Missouri corporation (Block Tax Services);
H&R Block Enterprises LLC, a Delaware limited liability company, successor by merger to H&R
Block Enterprises, Inc., a Missouri corporation (Block Enterprises);
H&R Block Eastern Enterprises, Inc., a Missouri corporation (Block Eastern
Enterprises);
HRB Digital LLC, a Delaware limited liability company, successor by merger to H&R Block
Digital Tax Solutions, LLC, a Delaware limited liability company (Block Digital);
Block Financial LLC, a Delaware limited liability company, successor by merger to Block
Financial Corporation, a Delaware corporation;
HRB Innovations, Inc., formerly HRB Royalty, Inc., a Delaware corporation
(Royalty);
HSBC Finance Corporation, a Delaware corporation (HSBC Finance); and
H&R Block, Inc., a Missouri corporation (H&R Block).
RECITALS
A. All the Parties hereto or their predecessors in interest, other than HSBC Trust, entered
into that certain HSBC Retail Settlement Products Distribution Agreement, dated as of September 23,
2005 (the Original Retail Distribution Agreement).
B. All the Parties hereto, including HSBC Trust, as well as Block Financial Corporation, a
Delaware corporation, predecessor in interest to Block Financial LLC, a Delaware limited liability
company (BFC), entered into that certain Joinder and First Amendment to Program
Contracts, dated as of November 10, 2006 (the First Amendment), which amended the
Original Retail Distribution Agreement and the other Program Contracts (as defined therein).
C. All the Parties hereto, including HSBC Trust, entered into that certain Second Amendment to
Program Contracts, dated as of November 13, 2006, (the Second Amendment), which amended
the Original Retail Distribution Agreement and the other Program Contracts (as defined therein).
D. The Parties hereto desire to amend the Original Retail Distribution Agreement, as amended
by the First Amendment and the Second Amendment (the Original Retail Distribution Agreement, as
amended by the First Amendment and the Second Amendment, and all subsequent amendments and
restatements thereof and supplemental thereto, is referred to as the Retail Distribution
Agreement).
AGREEMENT
ACCORDINGLY, the Parties to this Third Amendment agree as follows:
Section 1. Successors and Name Changes. The Block Companies represent that the following
mergers and name changes have occurred, and each of the Parties hereby acknowledges the following:
(a) Effective as of October 10, 2008, H&R Block Services, Inc., a Missouri corporation has
changed its name to HRB Tax Group, Inc., and accordingly all references to H&R Block Services,
Inc. in the Program Contracts shall be deemed to be a reference to HRB Tax Group, Inc.
2
(b) Effective as of December 31, 2007, H&R Block Tax Services LLC, a Delaware limited
liability company, is the successor by merger to H&R Block Tax Services, Inc., a Missouri
corporation (Block Tax Services) and accordingly succeeds to all of H&R Block Tax
Services, Inc.s rights and obligations under the Program Contracts;
(c) Effective as of December 31, 2007, H&R Block Enterprises LLC, a Delaware limited liability
company, is the successor by merger to H&R Block Enterprises, Inc., a Missouri corporation
(Block Enterprises) and accordingly succeeds to all of H&R Block Enterprises, Inc.s
rights and obligations under the Program Contracts;
(d) Effective as of December 31, 2007, HRB Digital LLC, is successor by merger to H&R Block
Digital Tax Solutions, LLC, a Delaware limited liability company (Block Digital) and
accordingly succeeds to all of H&R Block Digital Tax Solutions, LLCs rights and obligations under
the Program Contracts;
(e) Effective as of December 31, 2007, Block Financial LLC, a Delaware limited liability
company, is the successor by merger to BFC and accordingly succeeds to all of BFCs rights and
obligations under the Program Contracts; and
(f) Effective as of December 31, 2007, HRB Royalty, Inc., a Delaware corporation has changed
its name to HRB Innovations, Inc., and accordingly all references to Royalty in the
Program Contracts shall be deemed to be a reference to HRB Innovations, Inc.
(g) Effective as of July 1, 2008, H&R Block Associates, L.P. was dissolved.
Section 2. Removal of H&R Block Associates, L.P. and Beneficial Franchise Company Inc. as
parties. The Parties hereby consent to the removal of the following parties to the Program
Contracts: H&R Block Associates, L.P. effective as of July 1, 2008 and Beneficial Franchise Company
Inc. effective as of December 31, 2007. Block Services hereby assumes all remaining obligations of
H&R Block Associates, L.P. under the Program Contracts.
Section 3. Paper Stock Reimbursement. Effective as of July 1, 2006, delete Section 14.12
of the Retail Distribution Agreement and insert the following in lieu thereof:
Section 14.12. Paper Stock Reimbursement. HSBC TFS shall reimburse the Block
Companies an amount equal to (a) fifty percent (50%) of all expenses, in the aggregate, incurred
during each year of the Term of this Retail Distribution Agreement by any of the Block Companies
(including, without duplication, expenses related to Franchisees) with respect to the purchase,
production, transportation and storage of the following paper documents relating to the Settlement
Products Program: pre-printed applications, documents entitled Facts about RALs, RAL and RAC
related disclosures required by state and local law, client status of application letters, RAL debt
collection notification letters, and check stock, less (b) eight hundred thousand dollars
($800,000). Within thirty (30) days following the last day of any year of the Term of this Retail
Distribution Agreement, the Block Enterprise Entities shall submit an invoice to HSBC TFS setting
forth the amount due hereunder, which invoice shall also list the aggregate expenses of the Block
Companies with respect to those items described in the immediately preceding sentence. HSBC TFS
shall
3
pay the Block Enterprise Entities the amount due hereunder within thirty (30) days of receipt
of such invoice from the Block Enterprise Entities. All payments made hereunder shall be via ACH
credit to an account designated in writing by the Block Enterprise Entities.
Section 4.[***] . Effective as of July 1, 2008, add new Sections 14.3(d), (e), and (f) to
the Retail Distribution Agreement, as follows:
(d) If an actual [***] .
(e) The Block Companies shall provide to HSBC TFS a tracking report prior to June 15 each year,
which tracking report will include [***] .
(f) HSBC TFS has the right to engage a third party at its own expense (a nationally recognized firm
such as Experian) to audit the Block Companies determination of the number of actual [***] .
Section 5. [***] . Effective as of July 1, 2008, add new Sections 14.4(d), (e), and (f) to
the Retail Distribution Agreement, as follows:
(d) If an actual [***] .
(e) The Block Companies shall provide to HSBC TFS a tracking report prior to June 15 each year,
which tracking report will include [***] .
(f) HSBC TFS has the right to engage a third party at its own expense (a nationally recognized firm
such as Experian) to audit the Block Companies determination of the number of actual [***] .
Section 6. [***] . Effective as of July 1, 2008, add new Sections 14.5(d), (e), and (f) to
the Retail Distribution Agreement, as follows:
(d) If an actual [***] .
(e) The Block Companies shall provide to HSBC TFS a tracking report prior to June 15 each year,
which tracking report will include [***] .
(f) HSBC TFS has the right, at its own expense, to engage a third party (a nationally recognized
firm such as Experian) to audit the Block Companies determination of the number of actual [***] .
Section 7. Notices. Effective as of September 15, 2008, in Section 22.3 in the Retail
Distribution Agreement, delete the notice information pertaining to HSBC Finance and insert the
following in lieu thereof:
If to HSBC Finance: HSBC Finance Corporation
4
|
|
|
|
|
200 Somerset Corporate Blvd.
Bridgewater, NJ 08807
Telephone: 908-203-2414
Facsimile: 908-203-4211
Attention: Susan E. Artmann |
|
|
|
With a copy to (which shall not
Constitute notice hereunder):
|
|
HSBC Finance Corporation
26525 N. Riverwoods Blvd.
Mettawa, IL 60045
Telephone: 224-544-2936
Facsimile: 225-552-2936
Attention: Managing General Counsel |
Section 8. Reference to and Effect Upon the Existing Program Contracts.
(a) Except as explicitly stated in this Third Amendment, all terms of the Program Contracts as
in effect immediately preceding execution of this Third Amendment shall remain in full force and
effect as provided therein and in accordance with the terms thereof.
(b) Except as explicitly stated in this Third Amendment, the execution, delivery and
effectiveness of this Third Amendment shall not operate as a waiver of any right, power or remedy
of any party under the Program Contracts as in effect immediately preceding execution of this Third
Amendment, nor constitute a waiver of any provision of the Program Contracts as in effect
immediately preceding execution of this Third Amendment.
(c) Upon the effectiveness of this Third Amendment, each reference in each of the Program
Contracts to this Agreement, hereunder, hereof, herein or words of similar import shall
mean and be a reference to such Program Contract as amended by this Third Amendment.
Section 9. Headings. Headings and captions used in this Third Amendment (including all
exhibits and schedules thereto) are included herein for convenience of reference only and shall not
constitute a part of this Second Amendment for any other purpose or be given any substantive
effect.
Section 10. Alternative Dispute Resolution. ANY DISPUTE BETWEEN OR AMONG THE PARTIES
HERETO ARISING OUT OF OR RELATING TO THIS THIRD AMENDMENT OR THE TRANSACTIONS CONTEMPLATED HEREIN
(EXCEPT JUDICIAL ACTION FOR SPECIFIC PERFORMANCE OR INJUNCTIVE RELIEF) SHALL BE RESOLVED AMONG THE
PARTIES TO SUCH DISPUTE BY NEGOTIATIONS, MEDIATION AND ARBITRATION IN ACCORDANCE WITH THE
PROVISIONS OF ARTICLE XXI OF THE RETAIL DISTRIBUTION AGREEMENT, WHICH ARE INCORPORATED HEREIN BY
REFERENCE.
Section 11. Governing Law; Submission To Jurisdiction. THIS THIRD AMENDMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF MISSOURI. WITHOUT
LIMITING THE
5
EFFECT OF SECTION 5 HEREOF AND ARTICLE XXI OF THE RETAIL DISTRIBUTION AGREEMENT, EACH OF THE
PARTIES HERETO (A) SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE FEDERAL AND/OR STATE COURTS SITTING
IN ST. LOUIS, MISSOURI FOR PURPOSES OF ALL LEGAL PROCEEDINGS FOR SPECIFIC PERFORMANCE OR INJUNCTIVE
RELIEF PERMITTED BY SECTION 21.12 OF THE RETAIL DISTRIBUTION AGREEMENT, (B) IRREVOCABLY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING
OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING
BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM, (C) IRREVOCABLY CONSENTS TO
SERVICE OF PROCESS IN SUCH PROCEEDING IN THE MANNER PROVIDED FOR NOTICES IN SECTION 22.3 OF THE
RETAIL DISTRIBUTION AGREEMENT, AND (D) AGREES THAT NOTHING IN THIS THIRD AMENDMENT WILL AFFECT THE
RIGHT OF ANY PARTY TO THIS THIRD AMENDMENT TO SERVE PROCESS IN ANY SUCH PROCEEDING IN ANY OTHER
MANNER PERMITTED BY LAW.
Section 12. Waiver of Jury Trial. WITHOUT LIMITING THE EFFECT OF SECTION 9 HEREOF, EACH OF
THE PARTIES HERETO IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY ACTION ARISING OUT
OF OR RELATING TO THIS THIRD AMENDMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
Section 13 Counterparts. This Third Amendment may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument. This Third Amendment shall become effective upon the
execution of a counterpart hereof by each of the parties hereto
[remainder of page intentionally blank]
6
IN WITNESS WHEREOF, the following Parties have caused this Third Amendment to Program
Contracts to be executed by their respective duly authorized officers as of the date first set
forth above.
|
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|
|
HSBC BANK USA, NATIONAL ASSOCIATION,
a national banking association
|
|
|
By: |
/s/ Eesh K. Bansal
|
|
|
|
Name: |
Eesh K. Bansal |
|
|
|
Title: |
SVP, Business Performance |
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HSBC TRUST COMPANY (DELAWARE), N.A.,
a national banking association
|
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By: |
/s/ Richard D. Leigh
|
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|
|
Name: |
Richard D. Leigh |
|
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|
Title: |
President |
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HSBC TAXPAYER FINANCIAL SERVICES INC.,
a Delaware corporation
|
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By: |
/s/ John Butler
|
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|
|
Name: |
John Butler |
|
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|
Title: |
Senior Vice President |
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BENEFICIAL FRANCHISE COMPANY INC.,
a Delaware corporation
|
|
|
By: |
/s/ Susan E. Artmann
|
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|
|
Name: |
Susan E. Artmann |
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|
Title: |
EVP |
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HRB TAX GROUP, INC., formerly H&R
BLOCK SERVICES, INC.,
a Missouri corporation
|
|
|
By: |
/s/ Mark A. Ciaramitaro
|
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|
|
Name: |
Mark A. Ciaramitaro |
|
|
|
Title: |
VP, Products and Distribution |
|
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|
H&R BLOCK TAX SERVICES LLC, a Delaware limited liability company, successor by merger to H&R BLOCK
TAX SERVICES, INC., a Missouri corporation
|
|
|
By: |
/s/ Mark A. Ciaramitaro
|
|
|
|
Name: |
Mark A. Ciaramitaro |
|
|
|
Title: |
VP, Products and Distribution |
|
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|
|
H&R BLOCK ENTERPRISES LLC, a Delaware limited
liability company, successor by merger to H&R BLOCK
ENTERPRISES, INC., a Missouri corporation
|
|
|
By: |
/s/ Mark A. Ciaramitaro
|
|
|
|
Name: |
Mark A. Ciaramitaro |
|
|
|
Title: |
VP, Products and Distribution |
|
|
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H&R BLOCK EASTERN ENTERPRISES, INC., a Missouri corporation
|
|
|
By: |
/s/ Mark A. Ciaramitaro
|
|
|
|
Name: |
Mark A. Ciaramitaro |
|
|
|
Title: |
VP, Products and Distribution |
|
|
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|
|
HRB DIGITAL LLC, a Delaware limited liability
company, successor by merger to H&R BLOCK DIGITAL TAX
SOLUTIONS, LLC, a Delaware limited liability company
|
|
|
By: |
/s/ Bret G. Wilson
|
|
|
|
Name: |
Bret G. Wilson |
|
|
|
Title: |
Secretary |
|
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|
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|
HRB INNOVATIONS. INC., formerly HRB ROYALTY, INC., a
Delaware corporation
|
|
|
By: |
/s/ Bret G. Wilson
|
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|
|
Name: |
Bret G. Wilson |
|
|
|
Title: |
Secretary |
|
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|
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|
|
BLOCK FINANCIAL LLC, a Delaware limited liability
company, successor by merger to BLOCK FINANCIAL
CORPORATION, a Delaware corporation
|
|
|
By: |
/s/ Mark A. Ciaramitaro
|
|
|
|
Name: |
Mark A. Ciaramitaro |
|
|
|
Title: |
VP, Products and Distribution |
|
IN WITNESS WHEREOF, the following Parties hereto have caused this Third Amendment to Program
Contracts to be executed by their respective duly authorized officers as of the date first set
forth above solely for the limited purpose of acknowledging the amendments set forth herein in
connection with such Parties respective guaranties set forth in Article XX, and also for purposes
of Articles XXI and XXII of the Retail Distribution Agreement.
|
|
|
|
|
|
HSBC FINANCE CORPORATION,
a Delaware corporation
|
|
|
By: |
/s/ Susan E. Artmann
|
|
|
|
Name: |
Susan E. Artmann |
|
|
|
Title: |
EVP |
|
|
|
|
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|
|
|
H&R BLOCK, INC.,
a Missouri corporation
|
|
|
By: |
/s/ Bret G. Wilson
|
|
|
|
Name: |
Bret G. Wilson |
|
|
|
Title: |
Secretary |
|
|
EX-10.2
Exhibit 10.2
CREDIT AND GUARANTEE AGREEMENT
dated as of
January 14, 2009
among
BLOCK FINANCIAL LLC,
as Borrower,
H&R BLOCK, INC.,
as Guarantor,
and
HSBC FINANCE CORPORATION,
as Lender
$2,500,000,000 REVOLVING CREDIT FACILITY
TABLE OF CONTENTS
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Page |
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ARTICLE I DEFINITIONS |
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1 |
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SECTION 1.1. Defined Terms |
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1 |
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SECTION 1.2. Terms Generally |
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14 |
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SECTION 1.3. Accounting Terms; GAAP |
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15 |
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ARTICLE II THE CREDITS |
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15 |
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SECTION 2.1. Commitment |
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15 |
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SECTION 2.2. Loans |
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15 |
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SECTION 2.3. Funding of Loans |
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15 |
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SECTION 2.4. Termination and Reduction of Commitment |
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16 |
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SECTION 2.5. Repayment of Loans; Evidence of Debt |
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16 |
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SECTION 2.6. Prepayment of Loans |
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17 |
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SECTION 2.7. Interest |
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18 |
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SECTION 2.8. Alternate Rate of Interest |
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18 |
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SECTION 2.9. Increased Costs |
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19 |
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SECTION 2.10. Taxes |
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20 |
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SECTION 2.11. Payments Generally |
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20 |
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SECTION 2.12. Mitigation Obligations |
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21 |
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ARTICLE III REPRESENTATIONS AND WARRANTIES |
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21 |
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SECTION 3.1. Organization; Powers |
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21 |
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SECTION 3.2. Authorization; Enforceability |
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21 |
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SECTION 3.3. Governmental Approvals; No Conflicts |
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21 |
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SECTION 3.4. Financial Condition; No Material Adverse Change |
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22 |
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SECTION 3.5. Properties |
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22 |
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SECTION 3.6. Litigation and Environmental Matters |
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23 |
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SECTION 3.7. Compliance with Laws and Agreements |
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23 |
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SECTION 3.8. Investment Company Status |
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23 |
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SECTION 3.9. Taxes |
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23 |
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SECTION 3.10. ERISA |
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24 |
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SECTION 3.11. Disclosure |
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24 |
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SECTION 3.12. Federal Regulations |
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24 |
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SECTION 3.13. Subsidiaries |
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24 |
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SECTION 3.14. Insurance |
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24 |
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-i-
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Page |
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ARTICLE IV CONDITIONS |
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24 |
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SECTION 4.1. Effective Date |
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24 |
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SECTION 4.2. Closing Date |
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25 |
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SECTION 4.3. Each Loan |
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26 |
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ARTICLE V AFFIRMATIVE COVENANTS |
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26 |
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SECTION 5.1. Financial Statements and Other Information |
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26 |
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SECTION 5.2. Notices of Material Events |
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28 |
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SECTION 5.3. Existence; Conduct of Business |
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28 |
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SECTION 5.4. Payment of Taxes |
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28 |
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SECTION 5.5. Maintenance of Properties; Insurance |
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28 |
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SECTION 5.6. Books and Records; Inspection Rights |
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29 |
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SECTION 5.7. Compliance with Laws |
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29 |
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SECTION 5.8. Use of Proceeds |
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29 |
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SECTION 5.9 Additional Collateral |
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29 |
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ARTICLE VI NEGATIVE COVENANTS |
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29 |
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SECTION 6.1. Adjusted Net Worth |
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29 |
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SECTION 6.2. Indebtedness |
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29 |
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SECTION 6.3. Liens |
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32 |
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SECTION 6.4. Fundamental Changes; Sale of Assets |
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34 |
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SECTION 6.5. Transactions with Affiliates |
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34 |
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SECTION 6.6. Restrictive Agreements. |
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35 |
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ARTICLE VII GUARANTEE |
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35 |
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SECTION 7.1. Guarantee |
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35 |
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SECTION 7.2. Delay of Subrogation |
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36 |
|
SECTION 7.3. Amendments, etc. with respect to the Obligations; Waiver of Rights |
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37 |
|
SECTION 7.4. Guarantee Absolute and Unconditional |
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37 |
|
SECTION 7.5. Reinstatement |
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38 |
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SECTION 7.6. Payments |
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38 |
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ARTICLE VIII EVENTS OF DEFAULT |
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38 |
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ARTICLE IX |
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41 |
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[RESERVED] |
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41 |
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ARTICLE X MISCELLANEOUS |
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SECTION 10.1. Notices |
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SECTION 10.2. Waivers; Amendments |
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SECTION 10.3. Expenses; Indemnity; Damage Waiver |
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SECTION 10.4. Successors and Assigns |
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SECTION 10.5. Survival |
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SECTION 10.6. Counterparts; Integration; Effectiveness |
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SECTION 10.7. Severability |
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SECTION 10.8. Right of Setoff |
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SECTION 10.9. Governing Law; Jurisdiction; Consent to Service of Process |
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SECTION 10.10. WAIVER OF JURY TRIAL |
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SECTION 10.11. Headings |
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SECTION 10.12. Confidentiality |
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SECTION 10.13. Interest Rate Limitation |
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SECTION 10.14. USA Patriot Act. |
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SCHEDULES: |
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Schedule 3.4(a)
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Guarantee Obligations |
Schedule 3.6
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Disclosed Matters |
Schedule 3.13
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Subsidiaries |
Schedule 6.2
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Existing Indebtedness |
Schedule 6.3
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Existing Liens |
Schedule 6.4(b)
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Additional Businesses |
Schedule 6.6
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Existing Restrictions |
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EXHIBITS: |
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Exhibit A
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Form of Security Agreement |
Exhibit B
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Form of Control Agreement |
Exhibit C
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Form of HSBC TFS Letter |
Exhibit D
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Form of Opinion of Stinson Morrison Hecker LLP |
-iii-
CREDIT AND GUARANTEE AGREEMENT
CREDIT AND GUARANTEE AGREEMENT, dated as of January 14, 2009, among BLOCK FINANCIAL LLC, a
Delaware limited liability company, as Borrower, H&R BLOCK, INC., a Missouri corporation, as
Guarantor, and HSBC FINANCE CORPORATION, a Delaware corporation, as Lender.
WHEREAS, the Borrower has requested that the Lender provide a short-term revolving credit
facility in an amount of $2,500,000,000;
WHEREAS, the Guarantor has agreed to guarantee all of the Borrowers obligations hereunder;
and
WHEREAS, the Lender is willing to provide a short-term revolving credit facility to the
Borrower on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the agreements herein and in reliance upon the
representations and warranties set forth herein, the parties agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 Defined Terms. Capitalized terms used in this Agreement that are not defined below
or otherwise herein shall have the meanings set forth in the Appendix of Defined Terms and Rules of
Construction attached as Appendix A to the Retail Settlement Products Distribution Agreement. As
used in this Agreement, the following terms have the meanings specified below:
Adjusted Net Worth means, at any time, Consolidated Net Worth of the
Guarantor without giving effect to reductions in stockholders equity as a result of
repurchases by the Guarantor of its own Capital Stock subsequent to April 30, 2005 in an
aggregate amount not exceeding $350,000,000.
Affiliate means, with respect to a specified Person, another Person that
directly, or indirectly through one or more intermediaries, Controls or is Controlled by or
is under common Control with the Person specified. For the avoidance of doubt, neither the
Guarantor nor any of its Subsidiaries shall be deemed to Control any of its franchisees by
virtue of provisions in the relevant franchise agreement regulating the business and
operations of such franchisee.
Agreement means this Credit and Guarantee Agreement.
Availability Period means the period from and including the first day in 2009
on which the U.S. Internal Revenue Service accepts electronic filings of personal tax
2
returns (or, if later, the Closing Date) to but excluding the earlier of the Revolving
Termination Date and the date of termination of the Commitments.
Average Weekly LIBOR means for each day the average of the LIBO Rate in
effect for each of the preceding five Business Days.
Bank Revolvers means, collectively, (i) the Five-Year Credit and Guarantee
Agreement dated as of August 10, 2005 among the Borrower, the Guarantor, various financial
institutions and JPMorgan Chase Bank N.A., as Administrative Agent, as amended by the First
Amendment thereto dated as of November 28, 2006 and the Second Amendment thereto dated as of
November 19, 2007, and any restatement, extension, renewal and replacement thereof
(regardless of whether the amount available thereunder is changed or the term thereof is
modified) and (ii) the Amended and Restated Five-Year Credit and Guarantee Agreement, dated
as of August 10, 2005, among the Borrower, the Guarantor, various financial institutions and
JPMorgan Chase Bank, N.A., as Administrative Agent, as amended by the First Amendment
thereto dated as of November 28, 2006 and the Second Amendment thereto dated as of November
19, 2007, and any restatement, extension, renewal and replacement thereof (regardless of
whether the amount available thereunder is changed or the term thereof is modified).
Board means the Board of Governors of the Federal Reserve System of the
United States of America.
Borrower means Block Financial LLC, a Delaware limited liability company and a
wholly-owned indirect Subsidiary of the Guarantor.
Business Day means any day that is not a Saturday, Sunday or other day on
which commercial banks in New York City are authorized or required by law to remain closed;
provided that, when used in connection with a Eurodollar Loan, the term Business
Day shall also exclude any day on which banks are not open for dealings in dollar deposits
in the London interbank market.
Capital Lease Obligations of any Person means the obligations of such Person
to pay rent or other amounts under any lease of (or other arrangement conveying the right to
use) real or personal property, or a combination thereof, which obligations are required to
be classified and accounted for as capital leases on a balance sheet of such Person under
GAAP, and the amount of such obligations shall be the capitalized amount thereof determined
in accordance with GAAP.
Capital Stock means any and all shares, interests, participations or other
equivalents (however designated) of capital stock of a corporation, any and all equivalent
ownership interests in a Person (other than a corporation) and any and all warrants or
options to purchase any of the foregoing.
Cash Equivalents means (a) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States government or issued by any agency thereof
and backed by the full faith and credit of the United States, in each case maturing
3
within one year from the date of acquisition; (b) certificates of deposit, time
deposits, eurodollar time deposits or overnight bank deposits having maturities of six
months or less from the date of acquisition issued by (i) any Lender as defined in a Bank
Revolver, (ii) any commercial bank organized under the laws of the United States or any
state thereof having combined capital and surplus of not less than $500,000,000 or (iii) any
other bank if, and to the extent, covered by FDIC insurance; (c) commercial paper of an
issuer rated at least A-1 by S&P or P-1 by Moodys, or carrying an equivalent rating by a
nationally recognized rating agency, if both of the two named rating agencies cease
publishing ratings of commercial paper issuers generally, and maturing within six months
from the date of acquisition; (d) repurchase obligations of any Lender as defined in a
Bank Revolver or of any commercial bank satisfying the requirements of clause (b) of this
definition, having a term of not more than 30 days, with respect to securities issued or
fully guaranteed or insured by the United States government; (e) securities with maturities
of one year or less from the date of acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States, by any political subdivision or taxing
authority of any such state, commonwealth or territory or by any foreign government, the
securities of which state, commonwealth, territory, political subdivision, taxing authority
or foreign government (as the case may be) are rated at least A by S&P or A2 by Moodys; (f)
securities with maturities of six months or less from the date of acquisition backed by
standby letters of credit issued by any Lender as defined in a Bank Revolver or any
commercial bank satisfying the requirements of clause (b) of this definition; (g) money
market mutual or similar funds that invest exclusively in assets satisfying the requirements
of clauses (a) through (f) of this definition; (h) money market funds that (i) comply with
the criteria set forth in SEC Rule 2a-7 under the Investment Company Act of 1940, as
amended, (ii) are rated AAA by S&P and Aaa by Moodys and (iii) have portfolio assets of at
least $1,000,000,000; (i) interests in privately offered investment funds under Section
3(c)(7) of the U.S. Investment Company Act of 1940 where such interests are (i) freely
transferable and (ii) rated AAA by S&P or Aaa by Moodys; and (j) one month LIBOR floating
rate asset backed securities that are (i) freely transferable and (ii) rated AAA by S&P or
Aaa by Moodys.
Change in Control means (a) the acquisition of ownership, directly or
indirectly, beneficially or of record, by any Person or group (within the meaning of the
Securities Exchange Act of 1934, as amended, and the rules of the Securities and Exchange
Commission thereunder as in effect on the date hereof) of shares representing more than 25%
of the aggregate ordinary voting power represented by the issued and outstanding Capital
Stock of the Guarantor; (b) occupation of a majority of the seats (other than vacant seats)
on the board of directors of the Guarantor by Persons who were neither (i) nominated by the
board of directors of the Guarantor nor (ii) appointed by directors so nominated; (c) the
acquisition of direct or indirect Control of the Guarantor by any Person or group; or (d)
the failure of the Guarantor to own, directly or indirectly, shares representing 100% of the
aggregate ordinary voting power represented by the issued and outstanding Capital Stock of
the Borrower.
Change in Law means (a) the adoption of any law, rule or regulation after the
date of this Agreement, (b) any change in any law, rule or regulation or in the
4
interpretation or application thereof by any Governmental Authority after the date of
this Agreement or (c) compliance by the Lender (or, for purposes of Section 2.9(b), by any
lending office of the Lender or by the Lenders holding company, if any) with any request,
guideline or directive (whether or not having the force of law) of any Governmental
Authority made or issued after the date of this Agreement.
Charges has the meaning assigned to such term in Section 10.13.
Closing Date means the date on which the conditions specified in Section 4.2
are satisfied (or waived in accordance with Section 10.2).
Code means the Internal Revenue Code of 1986, as amended from time to time.
Commitment means the commitment of the Lender to make Loans, subject to the
terms and conditions of this Agreement, in an amount not to exceed (i) $2,500,000,000 from
the first day in 2009 on which the U.S. Internal Revenue Service accepts electronic filings
of personal tax returns through and including March 30, 2009 and (ii) thereafter,
$120,000,000, as such commitment may be reduced from time to time pursuant to Section 2.4.
Consolidated Net Worth means, at any time, the total amount of stockholders
equity of the Guarantor and its consolidated Subsidiaries at such time determined on a
consolidated basis in accordance with GAAP.
Contractual Obligation means, as to any Person, any provision of any security
issued by such Person or of any agreement, instrument or undertaking to which such Person is
a party or by which it or any of its property is bound.
Control means the possession, directly or indirectly, of the power to direct
or cause the direction of the management or policies of a Person, whether through the
ability to exercise voting power, by contract or otherwise. Controlling and
Controlled have meanings correlative thereto.
Control Agreement means the Investment Account Control Agreement between the
Borrower, the Lender and the Securities Intermediary referred to therein in substantially
the form of Exhibit B hereto.
Credit Parties means the collective reference to the Borrower and the
Guarantor.
Default means any event or condition which constitutes an Event of Default or
which upon notice, lapse of time or both would, unless cured or waived, become an Event of
Default.
Disclosed Matters means (a) matters disclosed in the Borrowers public
filings with the Securities and Exchange Commission prior to January 13, 2009 and (b) the
actions, suits, proceedings and environmental matters disclosed in Schedule 3.6.
5
dollars or $ refers to lawful money of the United States of
America.
Effective Date means the date on which the conditions specified in Section
4.1 are satisfied (or waived in accordance with Section 10.2).
Environmental Laws means all laws, rules, regulations, codes, ordinances,
orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated
or entered into by any Governmental Authority, relating in any way to the environment,
preservation or reclamation of natural resources, to the management, release or threatened
release of any Hazardous Material or to health and safety matters.
Environmental Liability means any liability, contingent or otherwise
(including any liability for damages, costs of environmental remediation, fines, penalties
or indemnities), of any Credit Party or any Subsidiary directly or indirectly resulting from
or based upon (a) violation of any Environmental Law, (b) the generation, use, handling,
transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to
any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials
into the environment or (e) any contract, agreement or other consensual arrangement pursuant
to which liability is assumed or imposed with respect to any of the foregoing.
ERISA means the Employee Retirement Income Security Act of 1974, as amended
from time to time.
ERISA Affiliate means any trade or business (whether or not incorporated)
that, together with any Credit Party, is treated as a single employer under Section 414(b)
or (c) of the Code or, solely for purposes of Section 302 of ERISA and Section 412 of the
Code, is treated as a single employer under Section 414 of the Code.
ERISA Event means (a) any reportable event, as defined in Section 4043 of
ERISA or the regulations issued thereunder with respect to a Plan (other than an event for
which the 30-day notice period is waived); (b) the existence with respect to any Plan of an
accumulated funding deficiency (as defined in Section 412 of the Code or Section 302 of
ERISA), whether or not waived; (c) the filing pursuant to Section 412(d) of the Code or
Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with
respect to any Plan; (d) the incurrence by any Credit Party or any of their ERISA Affiliates
of any liability under Title IV of ERISA with respect to the termination of any Plan; (e)
the receipt by any Credit Party or any ERISA Affiliate from the PBGC or a plan administrator
of any notice relating to an intention to terminate any Plan or Plans or to appoint a
trustee to administer any Plan; (f) the incurrence by any Credit Party or any of their ERISA
Affiliates of any liability with respect to the withdrawal or partial withdrawal from any
Plan or Multiemployer Plan; or (g) the receipt by any Credit Party or any ERISA Affiliate of
any notice, or the receipt by any Multiemployer Plan from any Credit Party or any ERISA
Affiliate of any notice, concerning the imposition of Withdrawal Liability or a
determination that a Multiemployer Plan is, or is expected to be, insolvent or in
reorganization, within the meaning of Title IV of ERISA.
6
Eurodollar, when used in reference to any Loan, means that such Loan is
bearing interest at a rate determined by reference to the LIBO Rate.
Events of Default has the meaning assigned to such term in Article VIII.
Excluded Taxes means, with respect to the Lender or any payment to be made by
or on account of any obligation of the Borrower hereunder, (a) income or franchise taxes
imposed on (or measured by) its net income by the United States of America, or by the
jurisdiction under the laws of which the Lender is organized or in which its principal
office is located or in which its applicable lending office is located and (b) any branch
profits taxes imposed by the United States of America or any similar tax imposed by any
other jurisdiction in which the Borrower is located.
Federal Funds Effective Rate means for each day, the rate per annum which is
the average of the rates on the offered side of the Federal funds market quoted by three
interbank Federal funds brokers, selected by the Lender, at approximately 2:00 p.m., New
York City time, on such day for dollar deposits in immediately available funds, in an amount
comparable to the outstanding principal amount of the Loans, as determined by the Lender and
rounded upwards, if necessary, to the nearest 1/100 of 1%.
Federal Funds Margin means the Federal Funds Margin specified in the Pricing
Letter.
Financial Officer means the chief financial officer, principal accounting
officer, treasurer or controller of the Borrower or the Guarantor, as the context may
require.
GAAP means generally accepted accounting principles in the United States of
America.
Governmental Authority means the government of the United States of America,
any other nation or any political subdivision thereof, whether state, provincial or local,
and any agency, authority, instrumentality, regulatory body, court, central bank or other
entity exercising executive, legislative, judicial, taxing, regulatory or administrative
powers or functions of or pertaining to government.
Guarantee of or by any Person (the guarantor) means any obligation,
contingent or otherwise, of the guarantor guaranteeing or having the economic effect of
guaranteeing any Indebtedness or other obligation of any other Person (the primary
obligor) in any manner, whether directly or indirectly, and including any obligation of
the guarantor, direct or indirect, (a) to purchase or pay (or advance or supply funds for
the purchase or payment of) such Indebtedness or other obligation or to purchase (or to
advance or supply funds for the purchase of) any security for the payment thereof, (b) to
purchase or lease property, securities or services for the purpose of assuring the owner of
such Indebtedness or other obligation of the payment thereof, (c) to maintain working
capital, equity capital or any other financial statement condition or liquidity of the
primary obligor so as to enable the primary obligor to pay such Indebtedness or other
7
obligation or (d) as an account party in respect of any letter of credit or letter of
guaranty issued to support such Indebtedness or obligation; provided that the term
Guarantee shall not include endorsements for collection or deposit in the ordinary course of
business.
Guarantee Obligation means, as to any Person, any obligation of such Person
guaranteeing or in effect guaranteeing any Indebtedness, leases, dividends or other
obligations (the primary obligations) of any other Person (the primary
obligor) in any manner, whether directly or indirectly, including any obligation of
such Person, whether or not contingent, (a) to purchase any such primary obligation or any
property constituting direct or indirect security therefor, (b) to advance or supply funds
(i) for the purchase or payment of any such primary obligation or (ii) to maintain working
capital or equity capital of the primary obligor or otherwise to maintain the net worth or
solvency of the primary obligor, (c) to purchase property, securities or services primarily
for the purpose of assuring the owner of any such primary obligation of the ability of the
primary obligor to make payment of such primary obligation or (d) otherwise to assure or
hold harmless the owner of any such primary obligation against loss in respect thereof;
provided, however, that the term Guarantee Obligation shall not include
endorsements of instruments for deposit or collection in the ordinary course of business.
The amount of any Guarantee Obligation shall be deemed to be an amount equal as of any date
of determination to the stated determinable amount of the primary obligation in respect of
which such Guarantee Obligation is made (unless such Guarantee Obligation shall be expressly
limited to a lesser amount, in which case such lesser amount shall apply) or, if not stated
or determinable, the amount as of any date of determination of the maximum reasonably
anticipated liability in respect thereof as determined by such Person in good faith.
Guarantor means H&R Block, Inc., a Missouri corporation.
Hazardous Materials means all explosive or radioactive substances or wastes
and all hazardous or toxic substances, wastes or other pollutants, including petroleum or
petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls,
radon gas, infectious or medical wastes and all other substances or wastes of any nature
regulated pursuant to any Environmental Law.
Hedging Agreement means any interest rate protection agreement, foreign
currency exchange agreement, commodity price protection agreement or other interest or
currency exchange rate or commodity price hedging arrangement.
HSBC RAL means HSBC RAL as such term is defined in the Appendix of Defined
Terms and Rules of Construction attached as Appendix A to Retail Settlement Products
Distribution Agreement.
HSBC TFS means HSBC Taxpayer Financial Services Inc., a Delaware corporation.
HSBC TFS Letter means a letter agreement between the Borrower, HSBC TFS and
the Lender in substantially the form of Exhibit C hereto.
8
Indebtedness of any Person means, without duplication, (a) all obligations of
such Person for borrowed money or with respect to deposits or advances of any kind, (b) all
obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c)
all obligations of such Person upon which interest charges are customarily paid, (d) all
obligations of such Person under conditional sale or other title retention agreements
relating to property acquired by such Person, (e) all obligations of such Person in respect
of the deferred purchase price of property or services (excluding current accounts payable
and accrued expenses incurred in the ordinary course of business), (f) all Indebtedness of
others secured by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien on property owned or acquired by such
Person, whether or not the Indebtedness secured thereby has been assumed, (g) all Guarantees
by such Person of Indebtedness of others, (h) all Capital Lease Obligations of such Person,
(i) all obligations, contingent or otherwise, of such Person as an account party in respect
of letters of credit and letters of guaranty, (j) all obligations, contingent or otherwise,
of such Person in respect of bankers acceptances and (k) for purposes of Section 6.2 only,
all preferred stock issued by a Subsidiary of such Person. The Indebtedness of any Person
shall include the Indebtedness of any other entity (including any partnership in which such
Person is a general partner) to the extent such Person is liable therefor as a result of
such Persons ownership interest in or other relationship with such entity, except to the
extent the terms of such Indebtedness provide that such Person is not liable therefor.
Indebtedness of a Person shall not include obligations with respect to funds held by such
Person in custody for, or for the benefit of, third parties which are to be paid at the
direction of such third parties (and are not used for any other purpose).
Indemnified Taxes means Taxes other than Excluded Taxes.
Indemnitee has the meaning assigned to such term in Section 10.3(b).
Indirect RAL Participation Transaction means any transaction by the Guarantor
or any Subsidiary involving (a) an investment in a partnership, limited partnership, limited
liability company, limited liability partnership, business trust or other pass-through
entity which is partially owned by the Guarantor or any Subsidiary, (b) the purchase by such
pass-through entity of refund anticipation loans or participation interests in refund
anticipation loans (and/or related rights and interests), and (c) the distribution of cash
flow received by such pass-through entity with respect to such refund anticipation loans or
participation interests therein to the owners of such pass-through entity.
Information has the meaning assigned to such term in Section 10.12.
LIBO Rate means for each day the rate appearing on the Reuters LIBOR 01
page (or such other page as may replace such page on that service or such other service or
services as may be nominated by the British Bankers Association for the purpose of
displaying London interbank offered rates for U.S. dollar deposits) at approximately 11:00
a.m., London time, two London business days prior to such day, as the rate for dollar
deposits with a one week maturity. In the event that such rate is not available at
9
such time for any reason, then the LIBO Rate shall be determined for each day by
reference to such other comparable publicly available service for displaying eurodollar
rates as may be selected by the Lender at approximately 11:00 a.m., London time, two
Business Days prior to such day.
Lien means, with respect to any asset, (a) any mortgage, deed of trust, lien,
pledge, hypothecation, encumbrance, charge or security interest in, on or of such asset, (b)
the interest of a vendor or a lessor under any conditional sale agreement, capital lease or
title retention agreement (or any financing lease having substantially the same economic
effect as any of the foregoing) relating to such asset and (c) in the case of securities,
any purchase option, call or similar right of a third party with respect to such securities;
provided that clause (c) above shall be deemed not to include stock options granted
by any Person to its directors, officers or employees with respect to the Capital Stock of
such Person.
Loan Documents means this Agreement, the Pricing Letter, the Security
Agreement, the Control Agreement, the HSBC TFS Letter and the Notes, if any.
Loans means the loans made by the Lender to the Borrower pursuant to this
Agreement.
Margin means the Margin specified in the Pricing Letter.
Margin Stock means any margin stock as defined in Regulation U of the
Board.
Material Adverse Effect means a material adverse effect on (a) the business,
assets, property or condition (financial or otherwise) of the Guarantor and the Subsidiaries
taken as a whole, (b) the ability of any Credit Party to perform any of its obligations
under this Agreement or (c) the rights of or benefits available to the Lenders under this
Agreement.
Material Indebtedness means Indebtedness (other than the Loans), or
obligations in respect of one or more Hedging Agreements, of any one or more of the Credit
Parties and any Subsidiaries in an aggregate principal amount exceeding $40,000,000. For
purposes of determining Material Indebtedness, the principal amount of the obligations of
any Credit Party or any Subsidiary in respect of any Hedging Agreement at any time shall be
the aggregate amount (giving effect to any netting agreements) that the Credit Party or such
Subsidiary would be required to pay if such Hedging Agreement were terminated at such time.
Material Subsidiary means any Subsidiary of any Credit Party, other than Sand
Canyon Corporation, the aggregate assets or revenues of which, as of the last day of the
most recently ended fiscal quarter for which the Borrower has delivered financial statements
pursuant to Section 5.1(a) or (b), when aggregated with the assets or revenues of all other
Subsidiaries with respect to which the actions contemplated by Section 6.4 are taken, are
greater than 5% of the total assets or total revenues, as applicable, of the
10
Guarantor and its consolidated Subsidiaries, in each case as determined in accordance
with GAAP.
Maximum Rate has the meaning assigned to such term in Section 10.13.
Moodys means Moodys Investors Service, Inc.
Multiemployer Plan means a multiemployer plan as defined in Section
4001(a)(3) of ERISA.
Notes means the collective reference to any promissory note evidencing Loans.
Obligations means, collectively, the unpaid principal of and interest on the
Loans and all other obligations and liabilities of the Borrower (including interest accruing
at the then applicable rate provided herein after the maturity of the Loans and interest
accruing at the then applicable rate provided herein after the filing of any petition in
bankruptcy, or the commencement of any insolvency, reorganization or like proceeding,
relating to the Borrower, whether or not a claim for post-filing or post-petition interest
is allowed in such proceeding) to the Lender, whether direct or indirect, absolute or
contingent, due or to become due, or now existing or hereafter incurred, which may arise
under, out of, or in connection with, this Agreement, the Pricing Letter, the Security
Agreement, the Control Agreement, the HSBC TFS Letter, any Note or any other document made,
delivered or given in connection herewith, whether on account of principal, interest,
reimbursement obligations, fees, indemnities, costs, expenses or otherwise (including all
fees and disbursements of counsel to the Lender that are required to be paid by the Borrower
pursuant to the terms of any of the foregoing agreements).
Other Taxes means any and all present or future stamp or documentary taxes or
any other excise or property taxes, charges or similar levies arising from any payment made
hereunder or from the execution, delivery or enforcement of, or otherwise with respect to,
this Agreement.
Participant has the meaning assigned to such term in Section 10.4(c).
Participation Agreement means the First Amended and Restated HSBC Refund
Anticipation Loan and IMA Participation Agreement, dated as of November 13, 2006, as amended
from time to time, and any restatement, extension, renewal and replacement thereof, by and
among the Borrower, HSBC Bank USA, National Association, HSBC TFS and HSBC Trust Company
(Delaware), National Association.
Participation Interest means a Participation Interest as defined in the
Participation Agreement.
PBGC means the Pension Benefit Guaranty Corporation referred to and defined
in ERISA and any successor entity performing similar functions.
11
Permitted Encumbrances means:
(a) judgment Liens in respect of judgments not constituting an Event of Default under
clause (k) of Article VIII;
(b) Liens imposed by law for taxes that are not yet due or are being contested in
compliance with Section 5.4;
(c) carriers, warehousemens, mechanics, materialmens, repairmens and other like
Liens imposed by law, arising in the ordinary course of business and securing obligations
that are not overdue by more than 30 days or are being contested in compliance with Section
5.4;
(d) pledges and deposits made in the ordinary course of business in compliance with
workers compensation, unemployment insurance and other social security laws or regulations;
(e) deposits to secure the performance of bids, trade contracts, leases, statutory
obligations, surety and appeal bonds, performance bonds and other obligations of a like
nature, in each case in the ordinary course of business; and
(f) easements, zoning restrictions, rights-of-way and similar encumbrances on real
property imposed by law or arising in the ordinary course of business that do not secure any
monetary obligations and do not materially detract from the value of the affected property
or interfere with the ordinary conduct of business of the Credit Parties or any Subsidiary;
provided that the term Permitted Encumbrances shall not include any Lien securing
Indebtedness.
Person means any natural person, corporation, limited liability company,
trust, joint venture, association, company, partnership, Governmental Authority or other
entity.
Plan means any employee pension benefit plan (other than a Multiemployer
Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section
302 of ERISA, and in respect of which any Credit Party or any ERISA Affiliate is (or, if
such plan were terminated, would under Section 4069 of ERISA be deemed to be) an employer
as defined in Section 3(5) of ERISA.
Pricing Letter means the separate letter agreement, dated the date of this
Agreement, among the Borrower, the Guarantor and the Lender, setting forth certain fees and
margins payable by the Borrower in connection with this Agreement.
Prime Rate means the rate of interest per annum publicly announced from time
to time by JPMorgan Chase Bank, N.A., as its prime rate in effect at its principal office in
New York City; each change in the Prime Rate shall be effective from and including the date
such change is publicly announced as being effective.
12
Prime Rate Margin means the Prime Rate Margin specified in the Pricing
Letter.
Proceeding means any suit, action or proceeding arising out of or relating to
this Agreement, the Pricing Letter, the Security Agreement, the Control Agreement or the
HSBC TFS Letter, or for recognition or enforcement of any judgment.
Purchase Price means Purchase Price as such term is defined in the Appendix
of Defined Terms and Rules of Construction attached as Appendix A to Retail Settlement
Products Distribution Agreement.
RAL Receivables Amount means, at any time, the difference (but not less
than zero) between (i) the aggregate amount of funds received by the Guarantor, any
Subsidiary or any qualified or unqualified special purpose entity created by any Subsidiary
with respect to the transfer of refund anticipation loans, or participation interests in
refund anticipation loans (and/or related rights and interests), to any third party in any
RAL Receivables Transaction, at or prior to such time, minus (ii) the aggregate
amount received by all such third parties with respect to the transferred refund
anticipation loans, or participation interests in refund anticipation loans (and/or related
rights and interests), in all RAL Receivables Transactions, at or prior to such time,
excluding from the amounts received by such third parties, the aggregate amount of
any origination, set up, structuring or similar fees, all implicit or explicit financing
expenses and all indemnification and reimbursement payments paid to any such third party in
connection with any RAL Receivables Transaction.
RAL Receivables Transaction means any securitization, on or off balance
sheet financing or sale transaction, involving refund anticipation loans, or participation
interests in refund anticipation loans (and/or related rights and interests), that were
acquired by the Guarantor, any Subsidiary or any qualified or unqualified special purpose
entity created by any Subsidiary.
Related Parties means, with respect to any specified Person, such Persons
Affiliates and the respective directors, officers, employees, agents and advisors of such
Person and such Persons Affiliates.
Restricted Margin Stock means all Margin Stock owned by the Guarantor and its
Subsidiaries to the extent the value of such Margin Stock does not exceed 25% of the value
of all assets of the Guarantor and its Subsidiaries (determined on a consolidated basis)
that are subject to the provisions of Section 6.3 and 6.4.
Retail Settlement Products Distribution Agreement means the HSBC Retail
Settlement Products Distribution Agreement, dated as of September 23, 2005, as amended by
the Joinder and First Amendment to Program Contracts dated as of November 10, 2006, the
Second Amendment to Program Contracts dated as of November 13, 2006, and the Third Amendment
to Program Contracts dated as of December 5, 2008, and as further amended from time to time,
and any restatement,
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extension, renewal and
replacement thereof, by and among the parties thereto, including, the Lender and the
Guarantor.
Revolving Credit Exposure means with respect to the Lender at any time, the
outstanding principal amount of the Lenders Loans.
Revolving Termination Date means the earlier of (i) June 30, 2009 and (ii)
the first day after April 15, 2009 on which the aggregate outstanding amount of the
Participation Interests purchased by the Borrower in HSBC RALs under the Participation
Agreement which have been financed by the making of Loans is less than $60,000,000.
RSM means RSM McGladrey, Inc., a Delaware corporation.
S&P means Standard & Poors Ratings Services.
Sand Canyon Corporation means Sand Canyon Corporation (formerly known as
Option One Mortgage Corporation), a California corporation, and all of its subsidiaries.
Security Agreement means a Security Agreement between the Borrower and the
Lender in substantially the form of Exhibit A hereto.
Servicing Agreement means the First Amended and Restated HSBC Settlement
Products Servicing Agreement dated as of November 13, 2006 , as amended from time to time,
and any restatement, extension, renewal and replacement thereof, among HSBC Bank USA,
National Association, HSBC TFS, HSBC Trust Company (Delaware), N.A., and the Borrower.
Short-Term Debt means, at any time, the aggregate amount of Indebtedness of
the Guarantor and its Subsidiaries at such time (excluding seasonal Indebtedness of H&R
Block Canada, Inc.) having a final maturity less than one year after such time, determined
on a consolidated basis in accordance with GAAP, plus the aggregate amount of Indebtedness
at such time under the Bank Revolvers, minus (a) to the extent otherwise included therein,
Indebtedness outstanding at such time (i) under mortgage facilities secured by mortgages and
related assets, (ii) incurred to fund servicing obligations required as part of servicing
mortgage backed securities in the ordinary course of business, (iii) incurred and secured by
broker-dealer Subsidiaries in the ordinary course of business and (iv) deposits and other
customary banking related liabilities incurred by banking Subsidiaries in the ordinary
course of business, (b) the excess, if any, of (i) the aggregate amount of cash and Cash
Equivalents held at such time in accounts of the Guarantor and its Subsidiaries (other than
broker-dealer Subsidiaries and banking Subsidiaries) to the extent freely transferable to
the Credit Parties and capable of being applied to the Obligations without any contractual,
legal or tax consequences over (ii) $15,000,000 and (c) to the extent otherwise included
therein, the current portion of long term debt.
Subsidiary means, with respect to any Person (the parent) at any
date, any corporation, limited liability company, partnership, association or other entity
the
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accounts of which would be consolidated with those of the parent in the parents
consolidated financial statements if such financial statements were prepared in accordance
with GAAP as of such date, as well as any other corporation, limited liability company,
partnership, association or other entity (a) of which securities or other ownership
interests representing more than 50% of the equity or more than 50% of the ordinary voting
power or, in the case of a partnership, more than 50% of the general partnership interests
are, as of such date, owned, controlled or held, or (b) that is, as of such date, otherwise
Controlled, by the parent or one or more Subsidiaries of the parent or by the parent and one
or more Subsidiaries of the parent. Notwithstanding the foregoing, no entity shall be
considered a Subsidiary solely as a result of the effect and application of FASB
Interpretation No. 46R (Consolidation of Variable Interest Entities). Unless the context
shall otherwise require, all references to a Subsidiary or to Subsidiaries in this
Agreement shall refer to a Subsidiary or Subsidiaries of the Guarantor, including the
Borrower and the Subsidiaries of the Borrower.
Taxes means any and all present or future taxes, levies, imposts, duties,
deductions, charges or withholdings imposed by any Governmental Authority.
Total Facility Commitments means the sum of the total Commitments under and
as defined in the Bank Revolvers.
Total Facility Loan Outstandings has the meaning assigned to such term in
Section 6.2.
Transactions means the execution, delivery and performance by the Credit
Parties of the Loan Documents, the borrowing of Loans, the use of the proceeds thereof, and
the granting of the security provided for in the Security Agreement.
Unrestricted Margin Stock means all Margin Stock owned by the Guarantor and
its Subsidiaries other than Restricted Margin Stock.
Withdrawal Liability means liability to a Multiemployer Plan as a result of a
complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in
Part I of Subtitle E of Title IV of ERISA.
SECTION 1.2. Terms Generally. The definitions of terms herein shall apply equally to the singular
and plural forms of the terms defined. Whenever the context may require, any pronoun shall include
the corresponding masculine, feminine and neuter forms. The words include, includes and
including shall be deemed to be followed by the phrase without limitation. The word will
shall be construed to have the same meaning and effect as the word shall. Unless the context
requires otherwise (a) any definition of or reference to any agreement, instrument or other
document herein shall be construed as referring to such agreement, instrument or other document as
from time to time amended, supplemented or otherwise modified (subject to any restrictions on such
amendments, supplements or modifications set forth herein), (b) any reference herein to any Person
shall be construed to include such Persons successors and assigns, (c) the words
herein, hereof and hereunder, and words of similar import, shall be construed to refer
to this Agreement in its entirety and not
15
to any particular provision hereof, (d) all references
herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and
Sections of, and Exhibits and Schedules to, this Agreement and (e) the words asset and property
shall be construed to have the same meaning and effect and to refer to any and all tangible and
intangible assets and properties, including cash, securities, accounts and contract rights.
SECTION 1.3. Accounting Terms; GAAP. Except as otherwise expressly provided herein, all terms of
an accounting or financial nature shall be construed in accordance with GAAP, as in effect from
time to time; provided that, if the Borrower notifies the Lender that the Borrower requests
an amendment to any provision hereof to eliminate the effect of any change occurring after the date
hereof in GAAP or in the application thereof on the operation of such provision (or if the Lender
notifies the Borrower that the Lender requests an amendment to any provision hereof for such
purpose), regardless of whether any such notice is given before or after such change in GAAP or in
the application thereof, then such provision shall be interpreted on the basis of GAAP as in effect
and applied immediately before such change shall have become effective until such notice shall
have been withdrawn or such provision amended in accordance herewith.
ARTICLE II
THE CREDITS
SECTION 2.1. Commitment. Subject to the terms and conditions set forth herein (including the
proviso at the end of Section 6.2) and in the Pricing Letter, the Lender agrees to make revolving
loans (Loans) to the Borrower from time to time during the Availability Period in an
aggregate principal amount that will not result in the Lenders Revolving Credit Exposure exceeding
the Lenders Commitment as then in effect. Within the foregoing limits and subject to the terms
and conditions set forth herein, the Borrower may borrow, prepay and reborrow Loans.
SECTION 2.2. Loans. Subject to Section 2.8, all Loans shall be comprised entirely
of Eurodollar Loans in accordance herewith. The Lender at its option may make any Eurodollar Loan
by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan; provided
that any exercise of such option shall not affect the obligation of the Borrower to repay such Loan
in accordance with the terms of this Agreement.
SECTION 2.3. Funding of Loans. As provided in the HSBC TFS Letter, HSBC TFS shall
notify the Lender of the aggregate amount of the Purchase Price for the Participation Interests to
be purchased by the Borrower under the Participation Agreement on any Business Day at the same time
as HSBC TFS notifies the Borrower of such amount, but in any event not later than 9:30 a.m. New
York City time on such Business Day. Subject to the terms and conditions of this Agreement, the
Lender shall make a Loan in the amount so notified in respect of each Business Day, by wire
transfer of immediately available funds to or as instructed by
HSBC TFS by 4:30 p.m., New York City time, on such Business Day; provided, that if the
Borrower shall notify the Lender and HSBC TFS not later than one hour after the notification by
HSBC TFS referred to in the preceding sentence that the Borrower does not wish to borrow all or
16
some of the amount so notified by HSBC TFS, then the Lender shall make a Loan in such lesser
amount, if any, specified in such notice of the Borrower. The Borrower hereby irrevocably (i)
authorizes and instructs the Lender to make Loans by transfer of Loan proceeds directly to or as
instructed by HSBC TFS as provided in the preceding sentence and (ii) acknowledges and agrees that
Loans will not be disbursed in any other manner or for any other purpose than to fund the purchase
by the Borrower of Participation Interests in HSBC RALs under the Participation Agreement. Notices
under this Section 2.3 shall be made by telephone discussion with a representative of the Person
being notified (and not by voicemail or other form of recorded message) and promptly confirmed by
fax. Absent manifest error, the Lender shall be entitled to rely without further inquiry on
notices and information received from HSBC TFS or the Borrower as contemplated in this Section 2.3.
SECTION 2.4. Termination and Reduction of Commitment. (a) Unless previously terminated, the Commitment
shall terminate on the Revolving Termination Date.
(b) The Borrower may at any time terminate, or from time to time reduce, the Commitment;
provided that (i) each reduction of the Commitment shall be in an amount that is an
integral multiple of $1,000,000 and not less than $25,000,000 and (ii) the Borrower shall not
terminate or reduce the Commitment if, after giving effect to any concurrent prepayment of the
Loans in accordance with Section 2.6, the Revolving Credit Exposure would exceed the Commitment.
(c) The Borrower shall notify the Lender of any election to terminate or reduce the
Commitment under paragraph (b) of this Section at least three Business Days prior to the effective
date of such termination or reduction, specifying such election and the effective date thereof.
Each notice delivered by the Borrower pursuant to this Section shall be irrevocable;
provided that a notice of termination of the Commitment delivered by the Borrower may
state that such notice is conditioned upon the effectiveness of other credit facilities, in which
case such notice may be revoked by the Borrower (by notice to the Lender) on or prior to the
specified effective date if such condition is not satisfied. Any termination or reduction of the
Commitment shall be permanent.
SECTION 2.5. Repayment of Loans; Evidence of Debt. (a) The Borrower hereby unconditionally
promises to pay to the Lender (i) the unpaid principal amount of the Loans on March 31, 2009 to
the extent that such principal amount exceeds the Commitment on such date and (ii) the then unpaid
principal amount of each Loan on the Revolving Termination Date.
(b) The Lender shall maintain in accordance with its usual practice an account or accounts
evidencing the indebtedness of the Borrower to the Lender resulting from
each Loan made by the Lender, including the amounts of principal and interest payable and
paid to the Lender from time to time hereunder.
(c) The entries made in the account maintained pursuant to paragraph (b) of this Section
shall be prima facie evidence of the existence and amounts of the obligations
recorded therein; provided that the failure of the Lender to maintain such account or any
error
17
therein shall not in any manner affect the obligation of the Borrower to repay the Loans in
accordance with the terms of this Agreement.
(d) The Lender may request that Loans made by it be evidenced by a promissory note. In such
event, the Borrower shall prepare, execute and deliver to the Lender a promissory note payable to
the order of the Lender (or, if requested by the Lender, to the Lender and its assigns) and in a
form approved by the Lender. Thereafter, the Loans evidenced by such promissory note and interest
thereon shall at all times (including after assignment pursuant to Section 10.4) be represented by
one or more promissory notes in such form payable to the order of the payee named therein. In
addition, upon receipt of an affidavit of an officer of the Lender as to the loss, theft,
destruction or mutilation of the promissory note, the Borrower will issue, in lieu thereof, a
replacement promissory note in the same principal amount thereof and otherwise of like tenor.
SECTION 2.6. Prepayment of Loans. (a) The Borrower (i) shall have the right at any time and from
time to time voluntarily to prepay the Loans in whole or in part without premium or penalty,
subject to prior notice in accordance with paragraph (b) of this Section, and (ii) shall prepay the
Loans from time to time in whole or in part without premium or penalty in accordance with paragraph
(c) of this Section.
(b) The Borrower shall notify the Lender by telephone discussion with a representative of
the Lender (and not by voicemail or other form of recorded message) (confirmed by telecopy) of
any voluntary prepayment of Loans under Section 2.6(a)(i), not later than 10:00 a.m., New York
City time, on the date of prepayment. Each such notice shall be irrevocable and shall specify the
prepayment date and the principal amount of Loans to be prepaid; provided that, if a
notice of prepayment is given in connection with a conditional notice of termination of the
Commitments as contemplated by Section 2.4, then such notice of prepayment may be revoked if such
notice of termination is revoked in accordance with Section 2.4.
(c) At any time when there is outstanding unpaid principal on the Loans, the Borrower shall
prepay the principal of the Loans in an amount equal to (i) 100% of the amount of all payments
constituting repayment of HSBC RALs in which the Borrower has purchased a Participation Interest
which are remitted to the Borrower by HSBC TFS under Section 3.4(b)(iii) of the Servicing
Agreement, and (ii) 100% of the amount of all repurchases of Participation Interests by HSBC TFS
under Section 6 of the Participation Agreement as to Participation Interests that have been
purchased by the Borrower. In the HSBC TFS Letter, the Borrower will irrevocably authorize and
instruct HSBC TFS, as Servicer under the Servicing Agreement, at any time when there is
outstanding unpaid principal on the Loans, (A) to pay
100% of all amounts from time to time to be remitted to the Borrower by the Servicer under
Section 3.4(b)(iii) of the Servicing Agreement in respect of Participation Interests purchased by
the Borrower directly to the Lender for application to the prepayment of the Loans under this
Section 2.6(c) and (B) to pay 100% of all amounts otherwise payable to the Borrower in respect of
the repurchase under Section 6 of the Participation Agreement of Participation Interests in HSBC
RALs that have been purchased by the Borrower directly to the Lender for application to the
prepayment of the Loans under this Section 2.6(c). The Lender shall be entitled to rely without
further inquiry on notices and information received from HSBC TFS as
18
contemplated in this Section
2.6(c). The Lender shall credit payments received from HSBC TFS under this Section 2.6(c) to
prepayment of the principal of the Loans on the date of receipt.
SECTION 2.7. Interest
(a) The Loans shall bear interest for each day at a rate per annum equal to the sum of (i)
the Average Weekly LIBO Rate for such day plus (ii) the Margin. The principal amount of any Loan
that is made by the Lender pursuant to Section 2.3 and is prepaid by the Borrower pursuant to
Section 2.6(a)(i) on the same Business Day shall not bear any interest for such Business Day.
(b) Notwithstanding the foregoing, if any principal of or interest on any Loan or any other
amount payable by the Borrower hereunder is not paid when due, whether at stated maturity, upon
acceleration or otherwise, such overdue amount shall bear interest, after as well as before
judgment, at a rate per annum equal to 3% plus the rate of interest otherwise applicable to the
Loans hereunder.
(c) Accrued interest on each Loan shall be payable monthly in arrears on the fifth Business
Day of the following month and on the Revolving Termination Date; provided that interest
accrued pursuant to paragraph (b) of this Section shall be payable on demand. On the second
Business Day of such following month, the Lender shall deliver to the Borrower and HSBC TFS by
e-mail an invoice for the amount of accrued interest on the Loans for the preceding month,
together with a schedule in reasonable detail showing how such amount was calculated.
(d) All interest hereunder shall be computed on the basis of a year of 360 days, except that
interest computed by reference to the Prime Rate under Section 2.8 shall be computed on the basis
of a year of 365 days (or 366 days in a leap year), and in each case shall be payable for the
actual number of days elapsed (including the first day but excluding the last day). The LIBO Rate
(and in the case of determinations under Section 2.8, the Federal Funds Effective Rate and the
Prime Rate) shall be determined by the Lender, and such determination shall be conclusive absent
manifest error. The Lender shall as soon as practicable notify the Borrower of the effective date
and the amount of each change in interest rate.
SECTION 2.8. Alternate Rate of Interest. If at any time:
(a) the Lender determines (which determination shall be conclusive absent manifest error)
that adequate and reasonable means do not exist for ascertaining the LIBO Rate; or
(b) the Lender determines that the LIBO Rate will not adequately and fairly reflect the cost
to the Lender of making or maintaining Loans;
then the Lender shall give notice thereof to the Borrower by telephone or telecopy as promptly as
practicable thereafter and, until the Lender notifies the Borrower that the circumstances giving
rise to such notice no longer exist, the Loans shall bear interest at a rate per annum equal to,
for
19
any day, a rate per annum equal to the greater of (a) the Prime Rate in effect on such day plus
the Prime Rate Margin, and (b) the Federal Funds Effective Rate in effect on such day plus the
Federal Funds Margin. Any change in the Prime Rate or the Federal Funds Effective Rate shall be
effective from and including the effective date of such change in the Prime Rate or the Federal
Funds Effective Rate, respectively.
SECTION 2.9. Increased Costs. (a) If any Change in Law shall:
(i) impose, modify or deem applicable any reserve, special deposit or similar
requirement against assets of, deposits with or for the account of, or credit
extended by, the Lender; or
(ii) impose on the Lender or the London interbank market any other condition
affecting this Agreement or Eurodollar Loans made by the Lender;
and the result of any of the foregoing shall be to increase the cost to the Lender of making or
maintaining any Eurodollar Loan (or of maintaining its obligation to make any such Loan) or to
increase the cost to the Lender or to reduce the amount of any sum received or receivable by the
Lender hereunder (whether of principal, interest or otherwise), then the Borrower will pay to the
Lender such additional amount or amounts as will compensate the Lender for such additional costs
incurred or reduction suffered.
(b) If the Lender determines that any Change in Law regarding capital requirements has or
would have the effect of reducing the rate of return on the Lenders capital or on the capital of
the Lenders holding company, if any, as a consequence of this Agreement or the Loans made by the
Lender to a level below that which the Lender or the Lenders holding company could have achieved
but for such Change in Law (taking into consideration the Lenders policies and the policies of
the Lenders holding company with respect to capital adequacy), then from time to time the
Borrower will pay to the Lender such additional amount or amounts as will compensate the Lender or
the Lenders holding company for any such reduction suffered.
(c) A certificate of the Lender setting forth the amount or amounts necessary to compensate
the Lender or its holding company, as the case may be, as specified in
paragraph (a) or (b) of this Section (together with a statement of the reason for such
compensation and a calculation thereof in reasonable detail) shall be delivered to the Borrower
and shall be conclusive absent manifest error. The Borrower shall pay the Lender the amount shown
as due on any such certificate within 10 days after receipt thereof.
(d) Failure or delay on the part of the Lender to demand compensation pursuant to this
Section shall not constitute a waiver of the Lenders right to demand such compensation;
provided that the Borrower shall not be required to compensate the Lender pursuant to this
Section for any increased costs or reductions incurred more than six months prior to the date that
the Lender notifies the Borrower of the Change in Law giving rise to such increased costs or
reductions and of the Lenders intention to claim compensation therefor; provided,
further, that, if the Change in Law giving rise to such increased costs or reductions is
20
retroactive, then the six-month period referred to above shall be extended to include the period
of retroactive effect thereof.
SECTION 2.10. Taxes. (a) Any and all payments by or on account of any obligation of the Borrower
or the Guarantor hereunder shall be made free and clear of and without deduction for any
Indemnified Taxes or Other Taxes; provided that if the Borrower or the Guarantor shall be
required to deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum
payable shall be increased as necessary so that after making all required deductions (including
deductions applicable to additional sums payable under this Section) the Lender receives an amount
equal to the sum it would have received had no such deductions been made, (ii) the Borrower or the
Guarantor shall make such deductions and (iii) the Borrower or the Guarantor shall pay the full
amount deducted to the relevant Governmental Authority in accordance with applicable law.
(b) In addition, the Borrower shall pay any Other Taxes to the relevant Governmental
Authority in accordance with applicable law.
(c) The Borrower shall indemnify the Lender, within 10 days after written demand therefor,
for the full amount of any Indemnified Taxes or Other Taxes (including Indemnified Taxes or Other
Taxes imposed or asserted on or attributable to amounts payable under this Section) paid by the
Lender and any penalties, interest and reasonable expenses arising therefrom or with respect
thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or
asserted by the relevant Governmental Authority. A certificate as to the amount of such payment
or liability delivered to the Borrower by the Lender shall be conclusive absent manifest error.
(d) As soon as practicable after any payment of Indemnified Taxes or Other Taxes by the
Borrower to a Governmental Authority, the Borrower shall deliver to the Lender the original or a
certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy
of the return reporting such payment or other evidence of such payment reasonably satisfactory to
the Lender.
SECTION 2.11. Payments Generally. (a) The Borrower shall make each payment required
to be made by it hereunder (whether of principal or interest, or under Section 2.9 or 2.10, or
otherwise) prior to 12:00 noon, New York City time, on the date when due, in immediately available
funds, without set-off or counterclaim. Any amounts received after such time on any date may, in
the discretion of the Lender, be deemed to have been received on the next succeeding Business Day
for purposes of calculating interest thereon. All such payments shall be made to the Lender at its
account at HSBC Bank USA, National Association, Buffalo, N.Y., ABA #021001088, HFC Cash Ops W/T,
A/C #001842609, or at such other bank or account as it shall specify from time to time by notice in
writing to the Borrower. If any payment hereunder shall be due on a day that is not a Business
Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case
of any payment accruing interest, interest thereon shall be payable for the period of such
extension. All payments hereunder shall be made in dollars. Notwithstanding the foregoing, this
Section 2.11 shall not apply to payments by HSBC TFS as contemplated by Section 2.6(c).
21
(b) If at any time insufficient funds are received by and available to the Lender to pay
fully all amounts of principal, interest and any other amounts then due hereunder, such funds
shall be applied (i) first, to pay interest then due hereunder, (ii) second, to pay principal then
due hereunder, and (iii) third, any other amounts due and owing hereunder.
SECTION 2.12. Mitigation Obligations. If the Lender requests compensation under Section 2.9, or if the Borrower is required to
pay any additional amount to the Lender or any Governmental Authority for the account of the Lender
pursuant to Section 2.10, then the Lender shall use reasonable efforts to designate a different
lending office for funding or booking its Loans hereunder or to assign its rights and obligations
hereunder to another of its offices, branches or affiliates, if, in the judgment of the Lender,
such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section
2.9 or 2.10, as the case may be, in the future and (ii) would not subject the Lender to any
unreimbursed cost or expense and would not otherwise be disadvantageous to the Lender. The
Borrower hereby agrees to pay all reasonable costs and expenses incurred by the Lender in
connection with any such designation or assignment.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Each of the Credit Parties represents and warrants to the Lender that:
SECTION 3.1. Organization; Powers. Each of the Credit Parties and the Subsidiaries is duly organized, validly existing and in
good standing under the laws of the jurisdiction of its organization, has the power and authority
to carry on its business as now conducted and, except where the failure to be so, individually or
in the aggregate, would not reasonably be expected to result in a Material Adverse Effect, is
qualified to do business in, and is in good standing in, every jurisdiction where such
qualification is required. The Borrower was converted from a Delaware corporation known as Block
Financial Corporation on January 1, 2008 pursuant to Section 18-214 of the Delaware Limited
Liability Company Act.
SECTION 3.2. Authorization; Enforceability. The Transactions are within each Credit Partys corporate or limited liability company, as
the case may be, powers and have been duly authorized by all necessary corporate or limited
liability company, as the case may be, and, if required, stockholder or member, as the case may be,
action. This Agreement has been duly executed and delivered by each Credit Party and constitutes a
legal, valid and binding obligation of each Credit Party, enforceable in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting
creditors rights generally and subject to general principles of equity, regardless of whether
considered in a proceeding in equity or at law.
SECTION 3.3. Governmental Approvals; No Conflicts. The Transactions (a) do
not require any consent or approval of, registration or filing
with, or any other action by, any
22
Governmental Authority, except such as have been obtained or made
and are in full force and effect, (b) will not violate any applicable law or regulation or the
charter, by-laws, operating agreement or other organizational documents of any Credit Party or any
Subsidiary or any order of any Governmental Authority, (c) will not violate or result in a default
under any indenture, material agreement or other instrument (other than those to be terminated on
or prior to the Closing Date) binding upon any Credit Party or any Subsidiary or their assets, or
give rise to a right thereunder to require any payment to be made by any Credit Party or any
Subsidiary, and (d) except as provided in the Loan Documents, will not result in the creation or
imposition of any Lien on any asset of any Credit Party or any Subsidiary.
SECTION 3.4. Financial Condition; No Material Adverse Change. (a) Each Credit Party has heretofore furnished to the Lender consolidated balance sheets
and statements of income and cash flows (and, in the case of the Guarantor, of stockholders
equity) (i) as of and for the fiscal year ended April 30, 2008 (A) reported on by Deloitte & Touche
LLP, an independent registered public accounting firm, in respect of the financial statements of
the Guarantor, and (B) certified by its chief financial officer, in respect of the financial
statements of the Borrower, and (ii) as of and for the fiscal quarter and the portion of the fiscal
year ended October 31, 2008. Such financial statements present fairly, in all material respects,
the financial position and results of operations and cash flows of the Borrower and its
consolidated Subsidiaries and of the Guarantor and its consolidated Subsidiaries as of
such date and for such period in accordance with GAAP. Except as set forth on Schedule
3.4(a), neither the Guarantor nor any of its consolidated Subsidiaries had, at the date of the most
recent balance sheet referred to above, any material Guarantee Obligation, contingent liability or
liability for taxes, or any long-term lease or unusual forward or long-term commitment, including
any interest rate or foreign currency swap or exchange transaction not in the ordinary course of
business, which is not reflected in the foregoing statements or in the notes thereto. During the
period from April 30, 2008 to and including the date hereof, and except as disclosed in filings
made by the Guarantor with the U.S. Securities and Exchange Commission pursuant to the Securities
Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, there has been no
sale, transfer or other disposition by the Guarantor or any of its consolidated Subsidiaries of any
material part of its business or property other than in the ordinary course of business and no
purchase or other acquisition of any business or property (including any Capital Stock of any other
Person), material in relation to the consolidated financial condition of the Guarantor and its
consolidated Subsidiaries at April 30, 2008.
(b) From April 30, 2008 through the Effective Date, there has been no material adverse change
in the business, assets, property or condition (financial or otherwise) of the Guarantor and its
Subsidiaries, taken as a whole.
SECTION 3.5. Properties. (a) Each of the Credit Parties and
the Subsidiaries has good title to, or valid leasehold
interests in, all its real and personal property material to its business, except for minor defects
in title that do not interfere with its ability to conduct its business as currently conducted or
to utilize such properties for their intended purposes.
(b) Each of the Credit Parties and the Subsidiaries owns, or is licensed to use, all
trademarks, tradenames, copyrights, patents and other intellectual property material to its
business, and the use thereof by the Credit Parties and the Subsidiaries does not infringe
23
upon
the rights of any other Person, except for any such infringements that, individually or in the
aggregate, would not reasonably be expected to result in a Material Adverse Effect.
SECTION 3.6. Litigation and Environmental Matters. (a) There are
no actions, suits or proceedings by or before any arbitrator or Governmental
Authority pending against or, to the knowledge of any Credit Party, threatened against or affecting
any Credit Party or any Subsidiary that (i) have not been disclosed in the Disclosed Matters and as
to which there is a reasonable possibility of an adverse determination and that, if adversely
determined, would reasonably be expected, individually or in the aggregate, to result in a Material
Adverse Effect or (ii) challenge or would reasonably be expected to affect the legality, validity
or enforceability of this Agreement.
(b) Except for the Disclosed Matters and except with respect to any other matters that,
individually or in the aggregate, would not reasonably be expected to result in a Material Adverse
Effect, neither of the Credit Parties nor any Subsidiary (i) has failed to comply with any
Environmental Law or to obtain, maintain or comply with any permit, license or other approval
required under any Environmental Law, (ii) has become subject to any
Environmental Liability, (iii) has received notice of any claim with respect to any
Environmental Liability or (iv) knows of any basis for any Environmental Liability.
SECTION 3.7. Compliance with Laws and Agreements. Each of the
Credit Parties and the Subsidiaries is in compliance with all laws, regulations
and orders of any Governmental Authority applicable to it or its property and all indentures,
agreements and other instruments binding upon it or its property, except where the failure to be
so, individually or in the aggregate, would not reasonably be expected to result in a Material
Adverse Effect.
SECTION 3.8. Investment Company Status. Neither of the Credit
Parties nor any of the Subsidiaries is an investment company as
defined in, or subject to regulation under, the Investment Company Act of 1940, as amended.
SECTION 3.9. Taxes. Each of the
Credit Parties and the Subsidiaries has timely filed or caused to be filed all
Tax returns and reports required to have been filed and has paid or caused to be paid all Taxes
required to have been paid by it, except (a) Taxes that are being contested in good faith by
appropriate proceedings and for which the Guarantor, the Borrower or such Subsidiary, as
applicable, has set aside on its books adequate reserves or (b) to the extent that the failure to
do so would not reasonably be expected to result in a Material Adverse Effect.
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SECTION 3.10. ERISA. No ERISA Event
has occurred or is reasonably expected to occur that, when taken together
with all other such ERISA Events for which liability is reasonably expected to occur, would
reasonably be expected to result in a Material Adverse Effect. The present value of all
accumulated benefit obligations under each Plan (based on the assumptions used for purposes of
Statement of Financial Accounting Standards No. 87) did not, as of the date of the most recent
financial statements reflecting such amounts, exceed by more than $25,000,000 the fair market value
of the assets of such Plan, and the present value of all accumulated benefit obligations of all
underfunded Plans (based on the assumptions used for purposes of Statement of Financial Accounting
Standards No. 87) did not, as of the date of the most recent financial statements reflecting such
amounts, exceed by more than $25,000,000 the fair market value of the assets of all such
underfunded Plans.
SECTION 3.11. Disclosure. None of
the reports, financial statements, certificates or other information furnished by
or on behalf of the Credit Parties to the Lender in connection with the negotiation of this
Agreement or delivered hereunder (as modified or supplemented by other information so furnished)
contains any material misstatement of fact or omits to state any material fact necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading; provided that, with respect to projected financial information,
the Credit Parties represent only that such information was prepared in good faith based upon
assumptions believed to be reasonable at the time.
SECTION 3.12. Federal Regulations. No part
of the proceeds of any Loans will be used for purchasing or carrying any
margin stock (within the respective meanings of each of the quoted terms under Regulation U of
the Board as now and from time to time hereafter in effect) in a manner or in circumstances that
would constitute or result in non-compliance by any Credit Party or the Lender with the provisions
of Regulations U, T or X of the Board. If requested by the Lender, the Borrower will furnish to
the Lender a statement to the foregoing effect in conformity with the requirements of FR Form U-1
referred to in said Regulation U.
SECTION 3.13. Subsidiaries. As of
the date hereof, the Guarantor has only the Subsidiaries set forth on Schedule 3.13.
SECTION 3.14. Insurance. Each Credit Party
and each Subsidiary of each Credit Party maintains (pursuant to a
self-insurance program and/or with financially sound and reputable insurers) insurance with respect
to its properties and business and against at least such liabilities, casualties and contingencies
and in at least such types and amounts as is customary in the case of companies engaged in the same
or a similar business or having similar properties similarly situated.
ARTICLE IV
CONDITIONS
SECTION 4.1. Effective Date. Except as
otherwise provided in Sections 4.2 and 4.3, this Agreement shall become effective
on the date on which each of the following conditions is satisfied (or waived in accordance with
Section 10.2):
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(a) The Lender (or its counsel) shall have received from each party hereto a counterpart of
this Agreement signed on behalf of such party.
SECTION 4.2. Closing Date. The obligations of the Lender to make Loans hereunder shall not become effective until the
date on which each of the following conditions is satisfied (or waived in accordance with Section
10.2):
(a) The Effective Date shall have occurred.
(b) The Lender shall have received a reasonably satisfactory written opinion (addressed to
the Lender and dated the Closing Date) of Stinson Morrison Hecker LLP, special counsel for the
Credit Parties, substantially in the form of Exhibit D hereto, and covering such other matters
relating to the Credit Parties, the Loan Documents or the Transactions as the Lender shall
reasonably request. The Credit Parties hereby request such counsel to deliver such opinion.
(c) The Lender shall have received such documents and certificates as the Lender or its
counsel may reasonably request relating to the organization, existence and good standing of the
Credit Parties, the authorization of the Transactions and any other legal matters relating to the
Credit Parties, the Loan Documents or the Transactions, all in form and substance satisfactory to
the Lender and its counsel.
(d) The Lender shall have received a certificate, dated the Closing Date and signed by the
President, a Vice President or a Financial Officer of each Credit Party, confirming compliance
with the conditions set forth in paragraphs (a) and (b) of Section 4.3.
(e) All governmental and material third party approvals necessary in connection with the
execution, delivery and performance of this Agreement, the Security Agreement, the Control
Agreement and the HSBC TFS Letter shall have been obtained and be in full force and effect.
(f) The Lender shall have received a counterpart of the Security Agreement, duly executed
and delivered by the Borrower, and a counterpart of the HSBC TFS Letter, duly executed and
delivered by the parties thereto; and all filings and other actions necessary or appropriate to
perfect the security interest created by the Security Agreement shall have been made or taken.
(g) The Lender shall have received the results of searches of Uniform
Commercial Code filings in such jurisdictions as it shall deem appropriate and such searches shall
not reveal any filing that remains in effect and that describes any of the Collateral referred to
in the Security Agreement.
(h) The Borrower shall have invested $60,000,000 in the HSBC Investor Prime Money Market
Fund managed by HSBC Global Asset Management (USA), Inc. and the Lender shall have received a
counterpart of the Control Agreement with respect to that investment, duly executed and delivered
by the parties thereto.
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(i) The Lender shall have received a counterpart of the Pricing Letter, duly executed and
delivered by the Borrower and the Guarantor, and the Borrower shall have paid such consideration as
is set forth in the Pricing Letter.
The Lender shall notify the Borrower of the Closing Date, and such notice shall be conclusive and
binding. Notwithstanding the foregoing, the obligation of the Lender to make Loans hereunder
shall not become effective unless each of the foregoing conditions is satisfied (or waived pursuant
to Section 10.2) at or prior to the Closing Date.
SECTION 4.3. Each Loan. The obligation of the Lender to make each Loan is subject to the satisfaction of the
following conditions:
(a) The representations and warranties of the Credit Parties set forth in Article III of this
Agreement (other than the representations and warranties set forth in subsections 3.4(b),
3.6(a)(i) and 3.6(b)) shall be true and correct in all material respects on and as of the date of
such Loan (except to the extent related to a specific earlier date).
(b) At the time of and immediately after giving effect to such Loan, no Event of Default
shall have occurred and be continuing.
Each Loan shall be deemed to constitute a representation and warranty by each of the Credit Parties
on the date thereof as to the matters specified in paragraphs (a) and (b) of this Section.
ARTICLE V
AFFIRMATIVE COVENANTS
Until the Commitment has expired or been terminated and the principal of and interest on each
Loan shall have been paid in full, each of the Credit Parties covenants and agrees with the Lender
that:
SECTION 5.1. Financial Statements and Other Information. The Borrower will furnish to the Lender:
(a) within 90 days after the end of each fiscal year of the Guarantor, an audited
consolidated balance sheet and related statements of operations, stockholders equity and cash
flows of the Guarantor and its consolidated Subsidiaries as of the end of and for such year,
setting forth in each case in comparative form the figures for the previous fiscal year, all
reported on by Deloitte & Touche LLP or another independent registered public accounting firm of
recognized national standing (without a going concern or like qualification or exception and
without any qualification or exception as to the scope of such audit) to the effect that such
consolidated financial statements present fairly in all material respects the financial condition
and results of operations of the Guarantor and its consolidated Subsidiaries on a consolidated
basis in accordance with GAAP consistently applied;
27
(b) (i) in the case of the Guarantor, within 45 days after the end of each of the first three
fiscal quarters of each fiscal year of the Guarantor and (ii) in the case of the Borrower, within
90 days after the end of each fiscal year of the Borrower, consolidated balance sheets and related
statements of operations and cash flows of the Borrower and the Guarantor and their consolidated
Subsidiaries, and the consolidated statement of stockholders equity of the Guarantor, as of the
end of and for such fiscal quarter (in the case of the Guarantor) and the then elapsed portion of
the fiscal year, setting forth in each case in
comparative form the figures for the corresponding period or periods of (or, in the case of
the balance sheet, as of the end of) the previous fiscal year, all certified by a Financial
Officer of the Borrower and the Guarantor as presenting fairly in all material respects the
financial condition and results of operations of the Borrower and the Guarantor and their
consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied,
subject to normal year-end audit adjustments and the absence of footnotes;
(c) concurrently with any delivery of financial statements under clause (a) or (b) above, a
certificate of a Financial Officer of the Borrower and the Guarantor (i) certifying as to whether
a Default has occurred and, if a Default has occurred, specifying the details thereof and any
action taken or proposed to be taken with respect thereto, (ii) setting forth reasonably detailed
calculations demonstrating compliance with Section 6.1 and (iii) stating whether any change in
GAAP or in the application thereof has occurred since the date of the audited financial statements
referred to in Section 3.4 and, if any such change has occurred, specifying the effect of such
change on the financial statements accompanying such certificate;
(d) promptly after the same become publicly available, copies of all periodic and other
reports, proxy statements and other materials (other than (i) statements of ownership such as
Forms 3, 4 and 5 and Schedule 13G, (ii) routine filings relating to employee benefits, such as
Forms S-8 and 11-K, and (iii) routine filings by (A) RSM McGladrey, Inc. and its Subsidiaries,
including Birchtree Financial Services, Inc., (B) RSM Equico, Inc. and its Subsidiaries, including
McGladrey Capital Markets, LLC, (C) Sand Canyon Corporation, (D) H&R Block Canada, Inc. and (E)
H&R Block Limited) filed by any Credit Party or any Subsidiary with the Securities and Exchange
Commission, or any Governmental Authority succeeding to any or all of the functions of said
Commission, or with any national securities exchange, or distributed by any Credit Party to its
shareholders generally, as the case may be;
(e) a copy of any notice given by the Borrower under Section 4.1(b), Section 4.4(c) or
Section 4.8 of the Participation Agreement, such copy to be provided at the same time as such
notice is given under the Participation Agreement; and
(f) promptly following any request therefor, such other information regarding the operations,
business affairs and financial condition of any Credit Party or any Subsidiary, or compliance with
the terms of this Agreement, as the Lender may reasonably request.
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SECTION 5.2. Notices of Material Events. The Borrower will furnish to the Lender prompt written notice of the following:
(a) the occurrence of any Default;
(b) the filing or commencement of any action, suit or proceeding by or before any arbitrator
or Governmental Authority against or affecting any Credit Party or any Affiliate thereof that is
reasonably likely to be adversely determined and, if so determined, would reasonably be expected
to result in a Material Adverse Effect;
(c) the occurrence of any ERISA Event that, alone or together with any other ERISA Events
that have occurred, would reasonably be expected to result in liability of the Borrower, the
Guarantor or any Subsidiary in an aggregate amount exceeding $25,000,000; and
(d) any other development that results in, or would reasonably be expected to result in, a
Material Adverse Effect.
Each notice delivered under this Section shall be accompanied by a statement of a Financial Officer
or other executive officer of the Borrower and the Guarantor setting forth the details of the event
or development requiring such notice and any action taken or proposed to be taken with respect
thereto.
SECTION 5.3. Existence; Conduct of Business. Each Credit Party will, and will cause each of the Subsidiaries to, do or cause to be done
all things necessary to preserve, renew and keep in full force and effect its legal existence and
the rights, licenses, permits, privileges and franchises material to the conduct of its business;
provided that the foregoing shall not prohibit any merger, consolidation, liquidation,
disposition or dissolution permitted under Section 6.4.
SECTION 5.4. Payment of Taxes. Each Credit Party will, and will cause each of the Subsidiaries to, pay its Tax liabilities
that, if not paid, would reasonably be expected to have a Material Adverse Effect before the same
shall become delinquent, except where (a) the validity or amount thereof is being contested in good
faith by appropriate proceedings, (b) such Credit Party or such Subsidiary has set aside on its
books adequate reserves with respect thereto in accordance with GAAP and (c) the failure to make
payment pending such contest would not reasonably be expected to result in a Material Adverse
Effect.
SECTION 5.5. Maintenance of Properties; Insurance. Each Credit Party will, and will cause each of the Subsidiaries to, (a) keep and maintain
all property material to the conduct of its business in good working order and condition, ordinary
wear and tear excepted, and (b) maintain (pursuant to a self-insurance program and/or with
financially sound and reputable insurers) insurance in such amounts and against such risks as is
customarily maintained by companies engaged in the same or similar businesses operating in the same
or similar locations.
29
SECTION 5.6. Books and Records; Inspection Rights. Each Credit Party will, and will cause each of the Subsidiaries to, keep proper books of
record and account in which full, true and correct entries are made of all dealings and
transactions in relation to this Agreement and the transactions contemplated hereby. Each Credit
Party will, and will cause each of the Subsidiaries to, permit any representatives designated by
the Lender, upon reasonable prior notice, to visit and inspect its properties, to examine and make
extracts from its books and records, and to discuss its affairs, finances and condition with
its officers and independent accountants, all at such reasonable times and as often as reasonably
requested; provided that so long as no Event of Default exists, each Credit Party and each
Subsidiary shall have the right to be present and participate in any discussions with its
independent accountants. Nothing in this Section 5.6 shall permit the Lender to examine or
otherwise have access to the tax returns or other confidential information of any customer of
either Credit Party or any of their respective Subsidiaries.
SECTION 5.7. Compliance with Laws. Each Credit Party will, and will cause each of the Subsidiaries to, comply with all laws,
rules, regulations and orders of any Governmental Authority applicable to it or its property,
except where the failure to do so, individually or in the aggregate, would not reasonably be
expected to result in a Material Adverse Effect.
SECTION 5.8. Use of Proceeds. The proceeds of the Loans will be used only to purchase Participation Interests in HSBC
RALs pursuant to the Participation Agreement. No part of the proceeds of any Loan will be used,
whether directly or indirectly, for any purpose that entails a violation of any of the regulations
of the Board, including Regulations U and X.
SECTION 5.9 Additional Collateral. The Borrower shall provide additional collateral
to the Lender from time to time as provided in the Security Agreement.
ARTICLE VI
NEGATIVE COVENANTS
Until the Commitment has expired or terminated and the principal of and interest on each Loan
have been paid in full, each of the Credit Parties covenants and agrees with the Lender that:
SECTION 6.1. Adjusted Net Worth. The Guarantor will not permit Adjusted Net Worth as at the last day of any fiscal quarter
of the Guarantor to be less than $1,000,000,000.
SECTION 6.2. Indebtedness. The Credit Parties will
not, and will not permit any Subsidiary to create, incur, assume or
permit to exist any Indebtedness, except:
(a) subject to the proviso at the end of this Section 6.2, Indebtedness created under the
Bank Revolvers;
30
(b) Indebtedness existing on the date hereof and set forth in Schedule 6.2 and extensions,
renewals and replacements of any such Indebtedness that do not increase the outstanding principal
amount thereof;
(c) seasonal Indebtedness of H&R Block Canada, Inc., provided that the aggregate
principal amount of all such Indebtedness incurred pursuant to this subsection (c) shall not
exceed 250,000,000 Canadian dollars at any time outstanding;
(d) Indebtedness of the Borrower and the Guarantor, provided that (i) the obligations
of the Credit Parties hereunder shall rank at least pari passu with such
Indebtedness (including with respect to security) and (ii) the aggregate principal amount of all
Indebtedness permitted by this subsection (d) shall not exceed $2,000,000,000 at any time
outstanding;
(e) subject to the proviso at the end of this Section 6.2, (i) Indebtedness in connection
with commercial paper issued in the United States through the Borrower which is guaranteed by the
Guarantor and (ii) Indebtedness under bank lines of credit or similar facilities;
(f) Indebtedness in connection with Guarantees of the performance of any Subsidiarys
obligations under or pursuant to (i) indemnity, fee, daylight overdraft and other similar
customary banking arrangements between such Subsidiary and one or more financial institutions in
the ordinary course of business, (ii) any office lease entered into in the ordinary course of
business, and (iii) any promotional, joint-promotional, cross-promotional, joint marketing,
service, equipment or supply procurement, software license or other similar agreement entered into
by such Subsidiary with one or more vendors, suppliers, retail businesses or other third parties
in the ordinary course of business, including indemnification obligations relating to such
Subsidiarys failure to perform its obligations under such lease or agreement;
(g) acquisition-related Indebtedness (either incurred or assumed) and Indebtedness in
connection with the Guarantors guarantees of the payment or performance of primary obligations of
Subsidiaries of the Guarantor in connection with acquisitions by such Subsidiaries, or
Indebtedness secured by Liens permitted under subsection 6.3(f); provided that, during any
fiscal year, the aggregate outstanding principal amount of all Indebtedness incurred pursuant to
this subsection 6.2(g) shall not exceed at any time $325,000,000;
(h) Indebtedness of any Credit Party to any other Credit Party, of any Credit Party to any
Subsidiary, of any Subsidiary to any Credit Party and of any Subsidiary to any other Subsidiary;
provided that such Indebtedness shall not be prohibited by Section 6.5;
(i) Indebtedness in connection with repurchase agreements pursuant to which mortgage loans of
a Credit Party or a Subsidiary are sold with the simultaneous agreement to repurchase the mortgage
loans at the same price plus interest at an agreed upon rate; provided that the aggregate
outstanding principal amount of all Indebtedness incurred pursuant to this subsection 6.2(i) shall
not at any time exceed $500,000,000; provided, further, that no agreed upon
repurchase date shall be later than 90 business days after the date of the corresponding
repurchase agreement;
31
(j) Indebtedness in connection with Guarantees or Guarantee Obligations which are made, given
or undertaken as representations and warranties, indemnities or assurances of the payment or
performance of primary obligations in connection with securitization transactions or other
transactions permitted hereunder, as to which primary obligations the primary obligor is a Credit
Party, a Subsidiary or a securitization trust or similar securitization vehicle to which a Credit
Party or a Subsidiary sold, directly or indirectly, the relevant mortgage loans;
(k) Indebtedness of RSM, a Subsidiary of the Guarantor, to McGladrey & Pullen, LLP
(M&P) and certain related trusts under (i) that certain Asset Purchase Agreement dated
as of June 28, 1999 among RSM, M&P, the Guarantor and certain other parties signatory thereto (the
M&P Purchase Agreement) and (ii) the Retired Partners Agreement and the Loan Agreement
(as such terms are defined in the M&P Purchase Agreement); provided that the aggregate
outstanding principal amount payable in respect of such Indebtedness permitted under this
paragraph (k) shall not exceed $200,000,000 at any time;
(l) Indebtedness in connection with (i) Capital Lease Obligations in an aggregate outstanding
principal amount not at any time exceeding $50,000,000 (excluding any Capital Lease Obligations
permitted by subsection 6.2(p)), (ii) obligations under existing mortgages in an aggregate
outstanding principal amount not exceeding $12,000,000 at any time, (iii) securities sold and not
yet purchased, provided that the aggregate outstanding principal amount of all
Indebtedness incurred pursuant to this clause (iii) (other than Indebtedness of Subsidiaries which
act as broker-dealers) shall not at any time exceed $15,000,000, (iv) customer deposits in the
ordinary course of business, (v) payables to brokers and dealers in the ordinary course of
business and (vi) reimbursement obligations of broker-dealers relating to letters of credit in
favor of a clearing corporation or Indebtedness of broker-dealers under other credit facilities,
provided that (A) such letters of credit or such other credit facilities are used solely
to satisfy margin deposit requirements and (B) the aggregate outstanding exposure of the Guarantor
and the Subsidiaries under all such letters of credit and all such other credit facilities shall
not exceed $200,000,000 at any time;
(m) subject to the proviso at the end of this Section 6.2, Indebtedness incurred in
connection with the Borrowers Refund Anticipation Loan Program, including any Indirect RAL
Participation Transaction; provided that (i) such Indebtedness is incurred during the
period beginning on January 2 of any year and ending on June 29 of such year, (ii) such
Indebtedness is repaid in full by June 30 of the year in which such Indebtedness is incurred and
(iii) the covenants contained in any agreement relating to such Indebtedness, or guarantee thereof
(other than covenants specific to the Borrowers Refund Anticipation Loan Program and the
operation thereof), are no more restrictive than the covenants contained in this Agreement;
(n) subject to the proviso at the end of this Section 6.2, liabilities related to the RAL
Receivables Transactions to the extent consistent with the definition thereof;
(o) Indebtedness in respect of letters of credit in an aggregate outstanding principal amount
not to exceed $100,000,000;
32
(p) Indebtedness in an amount not exceeding $150,000,000 in connection with the acquisition,
development or construction of the Guarantors new headquarters;
(q) deposits and other liabilities incurred by banking Subsidiaries in the ordinary course of
business;
(r) customary liabilities of broker-dealers incurred by broker-dealer Subsidiaries in the
ordinary course of business;
(s) Indebtedness issued by a Subsidiary of the Borrower and primarily secured by mortgage
loans sold as contemplated by Section 6.5(c) hereof to such Subsidiary by another Subsidiary of
the Borrower;
(t) Indebtedness secured by Liens permitted by subsection 6.3(d) or 6.3(e);
(u) Indebtedness incurred solely to finance businesses described on Schedule 6.4(b) after the
date hereof that neither the Credit Parties nor their respective Subsidiaries are currently
engaged in to any material extent on the date hereof; provided that the aggregate
principal amount of all Indebtedness incurred pursuant to this clause (u) shall not at any time
exceed $400,000,000; and
(v) other Indebtedness (excluding Indebtedness of the types described in subsections 6.2(a),
6.2(b), 6.2(e) and 6.2(m)) in an aggregate principal amount not at any time exceeding $20,000,000;
provided, that the sum of the aggregate outstanding principal amount of all Indebtedness
permitted pursuant to subsections 6.2(a), 6.2(e) and 6.2(m) plus the RAL Receivables Amount
shall not at any time exceed the greater of (x) the Total Facility Commitments then in effect or
(y) the sum of the then outstanding principal amount of the Loans under the Bank Revolvers (such
sum, the Total Facility Loan Outstandings), except that, during the period from
January 2 of any year through June 30 of such year, such sum may exceed the greater of the Total
Facility Commitments then in effect or the then Total Facility Loan Outstandings by an amount up to
the total of (A) the aggregate outstanding principal amount of Indebtedness described in Section
6.2(m) and (B) $500,000,000.
SECTION 6.3. Liens. Each Credit Party will not, and will not permit any Subsidiary to, create, incur, assume or
permit to exist any Lien on any property or asset now owned or hereafter acquired by it, or assign
or sell any income or revenues (including accounts receivable) or rights in respect of any thereof,
except:
(a) Permitted Encumbrances;
(b) (i) any Lien created under or securing a Bank Revolver and (ii) any Lien on any property
or asset of any Credit Party or any Subsidiary existing on the date hereof and set forth in
Schedule 6.3; provided that (i) such Lien shall not apply to any other property or
asset of any Credit Party or any Subsidiary and (ii) such Lien shall secure only those
33
obligations which it secures on the date hereof and extensions, renewals and replacements thereof
that do not increase the outstanding principal amount thereof;
(c) any Lien existing on any property or asset prior to the acquisition thereof by any Credit
Party or any Subsidiary or existing on any property or asset of any Person that becomes a
Subsidiary after the date hereof prior to the time such Person becomes a Subsidiary;
provided that (i) such Lien is not created in contemplation of or in connection with such
acquisition or such Person becoming a Subsidiary, as the case may be, (ii) such Lien shall not
apply to any other property or assets of any Credit Party or any Subsidiary and (iii) such Lien
shall secure only those obligations which it secures on the date of such acquisition or the date
such Person becomes a Subsidiary, as the case may be, and extensions, renewals and replacements
thereof that do not increase the outstanding principal amount thereof;
(d) Liens and transfers in connection with the securitization, financing or other transfer of
any mortgage loans or mortgage servicing reimbursement rights (and/or, in each case, related
rights, interests and servicing assets) owned by the Borrower or any of its Subsidiaries;
(e) Liens and transfers in connection with the securitization or other transfer of any credit
card receivables (and/or related rights and interests) owned by the Borrower or any of its
Subsidiaries;
(f) Liens on fixed or capital assets acquired, constructed or improved by any Credit Party or
any Subsidiary to secure Indebtedness of such Credit Party or such Subsidiary incurred to finance
the acquisition, construction or improvement of such fixed or capital assets; provided
that (i) such Liens and the Indebtedness secured thereby are incurred prior to or within 90 days
after such acquisition or the completion of such construction or improvement, (ii) the
Indebtedness secured thereby does not exceed 100% of the cost of acquiring, constructing or
improving such fixed or capital assets and (iii) such Liens shall not apply to any other property
or assets of any Credit Party or any Subsidiary;
(g) Liens arising in connection with repurchase agreements contemplated by Section 6.2(i);
provided that such security interests shall not apply to any property or assets of any
Credit Party or any Subsidiary except for the mortgage loans or securities, as applicable, subject
to such repurchase agreements;
(h) Liens arising in connection with Indebtedness permitted by Sections 6.2(l)(v) or 6.2(q),
which Liens are granted in the ordinary course of business;
(i) Liens not otherwise permitted by this Section 6.3 so long as the Obligations hereunder
are contemporaneously secured equally and ratably with the obligations secured thereby;
(j) Liens not otherwise permitted by this Section 6.3, so long as the aggregate outstanding
principal amount of the obligations secured thereby does not exceed (as to the Credit Parties and
all Subsidiaries) $250,000,000 at any one time;
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(k) Liens and transfers in connection with the RAL Receivables Transaction;
(l) Liens securing Indebtedness permitted by subsection 6.2(u); and
(m) Liens on Unrestricted Margin Stock.
SECTION 6.4. Fundamental Changes; Sale of Assets. (a) Each Credit Party will not,
and will not permit any Material Subsidiary to, merge into
or consolidate with any other Person, or permit any other Person to merge into or consolidate with
it, or sell, transfer, lease or otherwise dispose of (in one transaction or in a series of
transactions) all or substantially all of its assets (other than Unrestricted Margin Stock), or all
or substantially all of the stock or assets related to its tax preparation business or liquidate or
dissolve, except (i) transfers in connection with the RAL Receivables Transaction and other
securitizations otherwise permitted hereby, (ii) sales and other transfers of mortgage loans
(and/or related rights and interests and servicing assets) and (iii) if at the time thereof and
immediately after giving effect thereto no Default shall have occurred and be continuing, (A) any
Material Subsidiary other than the Borrower may merge into a Credit Party in a transaction in which
the Credit Party is the surviving Person, (B) any wholly owned Material Subsidiary other than the
Borrower may merge into any other wholly owned Material Subsidiary in a transaction in which the
surviving entity is a wholly owned Subsidiary, (C) any Material Subsidiary other than the Borrower
may sell, transfer, lease or otherwise dispose of its assets to the Guarantor or to another
Material Subsidiary and (D) any Material Subsidiary other than the Borrower may liquidate or
dissolve if the Guarantor determines in good faith that such liquidation or dissolution is in the
best interests of the Guarantor and is not materially disadvantageous to the Lender;
provided that any such merger involving a Person that is not a wholly owned Subsidiary
immediately prior to such merger shall not be permitted unless also permitted by Section 6.5.
(b) Except as set forth on Schedule 6.4(b), the Credit Parties will not, and will not permit
any Material Subsidiary to, engage to any material extent in any business other than businesses of
the type conducted by the Credit Parties and the Subsidiaries on August 10, 2005 and businesses
reasonably related thereto.
SECTION 6.5. Transactions with Affiliates. Each Credit Party
will not, and will not permit any Subsidiary to, sell, lease or otherwise
transfer any property or assets to, or purchase, lease or otherwise acquire any property or assets
from, or otherwise engage in any other transactions with, any of its Affiliates, except (a) in the
ordinary course of business at prices and on terms and conditions not less favorable to such Credit
Party or such Subsidiary than could be obtained on an arms-length basis from unrelated third
parties, (b) transactions between or among the Guarantor and/or its Subsidiaries not involving any
other Affiliate, and (c) transactions involving the transfer of mortgage loans and other assets for
cash and other consideration of not less than the sum of (i) the lesser of (x) the fair market
value of such mortgage loans and (y) the outstanding principal amount of such mortgage loans, and
(ii) the fair market value of such other assets, to a Subsidiary of the
Borrower that issues Indebtedness permitted by Section 6.2(s); provided, that this Section 6.5
shall not apply to any transactions with Sand Canyon Corporation.
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SECTION 6.6. Restrictive Agreements. The Credit Parties will not, and will not permit any Subsidiary to, directly or indirectly,
enter into, incur or permit to exist any agreement or other arrangement that by its terms
prohibits, restricts or imposes any condition upon (a) the ability of any Credit Party or any
Subsidiary to create, incur or permit to exist any Lien upon any of its material property or assets
(unless such agreement or arrangement does not prohibit, restrict or impose any condition upon the
ability of either Credit Party or any Subsidiary to create, incur or permit to exist any Lien in
favor of the Lender created under the Loan Documents), or (b) the ability of any Subsidiary to pay
dividends or other distributions with respect to any shares of its capital stock or to make or
repay loans or advances to the Guarantor or any other Subsidiary or to Guarantee Indebtedness of
the Guarantor or any other Subsidiary; provided that (i) the foregoing shall not apply to
restrictions and conditions imposed by law or by this Agreement, (ii) the foregoing shall not apply
to restrictions and conditions existing on the date hereof identified on Schedule 6.6 (but shall
apply to any extension, renewal, amendment or modification expanding the scope of any such
restriction or condition), (iii) the foregoing shall not apply to customary restrictions and
conditions contained in agreements relating to the sale of a Subsidiary pending such sale, provided
such restrictions and conditions apply only to the Subsidiary that is to be sold and such sale is
permitted hereunder, (iv) the foregoing shall not apply to customary restrictions and conditions
contained in agreements relating to the securitization, financing or other transfer of mortgage
loans (and/or related rights and interests and servicing assets) owned by the Borrower or any of
its Subsidiaries, (v) clause (a) of the foregoing shall not apply to restrictions or conditions
imposed by any agreement relating to secured obligations permitted by this Agreement (including
obligations secured by Liens permitted by Section 6.3(j)) if such restrictions or conditions apply
only to the property or assets securing such obligations, (vi) clause (a) of the foregoing shall
not apply to customary provisions in leases and other contracts restricting the assignment thereof
and (vii) clause (a) of the foregoing shall not apply to restrictions or conditions imposed by any
agreement relating to Indebtedness permitted hereunder pursuant to subsection 6.2(m) or the RAL
Receivables Transaction.
ARTICLE VII
GUARANTEE
SECTION 7.1. Guarantee. (a) The Guarantor
hereby unconditionally and irrevocably guarantees to the Lender and its
successors, indorsees, transferees and assigns, the prompt and complete payment and performance by
the Borrower when due (whether at the stated maturity, by acceleration or otherwise) of the
Obligations.
(b) The Guarantor further agrees to pay any and all expenses (including all fees and
disbursements of counsel) which may be paid or incurred by the Lender in enforcing, or obtaining
advice of counsel in respect of, any rights with respect to, or collecting, any or all of the
Obligations and/or enforcing any rights with respect to, or collecting against, the Guarantor
under this Article. This Article shall remain in full force and effect until the Obligations and
the obligations of the Guarantor under the guarantee contained in this Article shall have been
satisfied by payment in full and the Commitment shall be terminated,
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notwithstanding that from
time to time prior thereto the Borrower may be free from any Obligations.
(c) No payment or payments made by any Credit Party, any other guarantor or any other Person
or received or collected by the Lender from any collateral security or Credit Party or any other
Person by virtue of any action or proceeding or any set-off or appropriation or application, at
any time or from time to time, in reduction of or in payment of the Obligations shall be deemed to
modify, reduce, release or otherwise affect the liability of the Guarantor hereunder which shall,
notwithstanding any such payment or payments, remain liable hereunder for the Obligations until
the Obligations are paid in full and the Commitment is terminated.
(d) The Guarantor agrees that whenever, at any time or from time to time, it shall make any
payment to the Lender on account of its liability hereunder, it will notify the Lender in writing
that such payment is made under this Article for such purpose.
SECTION 7.2. Delay of Subrogation. Notwithstanding any
payment or payments made by the Guarantor hereunder, or any set-off or
application of funds of the Guarantor by the Lender, the Guarantor shall not be entitled to be
subrogated to any of the rights of the Lender against the Borrower or against any collateral
security or guarantee or right of offset held by the Lender for the payment of the Obligations, nor
shall the Guarantor seek or be entitled to seek any contribution or reimbursement from the Borrower
in respect of payments made by the Guarantor hereunder, until all amounts owing to the Lender by
the Borrower on account of the Obligations are paid in full and the Commitment is terminated. If
any amount shall be paid to the Guarantor on account of such subrogation rights at any time when
all of the Obligations shall not have been paid in full, such amount shall be held by the Guarantor
in trust for the Lender, segregated from other funds of the Guarantor, and shall, forthwith upon
receipt by the Guarantor, be turned over to the Lender in the exact form received by the Guarantor
(duly indorsed by the Guarantor to the Lender, if required) to be applied against the Obligations,
whether matured or unmatured, in such order as the Lender may determine. The provisions of this
Section shall be effective notwithstanding the termination of this Agreement and the payment in
full of the Obligations and the termination of the Commitment.
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SECTION 7.3. Amendments, etc. with respect to the Obligations; Waiver of Rights. The Guarantor
shall remain obligated hereunder notwithstanding that, without any
reservation of rights against the Guarantor, and without notice to or further assent by the
Guarantor, any demand for payment of any of the Obligations made by the Lender may be
rescinded by the Lender, and any of the Obligations continued, and the Obligations, or the
liability of any other party upon or for any part thereof, or any collateral security or guarantee
therefor or right of offset with respect thereto, may, from time to time, in whole or in part, be
renewed, extended, amended, modified, accelerated, compromised, waived, surrendered or released by
the Lender, and this Agreement and any other documents executed and delivered in connection
herewith may be amended, modified, supplemented or terminated, in whole or in part, in accordance
with the provisions hereof as the Lender may deem advisable from time to time, and any collateral
security, guarantee or right of offset at any time held by the Lender for the payment of the
Obligations may be sold, exchanged, waived, surrendered or released. The Lender shall not have any
obligation to protect, secure, perfect or insure any Lien at any time held by it as security for
the Obligations or for this Agreement or any property subject thereto. When making any demand
hereunder against the Guarantor, the Lender may, but shall be under no obligation to, make a
similar demand on the Borrower or any other guarantor, and any failure by the Lender to make any
such demand or to collect any payments from the Borrower or any such other guarantor or any release
of the Borrower or such other guarantor shall not relieve the Guarantor of its obligations or
liabilities hereunder, and shall not impair or affect the rights and remedies, express or implied,
or as a matter of law, of the Lender against the Guarantor. For the purposes hereof demand shall
include the commencement and continuance of any legal proceedings.
SECTION 7.4. Guarantee Absolute and Unconditional. The Guarantor
waives any and all notice of the creation, renewal, extension or accrual of
any of the Obligations and notice of or proof of reliance by the Lender upon this Agreement or
acceptance of this Agreement; the Obligations, and any of them, shall conclusively be deemed to
have been created, contracted or incurred, or renewed, extended, amended or waived, in reliance
upon this Agreement; and all dealings between the Borrower and the Guarantor, on the one hand, and
the Lender, on the other, shall likewise be conclusively presumed to have been had or consummated
in reliance upon this Agreement. The Guarantor waives diligence, presentment, protest, demand for
payment and notice of default or nonpayment to or upon the Borrower and the Guarantor with respect
to the Obligations. This Article shall be construed as a continuing, absolute and unconditional
guarantee of payment without regard to (a) the validity, regularity or enforceability of this
Agreement, any other documents executed and delivered in connection herewith, any of the
Obligations or any other collateral security therefor or guarantee or right of offset with respect
thereto at any time or from time to time held by the Lender, (b) any defense, set-off or
counterclaim (other than a defense of payment or performance) which may at any time be available to
or be asserted by the Guarantor against the Lender, or (c) any other circumstance whatsoever (with
or without notice to or knowledge of the Borrower or the Guarantor) which constitutes, or might be
construed to constitute, an equitable or legal discharge of the Borrower for the Obligations, or of
the Guarantor under this Article, in bankruptcy or in any other instance. When pursuing its rights
and remedies hereunder against the Guarantor, the Lender may, but shall be under no obligation to,
pursue such rights and remedies as it may have against the Borrower or any other Person or against
any collateral security or guarantee for the Obligations
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or any right of offset with respect
thereto, and any failure by the Lender to pursue such other rights or remedies or to collect any
payments from the
Borrower or any such other Person or to realize upon any such collateral security or guarantee
or to exercise any such right of offset, or any release of the Borrower or any such other Person or
of any such collateral security, guarantee or right of offset, shall not relieve the Guarantor of
any liability hereunder, and shall not impair or affect the rights and remedies, whether express,
implied or available as a matter of law, of the Lender against the Guarantor. This Article shall
remain in full force and effect and be binding in accordance with and to the extent of its terms
upon the Guarantor and its successors and assigns, and shall inure to the benefit of the Lender and
its successors, indorsees, transferees and assigns, until all the Obligations and the obligations
of the Guarantor under this Agreement shall have been satisfied by payment in full and the
Commitment shall be terminated, notwithstanding that from time to time during the term of this
Agreement the Borrower may be free from any Obligations.
SECTION 7.5. Reinstatement. This Article
shall continue to be effective, or be reinstated, as the case may be, if at
any time payment, or any part thereof, of any of the Obligations is rescinded or must otherwise be
restored or returned by the Lender upon the insolvency, bankruptcy, dissolution, liquidation or
reorganization of any Credit Party or upon or as a result of the appointment of a receiver,
intervenor or conservator of, or trustee or similar officer for, any Credit Party or any
substantial part of its property, or otherwise, all as though such payments had not been made.
SECTION 7.6. Payments. The Guarantor
hereby agrees that all payments required to be made by it hereunder will be
made to the Lender without set-off or counterclaim in accordance with the terms of the Obligations,
including in the currency in which payment is due.
ARTICLE VIII
EVENTS OF DEFAULT
If any of the following events (Events of Default) shall occur:
(a) the Borrower shall fail to pay any principal of any Loan when and as the same shall
become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof
or otherwise;
(b) the Borrower shall fail to pay any interest on any Loan or any other amount (other than
an amount referred to in clause (a) of this Article) payable under this Agreement, when and as the
same shall become due and payable, and such failure shall continue unremedied for a period of five
business days;
(c) any representation or warranty made or deemed made by any Credit Party (or any of its
officers) in or in connection with this Agreement or any amendment or modification hereof, or in
any report, certificate, financial statement or other document
39
furnished pursuant to or in connection with this Agreement or any amendment or modification
hereof, shall prove to have been incorrect in any material respect when made or deemed made;
(d) any Credit Party shall fail to observe or perform any covenant, condition or agreement
contained in Section 5.2, 5.3 (with respect to the Credit Parties existence), 5.8 or 5.9 or in
Article VI;
(e) any Credit Party shall fail to observe or perform any covenant, condition or agreement
contained in this Agreement (other than those specified in clause (a), (b) or (d) of this
Article), and such failure shall continue unremedied for a period of 30 days after notice thereof
from the Lender to the Borrower;
(f) any Credit Party or any Subsidiary shall fail to make any payment (whether of principal
or interest and regardless of amount) in respect of any Material Indebtedness, when and as the
same shall become due and payable (after expiration of any applicable grace or cure period);
(g) any event or condition occurs that results in any Material Indebtedness becoming due
prior to its scheduled maturity; provided that this clause (g) shall not apply to (i)
secured Indebtedness that becomes due as a result of the voluntary sale or transfer of the
property or assets securing such Indebtedness or (ii) any obligation under a Hedging Agreement
that becomes due as a result of a default by a party thereto other than a Credit Party or a
Subsidiary;
(h) an involuntary proceeding shall be commenced or an involuntary petition shall be filed
seeking (i) liquidation, reorganization or other relief in respect of any Credit Party or any
Material Subsidiary or its debts, or of a substantial part of its assets, under any Federal,
state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or
(ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar
official for any Credit Party or any Material Subsidiary or for a substantial part of its assets,
and, in any such case, such proceeding or petition shall continue undismissed for 60 days or an
order or decree approving or ordering any of the foregoing shall be entered;
(i) any Credit Party or any Material Subsidiary shall (i) voluntarily commence any proceeding
or file any petition seeking liquidation, reorganization or other relief under any Federal, state
or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii)
consent to the institution of, or fail to contest in a timely and appropriate manner, any
proceeding or petition described in clause (h) of this Article, (iii) apply for or consent to the
appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for
the Borrower or any Material Subsidiary or for a substantial part of its assets, (iv) file an
answer admitting the material allegations of a petition filed against it in any such proceeding,
(v) make a general assignment for the benefit of creditors or (vi) take any action for the purpose
of effecting any of the foregoing;
(j) any Credit Party or any Material Subsidiary shall become unable, admit in writing or fail
generally to pay its debts as they become due;
40
(k) one or more final judgments for the payment of money shall be rendered against the
Guarantor, the Borrower, any Subsidiary or any combination thereof and either (i) a creditor shall
have commenced enforcement proceedings upon any such judgment in an aggregate amount (to the
extent not covered by insurance as to which the relevant insurance company has not denied
coverage) in excess of $40,000,000 (a Material Judgment) or (ii) there shall be a period
of 30 consecutive days during which a stay of enforcement of any Material Judgment shall not be in
effect (by reason of pending appeal or otherwise) (it being understood that, notwithstanding the
definition of Default, no Default shall be triggered solely by the rendering of such a
judgment or judgments prior to the commencement of enforcement proceedings or the lapse of such 30
consecutive day period, so long as such judgments are capable of satisfaction by payment at any
time);
(l) an ERISA Event shall have occurred that, in the opinion of the Lender, when taken
together with all other ERISA Events that have occurred, would reasonably be expected to result in
a Material Adverse Effect;
(m) a Change in Control shall occur;
(n) the Guarantee contained in Article VII herein shall cease, for any reason, to be in full
force and effect in any material respect or any Credit Party shall so assert;
(o) the Security Agreement, the Control Agreement or the HSBC TFS Letter shall for any reason
cease to be valid and binding on or enforceable against any Credit Party that is party thereto; or
any Credit Party shall so state in writing or bring an action to limit its obligations or
liabilities thereunder;
(p) the Security Agreement shall for any reason (other than pursuant to the terms thereof)
cease to create a valid, perfected and first priority security interest in the Collateral purported
to be covered thereby;
(q) any representation or warranty made or deemed made by any Credit Party in the Security
Agreement, the Control Agreement or the HSBC TFS Letter shall prove to have been incorrect in any
material respect when made or deemed made; or
(r) any Credit Party shall fail to observe or perform any covenant or agreement (other than
as specified in clauses (o), (p) and (q) of this Article) contained in the Security Agreement, the
Control Agreement or the HSBC TFS Letter;
then, and in every such event (other than an event with respect to the Credit Parties described in
clause (h) or (i) of this Article), and at any time thereafter during the continuance of such
event, the Lender may, by notice to the Borrower, take either or both of the following actions, at
the same or different times: (i) terminate the Commitment, and thereupon the Commitment shall
terminate immediately, and (ii) declare the Loans then outstanding to be due and payable in whole
(or in part, in which case any principal not so declared to be due and payable may thereafter be
declared to be due and payable), and thereupon the principal of the Loans so declared to be due and
payable, together with accrued interest thereon and all fees and other
41
Obligations of the Credit Parties accrued hereunder, shall become due and payable immediately,
without presentment, demand, protest or other notice of any kind, all of which are hereby waived by
the Credit Parties; and in case of any event with respect to the Credit Parties described in clause
(h) or (i) of this Article, the Commitment shall automatically terminate and the principal of the
Loans then outstanding, together with accrued interest thereon and all fees and other Obligations
of the Credit Parties accrued hereunder, shall automatically become due and payable, without
presentment, demand, protest or other notice of any kind, all of which are hereby waived by the
Credit Parties.
ARTICLE IX
[RESERVED]
ARTICLE X
MISCELLANEOUS
SECTION 10.1. Notices. Except in the case of notices and other communications expressly permitted to be given by
telephone and except as otherwise provided in Sections 2.3, 2.6 and 2.8, all notices and other
communications provided for herein shall be in writing and shall be delivered by hand or overnight
courier service, mailed by certified or registered mail or sent by telecopy, as follows:
(a) if to the Borrower or the Guarantor, to it at One H&R Block Way, Kansas City, Missouri
64105, Attention of Becky Shulman (Telecopy No. (816) 854-8043), David Staley (Telecopy No. (816)
854-8043) and Andrew Somora (Telecopy No. (816) 802-1043); and
(b) if to the Lender, to it at HSBC Finance Corporation, 26525 N. Riverwoods Road, Mettawa,
Illinois 60070, attention: Treasurer, (Telecopy No.(224) 552-4408), with a copy to HSBC Finance
Corporation, 26525 N. Riverwoods Road, Mettawa, Illinois 60045, attention: Executive Vice
President, Deputy General Counsel and Corporate Secretary (Telecopy No.(224) 552 -2941), HSBC
Securities, Inc., 425 Fifth Avenue, Lower Level, New York, N.Y. 10018 (Telecopy No. (212)
525-2570), attention Jimmy Tse, HSBC Taxpayer Financial Services Inc., 200 Somerset Corporate
Boulevard, Bridgewater, N.J. 08807 (Telecopy No. (908) 203-4211, attention: EVP and President, and
HSBC Taxpayer Financial Services Inc., 90 Christiana Road, New Castle, DE 19707 (Telecopy No. (302)
327-2507, attention: General
Counsel); provided, that notices under Section 2.3 need only be given to Mr. Kyle Hartung at
telephone number (224) 544-4023, confirmed by telecopy at (224) 552-4023.
42
Any party hereto may change its address, telephone number or telecopy number for notices and other
communications hereunder by notice to the other parties hereto. All notices and other
communications given to any party hereto in accordance with the provisions of this Agreement shall
be deemed to have been given on the date of receipt. For so long as any Affiliate of the Lender is
a Lender under either of the Bank Revolvers, the Lender will accept delivery of any financial
statement or other information to be delivered under Section 5.1(a), (b) and(d) hereunder that is
posted to Intralinks. The Lender, the Borrower or the Guarantor may, in its discretion, agree to
accept notices and other communications to it hereunder by electronic communications pursuant to
procedures approved by it; provided that approval of such procedures may be limited to
particular notices or communications.
SECTION 10.2. Waivers; Amendments. (a) No failure
or delay by the Lender in exercising any right or power hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any such right or power,
or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other
or further exercise thereof or the exercise of any other right or power. The rights and remedies
of the Lender hereunder are cumulative and are not exclusive of any rights or remedies that they
would otherwise have. No waiver of any provision of this Agreement or consent to any departure by
the Credit Parties therefrom shall in any event be effective unless the same shall be permitted by
paragraph (b) of this Section, and then such waiver or consent shall be effective only in the
specific instance and for the purpose for which given. Without limiting the generality of the
foregoing, the making of a Loan shall not be construed as a waiver of any Default, regardless of
whether the Lender may have had notice or knowledge of such Default at the time.
(b) Neither this Agreement nor any provision hereof may be waived, amended or modified except
pursuant to an agreement or agreements in writing entered into by the Credit Parties and the
Lender.
SECTION 10.3. Expenses; Indemnity; Damage Waiver. (a) The
Borrower shall pay all reasonable and documented out-of-pocket expenses incurred by
the Lender, including the reasonable and documented fees, charges and disbursements of any counsel
for the Lender, in connection with the enforcement or protection of its rights in connection with
this Agreement, including its rights under this Section, or in connection with the Loans made
hereunder, including in connection with any workout, restructuring or negotiations in respect
thereof.
(b) The Credit Parties shall jointly and severally indemnify the Lender and each Related
Party of the Lender (each such Person being called an Indemnitee), against, and hold each
Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses,
including the fees, charges and disbursements of any counsel for any Indemnitee, incurred by or
asserted against any Indemnitee arising out of, in connection with, or as a result of the material
breach by any Credit Party of any representation, warranty, covenant or agreement in this
Agreement, the Security Agreement, the Control Agreement or the HSBC TFS Letter; provided
that such indemnity shall not be available to the extent that such losses, claims, damages,
liabilities or related expenses are determined by a court of competent jurisdiction by final and
nonappealable judgment to have resulted from the gross negligence or willful misconduct of any
Indemnitee or any of its Related Parties.
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(c) No party to this Agreement shall be liable for lost profits, incidental, consequential,
exemplary, special or punitive damages arising under or in connection with this Agreement, the
Pricing Letter, the Security Agreement, the Control Agreement or the HSBC TFS Letter, or the
transaction contemplated hereby or thereby.
SECTION 10.4. Successors and Assigns. (a) The
provisions of this Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns permitted hereby, except that no Credit
Party may assign or otherwise transfer any of its rights or obligations hereunder without the prior
written consent of the Lender (and any attempted assignment or transfer by any Credit Party without
such consent shall be null and void). Nothing in this Agreement, expressed or implied, shall be
construed to confer upon any Person (other than the parties hereto, their respective successors and
assigns permitted hereby and, to the extent expressly contemplated hereby, the Related Parties of
the Lender) any legal or equitable right, remedy or claim under or by reason of this Agreement.
(b) The Lender may assign to one or more assignees all or a portion of its rights under this
Agreement (including all or a portion of the Loans at the time owing to it); provided that
the Borrower must give its prior written consent to such assignment (which consent shall not be
unreasonably withheld); provided, further, that any consent of the Borrower
otherwise required under this paragraph shall not be required if an Event of Default has occurred
and is continuing. Any assignment or transfer by the Lender of rights under this Agreement that
does not comply with this paragraph shall be treated for purposes of this Agreement as a sale by
the Lender of a participation in such rights and obligations in accordance with paragraph (c) of
this Section.
(c) The Lender may, without the consent of any Credit Party, sell participations to one or
more banks or other entities (a Participant) in all or a portion of the Lenders rights
and obligations under this Agreement (including all or a portion of its Commitment and the Loans
owing to it); provided that (i) the Lenders obligations under this Agreement shall remain
unchanged, (ii) the Lender shall remain solely responsible to the other parties hereto for the
performance of the obligations and (iii) the Credit Parties shall continue to deal solely and
directly with the Lender in connection with the Lenders rights and obligations under this
Agreement. Any agreement or instrument pursuant to which the Lender sells such a participation
shall provide that the Lender shall retain the sole right to enforce this Agreement and to approve
any amendment, modification or waiver of any provision of this Agreement; provided that
such agreement or instrument may provide that such Lender will not,
without the consent of the Participant, agree to any amendment, modification or waiver of or
under this Agreement that shall (i) increase the Commitment, (ii) reduce the principal amount of
any Loan or reduce the rate of interest thereon, (iii) postpone the scheduled date of payment of
the principal amount of any Loan, or any interest thereon, or reduce the amount of, waive or
excuse any such payment, or postpone the scheduled date of expiration or reduction of the
Commitment, (iv) release any security provided for in the Security Agreement, (v) release the
guarantee contained in Article VII or (vi) change any of the provisions of this Section. Subject
to paragraph (d) of this Section, the Borrower agrees that each Participant shall be entitled to
44
the benefits of Sections 2.9 and 2.10 to the same extent as if it were a Lender and had acquired
its interest by assignment pursuant to paragraph (b) of this Section.
(d) A Participant shall not be entitled to receive any greater payment under Section 2.9 or
2.10 than the Lender would have been entitled to receive with respect to the participation sold to
such Participant, unless the sale of the participation to such Participant is made with the
Borrowers prior written consent.
(e) The Lender may at any time pledge or assign a security interest in all or any portion of
its rights under this Agreement to secure obligations of the Lender, including any such pledge or
assignment to a Federal Reserve Bank, and this Section shall not apply to any such pledge or
assignment of a security interest; provided that no such pledge or assignment of a
security interest shall release the Lender from any of its obligations hereunder or substitute any
such assignee for the Lender as a party hereto.
SECTION 10.5. Survival. All covenants,
agreements, representations and warranties made by the Credit Parties herein
and in the certificates or other instruments delivered in connection with or pursuant to this
Agreement shall be considered to have been relied upon by the other parties hereto and shall
survive the execution and delivery of this Agreement and the making of any Loans regardless of any
investigation made by any such other party or on its behalf and notwithstanding that the Lender may
have had notice or knowledge of any Default or incorrect representation or warranty at the time any
credit is extended hereunder, and shall continue in full force and effect as long as the principal
of or any accrued interest on any Loan or any other amount payable under this Agreement is
outstanding and unpaid and so long as the Commitment has not expired or terminated. The provisions
of Sections 2.9, 2.10, 10.3, 10.9, 10.10 and 10.l5 shall survive and remain in full force and
effect regardless of the consummation of the transactions contemplated hereby, the repayment of the
Loans, the expiration or termination of the Commitment or the termination of this Agreement or any
provision hereof.
SECTION 10.6. Counterparts; Integration; Effectiveness. This Agreement
may be executed in counterparts (and by different parties hereto on
different counterparts), each of which shall constitute an original, but all of which when taken
together shall constitute a single contract. This Agreement and the documents provided for herein
constitute the entire contract among the parties relating to the subject matter hereof and
supersede any and all previous agreements and understandings, oral or written, relating to the
subject matter hereof. Except as provided in Section 4.1, this Agreement shall
become effective when it shall have been executed by the Lender and when the Lender shall have
received counterparts hereof which, when taken together, bear the signatures of each of the other
parties hereto, and thereafter shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns. Delivery of an executed counterpart of a signature
page of this Agreement by telecopy shall be effective as delivery of a manually executed
counterpart of this Agreement.
SECTION 10.7. Severability. Any provision
of this Agreement held to be invalid, illegal or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity,
illegality or unenforceability without affecting the validity, legality
45
and enforceability of the
remaining provisions hereof; and the invalidity of a particular provision in a particular
jurisdiction shall not invalidate such provision in any other jurisdiction.
SECTION 10.8. Right of Setoff. If an Event of
Default shall have occurred and be continuing, the Lender is hereby
authorized at any time and from time to time, to the fullest extent permitted by law, to set off
and apply any and all indebtedness at any time owing by the Lender to or for the credit or the
account of either Credit Party against any of and all the obligations of such Credit Party now or
hereafter existing under this Agreement held by the Lender, irrespective of whether or not the
Lender shall have made any demand under this Agreement and although such obligations may be
unmatured. The rights of the Lender under this Section are in addition to other rights and
remedies (including other rights of setoff) which such Lender may have.
SECTION 10.9. Governing Law; Jurisdiction; Consent to Service of Process. (a) This Agreement
shall be construed in accordance with and governed by the law of the
State of New York.
(b) Each Credit Party hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of the Supreme Court of the State of New York sitting
in New York County and of the United States District Court of the Southern District of New York,
and any appellate court from any thereof, in connection with any Proceeding, and each of the
parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any
Proceeding may be heard and determined in such New York State or, to the extent permitted by law,
in such Federal court. Each of the parties hereto agrees that a final judgment in any such
Proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment
or in any other manner provided by law. Nothing in this Agreement shall affect any right that the
Lender may otherwise have to bring any Proceeding relating to this Agreement against any Credit
Party or its properties in the courts of any jurisdiction.
(c) Each Credit Party hereby irrevocably and unconditionally waives, to the fullest extent it
may legally and effectively do so, any objection which it may now or hereafter have to the laying
of venue of any Proceeding arising out of or relating to this Agreement in
any court referred to in paragraph (b) of this Section. Each of the parties hereto hereby
irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum
to the maintenance of such Proceeding in any such court.
(d) Each party to this Agreement irrevocably consents to service of process in the manner
provided for notices in Section 10.1 in connection with a Proceeding. Nothing in this Agreement
will affect the right of any party to this Agreement to serve process in any other manner
permitted by law in connection with a Proceeding.
SECTION 10.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO
HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY
RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON
46
CONTRACT,
TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT
AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS,
THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
SECTION 10.11. Headings. Article and Section headings and the Table of Contents used herein are for convenience of
reference only, are not part of this Agreement and shall not affect the construction of, or be
taken into consideration in interpreting, this Agreement.
SECTION 10.12. Confidentiality. The Lender agrees to maintain
the confidentiality of the Information (as defined below),
except that Information may be disclosed (a) to its and its Affiliates directors, officers,
employees and agents, including accountants, legal counsel and other advisors (it being understood
that the Persons to whom such disclosure is made will be informed of the confidential nature of
such Information and instructed to keep such Information confidential), (b) to the extent requested
by any regulatory authority, (c) to the extent required by applicable laws or regulations or by
any subpoena or similar legal process, (d) to any other party to this Agreement, (e) in connection
with the exercise of any remedies hereunder or any suit, action or proceeding relating to this
Agreement or the enforcement of rights hereunder, (f) subject to an agreement containing provisions
substantially the same as those of this Section, to any assignee of or Participant in, or any
prospective assignee of or Participant in, any of its rights or obligations under this Agreement,
(g) with the consent of the Borrower or (h) to the extent such Information (i) becomes publicly
available other than as a result of a breach of this Section by it or (ii) becomes available to the
Lender on a nonconfidential basis from a source other than any Credit Party; provided, that the
Lender may file this Agreement with the Securities and
Exchange Commission. For the purposes of this Section, Information means all
information received from any Credit Party relating to any Credit Party or its business, other than
any such information that is available to the Lender on a nonconfidential basis prior to disclosure
by such Credit Party; provided that, in the case of information received from any Credit
Party after the date hereof, such information is clearly identified at the time of delivery as
confidential. The Lender shall be considered to have complied with its obligation under this
Section if it has exercised the same degree of care to maintain the confidentiality of such
Information as it would accord to its own confidential information.
SECTION 10.13. Interest Rate Limitation. Notwithstanding anything
herein to the contrary, if at any time the interest rate
applicable to any Loan, together with all fees, charges and other amounts which are treated as
interest on such Loan under applicable law (collectively the Charges), shall exceed the
maximum lawful rate (the Maximum Rate) which may be contracted for, charged, taken,
received or reserved by the Lender holding such Loan in accordance with applicable law, the rate of
interest payable in respect of such Loan hereunder, together with all Charges payable in respect
thereof, shall be limited to the Maximum Rate and, to the extent lawful, the interest and Charges
that would have been payable in respect of such Loan but were not payable as a result of the
operation of this Section shall be cumulated and the
47
interest and Charges payable to the Lender in
respect of other Loans or periods shall be increased (but not above the Maximum Rate therefor)
until such cumulated amount, together with interest thereon at the Federal Funds Effective Rate to
the date of repayment, shall have been received by the Lender.
SECTION 10.14. USA Patriot Act.
The Lender hereby notifies the Borrower that pursuant to the requirements of the USA Patriot
Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the Act), it is
required to obtain, verify and record information that identifies the Borrower, which information
includes the name and address of the Borrower and other information that will allow the Lender to
identify the Borrower in accordance with the Act.
[THIS SPACE LEFT BLANK INTENTIONALLY]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their
respective authorized officers as of the day and year first above written.
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BLOCK FINANCIAL LLC, as Borrower
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By: |
/s/ Becky S. Shulman
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Name: |
Becky S. Shulman |
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Title: |
Senior Vice President and Treasurer |
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H&R BLOCK, INC., as Guarantor
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By: |
/s/ Becky S. Shulman
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Name: |
Becky S. Shulman |
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Title: |
Senior Vice President and Treasurer |
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2
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HSBC FINANCE CORPORATION, as Lender
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By: |
/s/ William H. Kesler
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Name: |
William H. Kesler |
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Title: |
Executive Vice President and Treasurer |
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SCHEDULE 3.4(a)
Guarantee Obligations
None.
SCHEDULE 3.6
Disclosed Matters
None.
SCHEDULE 3.13
Subsidiaries
The following is a list of the direct and indirect subsidiaries of H&R Block, Inc., a
Missouri corporation.
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Domestic |
Company Name |
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Jurisdiction |
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Aculink Mortgage Solutions, LLC
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Florida |
AcuLink of Alabama, LLC
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Alabama |
Ada Services Corporation
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Massachusetts |
BFC Transactions, Inc.
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Delaware |
Birchtree Financial Services, Inc.
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Oklahoma |
Birchtree Insurance Agency, Inc.
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Missouri |
Block Financial LLC
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Delaware |
Burr Oak Technical Solutions, Inc.
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Delaware |
CFS-McGladrey, LLC
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Massachusetts |
Cfstaffing, Ltd.
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British Columbia |
Cityfront, Inc.
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Delaware |
Companion Insurance, Ltd.
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Bermuda |
Companion Mortgage Corporation
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Delaware |
Creative Financial Staffing of Western Washington, LLC
|
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Massachusetts |
EquiCo, Inc.
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California |
Express Tax Service, Inc.
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|
Delaware |
Financial Marketing Services, Inc.
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Michigan |
Financial Stop Inc.
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British Columbia |
FM Business Services, Inc.
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Delaware |
Franchise Partner, Inc.
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Nevada |
H&R Block (India) Private Limited
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India |
H&R Block (Nova Scotia), Incorporated
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Nova Scotia |
H&R Block Bank
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Missouri |
H&R Block Canada Financial Services, Inc.
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Federally Chartered |
H&R Block Canada, Inc.
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Federally Chartered |
H&R Block Eastern Enterprises, Inc.
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Missouri |
H&R Block Enterprises LLC
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Missouri |
H&R Block Global Solutions (Hong Kong) Limited
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Hong Kong |
H&R Block Group, Inc.
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Delaware |
H&R Block Insurance Agency, Inc.
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Delaware |
H&R Block Limited
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New South Wales |
H&R Block Management, LLC
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Delaware |
H&R Block Tax and Business Services, Inc.
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Delaware |
H&R Block Tax Institute, LLC
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Missouri |
H&R Block Tax Services LLC
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Missouri |
H&R Block, Inc.
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Missouri |
HRB Advance LLC
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Delaware |
HRB Center LLC
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Missouri |
HRB Concepts LLC
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Delaware |
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|
Domestic |
Company Name |
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Jurisdiction |
HRB Corporate Enterprises LLC
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Delaware |
HRB Corporate Services LLC
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Missouri |
HRB Digital LLC
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Delaware |
HRB Digital Technology Resources LLC
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Delaware |
HRB Expertise LLC
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Missouri |
HRB Innovations, Inc.
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Delaware |
HRB International LLC
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Missouri |
HRB Products LLC
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Missouri |
HRB Professional LLC
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Delaware |
HRB Progression LLC
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Delaware |
HRB Support Services LLC
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Delaware |
HRB Tax & Technology Leadership LLC
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Missouri |
HRB Tax Group, Inc.
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Missouri |
HRB Technology Holding LLC
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Delaware |
HRB Technology LLC
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Missouri |
McGladrey Capital Markets Canada Inc.
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Federally Chartered |
McGladrey Capital Markets Europe Limited
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United Kingdom |
McGladrey Capital Markets LLC
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Delaware |
OOMC Holdings LLC
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Delaware |
OOMC Residual Corporation
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New York |
ORourke Career Connections, LLC
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California |
Pension Resources, Inc.
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Illinois |
Provident Mortgage Services, Inc.
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Delaware |
RedGear Technologies, Inc.
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Missouri |
RSM (Bahamas) Global, Ltd.
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The Bahamas |
RSM Employer Services Agency of Florida, Inc.
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Florida |
RSM Employer Services Agency, Inc.
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Georgia |
RSM EquiCo, Inc.
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Delaware |
RSM McGladrey Business Services, Inc.
|
|
Delaware |
RSM McGladrey Business Solutions, Inc.
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|
Delaware |
RSM McGladrey Employer Services, Inc.
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Georgia |
RSM McGladrey Insurance Services, Inc.
|
|
Delaware |
RSM McGladrey TBS, LLC
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|
Delaware |
RSM McGladrey, Inc.
|
|
Delaware |
Sand Canyon Acceptance Corporation
|
|
Delaware |
Sand Canyon Corporation
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California |
Sand Canyon Securities Corp.
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Delaware |
Sand Canyon Securities II Corp.
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Delaware |
Sand Canyon Securities III Corp.
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|
Delaware |
Sand Canyon Securities IV LLC
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|
Delaware |
ServiceWorks, Inc.
|
|
Delaware |
TaxNet Inc.
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California |
TaxWorks, Inc.
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Delaware |
Vantive Partners LLC
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Missouri |
West Estate Investors, LLC
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Missouri |
Woodbridge Mortgage Acceptance Corporation
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Delaware |
SCHEDULE 6.2
Existing Indebtedness
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Irrevocable Standby Letter of Credit issued on February 16, 2005 by KeyBank National
Association in favor of Chubb National Company for an amount up to $3,500,000. |
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Irrevocable Standby Letter of Credit issued on December 30, 2008 by U.S. Bank N.A. in
favor of Old Republic Insurance Company for an amount up to $2,692,024. |
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Irrevocable Standby Letter of Credit issued on October 23, 2007 by Comerica Bank N.A. in
favor of Axis Insurance Company for an amount up to $500,000. |
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Irrevocable Standby Letter of Credit assumed by RSM McGladrey, Inc. on June 1, 2007 and
issued by U.S. Bank N.A. in favor of OOC Owner, LLC for an amount up to $75,000. |
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The Guarantors and Subsidiaries obligations under surety bonds and fidelity bonds
issued pursuant to state mortgage licensing requirements. |
SCHEDULE 6.3
Existing Liens
None.
SCHEDULE 6.4(b)
ADDITIONAL BUSINESSES
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Businesses that offer products and services typically provided by finance companies,
banks and other financial service providers, including consumer finance and mortgage-loan
related products and services, credit products, insurance products, check cashing, money
orders, wire transfers, stored value cards, bill payment services, notary services and
similar products and services. |
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Businesses that offer financial, or financial-related, products and services that can be
marketed, provided or distributed by leveraging the retail locations of Guarantors
Subsidiaries or the relationships of such Subsidiaries with their clients as a tax return
preparer or financial advisor or service provider. |
SCHEDULE 6.6
Existing Restrictions
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Indenture dated as of October 20, 1997, by and between the Credit Parties and Bankers
Trust Company, as trustee (the October 20, 1997 Indenture). |
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Any other Indenture entered into by any Credit Party to the extent that (a) the
Indebtedness thereunder is permitted by Section 6.2(d) of this Agreement and (b) such other
Indenture has substantially similar terms to the October 20, 1997 Indenture. |
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Repurchase Agreements of the type referred to in Section 6.2(i) of this Agreement. |
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Certain Subsidiaries must maintain capital requirements which could impair their ability
to pay dividends or other distributions. |
EXHIBIT A
[FORM OF SECURITY AGREEMENT]
SECURITY AGREEMENT
SECURITY AGREEMENT dated as of January 14, 2009 between BLOCK FINANCIAL LLC
(Debtor), a Delaware limited liability company, and HSBC FINANCE CORPORATION
(Secured Party), a Delaware corporation.
WHEREAS, Debtor, Secured Party and H&R Block, Inc. have entered into a Credit and Guarantee
Agreement dated as of January 14, 2009 (as amended, restated or otherwise modified and in effect
from time to time, the Credit Agreement) pursuant to which Secured Party has agreed,
subject to the terms and conditions thereof, to make loans to Debtor from time to time.
WHEREAS, Secured Party has required, as a condition to its making loans under the Credit
Agreement, that Debtor execute and deliver this Agreement.
NOW, THEREFORE, in consideration of the premises and to induce Secured Party to make loans to
Debtor under the Credit Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Definitions. Capitalized terms used herein without definition are used herein as
defined in the Credit Agreement. In addition, the following terms shall have the following
meanings:
Additional Collateral Amount means, at any time there is a Collateral Deficiency,
the amount by which the Required Collateral Amount exceeds the fair market value of the Securities
Account, as determined by the Securities Intermediary or the Transfer Agent or another service
provider.
BFC Program Contracts means, collectively, the Indemnification Agreement, the
Participation Agreement and the Servicing Agreement.
Collateral is defined in Section 2 hereof.
Collateral Deficiency means at any time that the fair market value of the Collateral
held in the Securities Account, as determined by the Securities Intermediary or the Transfer Agent
or another service provider, shall be less than the Required Collateral Amount.
Contract Obligor means any Person that is obligated to Debtor under a BFC Program
Contract.
Control Agreement means the Investment Account Control Agreement between Debtor,
Secured Party and the Securities Intermediary with respect to the Securities Account, in
substantially the form of Exhibit B to the Credit Agreement.
Direct Pay Provisions means the provisions of paragraph 2 of the HSBC TFS
Letter.
HSBC RAL means HSBC RAL as such term is defined in the Appendix of Defined Terms
and Rules of Construction attached as Appendix A to Retail Settlement Products Distribution
Agreement.
HSBC TFS means HSBC Taxpayer Financial Services, Inc., a Delaware corporation.
HSBC TFS Letter means a letter agreement between Debtor, HSBC TFS and Secured Party
in substantially the form of Exhibit C to the Credit Agreement.
Indemnification Agreement means the HSBC Settlement Products Indemnification
Agreement dated as of September 23, 2005 among HSBC Bank USA, National Association, HSBC TFS,
Household Tax Masters Acquisition Corporation, Beneficial Franchise Company Inc., H&R Block
Services, Inc., H&R Block Tax Services, Inc., H&R Block Enterprises, Inc., H&R Block Eastern
Enterprises, Inc., HRB Digital LLC (successor by merger to H&R Block Digital Tax Solutions, LLC),
H&R Block and Associates, L.P. (now dissolved), HRB Innovations Inc. (formerly known as HRB
Royalty, Inc.) and Debtor, as amended by the Joinder and First Amendment to Program Contracts dated
as of November 10, 2006, the Second Amendment to Program Contracts dated as of November 13, 2006,
and the Third Amendment to Program Contracts dated as of December 5, 2008, and as further amended
from time to time, and any restatement, extension, renewal and replacement thereof.
Participation Agreement means the First Amended and Restated HSBC Refund
Anticipation Loan and IMA Participation Agreement, dated as of November 13, 2006, as amended from
time to time, and any restatement, extension, renewal and replacement thereof, by and among the
Borrower, the HSBC Bank USA, National Association, HSBC TFS and HSBC Trust Company (Delaware),
National Association.
Participation Interest means a Participation Interest under and as defined in the
Credit Agreement.
Required Collateral Amount means at any time the greater of (i) $60,000,000 and (ii)
the remainder of the (X) the Delinquent RAL Amount less (Y) the sum of (I) the Prepayment Amount
and (II) the BFC Purchase Amount. For purposes of this definition, the Delinquent RAL Amount
means at any time the quotient of (a) the amount determined in good faith by the Secured Party (or
HSBC TFS on its behalf) to be the excess of (A) its forecast of the amount of delinquent HSBC RALs
originated in 2009 as of December 31, 2009 (without consideration of any subsequent recoveries)
over (B) $54,040,000, divided by (b) .89, which quotient shall be multiplied by .49999999; the
Prepayment Amount means at any time the aggregate amount of
voluntary prepayments made by the Debtor at or prior to such time under Section 2.6(a)(i) of the Credit Agreement; and the BFC
Purchase Amount means at any time the aggregate amount of the Participation Interests purchased by
the Debtor at or prior to such time and not financed by the Secured Party by virtue of the Debtors giving notice under Section 2.3 of the Credit
Agreement that it does not wish to borrow all or some of a Loan as provided therein. The Secured
Party (or HSBC TFS on its behalf), acting in good faith, may compute the Required Collateral
Amount from time to time in its discretion, and any such computation of the Required Collateral
Amount shall be based on the Secured Partys (or HSBC TFSs) statistical and reasonable judgmental
forecast and models and methods in accordance with its practices and policies then in effect and
shall be conclusive and binding in the absence of manifest error. The Secured Partys (or HSBC
TFSs) forecast of the amount of delinquent HSBC RALs originated in 2009 as of December 31, 2009
(without consideration of any subsequent recoveries) as of the date of this Agreement is
$54,039,461. Notwithstanding the foregoing, for purposes of this definition of Required
Collateral Amount and related provisions of this Agreement, the Secured Party may rely on
determinations, computations and forecasts made by HSBC TFS as to the amount of HSBC RALs.
Securities Account means account number 615878 maintained by Debtor with the
Securities Intermediary, all cash balances, securities, instruments, financial assets and
investment property at any time and from time to time credited to, received or receivable in
respect of such account, and all securities entitlements and claims thereunder or in connection
therewith.
Securities Intermediary means HSBC Investor Funds.
Servicing Agreement means the First Amended and Restated HSBC Settlement Products
Servicing Agreement dated as of November 13, 2006 , as amended from time to time, and any
restatement, extension, renewal and replacement thereof, among HSBC Bank USA, National Association,
HSBC TFS, HSBC Trust Company (Delaware), N.A., and Debtor.
Transfer Agent has the meaning specified in the Control Agreement.
Uniform Commercial Code means the Uniform Commercial Code as in effect from time to
time in the State of New York; provided, however, if, by reason of mandatory provisions of law, the
attachment, perfection or priority of Secured Partys security interest in any Collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of New
York, the term Uniform Commercial Code shall mean the Uniform Commercial Code as in effect in
such other jurisdiction for purposes of the provisions hereof relating to such attachment,
perfection or priority and for purposes of definitions related to such provisions.
The terms control, entitlement holder, entitlement order,
financial asset, instrument, investment property,
proceeds, security, security entitlement, securities
intermediary and supporting obligation shall have the respective meanings set forth
in the Uniform Commercial Code.
2. Security Interest. As collateral security for the prompt payment in full when due
(whether at stated maturity, by acceleration or otherwise) of the Obligations, Debtor hereby
assigns and pledges to Secured Party and grants to Secured Party a security interest in and to all of Debtors right, title and interest in the following property and interests in property,
whether now owned or hereafter acquired by Debtor and wherever located (collectively, the
Collateral):
(a) the BFC Program Contracts, including (without limitation) the Participation
Interests purchased by Debtor under the Participation Agreement, all rights of Debtor
related to the HSBC RALs to which such Participation Interests relate, and all monies due
and to become due in respect thereof; provided, that the security interest created hereby
shall not extend to the rights reserved to Debtor pursuant to the proviso in Section 3
hereof;
(b) the Securities Account (including without limitation any Additional Collateral
Amount deposited therein pursuant to Section 5(d) hereof); and
(c) all proceeds, supporting obligations, income, benefits, substitutions, additions
and replacements of and to any of the property described in this Section 2
including, without limitation, all rights, claims and benefits against any Contract Obligor
or other Person obligated on any Collateral, and all related books, correspondence, files,
records, invoices and other papers, including, without limitation, all computer runs,
programs and files.
3. Certain Rights of Debtor. Notwithstanding any other term or provision of this
Agreement, as long as no Event of Default has occurred, Debtor may exercise all of its rights under
the BFC Program Contracts, other than the following, which Debtor may not exercise: (a) the right
to receive payments from HSBC TFS under the Direct Pay Provisions of the amounts to be transferred
by HSBC TFS to Secured Party thereunder, (b) the right to sell, assign, pledge or grant a security
interest in or Lien on the Collateral and (c) its right to modify, amend or waive its rights under
the BFC Program Contracts that would affect in any way the Participation Interests that have been
financed by Secured Party pursuant to the Credit Agreement, provided, further, that
even after an Event of Default has occurred and is continuing under the Credit Agreement, Debtor
will have the right, on a prospective basis, (i) under Section 4.1 of the Participation Agreement,
to participate or not participate in subsequently originated HSBC RALs and to change the Applicable
Percentage (as defined in the Participation Agreement) with respect thereto, (ii) under Section 4.4
of the Participation Agreement, to elect not to purchase a participation interest in certain groups
of subsequently originated HSBC RALs; and (iii) under Section 4.8 of the Participation Agreement to
sell, assign or transfer its right to purchase participation interests on subsequently originated
HSBC RALs that are not financed by Secured Party.
4. Representations and Warranties of Debtor. Debtor represents and warrants to
Secured Party as follows:
(a) Binding Effect. This Agreement has been, and the Control Agreement and the HSBC
TFS Letter will be, duly executed and delivered by Debtor, and this Agreement constitutes, and the
Control Agreement and the HSBC TFS Letter will constitute, legal, valid and binding agreements of
Debtor, enforceable in accordance with their terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors rights
generally and subject to general principles of equity, regardless of whether considered in a
proceeding in equity or at law.
(b) Ownership and Liens. Debtor is and will be the owner of the Collateral and no
Lien exists or will exist upon such Collateral at any time except as provided for in this
Agreement. Debtor is the sole entitlement holder with respect to the Securities Account.
(c) Perfection. This Agreement is effective to create in favor of Secured Party a
valid security interest in and Lien upon all of Debtors right, title and interest in and to the
Collateral and, upon the filing of an appropriate Uniform Commercial Code financing statement in
the Office of the Secretary of State of the State of Delaware, such security interest will be a
duly perfected security interest in all of the Collateral and no further recordings or filings are
or will be required in connection with the creation, perfection or enforcement of such security
interest and Lien, other than (i) the filing of continuation statements or financing change
statements in accordance with applicable law and (ii) additional filings if Debtor changes its
name, identity or organizational structure or the jurisdiction in which it is organized.
5. Agreements of Debtor. Debtor hereby agrees with Secured Party as follows:
(a) Direct Payment to Secured Party. Debtor shall enter into the HSBC TFS Letter
with Secured Party and HSBC TFS. Debtor shall, forthwith upon becoming aware or being made aware
that it has received any amount in payment under the Direct Pay Provisions at any time, pay such
amount to Secured Party, and any such amount which may be so received by Debtor shall, from the
time of Debtor being or becoming aware of such receipt, not be commingled by Debtor with any of its
other funds or property but, until paid to Secured Party, shall be held separate and apart from
such other funds and property and in trust for Secured Party. Debtor authorizes and empowers
Secured Party (i) to ask, demand, receive, receipt and give acquittance for any and all amounts
which may be or become due or payable at any time to Debtor under the Direct Pay Provisions and
(ii) in its discretion to file any claims or take any action or proceeding, either in its own name
or in the name of Debtor or otherwise, which Secured Party may deem to be necessary or advisable to
collect amounts due under the Direct Pay Provisions.
(b) Performance of BFC Program Contracts. Debtor shall remain liable under the BFC
Program Contracts to perform all of its obligations thereunder and shall duly and punctually
perform and observe all of the terms and provisions of the BFC Program Contracts on the part of
Debtor to be performed or observed, subject to any applicable grace or cure periods contained in
the BFC Program Contracts. Secured Party does not assume and shall not have any obligations or
liabilities under the BFC Program Contracts by reason of or arising out of this Agreement, nor
shall Secured Party be obligated to make any inquiry as to the nature or sufficiency of any
payment received under the BFC Program Contracts or to collect or enforce the BFC Program Contracts.
Debtor shall not agree to or suffer or permit any amendment, modification or waiver of or under the
BFC Program Contracts that would affect in any way the Participation Interests that have been
financed by Secured Party pursuant to the Credit Agreement.
(c) Other Documents and Actions. Debtor shall, within 10 days of request by Secured
Party, give, execute, deliver, file or record any financing statement, notice, instrument,
agreement or other document that may be necessary or desirable in the reasonable judgment of
Secured Party to create, preserve, perfect or validate the security interest granted pursuant
hereto or to enable Secured Party to exercise and enforce the rights of Secured Party hereunder
with respect to such security interest.
(d) Additional Collateral. Not later than one Business Day after the date of any
written demand by the Secured Party made upon the Debtor at any time after February 15, 2009 when
there is a Collateral Deficiency, the Borrower shall deposit into the Securities Account cash in
the amount of the Additional Collateral Amount stated in such demand, which shall thereupon
constitute part of the Collateral. Any such demand shall include a computation of the Additional
Collateral Amount and the Secured Partys (or HSBC TFSs) forecast of the amount of delinquent HSBC
RALs originated during 2009 as of December 31, 2009 and shall be conclusive and binding in the
absence of manifest error. Without limiting the foregoing, the Additional Collateral Amount so
deposited shall be made available from funds of the Debtor and not from collections distributable
to the Secured Party under the Direct Pay Provisions.
(e) Control Agreement. Debtor shall take any and all actions required or requested
by Secured Party from time to time to cause Secured Party to maintain exclusive control the
Securities Account and for that purpose Debtor shall enter into the Control Agreement with Secured
Party and the Securities Intermediary. Debtor agrees that Debtor shall not withdraw any money or
property from the Securities Account or modify or terminate the Control Agreement or any customer
agreement relating to the Securities Account without the prior written consent of Secured Party.
(f) Other Liens. Debtor shall not create, permit or suffer to exist, and shall
defend the Collateral against and take such other action as is necessary to remove, any Lien on the
Collateral and shall defend the right, title and interest of Secured Party in and to the Collateral
and in and to all Proceeds thereof against the claims and demands of all Persons whatsoever.
(g) Preservation of Rights. Whether or not any Event of Default has occurred or is
continuing, Secured Party may, but shall not be required to, take any actions Secured Party
reasonably deems necessary or appropriate to preserve any Collateral or any rights against third
parties to any of the Collateral and Debtor shall, within 30 days of demand by Secured Party, pay,
or reimburse Secured Party for, all expenses incurred in connection therewith.
(h) Changes in Name, etc. The name of Debtor that appears above its signature on
this Agreement is its full and correct legal name as it appears in its certificate of formation.
Debtor
shall notify Secured Party promptly in writing prior to any change in Debtors name,
identity, limited liability company structure or state of formation.
(i) Financing Statements. Debtor hereby irrevocably authorizes Secured Party, at
Debtors expense, to file such financing and continuation statements relating to this Agreement,
without Debtors signature, as Secured Party may deem appropriate, and appoints Secured Party as
Debtors attorney-in-fact to execute any such statements in Debtors name and to perform all other acts which Secured Party deems appropriate to perfect and continue the security interest
created hereby.
6. Remedies. During the period during which an Event of Default shall have occurred
and be continuing:
(a) Secured Party shall have, in addition to other rights and remedies provided for herein or
otherwise available to it, all of the rights and remedies of a Secured Party upon default under the
Uniform Commercial Code (whether or not the Uniform Commercial Code applies to the affected
Collateral) and Secured Party may, without notice, demand or legal process of any kind except as
may be required by law, at any time or times (i) if Secured Party shall have requested that Debtor
assemble any tangible Collateral pursuant to Section 6(a)(ii) hereof and Debtor shall have failed
to do so in a commercially reasonable time, enter Debtors premises and take physical possession of
such tangible Collateral and maintain such possession on Debtors premises, at no cost to Secured
Party, or remove such tangible Collateral or any part thereof to such other place or places as
Secured Party may desire, (ii) require Debtor to, and Debtor hereby agrees to, assemble any
tangible Collateral as directed by Secured Party and make it available to Secured Party at a place
to be designated by Secured Party which is reasonably convenient to Secured Party and Debtor and
(iii) without notice except as specified below, sell, lease, assign, grant an option or options to
purchase or otherwise dispose of the Collateral or any part thereof at public or private sale, at
any exchange, brokers board or at any of the offices of Secured Party or elsewhere, for cash, on
credit or for future delivery, and upon such other terms as Secured Party may deem commercially
reasonable. Debtor agrees that, to the extent notice of sale shall be required by law, at least 10
days notice to Debtor of the time and place of any public sale or the time after which any private
sale is to be made shall constitute reasonable notification. Secured Party shall not be obligated
to make any sale of Collateral regardless of notice of sale having been given. Secured Party may
adjourn any public or private sale from time to time by announcement at the time and place fixed
therefor and such sale may, without further notice, be made at the time and place to which it was
so adjourned;
(b) Secured Party may make any compromise or settlement deemed desirable with respect to any
of the Collateral and may extend the time of payment, arrange for payment in installments or
otherwise modify the terms of, any of the Collateral;
(c) Secured Party may, in the name of Secured Party or in the name of Debtor or otherwise,
demand, sue for, collect or receive any money or property at any time payable or
receivable on account of or in exchange for any of the Collateral, but shall be under no obligation to do so; and
(d) Secured Party may take any action and exercise any right or remedy available to it under
the Control Agreement, including any right to give instructions or entitlement orders to the
Securities Intermediary under the Control Agreement and to dispose of any Collateral in the
Securities Account as provided in Section 6(a).
7. Deficiency; Application of Proceeds. If the proceeds of sale, collection or other
realization of or upon the Collateral are insufficient to cover the costs and expenses of such realization and the payment in full of the Obligations, Debtor shall remain liable for any
deficiency. The proceeds of any collection, sale or other realization of all or any part of the
Collateral shall be applied first, to payment of all expenses payable or reimbursable by Debtor
under the Loan Documents in connection with such collection, sale or other realization on the
Collateral, and then as provided in the Credit Agreement.
8. Power of Attorney. Debtor hereby irrevocably constitutes and appoints Secured
Party, with full power of substitution, as its true and lawful attorney-in-fact with full
irrevocable power and authority in the place and stead of Debtor and in the name of Debtor or in
its own name, from time to time in the discretion of Secured Party, after the occurrence and during
the continuance of an Event of Default, for the purpose of carrying out the terms of this
Agreement, to take any and all appropriate action and to execute and deliver any and all documents
and instruments which may be necessary or desirable to accomplish the purposes of this Agreement
and, without limiting the generality of the foregoing, hereby gives Secured Party the power and
right, on behalf of Debtor, without notice to or assent by Debtor, to do the following upon the
occurrence and during the continuance of an Event of Default:
(a) to ask, demand, collect, receive and give acquittance and receipts for any and all moneys
due and to become due under any Collateral and, in the name of Debtor or its own name or otherwise,
to take possession of and endorse and collect any checks, drafts, notices acceptances or other
instruments for the payment of monies due under any Collateral and to file any claim or to take any
other action or proceeding in any court of law or equity or otherwise deemed appropriate by Secured
Party for the purpose of collecting any and all such moneys due under any Collateral whenever
payable and to file any claim or to take any other action or proceeding or otherwise deemed
appropriate by Secured Party for the purpose of collecting any and all such moneys due under any
Collateral;
(b) to pay or discharge charges or Liens levied or placed on or threatened against the
Collateral;
(c) to direct any Contract Obligor or other party liable under any of the Collateral to make
payment of any and all monies due and to become due thereunder directly to Secured Party or as
Secured Party may direct, and to receive payment of and receipt for any and all moneys, claims and
other amounts due and to become due in respect of or arising out of any Collateral;
(d) to sign and indorse any invoices, drafts against debtors, assignments, verifications and
notices in connection with or relating to the Collateral;
(e) to commence and prosecute any suits, actions or proceedings to collect the Collateral or
any part thereof and to enforce any other right in respect of any Collateral;
(f) to participate in the defense of any suit, action or proceeding brought against Debtor
with respect to any Collateral, or to defend same with Debtors consent;
(g) to settle, compromise or adjust any such suit, action or proceeding as it relates to the
Collateral and, in connection therewith, to give such discharges or releases as Secured Party may
deem appropriate;
(h) to notify each Contract Obligor in respect of any BFC Program Contracts that such
Collateral has been assigned to Secured Party and that any payments due or to become due in respect
of such Collateral are to be made directly to Secured Party; and to communicate in its own name
with any party to any BFC Program Contract with regard to the assignment of the right, title and
interest of Debtor in and under the BFC Program Contracts hereunder and other matters relating
thereto;
(i) to execute, in connection with any sale of Collateral provided for in Section 6
hereof, any endorsements, assignments or other instruments of conveyance or transfer with respect
to the Collateral; and
(j) generally to sell, transfer, pledge, make any agreement with respect to or otherwise deal
with any of the Collateral as fully and completely as though Secured Party were the absolute owner
thereof for all purposes and to do, at Secured Partys option and at Debtors expense, at any time
or from time to time, all acts and things which Secured Party reasonably deems necessary to
protect, preserve or realize upon the Collateral and Secured Partys Lien therein, in order to
effect the intent of this Agreement, all as fully and effectively as Debtor might do.
The power of attorney granted hereunder is a power coupled with an interest, shall be irrevocable
until this Agreement is terminated pursuant to Section 9, and shall not limit the rights of Secured
Party when no Event of Default shall have occurred and be continuing.
9. Termination. This Agreement and the security interests granted hereunder shall not
terminate until the termination of the Commitment of the Secured Party under the Credit Agreement
and the full and complete payment and satisfaction of all Obligations (regardless of whether the
Credit Agreement shall have earlier terminated), at which time Secured Party shall notify (i) the
Securities Intermediary of the termination of the Control Agreement pursuant to Section 15 thereof
and (ii) HSBC TFS of the termination of the HSBC TFS Letter pursuant to paragraph 3 thereof.
10. Further Assurances. At any time and from time to time, within 10 days of request
of Secured Party, and at the sole expense of Debtor, Debtor shall duly execute and deliver any and
all such further instruments, documents and agreements and take such further actions as Secured
Party may reasonably require in order for Secured Party to obtain the full benefits of this
Agreement, including, without limitation, using Debtors best efforts to secure all consents and
approvals necessary or appropriate for the assignment to Secured Party of any Collateral held by
Debtor or in which Debtor has any rights not heretofore assigned.
11. Limitation on Duty of Secured Party. The powers conferred on Secured Party under
this Agreement are solely to protect the Secured Partys interest in the Collateral and shall not
impose any duty upon it to exercise any such powers. Except for the safe custody of any Collateral in its possession and the accounting for moneys actually received by it hereunder,
Secured Party shall have no duty as to any of the Collateral. Secured Party shall be accountable
only for amounts that it actually receives as a result of the exercise of such powers and neither
Secured Party nor any of its officers, directors, employees or agents shall be responsible to
Debtor for any act or failure to act, except for gross negligence or willful misconduct. Without
limiting the foregoing, Secured Party shall be deemed to have exercised reasonable care in the
custody and preservation of the Collateral in its possession if such Collateral is accorded
treatment substantially equivalent to that which Secured Party, in its individual capacity, accords
its own property consisting of the type of Collateral involved, it being understood and agreed that
Secured Party shall have no responsibility for taking any necessary steps, other than steps taken
in accordance with the standard of care set forth above, to preserve rights against any Person with
respect to any Collateral.
12. Private Sales. Debtor recognizes that Secured Party may be unable to
effect a public sale of certain of the Collateral by reason of prohibitions contained in the
Securities Act of 1933, as amended, and applicable state securities laws or otherwise, and may be
compelled to resort to one or more private sales thereof to a restricted group of purchasers which
will be obliged to agree, among other things, to acquire such Collateral for their own account for
investment and not with a view to the distribution or resale thereof. Debtor acknowledges and
agrees that any such private sale may result in prices and other terms less favorable than if such
sale were a public sale and, notwithstanding such circumstances, agrees that, solely by reason of
such circumstances, any such private sale shall be deemed to have been made in a commercially
reasonable manner; provided, that nothing in this Section 12 shall otherwise relieve Secured Party
of any duty to proceed in a commercially reasonable manner in connection with such private sale.
Secured Party shall be under no obligation to delay a sale of any of the Collateral for the period
of time necessary to permit registration of any Collateral for public sale under such Act or
applicable state securities laws.
13. Miscellaneous.
(a) No Waiver. No failure on the part of Secured Party to exercise, and no course of
dealing with respect to, and no delay in exercising, any right, power or remedy hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise by Secured Party of any
right, power or remedy hereunder preclude any other or further exercise thereof or the exercise of
any other right, power or remedy. The rights and remedies hereunder provided are cumulative and
may be exercised singly or concurrently, and are not exclusive of any rights and remedies provided
by law.
(b) Governing Law. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York.
(c) Notices. All notices, demands and requests that any party is required or elects
to give to any other party shall be given in accordance with the provisions of the Credit
Agreement.
(d) Amendments. The terms of this Agreement may be waived, altered or amended only by
an instrument in writing duly executed by Debtor and Secured Party.
(e) Successors and Assigns. This Agreement shall be binding upon and inure to the
benefit of the respective successors and assigns of each of the parties hereto; provided, that
Debtor shall not assign or transfer its rights or delegate its obligations hereunder without the
prior written consent of Secured Party.
(f) Counterparts; Headings. This Agreement may be executed in any number of
counterparts and by any party on any counterpart, all of which together shall constitute one and
the same instrument. The headings in this Agreement are for convenience of reference only and
shall not alter or otherwise affect the meaning hereof.
(g) Severability. If any provision hereof is invalid or unenforceable in any
jurisdiction, then, to the fullest extent permitted by law, the other provisions hereof shall
remain in full force and effect in such jurisdiction and shall be liberally construed in favor of
Secured Party in order to carry out the intentions of the parties hereto as nearly as may be
possible, and the invalidity or unenforceability of any provision in any jurisdiction shall not
affect the validity or enforceability of such provision in any other jurisdiction.
IN WITNESS WHEREOF, the parties have caused this Security Agreement to be duly executed and
delivered as of the date first written above.
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BLOCK FINANCIAL LLC
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By: |
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Name: |
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Title: |
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HSBC FINANCE CORPORATION
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By: |
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Name: |
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Title: |
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EXHIBIT B
[FORM OF CONTROL AGREEMENT]
INVESTMENT ACCOUNT CONTROL AGREEMENT
INVESTMENT ACCOUNT CONTROL AGREEMENT dated as of January 14, 2009 among BLOCK FINANCIAL LLC, a
Delaware limited liability company (Debtor), HSBC FINANCE CORPORATION (Secured
Party), a Delaware corporation, and HSBC INVESTOR FUNDS (the Securities
Intermediary), a Massachusetts business trust.
WHEREAS, Debtor, Secured Party and H&R Block, Inc. have entered into a Credit and Guarantee
Agreement dated as of January 14, 2009 (as amended, restated or otherwise modified and in effect
from time to time, the Credit Agreement) pursuant to which Secured Party has agreed,
subject to the terms and conditions thereof, to make loans to Debtor from time to time.
WHEREAS, Secured Party has required, as a condition to its making loans under the Credit
Agreement, that Debtor execute and deliver to Secured Party a Security Agreement (as amended,
restated or otherwise modified and in effect from time to time, the Security Agreement),
which Security Agreement creates a security interest in certain property of Debtor, including the
Securities Account, as hereinafter defined, maintained with Securities Intermediary by Debtor in
which certain cash balances, securities, financial assets and other investment property are held.
WHEREAS, Secured Party, Debtor and Securities Intermediary have agreed to enter into this
Agreement to perfect Secured Partys security interests in the Collateral, as defined below.
NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
Section 1. Meaning of UCC. All references herein to the UCC shall mean
the Uniform Commercial Code as in effect in the State of New York.
Section 2. Establishment of Securities Account. The Securities Intermediary hereby
confirms that (i) the Securities Intermediary has established account number 615878 in the name
Debtor (such account and any successor account, the Securities Account), (ii) the
Securities Account is a securities account as such term is defined in Section 8-501(a) of the
UCC, (iii) pursuant to that the Security Agreement, Secured Party has a security interest in
Debtors right, title and interest in and to such Securities Account and all cash balances,
securities, instruments, investment property and financial assets maintained therein from time to
time, including any Additional Collateral Amount (as defined in the Security Agreement) deposited
into the Securities Account at any time and all securities entitlements relative thereto
(collectively, Collateral), (iv) the Securities Intermediary shall, subject to the terms of this
Agreement, treat
Secured Party as entitled to exercise the rights relating to any Collateral credited to the
Securities Account, (v) all property delivered to the Securities Intermediary pursuant to the
Security Agreement will be promptly credited to the Securities Account and become Collateral, and
(vi) all Collateral credited to the Securities Account shall be registered in the name of the
Secured Party, endorsed to the Secured Party or in blank, and in no case will any Collateral
credited to the Securities Account be registered in the name of the Debtor, payable to the order of
the Debtor or specially endorsed to the Debtor except to the extent the foregoing have been
specially endorsed to the Secured Party or in blank.
Section 3. Financial Assets Election. The Securities Intermediary hereby agrees
that each item of property (whether investment property, financial asset, security, instrument or
cash) credited to the Securities Account shall be treated as a financial asset within the meaning
of Section 8-102(a)(9) of the UCC.
Section 4. Sole Control. Secured Party shall have sole control over the Securities
Account. Securities Intermediary shall not accept any direction, instructions, or entitlement
orders with respect to the Securities Account or the Collateral credited thereto from any person
other than Secured Party, except as provided in Section 6 and unless otherwise ordered by a court
of competent jurisdiction.
Section 5. Entitlement Orders. The Securities Intermediary hereby agrees that if
Secured Party delivers to the Securities Intermediary and its transfer agent identified in Section
14 (the Transfer Agent) an entitlement order (within the meaning of Section 8-102(a)(8) of the
UCC) relating to the Securities Account, the Securities Intermediary shall comply with such
entitlement order (and shall cause the Transfer Agent to so comply) without further consent by the
Debtor or any other person, and Debtor hereby irrevocably authorizes such compliance. Secured
Party will only issue an entitlement order following an Event of Default under the Credit
Agreement and for the purpose of directing the Securities Intermediary to distribute Collateral to
the Secured Party for application to the obligations of the Debtor under the Credit Agreement and
the Security Agreement.
Section 6. Procedures for Securities Account. (a) The Debtor may from time to time
deposit in the Securities Account cash as Additional Collateral Amounts as provided in the Security
Agreement.
(b) The Securities Intermediary shall, or shall cause the Transfer Agent or another servicer
provider to, determine the fair market value of the assets in the Securities Account from time to
time in accordance with its then current policies and procedures on the request of the Secured
Party and shall notify, or cause the Transfer Agent or such other service provider to notify, the
Secured Party of such fair market value.
(c) Without Secured Partys prior written consent: (i) neither Debtor nor any party other
than Secured Party may withdraw any Collateral from the Securities Account and (ii) the
Securities
Intermediary will not comply with any entitlement order or request to withdraw any Collateral from
the Securities Account given by any party other than Secured Party.
Section 7. Subordination of Lien; Waiver of Set-Off. In the event that the Securities
Intermediary has or subsequently obtains by agreement, operation of law or otherwise a security
interest in the Securities Account or any Collateral credited thereto, the Securities Intermediary
hereby agrees that such security interest shall be subordinate to the security interest of the
Secured Party. The Collateral will not be subject to deduction, set-off, bankers lien, or any
other right in favor any person other than the Secured Party except for the payment of the
customary fees and expenses of the Securities Intermediary.
Section 8. Choice of Law. Both this Agreement and the Securities Account shall be
governed by the laws of the State of New York. Regardless of any provision in any other agreement,
for purposes of the UCC, New York shall be deemed to be the Securities Intermediarys location and
the Securities Account (as well as the securities entitlements related thereto) shall be governed
by the laws of the State of New York.
Section 9. Conflict with other Agreements. There are no other agreements entered into
between the Securities Intermediary and the Debtor with respect to the Securities Account except
for a certain account application dated December 15, 2006 (the Account Agreement), which
the Securities Intermediary and the Debtor agree remains in full force and effect in accordance
with its terms. In the event of any conflict between this Agreement (or any portion thereof) and
any other agreement now existing (including the Account Agreement) or hereafter entered into, the
terms of this Agreement shall prevail.
Section 10. Indemnification The Securities Intermediary shall have no liability under
this Agreement except in the case of its gross negligence or willful misconduct. Debtor agrees to
indemnify Securities Intermediary and Transfer Agent against all claims, liabilities and expenses
incurred, sustained or payable by Securities Intermediary or Transfer Agent arising out of this
Agreement except to the extent directly caused by the Securities Intermediarys or the Transfer
Agents gross negligence or willful misconduct.
Section 11. Amendments. No amendment or modification of this Agreement or waiver of
any right hereunder shall be binding on any party hereto unless it is in writing and is signed by
all of the parties hereto.
Section 12. Notice of Adverse Claims. Except for the claims and interests of the
Secured Party and of Debtor in the Securities Account, the Securities Intermediary does not know of
any claim to, or interest in, the Securities Account or in any financial asset credited thereto.
If any person asserts any lien, encumbrance or adverse claim (including any writ, garnishment,
judgment, warrant of attachment, execution or similar process) against the Securities Account or in
any Collateral carried therein, the Securities Intermediary will promptly notify the Secured Party
and Debtor thereof.
Section 13. Successors. The terms of this Agreement shall be binding upon, and shall
inure to the benefit of, the parties hereto and their respective corporate successors or heirs and
personal representatives.
Section 14. Notices. All notices and other communications provided for herein shall
be in writing and shall be delivered by hand or overnight courier service, mailed by certified or
registered mail or sent by telecopy, as follows:
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Secured Party:
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HSBC Finance Corporation
26525 N. Riverwoods Road
Mettawa, Illinois 60045 |
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Attention: Treasurer |
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Fax no.: (224) 552-4408 |
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with copies to: |
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HSBC Finance Corporation
26525 N. Riverwoods Road
Mettawa, Illinois 60045
Attention: Executive Vice President, Deputy
General Counsel and Corporate Secretary
Fax no.: (224) 552-2941 |
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HSBC Securities, Inc.
425 Fifth Avenue, Lower Level
New York, N.Y. 10018
(Telecopy No. (212) 525-2479)
Attention: Jimmy Tse |
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HSBC Taxpayer Financial Services Inc.
200 Somerset Corporate Boulevard
Bridgewater, N.J. 08807
(Telecopy No. (908) 203-4211)
attention: EVP and President |
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HSBC Taxpayer Financial Services Inc.
90 Christiana Road
New Castle, DE 19707
(Telecopy No. (302) 327-2507)
attention: General Counsel |
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Debtor:
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Block Financial LLC
One H&R Block Way
Kansas City, MO 64105
Attention: Becky Shulman (Telecopy
No. (816) 854-8043), David Staley
(Telecopy No. (816) 854-8043) and Andrew
Somora (Telecopy No. (816) 802-1043) |
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Securities Intermediary:
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HSBC Investor Funds
c/o HSBC Global Asset Management
(USA) Inc.
452 Fifth Avenue
New York, NY 10018
Attention: Richard Fabietti
Telephone: 212 525-2387
Fax No.: 917 525-1032 |
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with a copy to: |
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HSBC Global Asset Management (USA)
Inc.
452 Fifth Avenue
New York, NY 10018
Attention: James M. Curtis
Telephone: 212 525-6961
Fax No.: 917 229-5219 |
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Transfer Agent:
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Citi Fund Services Ohio, Inc.
3455 Stelzer Road
Columbus, Ohio 43219
Attention: Ayre Spencer
TA Risk Management
Telephone: 1-877-244-2424
Telecopy: (614) 428-3061 |
Any party hereto may change its address or telecopy number for notices and other communications
hereunder by notice to the other parties hereto. All notices and other communications given to any
party hereto in accordance with the provisions of this Agreement shall be deemed to have been given
on the date of receipt. Debtor, Secured Party or Securities Intermediary may, in its sole
discretion, agree to accept notices and other communications to it hereunder by electronic
communications pursuant to procedures approved by it; provided that approval of such
procedures may be limited to particular notices or communications.
Section 15. Termination. The rights and powers granted herein to the Secured Party
have been granted in order to perfect its security interests in the Securities Account, are powers
coupled with an interest and will neither be affected by the bankruptcy of Debtor nor by the lapse
of time. This Agreement, the rights and powers granted herein to the Secured Party, and the
obligations of the Securities Intermediary hereunder shall automatically terminate upon the
termination of the Secured Partys security interests pursuant to the terms of the Security
Agreement. The Secured Party shall promptly provide written notice of such termination to the
Securities Intermediary.
Section 16. Counterparts. This Agreement may be executed in any number of
counterparts, all of which shall constitute one and the same instrument, and any party hereto may
execute this Agreement by signing and delivering one or more counterparts.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered
as of the date first written above.
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BLOCK FINANCIAL LLC
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By: |
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Name: |
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Title: |
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HSBC FINANCE CORPORATION
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By: |
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Name: |
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Title: |
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HSBC INVESTOR FUNDS,
as Securities Intermediary
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By: |
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Name: |
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Title: |
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EXHIBIT C
[FORM OF HSBC TFS LETTER]
HSBC TAXPAYER FINANCIAL SERVICES INC.
90 Christiana Road
New Castle, Delaware 19720
As of January 14, 2009
HSBC Finance Corporation
26525 N. Riverwoods Road
Mettawa, IL 60045
Block Financial LLC
One H&R Block Way
Kansas City, MO 64105
Ladies and Gentlemen:
HSBC Taxpayer Financial Services Inc. (HSBC TFS) acknowledges that HSBC Finance
Corporation (the Lender) and Block Financial LLC (the Borrower) have notified
HSBC TFS that they are party to (1) a Credit and Guarantee Agreement dated as of January 14, 2009
(as amended, restated or otherwise modified and in effect from time to time, the Credit
Agreement) with H&R Block, Inc., as Guarantor, pursuant to which the Lender has agreed,
subject to the terms and conditions thereof, to make Loans to the Borrower from time to time and
(2) a Security Agreement dated as of January 14, 2009 (as amended, restated or otherwise modified
and in effect from time to time, the Security Agreement) pursuant to which the Borrower
has granted to the Lender a security interest in certain property, including the Borrowers right,
title and interest in and to the Servicing Agreement and the Participation Agreement to secure the
obligations of the Borrower under the Credit Agreement.
As provided herein, the Borrower directs that 100% of all amounts payable to the Borrower
under the Participation Agreement from the repurchase or repayment of HSBC RALs shall be paid by
HSBC TFS directly to the Lender to repay the Loans until such time as all outstanding principal of
the Loans has been paid in full.
The parties are entering into this letter agreement to set forth certain agreements among
them.
HSBC Finance Corporation
January 14, 2009
Page 2
1. Definitions. Capitalized terms used herein that are not otherwise defined herein
shall have the meanings set forth in the Credit Agreement.
2. Instructions. As contemplated in the Credit Agreement and the Security Agreement,
the Borrower hereby authorizes and instructs HSBC TFS: (1) to give notice to the Lender of the
Purchase Price of all Participation Interests to be purchased by the Borrower under the
Participation Agreement on any Business Day, such notice to be given to the Lender simultaneously
with the giving of notice to the Borrower under Section 4.3 of the Participation Agreement but in
any case not later than 9:30 a.m., New York City time, on such Business Day; (2) to accept from
the Lender for the account of the Borrower the proceeds of Loans made by the Lender to the Borrower
under the Credit Agreement in payment of all or part of the Purchase Price of Participation
Interests to be purchased on such Business Day, to the extent of the amount of such Loans; (3) at
any time when there is outstanding unpaid principal on the Loans, to pay 100% of all amounts then
payable to the Borrower by HSBC TFS under Section 6 of the Participation Agreement in respect of
the repurchase of Participation Interests that have been purchased by the Borrower directly to the
Lender, to such account as it shall specify from time to time, to be applied to the payment
principal due on the Loans; (4) at any time when there is outstanding unpaid principal on the
Loans, to pay 100% of all amounts then to be remitted to the Borrower by HSBC TFS under Section
3.4(b)(iii) of the Servicing Agreement in respect of principal or interest collected or recovered
on HSBC RALs in which the Borrower has purchased Participation Interests directly to the Lender, to
such account as it shall specify from time to time, to be applied to the payment of principal due
on the Loans; (5) at any time when there is no outstanding unpaid principal on the Loans, to pay
100% of all amounts then payable to the Borrower by HSBC TFS under Section 6 of the Participation
Agreement in respect of the repurchase of Participation Interests that have been purchased by the
Borrower directly to the Borrower, to such account as the Borrower shall specify from time to time;
and (6) at any time when there is no outstanding unpaid principal on the Loans, to pay 100% of all
amounts then to be remitted to the Borrower by HSBC TFS under Section 3.4(b)(iii) of the Servicing
Agreement in respect of principal or interest collected or recovered on HSBC RALs in which the
Borrower has purchased Participation Interests directly to the Borrower, to such account as the
Borrower shall specify from time to time.
The Borrower and HSBC TFS agree that the authorizations and instructions in the preceding
paragraph may not be waived, modified or revoked without the prior written agreement of the Lender.
HSBC TFS hereby acknowledges and agrees to the instructions given to it in the preceding
paragraph. The Lender agrees that it shall give prompt written notice to HSBC TFS and the Borrower
when all Loans borrowed and other amounts payable under the Credit Agreement have been paid in full
and no further Commitment exists thereunder, at which time the authorizations and instructions in
the preceding paragraph and the agreements of the Lender in this letter agreement shall terminate.
HSBC Finance Corporation
January 14, 2009
Page 3
3. Miscellaneous. Except as provided in paragraph 2, all notices and other
communications provided for in this letter agreement shall be in writing and shall be delivered by
hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, as
follows:
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Lender: |
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HSBC Finance Corporation |
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26525 N. Riverwoods Road |
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Mettawa, Illinois 60045 |
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Attention: Treasurer |
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Fax no.: (224) 552-4408 |
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with a copy to: |
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HSBC Finance Corporation |
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26525 N. Riverwoods Road |
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Mettawa, Illinois 60045 |
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Attention: Executive Vice President, |
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Deputy General Counsel and Corporate |
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Secretary |
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Fax no.: (224) 552-2941 |
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HSBC Securities, Inc. |
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425 Fifth Avenue, Lower Level |
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New York, N.Y. 10018 |
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(Telecopy No. (212) 525-2479) |
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Attention: Jimmy Tse |
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HSBC Taxpayer Financial Services Inc. |
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200 Somerset Corporate Boulevard |
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Bridgewater, N.J. 08807 |
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(Telecopy No. (908) 203-4211) |
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attention: EVP and President |
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HSBC Taxpayer Financial Services Inc. |
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90 Christiana Road |
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New Castle, DE 19707 |
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(Telecopy No. (302) 327-2507) |
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attention: General Counsel |
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Borrower: |
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Block Financial LLC |
HSBC Finance Corporation
January 14, 2009
Page 4
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One H&R Block Way |
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Kansas City, MO 64105 |
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Attention: Becky Shulman (Telecopy |
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No. (816) 854-8043), David Staley |
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(Telecopy No. (816) 854-8043) and Andrew |
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Somora (Telecopy No. (816) 802-1043) |
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HSBC TFS: |
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HSBC Taxpayer Financial Services Inc. |
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90 Christiana Road |
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New Castle, Delaware 19720 |
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Attention: EVP and President |
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Telephone: 908-203-4441 |
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Fax No.: 302-327-2533 |
Any party hereto may change its address or telecopy number for notices and other communications
hereunder by notice to the other parties hereto. All notices and other communications given to any
party hereto in accordance with the provisions of this letter agreement shall be deemed to have
been given on the date of receipt. Without limiting paragraph 2 hereof, each of the Lender, the
Borrower or HSBC TFS may, in its sole discretion, agree to accept notices and other communications
to it hereunder by electronic communications pursuant to procedures approved by it;
provided that approval of such procedures may be limited to particular notices or
communications.
This letter agreement shall be governed by and construed in accordance with the law of the
State of New York.
HSBC Finance Corporation
January 14, 2009
Page 5
By executing this letter agreement in the space below, each of the Borrower, HSBC TFS and the
Lender agree to the terms and provision of this letter agreement.
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Very truly yours,
HSBC TAXPAYER FINANCIAL SERVICES, INC.
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By: |
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Name: |
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Title: |
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Accepted and agreed:
HSBC FINANCE CORPORATION
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By: |
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Name: |
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Title: |
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HSBC Finance Corporation
January 14, 2009
Page 6
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Accepted and agreed:
BLOCK FINANCIAL LLC
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By: |
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Name: |
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EXHIBIT D
[FORM OF OPINION OF STINSON MORRISON HECKER LLP]
January ___, 2009
HSBC Finance Corporation
26525 N. Riverwoods Road
Mettawa, Illinois 60045
Ladies and Gentlemen:
We have acted as special counsel for Block Financial LLC (the Borrower) and H&R Block, Inc.
(the Guarantor and, together with the Borrower, the Credit Parties), in connection with the
Credit and Guarantee Agreement, dated as of January 14, 2009 (the Credit Agreement), by and among
the Borrower, the Guarantor and HSBC Finance Corporation (the Lender). Unless otherwise defined
herein, capitalized terms defined in the Credit Agreement and used herein shall have the meanings
given to them in the Credit Agreement, and capitalized terms defined in the Security Agreement
(defined below) and used herein, but not defined in the Credit Agreement, shall have the meanings
given to them in the Security Agreement. This opinion letter is being delivered to you at the
request of the Credit Parties in accordance with Section 4.2 (b) of the Credit Agreement.
In connection with this opinion letter, we have examined originally executed counterparts or
other copies identified to our satisfaction of the following documents (the Reviewed Documents):
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the Credit Agreement; |
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the Security Agreement, dated as of January 14, 2009 (the Security
Agreement), between the Borrower and the Lender; |
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the Investment Account Control Agreement dated as of January 14, 2009 (the
Control Agreement), among the Borrower, the Lender and HSBC Investor Funds (the
Securities Intermediary); |
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the letter agreement, dated as of January 14, 2009 (the HSBC TFS Letter)
among the Borrower, the Lender and HSBC TFS; |
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(e) |
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the pricing letter dated as of January 14, 2009 between the Credit Parties and
the Lender; |
HSBC Finance Corporation
January ___, 2009
Page 2
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(f) |
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the Form UCC-1 Financing Statement naming the Borrower, as Debtor, and the Lender, as Secured
Party, filed or to be filed by Lender in the office of the Secretary
of State of Delaware in the form attached hereto as Schedule A (the
Financing Statement); |
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the following documents regarding the Borrower: (i) the certificate of
conversion and certificate of formation and any amendments thereto certified as of the
date hereof by the Secretary of the Borrower, (ii) the Operating Agreement dated as of
January 1, 2008 and any amendments thereto certified as of the date hereof by the
Secretary of the Borrower, (iii) a copy of the resolutions of the sole member of the
Borrower certified as of the date hereof by the Secretary of the Borrower and (iv) a
certificate of good standing dated January ___, 2009 issued by the Secretary of State of
Delaware; |
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the following documents regarding the Guarantor: (i) the articles of
incorporation and any amendments thereto certified as of the date hereof by the
Secretary of the Guarantor, (ii) the by-laws and any amendments thereto certified as of
the date hereof by the Secretary of the Guarantor, (iii) a copy of the resolutions of
the Board of Directors of the Guarantor certified as of the date hereof by the
Secretary of the Guarantor and (iv) a certificate of good standing dated January ___,
2009 issued by the Secretary of State of Missouri; and |
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such other agreements, instruments, certificates, documents, orders, pleadings,
records and papers, including, without limitation, certificates of public officials and
certificates of representatives of the Borrower and the Guarantor, as we have deemed
appropriate, in our professional judgment, to render the opinions set forth below. |
The documents specified in items (a) through (e) above are hereinafter collectively called the
Loan Documents and individually, a Loan Document.
In rendering the opinions and confirmations set forth herein, we have made, without
investigation on our part, the following assumptions:
a. (i) Each Reviewed Document submitted to us as an original is authentic; (ii) each Reviewed
Document submitted to us as a certified, conformed, telecopied, photostatic, electronic or
execution copy conforms to the original of such document, and each such original is authentic;
(iii) all signatures appearing on Reviewed Documents are genuine; (iv) the execution, delivery and
performance of each Loan Document have been duly authorized by all requisite corporate, limited
liability company, partnership or other action on the part of, and each Loan
HSBC Finance Corporation
January ___, 2009
Page 3
Document has been duly executed and delivered by, the parties thereto other than the Credit Parties, and each Loan Document is, under all applicable laws, the valid and binding obligation
of the parties thereto (other than the Credit Parties) enforceable against such parties (other
than the Credit Parties) in accordance with its terms; (v) all natural persons who have signed or
will sign any of the Reviewed Documents had, or will have, as the case may be, the legal capacity
to do so at the time of such signature; and (vi) excluding Reviewed Documents, there is no
agreement, understanding, course of dealing or performance, usage of trade, or writing defining,
supplementing, amending, modifying, waiving or qualifying the terms of any of the Loan Documents.
b. The statements, recitals, representations and warranties as to matters of fact set forth in
the Loan Documents are accurate and complete. All certificates and similar documents provided to
us by public officials are accurate and complete. The certificates provided to us by either or
both of the Credit Parties are accurate and complete as to the factual matters set forth therein.
c. There is no circumstance (such as, but not limited to, mutual mistake of fact or
misunderstanding, fraud in the inducement, duress, undue influence, waiver or estoppel) extrinsic
to the Loan Documents which might give rise to a defense against enforcement of any of the Loan
Documents.
d. The conduct of the parties and their respective agents in connection with the Loan
Documents and the transactions contemplated thereby has complied with any requirements of good
faith, fair dealing, and conscionability.
e. The Collateral exists, and the Borrower has sufficient rights in the Collateral to grant a
security interest therein under Section 9-203 of the New York UCC (defined below), the Missouri UCC
(defined below) or the Delaware UCC (defined below), as applicable, and we express no opinion as to
the nature or extent of the rights or title of the Borrower in and to any of the Collateral.
f. Each opinion recipient is without notice of any defense against enforcement of any rights
created by, or any adverse claim to any property or security interest transferred or created as a
part of or contemplated by, the Loan Documents.
g. The Financing Statement has been, or will be, properly filed and indexed in the Uniform
Commercial Code records of the Secretary of State of Delaware.
h. The Securities Intermediary is a securities intermediary (as defined in § 8-102(a)(14) of
the New York UCC) with respect to the Collateral which is the subject of the Control Agreement.
HSBC Finance Corporation
January ___, 2009
Page 4
Based upon the foregoing, and subject to the assumptions, qualifications and limitations set
forth herein, we are of the opinion that as of this date:
1. Borrower is a limited liability company validly existing and in good standing under the
laws of the State of Delaware, Guarantor is a corporation validly existing and in good standing
under the laws of the State of Missouri, and each Credit Party has the limited liability company or
corporate (as applicable) power to own its properties and to carry on its business as presently
conducted by it as described in the Guarantors Form 10-K for the year ended April 30, 2008, as
amended, or any of the Guarantors subsequent filings with the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934.
2. Each Credit Party has all requisite liability company or corporate (as applicable) power
and authority to execute, deliver and perform its obligations under the Loan Documents to which it
is a party and has taken all necessary limited liability company or corporate (as applicable)
action to authorize the execution and delivery of, and the performance of its obligations under,
the Loan Documents to which it is a party.
3. Each Credit Party has duly executed and delivered the Loan Documents to which it is a party
and such Loan Documents constitute the legal, valid and binding agreements of such Credit Party,
enforceable against such Credit Party in accordance with their respective terms.
4. The execution and delivery by each Credit Party of each Loan Document to which it is a
party do not, and the performance of its obligations thereunder will not, (a) violate the
Borrowers certificate of formation or Operating Agreement dated January 1, 2008 or the Guarantors
articles or certificate of incorporation or by-laws, as the case may be, (b) violate any applicable
law, statute or regulation of the United States or the State of Missouri that we, based upon the
scope of our representation of and our experience with such Credit Party, reasonably recognize as
applicable to such Credit Party with respect to transactions of the type contemplated by the Loan
Documents, (c) violate any order, writ, judgment, injunction, decree, determination or award
binding upon such Credit Party of which we have knowledge of any court or other Governmental
Authority, or (d) breach, constitute a default under, result in the acceleration of (or entitle any
party to accelerate) the maturity of any obligation of a Credit Party under, or result in or
require the creation of any lien upon or security interest in (other than pursuant to the Loan
Documents) any of its property pursuant to the terms of, the Bank Revolvers, the other financing
agreements and instruments and the BFC Program Contracts listed on Exhibit B attached
hereto.
5. No authorization or approval or other action by, and no notice to or filing with, any
Governmental Authority of the United States, the State of Missouri or the State of Delaware is
required for the execution and delivery by a Credit Party, or the validity or enforceability
against such Credit Party, of each Loan Document to which it is a party other than (i) such as have
been obtained, made or given and are in full force in effect, (ii) the filing of financing
HSBC Finance Corporation
January ___, 2009
Page 5
statements (including the Financing Statement) under the Uniform Commercial Code pursuant to the
requirements of the Loan Documents and (iii) any authorization, approval, notice, filing or other
action which is not a condition required to be satisfied on or before the Effective Date but is
itself a future obligation of such Credit Party under a Loan Document.
6. To our knowledge, there is no suit, action or proceeding pending against either Credit
Party before any court, governmental or regulatory authority, agency or commission, or
board of arbitration or overtly threatened against either Credit Party in writing which
(whether pending or threatened) challenges the legality, validity or enforceability of any Loan
Document.
7. The Security Agreement is effective to create in favor of the Lender a valid security
interest in all right, title and interest of the Borrower in the Collateral described in the
Security Agreement to secure the Obligations. Assuming that the Financing Statement was filed in
the office of the Secretary of State of Delaware (the Filing Office), the security interest of
the Lender in the Collateral has been duly perfected in that portion of the Collateral in which a
security interest may be perfected by the filing of a financing statement under the Delaware UCC.
Without limiting the foregoing, the security interest of the Lender in the Securities Account has
been perfected pursuant to the execution and delivery of the Control Agreement.
8. The making of the Loans and the application of the proceeds thereof as provided in the
Credit Agreement do not violate Regulations T, U and X of the Board of Governors of the Federal
Reserve Board.
9. The Borrower is not an investment company or a company controlled by an investment
company, as such terms are defined in the Investment Company Act of 1940, as amended.
Our opinions set forth above are subject to the following additional qualifications and
limitations:
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The enforceability of each Loan Document is subject to the effect of applicable
bankruptcy, insolvency, reorganization, receivership, arrangement, moratorium, assignment
for the benefit of creditors and other similar laws affecting the rights and remedies of
creditors. This qualification includes, without limitation, the avoidance, fraudulent
transfer and preference provisions of the federal Bankruptcy Code of 1978 (11 U.S.C. §§ 101
et seq.), as amended, and the fraudulent transfer and conveyance laws of the State of
Missouri, and we render no opinion that any transaction provided for in the Loan Documents
would not be subject to avoidance or otherwise adversely affected under such provisions or
laws. |
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The enforceability of each Loan Document is subject to the effect of principles of
equity (including those respecting the availability of specific performance), whether
considered |
HSBC Finance Corporation
January ___, 2009
Page 6
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in a proceeding at law or in equity, and the limitations imposed by applicable
procedural requirements of applicable state or federal law. |
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The enforceability of each Loan Document is subject to (1) the effect of generally
applicable rules of law that limit or deny the enforceability of provisions (i) purporting
to waive defenses or rights or the obligations of good faith, fair dealing, diligence and
reasonableness; (ii) purporting to authorize a party to take discretionary independent
actions for the account of, or as agent or attorney-in-fact for, a Credit Party under a
Loan Document; or (iii) purporting to provide for the indemnification or exculpation of a
party with respect to such partys intentional acts or gross negligence, with respect to
securities
law violations or to the extent that such provisions violate public policy considerations;
and (2) the effect of generally applicable rules of law that may, where a portion of the
contract may be unenforceable, limit the enforceability of the balance of the contract to
circumstances in which the unenforceable portion is not an essential part of the transaction
or contract. |
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We express no opinion as to the enforceability of (i) any contractual provision which
either directly or indirectly limits or tends to limit the time in which any suit or action
may be instituted by a party; (ii) any contractual provision which requires a party to
execute and deliver additional agreements or instruments other than agreements or
instruments which are limited in effect to effectuating the express terms of a Loan
Document and do not expand or modify such terms; (iii) any waiver by a party of personal
service of process or any consent of a party to service of process upon it in a manner that
does not satisfy the requirements of applicable law; (iv) any waiver by a party of its
right to a jury trial, (v) any provision of a Loan Document that purports to waive or
modify the rules identified in Section 9-602 of the applicable Uniform Commercial Code; and
(vi) any contractual provision which would have the effect of giving the Lender cumulative
or duplicative remedies, to the extent such cumulative or duplicate remedies purport to or
would have the effect of compensating the Lender in amounts in excess of the actual amount
of the indebtedness owed to the Lender and other loss suffered by the Lender. |
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The enforceability of any right of set-off in any of the Loan Documents is subject to
the effect of common law principles pertaining to set-off, such as mutuality of
obligations, maturity of obligations, and the like. |
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F. |
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The enforceability of a Loan Document which purports to be a guarantee of, or the grant
of a lien or security interest for, the payment or performance of obligations of another
person (guaranteed obligations), including, without limitation, the applicable provisions
of the Credit Agreement, is subject to the effect of generally applicable rules of law that
may discharge the guarantor or grantor of such lien or security interest to the extent that
(i) action or inaction by the beneficiary of the guaranteed obligations impairs |
HSBC Finance Corporation
January ___, 2009
Page 7
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the value
of collateral securing guaranteed obligations to the detriment of such guarantor or grantor
or (ii) the guaranteed obligations are materially modified. |
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G. |
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With respect to the recovery of attorneys fees under the Loan Documents, to the extent
that the laws of the State of Missouri are applicable, the provisions of Mo. Rev. Stat. §
408.092 limit the right to recover attorneys fees in connection with a credit agreement
(as defined in Mo. Rev. Stat. § 432.045.1) and reads in pertinent part as follows: |
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Notwithstanding any other provision of law to the contrary, attorneys fees are permitted to
enforce a credit agreement provided the enforcing attorney is a licensed member of the
Missouri Bar or is authorized to practice law in Missouri, and such fees meet one of the
following requirements: |
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Such fees are included in a written credit agreement, and are not otherwise
prohibited by law; or |
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(2) |
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Such fees do not exceed fifteen percent of the outstanding credit balance in
default, provided such credit was extended by a for-profit business or credit union. ... |
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At the courts discretion, additional fees may be awarded to the attorney for the prevailing
party. |
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A credit agreement is defined in Mo. Rev. Stat. § 432.045.1 as an agreement to lend or
forebear repayment of money, to otherwise extend credit, or to make other financial
accommodation. |
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H. |
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With respect to the enforceability of any contractual provision stating that the Credit
Agreement or any of the other Loan Documents or the obligations, rights or remedies of the
parties thereunder shall be governed by or construed or determined in accordance with the
laws of the State of New York, we call your attention to the following: Missouri courts
generally apply the rules of Section 187 of the Restatement (Second) of Conflicts of Law
(1971) in deciding whether to give effect to the parties choice of the state whose law
will govern the interpretation of their contractual rights and duties. State ex rel. Geil
v. Corcoran, 623 S.W.2d 557, 559 (Mo. Ct. App. 1981); Davidson & Associates, Inc. v.
Internet Gateway, 334 F. Supp. 2d 1164, 1175 (E.D. Mo. 2004). Section 187 of the
Restatement provides in pertinent part as follows: |
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(1) |
|
The law of the state chosen by the parties to govern their contractual rights
and duties will be applied if the particular issue is one which the parties could have
resolved by an explicit provision in their agreement directed to that issue. |
HSBC Finance Corporation
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(2) |
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The law of the state chosen by the parties to govern their contractual rights
and duties will be applied even if the particular issue is one which the parties could
not have resolved by an explicit provision in their agreement directed to that issue
unless either: |
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(a) |
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the chosen state has no substantial
relationship to the parties or the transaction and there is no
other reasonable basis for the parties choice, or |
|
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(b) |
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application of the law of the chosen state
would be contrary to a fundamental policy of a state which has a
materially greater interest than the chosen state in the
determination of the particular issue and which, under the rule
of § 188 [of the Restatement], would be the state of the
applicable law in the absence of an effective choice of law by
the parties. |
While the Missouri choice of law rules are, nevertheless, not entirely settled, we believe
that a state or federal court sitting in the State of Missouri, properly presented with the
question and properly applying the choice of law rules of the State of Missouri should honor
the provisions of a Loan Document stating that, to the extent provided therein, the rights
and duties of the parties thereto are to be governed by the laws of the State of New York
(except as to matters of procedure which may be governed by the laws of the forum state)
unless either (a) the State of New York has no substantial relationship to the parties to
such Loan Document or the transactions contemplated by such Loan Document and there is no
reasonable basis for such parties choice or (b) application of the laws of the State of New
York would be contrary to a fundamental policy of the State of Missouri and the State of
Missouri has materially greater interest than the State of New York in the determination of
the particular issue.
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I. |
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With respect to the enforceability of any contractual provision in the Credit Agreement
or any other Loan Document whereby the parties submit to the jurisdiction of the federal
and New York State courts located in the City or County of New York in connection with any
suit, action or proceeding related to such agreement or any of the matters contemplated
thereby, we call your attention to the following: Missouri courts generally follow the
holding of the Missouri Supreme Court in High Life Sales Co. v. Brown-Forman Corp., 823
S.W.2d 493 (Mo. 1992) that a forum selection clause in a contract should be enforced unless
it is unfair or unreasonable to do so. Id. at 494. Factors considered by Missouri courts
in determining the fairness of enforcing forum selection clauses include (1) whether a
forum selection clause is a part of an adhesive contract (i.e., one in which the parties
have unequal standing in terms of bargaining power (usually a large corporation versus an
individual) and often involv[ing] take-it-or-leave-it provisions in printed form
contracts, id. at 497), (2) whether the forum selection clause was neutral |
HSBC Finance Corporation
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and reciprocal
(Id.) and (3) whether inclusion of the forum selection clause in the contract was the
product of fraud or coercion (Marano Enterprises v. Z-Teca Restaurants, L.P., 254 F.3d 753,
757 (8th Cir. 2001)). There are also Missouri cases which have found a forum
selection clause to be unreasonable (e.g., High Life Sales). |
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J. |
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In addition to the other qualifications set forth in this opinion letter regarding the
enforceability of a Loan Document under the laws of the State of Missouri, certain waivers,
procedures, remedies and other provisions of any Loan Document covered by such opinion may
be rendered unenforceable or limited by the laws, regulations or judicial decisions of the
State of Missouri within the scope of this opinion letter, but such laws, regulations and
judicial decisions would not render any of such Loan Documents invalid as a whole under the
laws of the State of Missouri and would not make the remedies available under such Loan
Documents inadequate for the practical realization of the principal rights and benefits
purporting to be afforded thereby, except for the economic consequences of any judicial,
administrative or other delay or procedure which may be imposed by applicable law. |
|
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K. |
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With respect to our opinions regarding security interests set forth in opinion
paragraph 7 above, we advise you that (i) any security interest in proceeds (as defined
in the New York UCC, the Missouri UCC or the Delaware UCC, as applicable) of Collateral may
be limited as to perfection and effectiveness to the extent provided in Section 9-315 of
the New York UCC, the Missouri UCC or the Delaware UCC, as applicable; and (ii) the
Lenders rights under the Loan Documents are subject to the rights of the following parties
under circumstances described in the applicable sections of the New York UCC, the Missouri
UCC or the Delaware UCC, as applicable, set forth below: (a) purchasers of chattel paper
or instruments under the circumstances described in Section 9-330 or (b) holders in due
course of negotiable instruments, holders to whom negotiable documents of title have been
duly negotiated, or protected purchasers of securities, in each case, under the
circumstances described in Section 9-331. |
|
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L. |
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We note that in order to continue the perfection of the security interest in that
portion of the Collateral which has been perfected by the filing of the Financing Statement
under the Delaware UCC for more than five (5) years, a continuation statement must be filed
as to such Financing Statement in the Filing Office within six (6) months prior to the
expiration of each consecutive five-year period (with the first such period commencing on
the date the Financing Statement was duly filed) and in all respects in compliance with
Article 9, Part 5 of the Delaware UCC. |
|
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M. |
|
We call your attention to the fact that with respect to any security interest in
Collateral perfected by the filing of the Financing Statement under the Delaware UCC, the
Financing Statement will not be effective to perfect a security interest under the Delaware
UCC in (i) any Collateral acquired by the Borrower more than four (4) months after it
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HSBC Finance Corporation
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changes it name so as to make the Financing Statement seriously misleading, unless a new
appropriate financing statement indicating its new name is properly filed before the
expiration of such four (4) months and (ii) any Collateral four (4) months after it changes
its jurisdiction of organization (or if earlier, when perfection under the Delaware UCC
would have ceased) unless such security interest is perfected in such new jurisdiction
before that termination occurs. |
|
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N. |
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We are expressing no opinion as to the priority of any lien or security interest
created by the Loan Documents. |
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O. |
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We call your attention that Section 552 of the federal Bankruptcy Code limits the
extent to which property acquired by a debtor after the commencement of a case under the
federal Bankruptcy Code may be subject to a security interest arising from a security
agreement entered into by such debtor before the commencement of such case. |
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P. |
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We do not express any opinion as to the attachment or perfection of a security interest
in deposit accounts, letter-of-credit rights, money or commercial tort claims as those
terms are defined in the New York UCC, the Missouri UCC or the Delaware UCC, as applicable. |
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Q. |
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We express no opinion with respect to any laws, rules or regulations governing the
issuance or sale of securities. |
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R. |
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In connection with any matters confirmed by us with respect to the existence or absence
of facts, conditions or circumstances, the words to our knowledge, of which we have
knowledge, known to us and words of similar import mean that in the course of performing
legal services on behalf of any Credit Party, we are without conscious awareness of facts
or other information that such confirmed matters are untrue, and in preparing this opinion
letter, we have not undertaken any independent verification of such confirmed matters
beyond our recollection of legal services currently or previously performed by us for the
Credit Parties, and have made no investigation or inquiry with any Credit Party or any
other persons regarding such confirmed matters except as stated above in this opinion
letter. For purposes of the preceding sentence, the terms to our knowledge, of which we
have knowledge, known to us and similar phrases refer to the actual present knowledge of
those lawyers of Stinson Morrison Hecker LLP who have devoted substantive attention to the
matters relating to the Loan Documents and the other transactions of the Credit Parties
occurring on the date hereof, and not to the knowledge of Stinson Morrison Hecker LLP as a
firm or its partners or employees generally. |
|
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S. |
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Our opinions set forth in this opinion letter are based upon the facts in existence and
the laws in effect on the date hereof, and we expressly disclaim any obligation to update
or |
HSBC Finance Corporation
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supplement our opinions in response to changes in the law becoming effective hereafter
or future events or circumstances affecting the transactions contemplated by the Loan
Documents. |
Our opinions and statements expressed herein are restricted to matters governed by (a) the
federal laws of the United States of America; (b) the laws of the State of Missouri, including,
without limitation, the Uniform Commercial Code as in effect in the State of Missouri, Mo. Rev.
Stat. §§ 400.1-101 et seq. (the Missouri UCC); (c) with respect to the opinions given as to the
Borrower set forth in opinion paragraphs 1, 2, 3, 4(a) and 5, the Delaware Limited Liability Act, 6
Del. Code Ann. §§ 101 et seq.; (d) with respect to the opinions given as to the Borrower set forth
in the first and third sentences of opinion paragraph 7, Article 9 of the Uniform Commercial Code
as in effect in the State of New York, 38 New York Consol. Laws §§ 9-101 et seq. (the New York
UCC); and (e) with respect to the opinions given as to the Borrower set forth in opinion paragraph
5 and the second sentence of opinion paragraph 7, Article 9 of the Uniform Commercial Code as in
effect in the State of Delaware, 6 Del. Code Ann. §§ 9-101 et seq. (the Delaware UCC). Except as
indicated in the preceding sentence, we express no opinion as to any matter rising under the laws
of any other jurisdiction, including, without limitation, the statutes, ordinances, rules and
regulations of counties, towns, municipalities and special political subdivisions of the State of
Missouri. To the extent that any Reviewed Document is governed by or subject to the laws of any
state or jurisdiction not specified above in this paragraph with respect to such opinion or
confirmation, we have assumed that the laws of
such state or jurisdiction (without regard to conflicts of laws principles) are substantively
identical to the laws of the State of Missouri.
This opinion letter is solely for the benefit of the addressee hereof in connection with the
execution and delivery of the Loan Documents and may not be relied upon for any other purpose or by
any other person for any purpose, without in each instance our prior written consent. We
understand that this opinion letter may be included in closing binders with respect to the
transactions contemplated by the Loan Documents.
Very truly yours,
STINSON MORRISON HECKER LLP
EXHIBIT A
Financing Statement
[Attached]
EXHIBIT TO UCC-1 FINANCING STATEMENT
BLOCK FINANCIAL LLC, as Debtor (Debtor)
HSBC FINANCE CORPORATION, as Secured Party (Secured Party)
1. Collateral. The Collateral is all of Debtors right, title and interest in the
following property and interests in property, whether now owned or hereafter acquired by Debtor and
wherever located (certain terms used in this paragraph 1 are defined in paragraph 2):
(a) the BFC Program Contracts, including (without limitation) the Participation
Interests purchased by Debtor under the Participation Agreement, all rights of Debtor
related to the HSBC RALs to which such Participation Interests relate, and all monies due
and to become due in respect thereof; provided, that the Collateral shall not include the
rights of Debtor, (i) under Section 4.1 of the Participation Agreement, to participate or
not participate in subsequently originated HSBC RALs and to change the Applicable Percentage
(as defined in the Participation Agreement) with respect thereto, (ii) under Section 4.4 of
the Participation Agreement, to elect not to purchase a participation interest in certain
groups of subsequently originated HSBC RALs; and (iii) under Section 4.8 of the
Participation Agreement to sell, assign or transfer its right to purchase participation
interests on subsequently originated HSBC RALs that are not financed by Secured Party;
(b) the Securities Account; and
(c) all proceeds, supporting obligations, income, benefits, substitutions, additions
and replacements of and to any of the property described herein including, without
limitation, all rights, claims and benefits against any Contract Obligor or other obligor
obligated on any Collateral, and all related books, correspondence, files, records, invoices
and other papers, including, without limitation, all computer runs, programs and files.
2. Definitions. In this Exhibit to Financing Statement, the following terms shall
have the following meanings:
BFC Program Contracts means, collectively, the Indemnification Agreement, the
Participation Agreement and the Servicing Agreement.
Contract Obligor means any obligor that is obligated to Debtor under a BFC Program
Contract.
HSBC RAL means HSBC RAL as such term is defined in the Appendix of Defined Terms
and Rules of Construction attached as Appendix A to Retail Settlement Products Distribution
Agreement.
HSBC TFS means HSBC Taxpayer Financial Services, Inc., a Delaware corporation.
Indemnification Agreement means the HSBC Settlement Products Indemnification
Agreement dated as of September 23, 2005 among HSBC Bank USA, National Association, HSBC TFS,
Household Tax Masters Acquisition Corporation, Beneficial Franchise Company Inc., H&R Block
Services, Inc., H&R Block Tax Services, Inc., H&R Block Enterprises, Inc., H&R Block Eastern
Enterprises, Inc., HRB Digital LLC (successor by merger to H&R Block Digital Tax Solutions, LLC),
H&R Block and Associates, L.P. (now dissolved), HRB Innovations Inc. (formerly known as HRB
Royalty, Inc.) and Debtor, as amended by the Joinder and First Amendment to Program Contracts dated
as of November 10, 2006, the Second Amendment to Program Contracts dated as of November 13, 2006,
and the Third Amendment to Program Contracts dated as of December 5, 2008, and as further amended
from time to time, and any restatement, extension, renewal and replacement thereof.
Participation Agreement means the First Amended and Restated HSBC Refund
Anticipation Loan and IMA Participation Agreement, dated as of November 13, 2006, as amended from
time to time, and any restatement, extension, renewal and replacement thereof, by and among the
Debtor, HSBC Bank USA, National Association, HSBC TFS and HSBC Trust Company (Delaware), National
Association.
Participation Interest means a Participation Interest under and as defined in the
Credit Agreement.
Retail Settlement Products Distribution Agreement means the HSBC Retail Settlement
Products Distribution Agreement, dated as of September 23, 2005 among HSBC Bank USA, National
Association, HSBC TFS, Beneficial Franchise Company Inc., Household Tax Masters Acquisition
Corporation, H&R Block Services, Inc., H&R Block Tax Services, Inc., H&R Block Enterprises, Inc.,
H&R Block Eastern Enterprises, Inc., HRB Digital LLC (successor by merger to H&R Block Digital Tax
Solutions, LLC), H&R Block and Associates, L.P. (now dissolved), HRB Innovations Inc. (formerly
known as HRB Royalty, Inc.), HSBC Finance Corporation and H&R Block, Inc., as amended by the
Joinder and First Amendment to Program Contracts dated as of November 10, 2006, the Second
Amendment to Program Contracts dated as of November 13, 2006, and the Third Amendment to Program
Contracts dated as of December 5, 2008, by and among the parties thereto, and as further amended
from time to time, and any restatement, extension, renewal and replacement thereof.
Securities Account means account number 615878 maintained by Debtor with the
Securities Intermediary, all cash balances, securities, instruments, financial assets and
investment property at any time and from time to time credited to, received or receivable in
respect of such account, and all securities entitlements and claims thereunder or in connection
therewith.
Securities Intermediary means HSBC Investor Funds.
Servicing Agreement means the First Amended and Restated HSBC Settlement Products
Servicing Agreement dated as of November 13, 2006, as amended from time to time, and any
restatement, extension, renewal and replacement thereof, among HSBC Bank USA, National Association,
HSBC TFS, HSBC Trust Company (Delaware), N.A., and Debtor.
Uniform Commercial Code means the Uniform Commercial Code as in effect from time to
time in the State of New York; provided, however, if, by reason of mandatory provisions of law, the
attachment, perfection or priority of Secured Partys security interest in any Collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of New
York, the term Uniform Commercial Code shall mean the Uniform Commercial Code as in effect in
such other jurisdiction for purposes of the provisions hereof relating to such attachment,
perfection or priority and for purposes of definitions related to such provisions.
The terms financial asset, instrument, investment property,
proceeds, security, security entitlement, and supporting
obligation shall have the respective meanings set forth in the Uniform Commercial Code.
EXHIBIT B
Financing Agreements and Instruments
1. |
|
Indenture dated October 20, 1997 among Block Financial LLC (the Company), H&R Block, Inc.
(the Guarantor) and Deutsche Bank Trust Company Americas (f/k/a Bankers Trust Company) (the
First Trustee), together with: |
|
a. |
|
The First Supplemental Indenture dated as of April 18, 2000 among the
Company, the Guarantor, the First Trustee and The Bank of New York, as separate
trustee under the Indenture (the Second Trustee). |
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|
b. |
|
The Officers Certificate of the Company dated October 26, 2004
establishing the terms of the Notes described in c. below. |
|
|
c. |
|
The Companys 5.125% Notes due 2014, which are guaranteed by the
Guarantor pursuant to the guarantees endorsed on said Notes. |
|
|
d. |
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The Officers Certificate of the Company dated January 11, 2008
establishing the terms of the Notes described in e. below. |
|
|
e. |
|
The Companys 7.875% Notes due 2013, which are guaranteed by the
Guarantor pursuant to the guarantees endorsed on said Notes. |
2. |
|
The Amended and Restated Five-year Credit and Guarantee Agreement dated as of August 10, 2005
among the Company, the Guarantor, the financial institutions which are Lender parties thereto,
and JP Morgan Chase Bank, N.A., as Administrative Agent (in such capacity, the Administrative
Agent), as amended by the First Amendment dated as of November 28, 2006 among the Company,
the Guarantor, the Lender parties and the Administrative Agent and the Second Amendment dated
as of November 19, 2007 among the Company, the Guarantor, the Lender parties and the
Administrative Agent. |
3. |
|
The Five-Year Credit and Guarantee Agreement dated as of August 10, 2005 among the Company,
the Guarantor, the financial institutions which are Lender parties thereto, and the
Administrative Agent, as amended by the First Amendment dated as of November 28, 2006 among
the Company, the Guarantor, the Lender parties and the Administrative Agent and the Second
Amendment dated as of November 19, 2007 among the Company, the Guarantor, the Lender parties
and the Administrative Agent. |
4. |
|
The HSBC Retail Settlement Products Distribution Agreement, dated as of September 23, 2005
among HSBC Bank USA, National Association, HSBC TFS, Beneficial Franchise Company Inc.,
Household Tax Masters Acquisition Corporation, H&R Block Services, Inc., H&R Block Tax
Services, Inc., H&R Block Enterprises, Inc., H&R Block Eastern Enterprises, Inc., HRB Digital
LLC (successor by merger to H&R Block Digital Tax |
|
|
Solutions, LLC), H&R Block and Associates,
L.P. (now dissolved), HRB Innovations Inc. (formerly known as HRB Royalty, Inc.), HSBC Finance
Corporation and the Guarantor, as amended by the Joinder and First Amendment to Program
Contracts dated as of November 10, 2006, the Second Amendment to Program Contracts dated as of November 13,
2006, and the Third Amendment to Program Contracts dated as of December 5, 2008 by and among
the parties thereto, including, the Lender and the Guarantor, and as further amended from
time to time, and any restatement, extension, renewal and replacement thereof. |
|
5. |
|
The First Amended and Restated HSBC Refund Anticipation Loan and IMA Participation Agreement,
dated as of November 13, 2006, by and among the Borrower, HSBC Bank USA, National Association,
HSBC TFS and HSBC Trust Company (Delaware), National Association, as amended from time to
time, and any restatement, extension, renewal and replacement thereof. |
|
6. |
|
The First Amended and Restated HSBC Settlement Products Servicing Agreement dated as of
November 13, 2006, among HSBC Bank USA, National Association, HSBC TFS, HSBC Trust Company
(Delaware), N.A., and the Borrower, as amended from time to time, and any restatement,
extension, renewal and replacement thereof. |
|
7. |
|
The HSBC Settlement Products Indemnification Agreement dated as of September 23, 2005 among
HSBC Bank USA, National Association, HSBC TFS, Household Tax Masters Acquisition
Corporation, Beneficial Franchise Company Inc., H&R Block Services, Inc., H&R Block Tax
Services, Inc., H&R Block Enterprises, Inc., H&R Block Eastern Enterprises, Inc., HRB
Digital LLC (successor by merger to H&R Block Digital Tax Solutions, LLC), H&R Block and
Associates, L.P. (now dissolved), HRB Innovations Inc. (formerly known as HRB Royalty, Inc.)
and the Company, as amended by the Joinder and First Amendment to Program Contracts dated as
of November 10, 2006, the Second Amendment to Program Contracts dated as of November 13,
2006, and the Third Amendment to Program Contracts dated as of December 5, 2008, and as
further amended from time to time, and any restatement, extension, renewal and replacement
thereof. |
EX-10.3
Exhibit 10.3
SEPARATION AND RELEASE AGREEMENT
This SEPARATION AND RELEASE AGREEMENT (the Agreement) is entered into as of the 20th day of
January, 2009, by and between RSM McGladrey Business Services, Inc., a Delaware corporation
(RSM), and Steven Tait (Executive).
WHEREAS, Executive and RSM are parties to an Employment Agreement dated April 1, 2003 (the
Employment Agreement),
WHEREAS, Executive and RSM agree to terminate Executives employment,
WHEREAS, Executive and RSM intend the terms and conditions of this Agreement to govern all
issues related to Executives employment and separation,
NOW, THEREFORE, in consideration of the covenants and mutual promises contained in this
Agreement, Executive and RSM agree as follows:
1. Termination of Employment. The parties agree that Executives employment with RSM
will terminate on April 30, 2009 (Termination Date). Until the Termination Date, the Executive
will remain on active payroll and be paid his current salary in accordance with RSMs regular
payroll practices. Until the Termination Date, Executive agrees that he will continue to perform
his current role, and will respond to questions and provide guidance as requested by RSM. On or
after the Termination Date, Executive acknowledges and agrees that he will not represent himself as
being an employee, officer, director, trustee, member, partner, agent, or representative of RSM for
any purpose, and will not make any public statements on behalf of RSM. Executive further
acknowledges and agrees that he has received proper notice under Section 1.07(b) of his Employment
Agreement to terminate it.
2. Resignation. Executive agrees that as of the Termination Date, he resigns from all
offices, directorships, trusteeships, committee memberships, and fiduciary capacities held with, or
on behalf of, RSM or its parents, subsidiaries, or affiliates (collectively as Affiliates), or
any benefit plans of RSM or its Affiliates. Executive will execute the resignations attached as
Exhibit A on minute book paper contemporaneously with his execution of this Agreement.
3. Severance Benefits. The parties agree to treat Executives termination of
employment as a termination without cause and a Qualifying Termination (as defined in Section
1.07 of the Employment Agreement) for purposes of Executives eligibility for severance
compensation and benefits as set forth in this Section. Subject to the terms and conditions of
this Agreement, including Executives executing this Agreement and the Supplemental General
Release, Executive acknowledges and agrees that he will not be eligible for any compensation or
benefits after the Termination Date except for the following:
a. Severance Pay. Subject to the terms of the H&R Block Severance Plan
(Severance Plan), RSM will pay to Executive $827,688.00, less required tax withholdings,
(which amount represents an aggregate of (A) Executives annual base
1
salary of $486,875.00 and (B) a severance enhancement equal to Executives target
short-term incentive compensation for RSMs fiscal year 2009 of $340,813.00, each determined
as of the date of this Agreement) in a lump sum payment within 30 days from the later of the
Termination Date or the Effective Date of this Agreement.
b. Short Term Incentive Bonus Payment. RSM will pay Executive a Short Term
Incentive bonus for Fiscal Year 2009 in accordance with RSMs regular short term incentive
process, and the terms and conditions of the short term incentive plan in which Executive
currently participates. RSM will pay Executive the Short Term Incentive bonus due him at
the time RSM pays other such bonuses.
c. Employee Benefits. Executive will remain eligible to participate in the
various health and welfare benefit plans maintained by RSM until the Termination Date.
After the Termination Date, RSM will pay Executive a lump sum payment, less applicable tax
withholdings, in an amount equal to Executives COBRA Subsidy multiplied by 12. COBRA
Subsidy means an amount equal to Executives monthly post-employment premium for health and
welfare benefits under COBRA less the amount Executive paid for such benefits as an active
employee. To be eligible for the payment described in this subsection, Executive must be
enrolled in RSMs health and welfare plans on the Terminate Date. If Executive qualifies
for this payment, RSM will pay Executive this payment within 30 days from the later of the
Termination Date or the Effective Date of this Agreement. Conversion privileges may also be
available for other benefit plans.
d. Stock Options. Those portions of any outstanding incentive stock options
(ISO Stock Options) and nonqualified stock options (NQ Stock Options) to purchase shares
of HRBs common stock granted to Executive by RSM that are scheduled to vest between the
Termination Date and 18 months thereafter (based solely on the time-specific vesting
schedule included in the applicable stock option agreement) shall vest and become
exercisable as of the Termination Date. A list of the stock options vested as of the date
of this Agreement and to become vested pursuant to this Section is attached as Exhibit B.
Any stock options unaffected by the operation of this Section shall be forfeited to RSM on
the Termination Date. No later than the Termination Date, Executive will complete an
election form on which he will elect the time period during which he may exercise his ISO
and NQ Stock Options. Executive acknowledges and agrees that he is solely responsible for
the income tax treatment of his ISO and NQ Stock Options election, and that RSM has not
provided him any personal tax advice about this election. RSM encourages Executive to seek
independent tax advice regarding this election.
e. Restricted Shares. All restrictions on any shares of HRBs common stock
awarded to Executive by RSM (Restricted Shares) that would have lapsed absent a
termination of employment in accordance with their terms by reason of time between the
Termination Date and 18 months thereafter shall terminate (and shall be fully vested) as of
the Termination Date. Any shares unaffected by the operation of this Section shall be
forfeited to RSM on the Termination Date. A list of the Restricted Shares outstanding as of
the date of this Agreement and to become vested pursuant to this Section is attached as
Exhibit C.
2
f. Performance Shares. The number of performance shares Executive will
receive at the end of the performance period (June 30, 2009) of those awarded him under the
June 30, 2006 grant will be determined based upon (1) Executives pro-rata length of service
during the performance period, and (2) the achievement of the performance goals at the end
of the performance period. RSM will pay any performance shares due Executive to him at the
time payments are generally made to other individuals who received an
award of performance shares on June 30, 2006. On the Termination Date, Executive shall forfeit to RSM any
Performance Shares RSM awarded him pursuant to a cycle which is less than one year old. A
list of the Performance Shares eligible to become payable pursuant to this subsection is
attached as Exhibit D.
g. Outplacement Services. RSM will pay directly to Right Management Services
for twelve (12) months of outplacement services to be provided to Executive.
h. Deferred Compensation. Executive will receive his vested account balance
and payment in accordance with Executives payment elections under the H&R Block Deferred
Compensation Plan for Executives, as amended.
i. Forfeiture. Executive agrees that the compensation and benefits described
in this Section will cease and no further compensation and benefits will be provided to him
if he violates any of the post-employment obligations under Section 7 of this Agreement, or
Articles Two and Three of the Employment Agreement.
4. Vacation. RSM will pay Executive for his accrued, unused paid time off which
includes vacation, floating holidays, and personal days (but excludes sick leave as set forth in
the Companys policies) within 21 days of the Termination Date. Executive will not receive any
other payment for vacation or holidays.
5. Executives Representations. Executive represents and acknowledges to RSM that (a)
RSM has advised him to consult with an attorney of his choosing; (b) he has had twenty-one (21)
days to consider the waiver of his rights under the Age Discrimination in Employment Act of 1967,
as amended (ADEA) prior to signing this Agreement; (c) he has disclosed to RSM any information in
his possession concerning any conduct involving RSM or its Affiliates that he has any reason to
believe involves any false claims to any governmental agency, or is or may be unlawful, or violates
RSM policy in any respect; (d) the consideration provided him under this Agreement is sufficient to
support the releases provided by him under this Agreement; and (e) he has not filed any charges,
claims or lawsuits against RSM involving any aspect of his employment which have not been
terminated as of the date of this Agreement. Executive understands that RSM regards the
representations made by him as material and that RSM is relying on these representations in
entering into this Agreement.
6. Effective Date of this Agreement. Executive shall have seven (7) days from the
date he signs this Agreement to revoke his consent to the waiver of his rights under the ADEA in
writing addressed and delivered to Russ Smyth, Chief Executive Officer, which action shall revoke
this Agreement. If Executive revokes this Agreement, all of its provisions shall be void and
unenforceable. If Executive does not revoke his consent, this Agreement will take effect on the
day after the end of this revocation period (the Effective Date).
3
7. Surviving Employment Agreement Obligations. Executive and RSM agree that the
termination of Executives employment will not affect the following provisions of the Employment
Agreement which, by their express terms, impose continuing obligations on one or more of the
parties following termination of the Employment Agreement: (a) Article Two, Confidentiality
Sections 2.01, 2.02; (b) Article Three, Non-Hiring; Non-Solicitation; No Conflicts;
Non-Competition Sections 3.01, 3.02, 3.03, 3.05, 3.06; and (c) Article Four, Specific
Performance Section 4.03. Executive acknowledges and agrees that he will fully comply with
these obligations. RSM may agree to waive any of Executives surviving post-employment obligations
under the Employment Agreement. Any such waiver must be in writing and signed by Executive and the
Chief Executive Officer of HRB. Unless otherwise agreed by the parties in writing, any payments
made to Executive under this Agreement will immediately cease upon any such waiver.
8. Business Expenses and Commitments. As of the Termination Date, Executive agrees
that he will have submitted required documentation for all outstanding expenses on his corporate
credit card. Executive further agrees that he will not initiate, make, renew, confirm or ratify
any contracts or commitments for or on behalf of HRB, RSM, or any Affiliate, nor will he incur any
expenses on behalf of HRB, RSM, or any Affiliate without RSMs prior written consent.
9. Release. Executive and his heirs, assigns, and agents forever release, waive, and
discharge HRB, RSM, and Released Parties as defined below from each and every claim, action, or
right of any sort, known or unknown, arising on or before the Effective Date.
a. The foregoing release includes, but is not limited to, (1) any claim of retaliation
or discrimination on the basis of race, sex, pregnancy, religion, marital status, sexual
orientation, national origin, handicap or disability, age, veteran status, special disabled
veteran status, or citizenship status or any other category protected by law; (2) any other
claim based on a statutory prohibition or requirement such as the Age Discrimination in
Employment Act, Title VII of the Civil Rights Act, the Americans With Disabilities Act, the
Fair Labor Standards Act, the Employee Retirement Income Security Act of 1974, the Missouri
Human Rights Act, the Missouri Service Letter Statute, and the Civil Rights Ordinance of
Kansas City, Missouri; (3) any claim arising out of or related to an express or implied
employment contract, any other contract affecting terms and conditions of employment, or a
covenant of good faith and fair dealing; (4) any tort claims such as wrongful discharge,
detrimental reliance, defamation, emotional distress, or compensatory or punitive damages;
(5) any personal gain with respect to any claim arising under the qui tam provisions of the
False Claims Act, 31 U.S.C. 3730, and (6) any claims to attorney fees, expenses, costs,
disbursements, and the like.
b. Executive represents that he understands the foregoing release, that rights and
claims under the Age Discrimination in Employment Act of 1967, as amended, are among the
rights and claims against the Released Parties he is releasing, and that he understands that
he is not releasing any rights or claims arising after the Effective Date.
c. Executive further agrees never to sue the Released Parties or cause the Released
Parties to be sued regarding any matter within the scope of the above release. If Executive
violates this release by suing the Released Parties or causing the Released Parties to be
sued,
4
Executive agrees to pay all costs and expenses of defending against the suit incurred
by the Released Parties, including reasonable attorneys fees except to the extent that
paying such costs and expenses is prohibited by law or would result in the invalidation of
the foregoing release.
d. Released Parties for purposes of this Agreement are HRB, RSM, all current and
former parents, subsidiaries, related companies, partnerships or joint ventures, and, with
respect to each of them, their predecessors and successors; and, with respect to each such
entity, all of its past, present, and future employees, officers, directors, stockholders,
owners, representatives, assigns, attorneys, agents, insurers, employee benefit programs
(and the trustees, administrators, fiduciaries and insurers of such programs), and any other
person acting by, through, under or in concert with any of the persons or entities listed in
this paragraph, and their successors.
10. Breach by Executive. RSMs obligations to Executive after the Effective Date are
contingent on his obligations under this Agreement. Any material breach of this Agreement by
Executive will result in the immediate cancellation of RSMs obligations under this Agreement and
of any benefits that have been granted to Executive by the terms of this Agreement except to the
extent that such cancellation is prohibited by law or would result in the invalidation of the
foregoing release.
11. Executive Availability. Executive agrees to make himself reasonably available to
HRB and/or RSM to respond to requests by HRB and/or RSM for information pertaining to or relating
to the Company and/or its Affiliates, agents, officers, directors or employees. Executive will
cooperate fully with HRB and/or RSM in connection with any and all existing or future litigation or
investigations brought by or against HRB, RSM, or any of its Affiliates, agents, officers,
directors or employees, whether administrative, civil or criminal in nature, in which and to the
extent HRB and/or RSM deems Executives cooperation necessary. RSM will reimburse Executive for
reasonable out-of pocket expenses incurred as a result of such cooperation. Nothing herein shall
prevent the Employee from communicating with or participating in any government investigation.
12. Non-Disparagement. Executive agrees, subject to any obligations he may have under
applicable law, that he will not make or cause to be made any statements that disparage, are
inimical to, or damage the reputation of HRB, RSM, or any of its Affiliates, agents, officers,
directors, or employees. In the event such a communication is made to anyone, including but not
limited to the media, public interest groups and publishing companies, it will be considered a
material breach of the terms of this Agreement and Executive will be required to reimburse RSM for
any and all compensation and benefits (other than those already vested) paid under the terms of
this Agreement and all commitments to make additional payments to Executive will be null and void.
13. Return of Company Property. Executive agrees that as of the Termination Date he
will have returned to HRB and/or RSM any and all HRB and/or RSM property or equipment in his
possession, including but not limited to, any computer, printer, fax, phone, credit card, badge,
Blackberry, and telephone card assigned to him.
5
14. Severability of Provisions. In the event that any provision in this Agreement is
determined to be legally invalid or unenforceable by any court of competent jurisdiction, and
cannot be modified to be enforceable, the affected provision shall be stricken from the Agreement,
and the remaining terms of the Agreement and its enforceability shall remain unaffected.
15. Entire Agreement. This Agreement sets forth the entire agreement and
understanding between the parties and may be changed only with the written consent of both parties
and only if both parties make express reference to this Agreement. The parties have not relied on
any oral statements that are not included in this Agreement. This Agreement supersedes all prior
agreements and understandings concerning the subject matter of this Agreement. Any modifications
to this Agreement must be in writing and signed by Executive and the Chief Executive Officer of
HRB. Failure of RSM to insist upon strict compliance with any of the terms, covenants, or
conditions of this Agreement will not be deemed a waiver of such terms, covenants, or conditions.
16. Applicable Law. This Agreement shall be construed, interpreted, and applied in
accordance with the law of the State of Missouri.
17. Successors and Assigns. This Agreement and each of its provisions will be binding
upon Executive and his executors, successors, and administrators, and will inure to the benefit of
RSM and its successors and assigns. Executive may not assign or transfer to others the obligation
to perform his duties hereunder.
18. Specific Performance by Executive. The parties acknowledge that money damages
alone will not adequately compensate RSM for Executive breach of any of the covenants and
agreements herein and, therefore, in the event of the breach or threatened breach of any such
covenant or agreement by Executive, in addition to all other remedies available at law, in equity
or otherwise, RSM will be entitled to injunctive relief compelling Executives specific performance
of (or other compliance with) the terms hereof.
19. Counterparts. This Agreement may be signed in counterparts and delivered by
facsimile transmission confirmed promptly thereafter by actual delivery of executed counterparts.
20. Supplemental Release. Executive agrees that within 21 days after the Termination
Date, he will execute an additional release covering the period from the Effective Date to the
Termination Date. Executive agrees that all RSM covenants that relate to its obligations beyond
the last day of employment will be contingent on Executives execution of the supplemental release.
The supplemental release will be in the form of Exhibit E to this Agreement.
21. Section 409A. Because the requirements of Section 409A of the Internal Revenue
Code are still being developed and interpreted by government agencies, certain issues under Section
409A remain unclear as of the Effective Date. RSM has made a good faith effort to comply with
current guidance under Section 409A. Notwithstanding the foregoing or any provision in this
Agreement to the contrary, RSM does not warrant or promise compliance with Section 409A, and
Executive understands and agrees that he shall not have any claim against
6
HRB, RSM, or any Affiliate for any good faith effort taken by them to comply with Section 409A.
EXECUTIVE:
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/s/ Steven Tait
Steven Tait
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Dated: January 20, 2009 |
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Accepted and Agreed:
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RSM MCGLADREY BUSINESS SERVICES, INC. |
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By:
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/s/ Russell P. Smyth
Russell P. Smyth
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Chairman of the Board |
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Dated:
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January 20, 2009 |
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7
EXHIBIT A
RESIGNATION
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TO: |
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The Board of Directors of RSM McGladrey Business Services, Inc.: |
Effective April 30, 2009, I hereby resign my position from the following companies as follows:
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Business Entity |
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Title |
Cityfront, Inc.
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President |
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RSM Employer Services Agency of Florida, Inc.
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Director |
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RSM Employer Services Agency of Florida, Inc.
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President |
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RSM Employer Services Agency, Inc.
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Director |
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RSM Employer Services Agency, Inc.
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President |
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RSM EquiCo, Inc.
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Executive Vice President |
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RSM EquiCo, Inc.
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Director |
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RSM McGladrey Business Services, Inc.
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Director |
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RSM McGladrey Business Services, Inc.
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President |
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RSM McGladrey Business Solutions, Inc.
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Director |
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RSM McGladrey Business Solutions, Inc.
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President |
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RSM McGladrey Employer Services, Inc.
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Director |
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RSM McGladrey Employer Services, Inc.
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President |
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RSM McGladrey Insurance Services, Inc.
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Director |
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RSM McGladrey Insurance Services, Inc.
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President |
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RSM McGladrey TBS, LLC
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President |
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RSM McGladrey, Inc.
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Director |
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RSM McGladrey, Inc.
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President |
A-1
EXHIBIT B
STOCK OPTION SUMMARY
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Grant Date |
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Grant Price |
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Outstanding |
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Vested |
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Accelerated |
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4/1/2003
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$21.425
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100,000
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100,000
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0 |
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|
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6/30/2004
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$23.84
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70,000
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70,000
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0 |
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6/30/2005
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$29.175
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100,000
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100,000
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0 |
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6/30/2006
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$23.86
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100,000
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66,666
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33,334 |
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6/30/2007
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$23.37
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80,000
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26,666
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53,334 |
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7/3/2008
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$21.81
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115,681
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0
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77,120 |
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Total
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363,332
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163,788 |
A-2
EXHIBIT C
RESTRICTED SHARES SUMMARY
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Grant Date |
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Grant Price |
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Outstanding |
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Vested |
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Accelerated |
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No Accelerated Vesting
A-3
EXHIBIT D
PERFORMANCE SHARES SUMMARY
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Grant Date |
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Grant Price |
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Outstanding |
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Vested |
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Accelerated |
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6/30/2006
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$0.00
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10,000
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* |
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6/30/2007
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$0.00
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15,000
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* |
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* |
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The number of shares actually awarded will be determined at the end of the applicable 3-year
performance cycle based upon actual performance results. |
Award will be prorated based upon the number of days worked by Executive during the applicable
three year performance cycle.
A-4
EXHIBIT E
SUPPLEMENTAL GENERAL RELEASE
This Supplemental General Release is delivered by Steven Tait (Executive) to and for the benefit
of the Released Parties (as defined below). The Executive acknowledges that this Supplemental
General Release is executed in accordance with Section 20 of the Separation Agreement and Release
between the parties.
1. General Release. Executive and his heirs, assigns, and agents forever release,
waive, and discharge HRB, RSM, and Released Parties as defined below from each and every claim,
action, or right of any sort, known or unknown, arising on or before the Effective Date.
a. The foregoing release includes, but is not limited to, (1) any claim of retaliation
or discrimination on the basis of race, sex, pregnancy, religion, marital status, sexual
orientation, national origin, handicap or disability, age, veteran status, special disabled
veteran status, or citizenship status or any other category protected by law; (2) any other
claim based on a statutory prohibition or requirement such as the Age Discrimination in
Employment Act, Title VII of the Civil Rights Act, the Americans With Disabilities Act, the
Fair Labor Standards Act, the Employee Retirement Income Security Act of 1974, the Missouri
Human Rights Act, the Missouri Service Letter Statute, and the Civil Rights Ordinance of
Kansas City, Missouri; (3) any claim arising out of or related to an express or implied
employment contract, any other contract affecting terms and conditions of employment, or a
covenant of good faith and fair dealing; (4) any tort claims such as wrongful discharge,
detrimental reliance, defamation, emotional distress, or compensatory or punitive damages;
(5) any personal gain with respect to any claim arising under the qui tam provisions of the
False Claims Act, 31 U.S.C. 3730, and (6) any claims to attorney fees, expenses, costs,
disbursements, and the like.
b. Executive represents that he understands the foregoing release, that rights and
claims under the Age Discrimination in Employment Act of 1967, as amended, are among the
rights and claims against the Released Parties he is releasing, and that he understands that
he is not releasing any rights or claims arising after the Effective Date.
c. Executive further agrees never to sue the Released Parties or cause the Released
Parties to be sued regarding any matter within the scope of the above release. If Executive
violates this release by suing any of the Released Parties or causing any of the Released
Parties to be sued, Executive agrees to pay all costs and expenses of defending against the
suit incurred by any of the Released Parties, including reasonable attorneys fees except to
the extent that paying such costs and expenses is prohibited by law or would result in the
invalidation of the foregoing release.
d. Released Parties for purposes of this Agreement are HRB, RSM, all current and
former parents, subsidiaries, related companies, partnerships or joint ventures, and, with
respect to each of them, their predecessors and successors; and, with respect to each
I-1
such entity, all of its past, present, and future employees, officers, directors,
stockholders, owners, representatives, assigns, attorneys, agents, insurers, employee
benefit programs (and the trustees, administrators, fiduciaries and insurers of such
programs), and any other person acting by, through, under or in concert with any of the
persons or entities listed in this paragraph, and their successors.
2. No Existing Suit. Executive represents and warrants that, as of the Effective
Date of this Supplemental General Release, he has not filed or commenced any suit, claim, charge,
complaint, or other legal proceeding of any kind against the Released Parties. The Executive
acknowledges that this Supplemental General Release does not prohibit him from filing a charge of
discrimination with the Equal Employment Opportunity Commission.
3. Knowing and Voluntary Waiver. By signing this Supplemental General Release
(Release), Executive expressly acknowledges and agrees (a) RSM has advised him to consult with an
attorney of his choosing; (b) he has had twenty-one (21) days to consider the waiver of his rights
under the Age Discrimination in Employment Act of 1967, as amended (ADEA) prior to signing this
Agreement; (c) he has carefully read this Release and know what it means; (d) the consideration
provided him under this Release is sufficient to support the releases provided by him under this
Release; and (e) Executive shall have seven (7) days from the date he signs this Release to revoke
his consent to the waiver of his rights under the ADEA in writing addressed and delivered to Russ
Smyth, HRB Chief Executive Officer, which action shall revoke this Release. If Executive revokes
this Release, he agrees that he will not be entitled to receive any of the payments or benefits
under Section 2 of the Separation Agreement. If Executive does not revoke his consent, this
Agreement will take effect on the day after the end of this revocation period (the Effective
Date).
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EXECUTIVE |
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Steven Tait |
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DATE: |
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I-2
EX-10.4
Exhibit 10.4
H&R BLOCK, INC.
DEFERRED COMPENSATION PLAN FOR EXECUTIVES
(Amended and Restated Effective December 31, 2008)
Purpose
H&R Block, Inc. (the Company) amended and restated the H&R Block, Inc. Deferred Compensation
Plan for Executives effective as of July 1, 2002. This amendment and restatement is effective
December 31, 2008, and is intended to comply with the requirements of section 409A of the Code.
The purpose of this Plan is to provide specified benefits to a select group of management or
highly compensated employees who contribute materially to the continued growth, development and
future business success of the Company and its Affiliates, if any, that sponsor this Plan. This
Plan shall be unfunded for tax purposes and for purposes of Title I of ERISA.
Notwithstanding any provision in the Plan to the contrary, pursuant to IRS Notice 2007-86, all
amounts accrued under the Plan for a Participant as of December 31, 2008 will be paid in a lump sum
on April 11, 2009, unless the Participant elects to defer Salary and Bonus earned in 2009 in
accordance with Article 3. If a Participant elects to defer for 2009, the Participant may elect
one time and form of payment for all amounts attributable to pre-2009 deferrals, as well as a time
and form of payment for deferrals for 2009 and subsequent years. For Participants in pay status on
or before December 31, 2008 (i) payments of pre-2004 deferrals shall be paid according to the Plan
as grandfathered under Code §409A, and (ii) payments of deferrals made after 2004 shall be governed
by the Participants payment elections and the terms of the Amended and Restated Plan.
The H&R Block, Inc. Deferred Compensation Trust Agreement, dated December 13, 1988, is hereby
revoked, effective December 31, 2008, in accordance with §2.03. The H&R Block, Inc. Deferred
Compensation Trust Agreement is reinstated, effective December 31, 2008 except that §§2.02-3 and
2.02-4 are deleted in the entirety.
ARTICLE 1
Definitions
For the purposes of this Plan, unless otherwise clearly apparent from the context, the
following phrases or terms shall have the following indicated meanings:
1.1 |
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Account Balance means, with respect to a Participant, a credit on the records of the
Employer equal to the sum of the Participants Deferral Account balance, the Company Matching
Account balance, and the Discretionary Company Contributions Account balance. The Account
Balance, and each other specified account balance, shall be a bookkeeping entry only and shall
be utilized solely as a device for the measurement and determination of the amounts to be paid
to a Participant, or his or her designated Beneficiary, pursuant to this Plan. |
1.2 |
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Affiliate or Affiliates means a group of entities, including the Company, which
constitutes a controlled group of corporations (as defined in section 414(b) of the Code), a
group of trades or businesses (whether or not incorporated) under common control (as defined
in section 414(c) of the Code). |
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1.3 |
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Annual Company Matching Contributions means for any one Plan Year, the amount determined in
accordance with Section 4.1. |
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1.4 |
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Annual Contributions means the Participants Annual Deferral Amount plus Annual Company
Matching Contributions for any one Plan Year. |
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1.5 |
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Annual Deferral Amount means that portion of a Participants Salary and Bonus that a
Participant defers in accordance with Section 3.1(a) for any one Plan Year. In the event of a
Participants Unforeseeable Financial Emergency (if deferrals are revoked in accordance with
Section 6.1), Disability (if deferrals cease in accordance with Section 8.1), death, or a
Termination of Employment prior to the end of a Plan Year, such years Annual Deferral Amount
shall be the actual amount withheld prior to such event. |
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1.6 |
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Beneficiary means one or more persons, trusts, estates or other entities, designated by a
Participant in accordance with Section 10.2, or in the absence of such designation, the
persons specified in Section 10.3, that are entitled to receive benefits under this Plan upon
the death of a Participant. |
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1.7 |
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Beneficiary Designation Form means the form (which may be digital and require electronic
transmission) established from time to time by the Committee by which a Participant designates
one or more Beneficiaries in accordance with the Committees procedures. |
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1.8 |
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Board means the Board of Directors of the Company, as constituted at the relevant time. |
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1.9 |
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Bonus means performance-based compensation paid under the Employers short-term incentive
plan (or other annual incentive program) which is contingent on the satisfaction of
pre-established organizational or individual performance criteria over the Companys
12-consecutive month Fiscal Year; but excluding any amounts paid under an incentive program
that will be paid regardless of performance or based upon a level of performance that is
substantially certain to be met at the time the criteria is established. |
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1.10 |
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Claimant shall have the meaning set forth in Section 14.1. |
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1.11 |
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Code means the Internal Revenue Code of 1986, as it may be amended from time to time.
References to a Code section shall be deemed to be to that section or any successor to that
section. |
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1.12 |
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Committee means the Compensation Committee of the Board. |
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1.13 |
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Company means H&R Block, Inc., a Missouri corporation, and any successor to all or
substantially all of its assets or business. |
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1.14 |
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Company Matching Account means (i) the sum of all of a Participants Annual Company
Matching Contributions, plus (ii) amounts credited in accordance with all the applicable
crediting and debiting provisions of this Plan that relate to the Participants Company
Matching Account, less (iii) all distributions made to the Participant or his or her
Beneficiary pursuant to this Plan that relate to the Participants Company Matching Account. |
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1.15 |
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Deferral Account means (i) the sum of all of a Participants Annual Deferral Amounts, plus
(ii) amounts credited in accordance with all the applicable crediting and debiting
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provisions of this Plan that relate to the Participants Deferral Account, less (iii) all
distributions made to the Participant or his or her Beneficiary pursuant to this Plan that
relate to his or her Deferral Account. |
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1.16 |
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Disability or Disabled means a Participant is, by reason of any medically determinable
physical or mental impairment that can be expected to result in death or can be expected to
last for a continuous period of not less than 12 months, receiving income replacement benefits
under the group long-term disability insurance program maintained by the Participants
Employer, and shall be deemed to be incurred on the date as of which such income replacement
benefits commence. |
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1.17 |
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Discretionary Company Contributions means the amount credited to an Employee in accordance
with Section 4.2. |
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1.18 |
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Discretionary Company Contributions Account means the (i) sum of all of a Participants
Discretionary Company Contributions, plus (ii) amounts credited in accordance with all the
applicable crediting and debiting provisions of the Plan that relate to the Participants
Discretionary contributions Account, less (iii) all distributions made to the Participant or
his or her Beneficiary pursuant to the Plan that relate to the Participants Discretionary
Company Contributions Account. |
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1.19 |
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Disability Benefit means the benefit set forth in Article 8. |
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1.20 |
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Election Form means the form (which form or forms may be in a digital format and require
electronic transmission) established from time to time by the Committee by which a Participant
makes elections under the Plan in accordance with the Committees procedures. |
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1.21 |
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Eligibility Committee means the Chief Executive Officer of the Company, the Chief Financial
Officer of the Company, and the senior officer of the Company responsible for human resources. |
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1.22 |
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Employee means a person who is an employee of any Employer. |
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1.23 |
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Employer means the Company and/or any of its Affiliates (now in existence or hereafter
formed or acquired) that have been selected by the Board to participate in the Plan and have
agreed to participate in the Plan. |
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1.24 |
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ERISA means the Employee Retirement Income Security Act of 1974, as it may be amended from
time to time. References to an ERISA section shall be deemed to be to that section or any
successor to that section. |
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1.25 |
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In-Service Distribution means a date-based distribution as set forth in Section 7.1
providing for distribution no earlier than the third Plan Year after the Plan Year for which
the Annual Contributions are made. |
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1.26 |
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Installment Method means installment payments over a number of years selected by the
Participant in accordance with this Plan. Each installment payment shall be calculated by
multiplying the Account Balance of the Participant by a fraction, the numerator of which is
one and the denominator of which is the remaining number of payments due the Participant. For
purposes of this calculation, the Account Balance of the Participant (or the appropriate
portion thereof) shall be calculated as of the close of business on or around the date of the
Participants payment. |
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1.27 |
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Measurement Fund means one or more investment funds which may, but need not, include the
investment funds provided under the H&R Block Retirement Savings Plan (including Company
stock) available as a measuring standard for crediting earnings and
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losses to a Participants Account Balance. Notwithstanding any other provision in this
Plan that may be interpreted to the contrary, the Measurement Funds are to be used for
measurement purposes only, and a Participants election of any Measurement Fund, the
allocation to his or her Account Balance thereto, the calculation of additional amounts and
the crediting or debiting of such amounts to a Participants Account Balance shall not be
considered or construed in any manner as an actual investment of his or her Account Balance
in any Measurement Fund. |
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1.28 |
|
Open Enrollment means, with respect to the deferral of Salary for a Plan Year, such period
as established by the Committee ending before the beginning of such Plan Year. With respect
to the deferral of a Bonus, such period as established by the Committee ending before the date
that is no later than 6 months prior to the expiration of the performance period with respect
to such Bonus. |
|
1.29 |
|
Participant means any Employee (i) who is selected to participate in the Plan, (ii) who
elects to participate in the Plan, (iii) who executes an Election Form in a form acceptable to
the Committee, (iv) who commences participation in the Plan, and (v) whose participation has
not terminated. A spouse or former spouse of a Participant shall not be treated as a
Participant in the Plan or have an account balance under the Plan, even if he or she has an
interest in the Participants benefits under the Plan as a result of applicable law or
property settlements resulting from legal separation or divorce. |
|
1.30 |
|
Payment Date means the date during a month on which payments under this Plan are made, as
selected by the Committee from time to time. |
|
1.31 |
|
Plan means the H&R Block, Inc. Deferred Compensation Plan for Executives, which shall be
evidenced by this instrument as it may be amended from time to time and Participants Election
Forms. |
|
1.32 |
|
Plan Year means a period beginning on January 1 of each calendar year and continuing
through December 31 of such calendar year. |
|
1.33 |
|
Qualified Plan means the H&R Block Retirement Savings Plan or any successor plan that is
intended to satisfy the requirements of section 401 of the Code. |
|
1.34 |
|
Salary means the total salary and wages , including fee based earnings and commissions paid
by all Affiliates to a Participant relating to services performed during any Plan Year,
excluding any other remuneration paid by Affiliates such as Bonuses, other bonuses, overtime,
incentive pay, stock options, distributions of compensation previously deferred, restricted
stock, severance pay, allowances for expenses (such as relocation, travel, and automobile
allowances), non-monetary awards and fringe benefits (cash or noncash). Salary shall be
calculated before reduction for compensation voluntarily deferred or contributed by the
Participant pursuant to all qualified or non-qualified plans of any Affiliate and shall be
calculated to include amounts not otherwise included in the Participants gross income under
Code Sections 125, or 402(e)(3) pursuant to plans established by any Affiliate; provided,
however, that all such amounts will be included in compensation only to the extent that had
there been no such plan, the amount would have been payable in cash to the Participant. |
|
1.35 |
|
Survivor Benefit means the benefit set forth in Article 9. |
|
1.36 |
|
Termination Benefit means the benefit set forth in Section 7.4. |
|
1.37 |
|
Termination of Employment means a separation from service within the meaning of Code §409A.
A Participant who is an employee will generally have a Termination of Employment if the
Participant voluntarily or involuntarily terminates employment with
|
|
|
the Employer. A termination of employment occurs if the facts and circumstances indicate
that the Participant and the Employer reasonably anticipate that no further services will
be performed after a certain date or that the level of bona fide services the Participant
will perform after such date (whether as an employee, director or other independent
contractor) for the Employer will decrease to no more than 20 percent of the average level
of bona fide services performed (whether as an employee, director or other independent
contractor) over the immediately preceding 36-month period (or full period of services if
the Participant has been providing services for less than 36 months). Notwithstanding the
foregoing, the employment relationship is treated as continuing while the Participant is on
military leave, sick leave or other bona fide leave of absence if the period does not
exceed 6 months, or if longer, so long as the Participant retains the right to reemployment
with an Employer under an applicable statute or contract. When a leave of absence is due
to any medically determinable physical or mental impairment that can be expected to result
in death or to last for a period of at least 6 months and such impairment causes the
Participant to be unable to perform duties of his or her position or any substantially
similar position, a 29-month maximum period of absence shall be substituted for the 6-month
maximum period described in the preceding sentence. |
|
1.38 |
|
Trust means one or more trusts established with respect to the Plan between the Company and
the trustee named therein, as amended from time to time. |
|
1.39 |
|
Unforeseeable Financial Emergency means a severe financial hardship to the Participant
resulting from (i) an illness or accident of the Participant, a Beneficiary or a dependent (as
defined in Code §152, without regard to §152(b)(1), (b)(2), and (d)(1)(B)) of the Participant,
(ii) a loss of the Participants property due to casualty, or (iii) such other extraordinary
and unforeseeable circumstances arising as a result of events beyond the control of the
Participant, all as determined in the sole discretion of the Committee consistent with the
requirements of Code Section 409A. |
ARTICLE 2
Selection, Enrollment, Eligibility
2.1 |
|
Selection by Committee. Participation in the Plan shall be limited to a select group
of management or highly compensated Employees, as determined by the Committee or if the
Committee so directs, the Eligibility Committee. The Eligibility Committee will report to the
Compensation Committee not less frequently than annually the individuals it selects for
participation. |
|
2.2 |
|
Enrollment Requirements. As a condition to a selected Employees participation, the
Committee must receive, in accordance with the Committees procedures, an Election Form during
Open Enrollment or within thirty (30) days after he or she is first selected for participation
in the Plan. In addition, the Committee may establish from time to time such other enrollment
requirements as it determines in its sole discretion are necessary. Notwithstanding the
foregoing, an Employee shall be deemed to satisfy the enrollment requirements with respect to
Discretionary Company Contributions by approval of a Discretionary Company Contribution for
the Participant in accordance with Section 4.2. |
|
2.3 |
|
Eligibility; Commencement of Participation. Provided an Employee selected to
participate in the Plan has met all enrollment requirements set forth in this Plan and
required by the Committee, the Employee shall commence participation in the Plan on the first
day of the month following the month in which the Employee executes all enrollment
requirements
or such later date as the Committee shall determine in its sole discretion with respect to
compensation paid for services performed after the election. If |
|
|
an Employee fails to meet
all such requirements within the period required, in accordance with Section 2.2, that
Employee shall not be eligible to participate in the Plan until the first day of the Plan
Year following the delivery to and acceptance by the Committee of the required documents;
provided, however, that such Employee must continue to be eligible to participate in the
Plan as determined by the Committee in its sole discretion. |
|
2.4 |
|
Termination of Participation. Subject to Section 2.6, once an Employee has become a
Participant in the Plan, his or her participation shall continue until the earlier of (i)
payment in full of all benefits to which the Participant or his or her Beneficiary is entitled
under the Plan or (ii) the occurrence of an event specified in Section 2.5 which results in
loss of benefits. Except as otherwise specified in the Plan, the Company may not terminate an
individuals participation in the Plan. |
|
2.5 |
|
Missing Persons. If the Company is unable to locate a Participant or his or her
Beneficiary for purposes of making a distribution, the amount of the Participants benefits
under this Plan that would otherwise be considered as non-forfeitable, shall be forfeited
effective four (4) years after (i) the last date a payment of said benefit was made, if at
least one such payment was made, or (ii) the first date a payment of said benefit was to be
made pursuant to the terms of the Plan, if no payments had been made. If such person is
located after the date of such forfeiture, the benefits for such Participant or Beneficiary
shall not be reinstated hereunder. |
|
2.6 |
|
Changes in Employment Status. If a Participant has a change in his or her employment
responsibilities, title, compensation, and/or performance, such that the Participant would not
qualify for initial participation in the Plan, as determined by the Committee in its sole
discretion, (i) the Participant shall continue to defer his or her Annual Deferral Amount in
accordance with the Participants election for the Plan Year during which the change in
employment responsibilities, title, compensation, and/or performance occurs, (ii) the
Participant shall not be eligible to elect an Annual Deferral Amount or to be credited with a
Discretionary Company Contribution in Plan Years following the Plan Year during which the
change in employment responsibilities, title, compensation, and/or performance occurs unless
and until the Participant again is selected to elect an Annual Deferral Amount, as determined
by the Committee in its sole discretion, and (iii) the Participant shall otherwise continue to
participate in the Plan. |
|
2.7 |
|
Participation upon Reemployment. If a Participant terminates employment with all
Affiliates and later becomes reemployed by an Affiliate, such reemployment shall not suspend
or delay benefit payments such Participant is receiving or is eligible to receive under the
Plan as a result of the Termination of Employment. Upon reemployment, the Participant shall
not be eligible to make deferrals unless and until the Participant again qualifies for initial
participation as determined by the Committee. |
ARTICLE 3
Open Enrollment/ Annual Elections
3.1 |
|
Elections. A Participant shall complete an election for Salary and Bonus by
completing and delivering an Election Form to the Committee during Open Enrollment for the
Plan Year in the case of Salary and for the applicable performance period in the case of
Bonus. The Participant shall be entitled to elect the following: |
|
(a) |
|
Annual Deferral Amount. For each Plan Year, a Participant may elect,
subject to withholding described in Section 5.2(a), to defer Salary and Bonus
according to the following schedule: |
|
|
|
|
|
|
|
|
|
Deferral |
|
Minimum
Percentage |
|
Maximum
Percentage |
Salary |
|
|
0 |
% |
|
|
100 |
% |
Bonus |
|
|
0 |
% |
|
|
100 |
% |
|
|
|
Timely receipt of an Election Form by the Committee is a condition to
deferral of either Salary or Bonus. If no Election Form is timely
received by the Committee, the applicable deferral percentage shall be
zero. |
|
|
(b) |
|
Measurement Funds. A Participant may elect one or more Measurement
Fund(s) to be used to determine the amounts to be credited or debited to his or her
Account Balance. If a Participant does not elect any Measurement Funds, the
Participants Annual Deferral Amount shall be allocated according to the Participants
most recent election. If a Participant has not previously elected any Measurement
Fund, amounts will be credited or debited according to a default Measurement Fund as
determined by the Committee, in its sole discretion. |
|
|
(c) |
|
Time and Form of Payment. During the Open Enrollment for a Plan
Year, a Participant may make a payment election designating the time of commencement
of payment of the portion of the Participants Account Balance attributable to his
Annual Deferral Amount and Annual Company Matching Contributions for the Plan Year,
and the form of payment (either lump sum or installments) for such portion according
to the permissible distribution events provided under the Plan which may include any
distribution or payment options provided for under Article 7. The time and form of
payment of any Discretionary Company Contribution for an Employee for a Plan Year
shall be established by the Committee at the time any such Discretionary Company
Contribution is authorized. |
3.2 |
|
Effect of Elections/Changes to Elections. |
|
(a) |
|
Irrevocable Deferral Elections. Once a Plan Year has commenced, a
Participant may not elect to change his or her deferral election that is in effect for
that Plan Year, except if and to the extent permitted by the Committee and made in
accordance with the provisions of Section 3.2(c) and Code section 409A specifically
relating to a change and/or revocation of deferral elections related to a
Participants Disability or an Unforeseeable Financial Emergency or a hardship
distribution under the Qualified Plan. |
|
|
(b) |
|
Allocations to Measurement Funds. The Participant may add, delete or
change allocations to one or more Measurement Funds used to determine the amounts to
be credited or debited to his or her Account Balance by submitting an Election Form
that is accepted by the Committee. Allocations may be made in one percent (1%)
increments. Election changes will be applied as follows: |
|
(i) |
|
Changes. Changes to allocations for future deferrals will
be applied to the next contribution period following the date of the election. |
|
|
(ii) |
|
Exchanges. Exchanges to allocations to Measurement Funds
shall be applied at the close of the next market day following the date the
election is received by the Committee. |
|
|
|
Notwithstanding this Section 3.2(b) allocations made to the Company Stock Fund
shall be limited to 25% of the Participants entire Account Balance and shall be
irrevocable. |
|
|
(c) |
|
Subsequent changes to Time and Form of Payment. A Participant may
elect one time to change the time or form of payment elected for his Deferral Account
attributable to Annual Deferral Amounts for any Plan Year, and for his Company
Matching Account attributable to Company Matching Contributions for any Plan Year,
only in accordance with this Section 3.2(c). Any election under this Section 3.2(c)
must comply with Code Section 409A and the regulations and other guidance thereunder.
Except as permitted under this Plan with respect to an Unforeseeable Financial
Emergency or as described in Section 7.5, a Participant may not elect to accelerate
the date payment is to be made or commenced. A Participant may elect to delay the
time payment is to be made or commenced, and may change the form of payment from lump
sum to installments, or vice versa, only if the following conditions are met: |
|
(i) |
|
the election is received by the Committee not less
than twelve (12) months before the date payment would have otherwise
been made or commenced without regard to this election; |
|
|
(ii) |
|
the election shall not take effect until at least
twelve (12) months after the date on which the election is received
by the Committee; and |
|
|
(iii) |
|
except in the case of payment on account of death or
Disability, payment pursuant to the election shall not be made or commenced
sooner than five (5) years from the date payment would have otherwise been
made or commenced without regard to this election. |
|
|
|
For these purposes, installment payments shall be treated as a single payment, with
the result that an election to change from installments to a lump sum will require
that the lump sum be postponed until a date which is at least five (5) years after
the scheduled payment date of the first installment. |
ARTICLE 4
Company Contribution Amounts/Vesting
4.1 |
|
Annual Company Matching Contributions. A Participants Annual Company Matching
Contributions for any Plan Year shall be determined by the Participants Employer. In
order to receive Annual Company Matching Contributions with respect to a Plan Year, the
Participant shall have contributed through elective compensation deferrals in the Qualified
Plan, an amount equal to the maximum deferral permitted under the Qualified Plan for the
Plan Year, and shall be an Employee as of the last day of the Plan Year. If the Participant
fulfills these requirements with respect to a Plan Year, the Annual Company Matching
Contributions shall be equal to (i) the Employer matching contribution that would have been
provided to the Participant in the Qualified Plan, assuming that the Annual Deferral Amount
had been included in the definition of compensation in the Qualified Plan, and assuming
further that the limitations of IRC Sections 401(a)(17), 402(g)(1) and 415 did not apply,
minus (ii) the amount of the Employer matching contribution provided to the Participant
during such Plan Year under the Qualified Plan. The amount so credited to a Participant
under this Plan shall be the |
|
|
Annual Company Matching Contributions for that Plan Year and
shall be credited to the Participants Company Matching Account on a date or dates to be
determined by the Committee, in its sole discretion. |
|
4.2 |
|
Discretionary Company Contributions. Apart from the Annual Company Matching
Contribution, the Committee may make discretionary contributions for any Participant under
this Plan at the times and in the amount(s) designated by the Participants Employer, in its
sole discretion. Amounts so credited to a Participant under this Plan shall be credited to
the Participants Discretionary Company Contributions Account. |
|
4.3 |
|
Vesting. |
|
(a) |
|
Participant Contributions. A Participant shall at all times be 100% vested
in his or her Deferral Account. |
|
|
(b) |
|
Annual Company Matching Contributions. A Participants Company Matching
Contributions Account shall be vested to the same extent as the Participants matching
contributions account under the Qualified Plan. |
|
|
(c) |
|
Discretionary Company Contributions. Unless otherwise determined by the
Committee prior to awarding any Discretionary Company Contributions, amounts credited
to a Participants Discretionary Company Contributions Account shall be vested to the
same extent as the Participants matching contributions account under the Qualified
Plan. |
ARTICLE 5
Crediting/Taxes
5.1 |
|
Crediting/Debiting of Account Balances. Subject to the rules and procedures that are
established from time to time by the Committee, amounts shall be credited or debited to a
Participants Account Balance in accordance with the performance of the Measurement Funds
selected by the Participant under Sections 3.1(b) and 3.2(b). The performance of such
Measurement Funds (either positive or negative) shall be determined by the Committee in its
sole discretion. |
|
5.2 |
|
Employer-Provided Benefits, FICA and Other Taxes. |
|
(a) |
|
Annual Deferral Amounts. For each Plan Year in which an Annual
Deferral Amount is being withheld from a Participant, the Participants Employer shall
withhold from that portion of the Participants Salary and Bonus, that are not
being deferred, in a manner determined by the Employer, the Participants share of
any Employer-provided welfare and fringe benefits elected by the Participant and/or
FICA or other employment taxes on such Annual Deferral Amount, as determined by the
Committee in its sole discretion. If necessary, the Committee may reduce the
Annual Deferral Amount in order to satisfy the Participants election with respect
to Employer-provided welfare and fringe benefits and the Employers obligation to
withhold FICA and other employment taxes. |
|
|
(b) |
|
Company Matching Account. When a Participant becomes vested in a
portion of his or her Company Matching Account the Participants Employer shall
withhold from the Participants Salary and Bonus that are not being deferred, in a
manner determined by the Employer, the Participants share of FICA and/or other
employment taxes, as determined by the Committee in its sole discretion. If
necessary, the Committee may reduce the vested portion of the Participants |
|
|
|
Company
Matching Account, as applicable, in order to comply with this Section 5.2. |
|
|
(c) |
|
Distributions. A Participants Employer, or the trustee of the
Trust, shall withhold from any payments made to the Participant under this Plan all
federal, state and local income, employment and other taxes required to be withheld by
the Employer, or the trustee of the Trust, in connection with such payments, in
amounts and in a manner to be determined in the sole discretion of the Employer, or
the trustee of the Trust. |
ARTICLE 6
Unforeseeable Financial Emergencies
|
|
If the Participant experiences an Unforeseeable Financial Emergency, the Participant may
petition the Committee (i) to revoke deferrals of Salary and/or Bonus elected by such
Participant or (ii) to revoke deferrals of Salary and Bonus elected by such Participant and
receive a partial or full payout from the Plan. Any such payout shall not exceed the
lesser of the Participants vested Account Balance, calculated as if such Participant were
receiving a Termination Benefit, or the amount reasonably needed to satisfy the
Unforeseeable Financial Emergency. A Participant may not receive a payout from the Plan to
the extent that the Unforeseeable Financial Emergency is or may be relieved (i) through
reimbursement or compensation by insurance or otherwise, (ii) by liquidation of the
Participants assets, to the extent the liquidation of such assets would not itself cause
severe financial hardship or (iii) by revocation of deferrals under this Plan. |
ARTICLE 7
Distributions/Payments
7.1 |
|
In-Service Date-Based Distribution. |
|
(a) |
|
Annual Contributions. In connection with each election to defer
Annual Contributions, a Participant may elect to receive an In-Service Distribution
from the Plan with respect to all or a portion of such Annual Deferral Amounts
credited for such Plan Year. The In-Service Distribution shall be a lump sum payment
in an amount that is equal to the portion of the Annual Deferral
Amounts that the Participant elected to have distributed as an In-Service
Distribution, plus amounts credited or debited in the manner provided in
Section 5.1 on that amount, calculated as of the close of business on or around the
date on which the In-Service Distribution becomes payable, as determined by the
Committee in its sole discretion. |
|
|
(b) |
|
Payment of In-Service Distributions. Subject to the other terms and
conditions of this Plan, each In-Service Distribution elected shall be paid out on the
first Payment Date commencing immediately after the date designated by the
Participant. |
|
|
(c) |
|
Other Benefits Take Precedence Over In-Service Distributions. Should
an event occur that triggers a benefit under this Article 7, Article 8 or Article 9,
any Annual Deferral Amounts, plus amounts credited or debited thereon, that is subject
to an In-Service Distribution election under Section 7.1 shall not be paid in
accordance with Section 7.1 but shall be paid in accordance with the other applicable
Article or Section. |
7.2 |
|
Disability Benefit. A Participant may elect to receive a Disability Benefit equal to
the Account Balance attributable to Annual Contributions for the Plan Year in one of the
following forms: (i) a single lump sum payment, or (ii) installment payments over one (1) to
fifteen (15) years according to the Installment Method. If the Participant fails to make an
election as to the time and form of payment for a Disability Benefit, the election shall
default to a single lump sum payment. |
|
7.3 |
|
Termination Benefit. A Participant may elect to receive a Termination Benefit equal
to the vested Account Balance attributable to Annual Contributions for the Plan Year in one of
the following forms: (i) a single lump sum payment, or (ii) installment payments over one (1)
to fifteen (15) years according to the Installment Method. If the Participant fails to make
an election as to the time and form of payment for a Termination Benefit, the election shall
default to a single lump sum payment. Unless otherwise delayed according to Section 7.5, a
Termination Benefit shall not be made before the date that is six (6) months after the date of
the Participants Termination of Employment (or, if earlier, the date of death of the
Participant). |
|
7.4 |
|
Delay of Payment. Notwithstanding any other provision in the Plan, the payment of
amounts deferred under the Plan shall will be delayed as follows: |
|
(a) |
|
Application of Code section 162(m). If the Company reasonably
anticipates that any portion of the benefit payable under the Plan to any Participant
could be nondeductible under Code section 162(m) (or cause other amounts payable by
the Company to be nondeductible under Code section 162(m)), then the payment of such
portion of the benefit to such Participant shall be delayed until the earliest date on
which the Company reasonably anticipates that the deduction will not be limited or
eliminated by application of Code section 162(m), provided that where any scheduled
payment to the Participant in the Companys taxable year is delayed in accordance with
this paragraph, the delay in payment will be treated as a subsequent deferral election
unless all scheduled payments to that Participant that could be delayed in accordance
with this paragraph are also delayed. Where the payment is delayed to a date on or
after the Participants Termination of Employment, the payment will be considered a
Termination Benefit payable at the time provided in Section 7.4. No election may be
provided to a Participant with respect to the timing of the payment under this Section
7.5(a). |
|
|
(b) |
|
Other Event Permitted by Section 409A. If the Committee so
determines, payment of amounts under the Plan may be delayed as permitted under Code
section 409A, as if stated in the Plan, for example, if the Company reasonably
anticipates that making a payment will violate a term of any Company loan agreement,
jeopardize the ability of the Company to continue as a going concern if paid as
scheduled or the payment may violate securities laws (or other applicable law). |
7.6 |
|
Acceleration of Payment. Notwithstanding any other provision in the Plan, the
payment of amounts deferred under the Plan will be accelerated as follows: |
|
(a) |
|
De Minimis Payments. Notwithstanding the foregoing, if at the time
of the Participants Termination of Employment, the Participants vested Account
Balance, and the Participants entire interest under all other arrangements required
to be aggregated with this Plan pursuant to Treasury Regulation section
1.409A-1(c)(2), is less than the applicable dollar amount under Code Section
402(g)(1)(B) ($15,500 for 2008), then the Participants Account Balance shall be |
|
|
|
paid
in a lump sum on the Payment Date of the seventh month after such Termination of
Employment (or, if earlier, the date of death). |
|
|
(b) |
|
Other Events Permitted by Section 409A. If the Committee so
determines, in its sole discretion (without any direct or indirect election on the
part of any Participant), the Committee may accelerate the date of distribution or
commencement of distributions hereunder, or accelerate installment payments by paying
the vested Account Balance in a lump sum or pursuant to a Installment Method using
fewer years, to the extent permitted under Code section 409A (such as, for example, as
provided in Section 1.409A-3(j)(4) of the Treasury regulations, to comply with
domestic relations orders or certain conflict of interest rules, to pay employment
taxes, to make a lump sum cashout of certain de minimis amounts that are less than the
applicable dollar amount under Code section 402(g)(1)(B), or to make payments upon
income inclusion under Code section 409A). |
ARTICLE 8
Disability Waiver and Benefit
|
(a) |
|
Cancellation of Deferral. Subject to Section 409A, if it is
determined that a Participant is suffering from a Disability, such Participants
deferrals shall thereupon be cancelled by the later of the end of the Plan Year or the
fifteenth day of the third month following the date the Participant incurs a
Disability. |
|
|
(b) |
|
Return to Work. If a Participant returns to employment with the
Employer after a Disability ceases, the Participant may elect to defer an Annual
Deferral Amount for the Plan Year following his or her return to employment and for
every Plan Year thereafter while a Participant in the Plan, provided such deferral
elections are otherwise allowed and an Election Form is delivered to and accepted by
the Committee for each such election in accordance with Section 3.1 above. |
8.2 |
|
Disability Benefit. Upon a determination that a Participant is Disabled, Participant
shall receive payments according to the Participants election for Disability Benefit under
Section 7.2. Unless otherwise delayed according to Section 7.5, a Disability Benefit shall
commence on the first regular payment date following a forty-five (45) day period
following the date the Participant incurred a Disability. |
ARTICLE 9
Survivor Benefit
9.1 |
|
Survivor Benefit. A Participants Beneficiary(ies) shall receive a benefit upon the
Participants death which will be equal to (i) the Participants vested Account Balance,
determined as of the date before the applicable Payment Date, if the Participant dies prior to
his or her Termination of Employment or Disability, or (ii) the Participants unpaid
Termination Benefit or Disability Benefit, determined as of the date before the applicable
Payment Date, if the Participant dies before his or her Termination Benefit or Disability
Benefit is paid in full (the Survivor Benefit). |
|
9.2 |
|
Payment of Survivor Benefit. The Survivor Benefit shall be paid to the Participants
Beneficiary(ies) in a lump sum payment on the first Payment Date after a 45-day period
following the date on which the Company is provided with proof that the satisfactory to the
Committee of the Participants death. |
ARTICLE 10
Beneficiary Designation
10.1 |
|
Beneficiary. Each Participant shall have the right, at any time, to designate his or
her Beneficiary(ies) (both primary as well as contingent) to receive benefits payable under
the Plan upon the death of such a Participant. The Beneficiary designated under this Plan may
be the same as or different from the Beneficiary designated under any other plan of an
Employer in which the Participant participates. |
|
10.2 |
|
Beneficiary Designation; Change of Beneficiary Designation. A Participant shall
designate his or her Beneficiary by completing and delivering the Beneficiary Designation Form
to the Committee or its designated agent. A Participant shall have the right to change a
Beneficiary by completing and delivering a new Beneficiary Designation Form to the Committee.
Upon the acceptance by the Committee of a new Beneficiary Designation Form, all Beneficiary
designations previously filed shall be canceled. The Committee shall be entitled to rely on
the last Beneficiary Designation Form filed by the Participant and accepted by the Committee
prior to his or her death. No designation or change in designation of a Beneficiary shall be
effective until received by the Committee or its designated agent. In the event a Participant
becomes divorced or legally separated from his or her spouse, any Beneficiary Designation Form
designating such spouse as a beneficiary shall automatically be null and void as of the date
of such divorce or legal separation; provided, however, that the Participant may designate
such spouse (or former spouse) as a beneficiary under a new Beneficiary Designation Form. |
|
10.3 |
|
No Beneficiary Designation. If a Participant fails to designate a Beneficiary as
provided in Sections 10.1 and 10.2 above or, if all designated Beneficiaries predecease the
Participant or die prior to complete distribution of the Participants benefits, then the
Participants Beneficiary shall be his or her surviving spouse. If the Participant has no
surviving spouse, the Participants
Survivor Benefit shall be payable to the executor or personal representative of the
Participants estate. |
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10.4 |
|
Doubt as to Beneficiary. If the Committee has any doubt as to the proper Beneficiary
with respect to a Participant, the Committee shall have the right, exercisable in its
discretion, to withhold payments until this matter is resolved to the Committees
satisfaction. |
ARTICLE 11
Leave of Absence
11.1 |
|
Paid Leave of Absence. If a Participant is on a paid leave of absence authorized by
the Participants Employer, (i) the Participant shall continue to be considered eligible for
the benefits provided in Articles 6, 7 or 8 in accordance with the provisions of those
Articles, and (ii) the Annual Deferral Amount subject to a deferral election shall continue to
be withheld during such paid leave of absence in accordance with Section 3.1. |
|
11.2 |
|
Unpaid Leave of Absence. If a Participant is authorized by the Participants
Employer to take an unpaid leave of absence from the employment of the Employer for any
reason, such Participant shall continue to be eligible for the benefits provided in Articles
6, 7 or 8 in accordance with the provisions of those Articles. However, the Participant shall
be excused from fulfilling the Annual Deferral Amount commitment that would otherwise have
been withheld during the remainder of the Plan Year in which the unpaid leave of absence is
taken. During the unpaid leave of absence, the Participant shall not be allowed to make any
additional deferral elections. However, if the Participant returns to active |
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|
employment, the
Participant may make deferral elections during the next Open Enrollment provided the
Participant is selected by the Committee as eligible to make a deferral election and an
Election Form is delivered to and accepted by the Committee for each such election in
accordance with Section 3.1 above. |
ARTICLE 12
Termination, Amendment or Modification
12.1 |
|
Termination. Although the Company anticipates that it will continue the Plan for an
indefinite period of time, there is no guarantee that the Company will continue the Plan or
will not terminate the Plan at any time in the future. Accordingly, the Company reserves the
right to terminate and liquidate the Plan in the event of a corporate dissolution, change in
control, or other event in accordance with Treas. Reg. §1.409A-3(j)(4)(ix). |
|
12.2 |
|
Amendment. The Company may, at any time, amend or modify the Plan in whole or in
part by the action of the Board; provided, however, that: (i) no amendment or modification
shall be effective to decrease or restrict the value of a Participants vested Account Balance
in existence at the time the amendment or modification is made, calculated as if the
Participant had experienced a Termination of Employment as of the effective date of the
amendment or modification; and (ii) no amendment or modification of this Section 12.2 shall be
effective. The amendment or modification of the Plan shall not affect any Participant or
Beneficiary who has become entitled to the payment of benefits under the Plan as of the date
of the amendment or modification. |
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12.3 |
|
Release. Any payment of benefits to or for the benefit of a Participant or
Beneficiaries that is made in good faith by the Company in accordance with the Companys
interpretation of its obligations hereunder shall be in full satisfaction of all claims
against the Company for benefits under this Plan to the extent of such payment. |
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12.4 |
|
Amendment to Ensure Proper Characterization of the Plan. Notwithstanding the
previous Sections of this Article 12, the Plan may be amended at any time, retroactively if
determined by the Committee to be necessary, in order to conform the Plan to the provisions of
Code Section 409A and to ensure that amounts under the Plan are not considered to be taxed to
a Participant under the Federal income tax laws prior to the Participants receipt of the
amounts or to conform the Plan and the Trust to the provisions and requirements of any
applicable law (including ERISA and the Code). |
ARTICLE 13
Administration
13.1 |
|
Administration. Except as otherwise provided herein, the Plan shall be administered
by the Committee. |
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13.2 |
|
Powers of the Committee. In addition to the other powers granted under the Plan, the
Committee shall have all powers necessary to administer the plan, including without
limitation, powers: |
|
(a) |
|
to interpret the provisions of this Plan; |
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|
(b) |
|
to establish and revise the method of accounting for the Plan and to maintain
the Accounts; and |
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|
(c) |
|
to establish rules for the administration of the Plan and to prescribe any
forms required to administer the Plan. |
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|
Not in limitation, but in amplification of the foregoing and of the authority conferred
upon the Committee in Section 13.1, the Company specifically intends that the Committee
have the greatest permissible discretion to construe the terms of the Plan and to determine
all questions concerning eligibility, participation and benefits. Any such decision made
by the Committee is intended to be subject to the most deferential standard of judicial
review. Such standard of review is not to be affected by any real or alleged conflict of
interest on the part of the Company or any member of the Committee.
The Committee may, in its sole discretion, discontinue, substitute or add a Measurement
Fund. Each such action will take effect as of the first day of the first calendar quarter
that begins at least thirty (30) days after the day on which the Committee gives
Participants advance written notice of such change. |
|
13.3 |
|
Delegation. The Committee, or any officer of the Company designated by the Committee,
shall have the power to delegate specific duties and responsibilities to officers or other
employees of the Company or other individuals or entities. Any delegation may be rescinded by
the Committee at any time. Each person or entity to whom a duty or responsibility has been
delegated shall be responsible for the exercise of such duty or responsibility and shall not
be responsible for any act or failure to act of any other person or entity. |
|
13.4 |
|
Binding Effect of Decisions. The decision or action of the Committee with respect to
any question arising out of or in connection with the administration, interpretation and
application of the Plan and the
rules and regulations promulgated hereunder shall be final, conclusive and binding upon all
persons having or claiming to have any interest or right in the Plan. |
|
13.5 |
|
Indemnity of Committee. The Company shall indemnify and hold harmless the members of
the Committee and any employee of an Affiliate or entity to whom the duties of the Committee
may be delegated against any and all claims, losses, damages, expenses or liabilities arising
from any action or failure to act with respect to this Plan, except in the case of willful
misconduct by the Committee, any of its members, any such employee or entity. |
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13.6 |
|
Employer Information. To enable the Committee to perform its functions, the Company
and each Employer shall supply full and timely information to the Committee on all matters
relating to the compensation of its Participants, the date and circumstances of the
Disability, death or Termination of Employment of its Participants, and such other pertinent
information as the Committee may reasonably require. |
|
13.7 |
|
Reports and Records. The Committee and those to whom the Committee has delegated
duties under the Plan, shall keep records of all of their proceedings and actions, and shall
maintain books of account, records, and other data as shall be necessary for the proper
administration of the Plan and for compliance with applicable law. |
ARTICLE 14
Claims Procedures
14.1 |
|
Presentation of Claim. Any Participant or Beneficiary of a deceased Participant
(such Participant or Beneficiary being referred to below as a Claimant) may deliver to the
Committee a written claim for a determination with respect to the amounts the Claimant
believes are distributable to him or her from the Plan. If such a claim relates to the
contents of a notice received by the Claimant, the claim must be made within sixty (60) days
after such notice was received by the Claimant. All other claims must be made |
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|
within 180 days
of the date on which the event that caused the claim to arise occurred. The claim must state
with particularity the determination desired by the Claimant. |
14.2 |
|
Notification of Decision. The Committee shall consider a Claimants claim within a
reasonable time, but no later than ninety (90) days after receiving the claim. If the
Committee determines that special circumstances require an extension of time for processing
the claim, written notice of the extension shall be furnished to the Claimant prior to the
termination of the initial ninety (90) day period. In no event shall such extension exceed a
period of ninety (90) days from the end of the initial period. The extension notice shall
indicate the special circumstances requiring an extension of time and the date by which the
Committee expects to render the benefit determination. The Committee shall notify the
Claimant in writing: |
|
(a) |
|
that the Claimants requested determination has been made, and that the claim
has been allowed in full; or |
|
|
(b) |
|
that the Committee has reached a conclusion contrary, in whole or in part, to
the Claimants requested determination, and such notice must set forth in a manner
calculated to be understood by the Claimant: |
|
(i) |
|
the specific reason(s) for the denial of the claim, or any
part of it; |
|
|
(ii) |
|
specific reference(s) to pertinent provisions of the Plan
upon which such denial was based; |
|
|
(iii) |
|
a description of any additional material or information
necessary for the Claimant to perfect the claim, and an explanation of why
such material or information is necessary; |
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|
(iv) |
|
an explanation of the claim review procedure set forth in
Section 14.4 below; and |
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|
(v) |
|
a statement of the Claimants right to bring a civil action
under ERISA Section 502(a) following an adverse benefit determination on
review. |
14.3 |
|
Review of a Denied Claim. On or before sixty (60) days after receiving notice from
the Committee that a claim has been denied, in whole or in part, a Claimant (or the Claimants
duly authorized representative) may file with the Committee a written request for review of
the denial of the claim. The Claimant (or the Claimants duly authorized representative): |
|
(a) |
|
may, upon request and free of charge, have reasonable access to, and copies
of, all documents, records and other information relevant to the claim for benefits; |
|
|
(b) |
|
may submit written comments or other documents; and/or |
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|
(c) |
|
may request a hearing, which the Committee, in its sole discretion, may
grant. |
14.4 |
|
Decision on Review. The Committee shall render its decision on review promptly, and
no later than sixty (60) days after the Committee receives the Claimants written request for
a review of the denial of the claim. If the Committee determines that special circumstances
require an extension of time for processing the claim, written notice of the extension shall
be furnished to the Claimant prior to the termination of the initial sixty (60) day period.
In no event shall such extension exceed a period of sixty (60) days from the end of the
initial period. The extension notice shall indicate the special circumstances requiring an
extension of time and the date by which the Committee expects to render the benefit
determination. In rendering its decision, the Committee shall take into account all comments,
documents, records and other information submitted by the Claimant relating |
|
|
to the claim,
without regard to whether such information was submitted or considered in the initial benefit
determination. The decision must be written in a manner calculated to be understood by the
Claimant, and it must contain: |
|
(a) |
|
specific reasons for the decision; |
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|
(b) |
|
specific reference(s) to the pertinent Plan provisions upon which the
decision was based; |
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|
(c) |
|
a statement that the Claimant is entitled to receive, upon request and free
of charge, reasonable access to and copies of, all documents, records and other
information relevant (as defined in applicable ERISA regulations) to the Claimants
claim for benefits; and |
|
|
(d) |
|
a statement of the Claimants right to bring a civil action under ERISA
Section 502(a). |
14.5 |
|
Legal Action. A Claimants compliance with the foregoing provisions of this
Article 14 is a mandatory prerequisite to a Claimants right to commence any legal action with
respect to any claim for benefits under this Plan. No
legal action with respect to any claim for benefits under this Plan may be commenced more
than one year after a final decision on review of the claim. |
ARTICLE 15
Funding
15.1 |
|
Source of Benefits. All benefits under the Plan shall be paid when due by the
Company out of its assets or by a trustee from a trust established by the Company for that
purpose. The Company may, but shall have no obligations to, make such advance provision for
the payment of such benefit as the Board may from time to time consider appropriate. |
|
15.2 |
|
Trust. |
|
(a) |
|
Establishment of the Trust. In order to provide assets from which to
fulfill the obligations to the Participants and their Beneficiaries under the Plan,
the Company may establish a Trust by a trust agreement with a third party trustee, to
which each Employer may, in its discretion, contribute cash or other property,
including securities issued by the Company, to provide for the benefit payments under
the Plan. |
|
|
(b) |
|
Interrelationship of the Plan and the Trust. The provisions of the
Plan and the Participants Election Forms shall govern the rights of a Participant to
receive distributions pursuant to the Plan. The provisions of a Trust shall govern
the rights of the Employers, Participants and the creditors of the Employers to the
assets transferred to the Trust. Each Employer shall at all times remain liable to
carry out its obligations under the Plan. |
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|
(c) |
|
Distributions From the Trust. Each Employers obligations under the
Plan may be satisfied with Trust assets distributed pursuant to the terms of a Trust,
and any such distribution shall reduce the Employers obligations under this Plan. |
15.3 |
|
No Claim on Specific Assets. No Participant shall be deemed to have, by virtue of
being a Participant in the Plan, any claim on any specific assets of the Company such that the
Participant would be subject to income taxation on his or her benefits under the Plan prior |
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|
to
distribution, and the rights of Participants and Beneficiaries to benefits to which they are
otherwise entitled under the Plan shall be those of an unsecured creditor of the Company. |
|
15.4 |
|
Unfunded. This Plan is unfunded and payable solely from the general assets of the
Company. The Participants and Beneficiaries shall be unsecured creditors of the Company with
respect to their interests in the Plan. |
ARTICLE 16
Miscellaneous
16.1 |
|
Status of Plan. The Plan is intended to be a plan that is not qualified within the
meaning of Code Section 401(a) and that is unfunded and is maintained by an employer
primarily for the purpose of providing deferred compensation for a select group of management
or highly compensated employees within the meaning of ERISA Sections 201(2), 301(a)(3) and
401(a)(1). The Plan shall be administered and interpreted to the extent possible in a manner
consistent with that intent. |
|
16.2 |
|
Employers Liability. An Employers liability for the payment of benefits shall be
defined only by the Plan. An Employer shall have no obligation to a Participant under the
Plan except as expressly provided in the Plan. |
|
16.3 |
|
Nonassignability. Neither a Participant nor any other person shall have any right to
commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer,
hypothecate, alienate or convey in advance of actual receipt, the amounts, if any, payable
hereunder, or any part thereof, which are, and all rights to which are expressly declared to
be, unassignable and non-transferable. No part of the amounts payable shall, prior to actual
payment, be subject to seizure, attachment, garnishment or sequestration for the payment of
any debts, judgments, alimony or separate maintenance owed by a Participant or any other
person, be transferable by operation of law in the event of a Participants or any other
persons bankruptcy or insolvency or be transferable to a spouse as a result of a property
settlement or otherwise, except as provided in Section 16.14. |
|
16.4 |
|
Withholding. The Company may withhold from any payment of benefits under the Plan
such amounts as the Company determines are reasonably necessary to pay any taxes (and interest
thereon) required to be withheld or for which the Company may become liable under applicable
law. Any amounts withheld pursuant to this Section 16.4 in excess of the amount of taxes due
(and interest thereon) shall be paid to the Participant or Beneficiary upon final
determination, as determined by the Company, of such amount. No interest shall be payable by
the Company to any Participant or Beneficiary by reason of any amounts withheld pursuant to
this Section 16.4. |
|
16.5 |
|
Section 409A Compliance. To the extent provisions of this Plan do not comply with
409A of the Code, the non-compliant provisions shall be interpreted and applied in the manner
that complies with 409A of the Code and implements the intent of this Plan as closely as
possible. |
|
16.6 |
|
Not a Contract of Employment. The terms and conditions of this Plan shall not be
deemed to constitute a contract of employment between any Employer and the Participant. Such
employment is hereby acknowledged to be an at will employment relationship that can be
terminated at any time for any reason, or no reason, with or without cause, and with or
without notice, unless expressly provided in a written employment agreement. Nothing in this
Plan shall be deemed to give a Participant the |
|
|
right to be retained in the service of any
Employer or to interfere with the right of any Employer to discipline or discharge the
Participant at any time. |
|
16.7 |
|
Furnishing Information. A Participant or his or her Beneficiary will cooperate with
the Committee by furnishing any and all information requested by the Committee and take such
other actions as may be requested in order to facilitate the administration of the Plan and
the payments of benefits hereunder, including but not limited to taking such physical
examinations as the Committee may deem necessary. |
|
16.8 |
|
Terms. Whenever any words are used herein in the masculine, they shall be construed
as though they were in the feminine in all cases where they would so apply; and whenever any
words are used herein in the singular or in the plural, they shall be construed as though they
were used in the plural or the singular, as the case may be, in all cases where they would so
apply. |
|
16.9 |
|
Captions. The captions of the articles, sections and paragraphs of this Plan are for
convenience only and shall not control or affect the meaning or construction of any of its
provisions. |
|
16.10 |
|
Governing Law. Subject to ERISA, the provisions of this Plan shall be construed and
interpreted according to the internal laws of the State of Missouri without regard to its
conflicts of laws principles. |
|
16.11 |
|
Notice. Any notice or filing required or permitted to be given to the Committee
under this Plan shall be sufficient if in writing and hand-delivered, or sent by registered or
certified mail, to the address below: |
H&R Block, Inc.
Attn: Corporate Secretary
One H&R Block Way
Kansas City, MO 64105
|
|
Such notice shall be deemed given as of the date of delivery or, if delivery is
made by mail, as of the date shown on the postmark on the receipt for registration
or certification. |
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|
Any notice or filing required or permitted to be given to a Participant under this
Plan shall be sufficient if in writing and hand-delivered, or sent by mail, to the
last known address of the Participant. |
|
16.12 |
|
Successors. The provisions of this Plan shall bind and inure to the benefit of the
Participants Employer and its successors and assigns and the Participant and the
Participants designated Beneficiaries. |
|
16.13 |
|
Spouses Interest. The interest in the benefits hereunder of a spouse or former
spouse of a Participant who has predeceased the Participant shall automatically pass to the
Participant and shall not be transferable by such spouse in any manner, including but not
limited to such spouses will, nor shall such interest pass under the laws of intestate
succession. |
|
16.14 |
|
Validity. In case any provision of this Plan shall be illegal or invalid for any
reason, said illegality or invalidity shall not affect the remaining parts hereof, but this
Plan shall be construed and enforced as if such illegal or invalid provision had never been
inserted herein. |
|
16.15 |
|
Incompetent. If the Committee determines in its discretion that a benefit under
this Plan is to be paid to a minor, a person declared incompetent or to a person incapable of |
|
|
handling the disposition of that persons property, the Committee may direct payment of such
benefit to the guardian, legal representative or person having the care and custody of such
minor, incompetent or incapable person. The Committee may require proof of minority,
incompetence, incapacity or guardianship, as it may deem appropriate prior to distribution of
the benefit. Any payment of a benefit shall be a payment for the account of the Participant
and the Participants Beneficiary, as the case may be, and shall be a complete discharge of
any liability under the Plan for such payment amount. |
|
16.16 |
|
Court Order. The Committee is authorized to make any payments directed by court
order in any action in which the Plan or the Committee has been named as a party. In
addition, if a court determines that a spouse or former spouse of a Participant has an
interest in the Participants benefits under the Plan in connection with a property settlement
or otherwise, the Committee, in its sole discretion,
shall have the right, notwithstanding any election made by a Participant, to immediately
distribute the spouses or former spouses interest in the Participants benefits under the
Plan to that spouse or former spouse. |
|
16.17 |
|
Distribution in the Event of Taxation. If, for any reason, all or any portion of a
Participants benefits under this Plan becomes taxable to the Participant prior to receipt, a
Participant may petition the Committee for a distribution of that portion of his or her
benefit that has become taxable. Upon the grant of such a petition, which grant shall not be
unreasonably withheld, an Employer shall distribute, or shall cause the Trustee to distribute,
to the Participant immediately available funds in an amount equal to the taxable portion of
his or her benefit (which amount shall not exceed a Participants unpaid vested Account
Balance under the Plan). If the petition is granted, the distribution of that portion of his
or her benefit that has become taxable shall be made within 90 days of the date when the
Participants petition is granted. Such a distribution shall affect and reduce the benefits
to be paid under this Plan. |
|
16.18 |
|
Insurance. An Employer, on its own behalf or on behalf of the trustee of a Trust,
and, in its sole discretion, may apply for and procure insurance on the life of the
Participant, in such amounts and in such forms as it may choose. An Employer or the trustee
of a Trust, as the case may be, shall be the sole owner and beneficiary of any such insurance.
No Participant shall have any interest whatsoever in any such policy or policies, and at the
request of an Employer or trustee desiring to purchase such insurance a Participant shall
submit to medical examinations and supply such information and execute such documents as may
be required by the insurance company or companies to whom the Employer or trustee have applied
for insurance. |
|
16.19 |
|
Aggregation of Employers. If the Company is a member of a controlled group of
corporations or a group of trades or business under common control (as described in Code
Section 414(b) or (c), but substituting a fifty percent (50%) ownership level for the eighty
percent (80%) level set forth in those Code Sections), all members of the group shall be
treated as a single Company for purposes of whether there has occurred a Termination of
Employment and for any other purposes under the Plan as Section 409A shall require. |
|
16.20 |
|
Aggregation of Plans. If the Company offers other account balance deferred
compensation plans in addition to the Plan, those plans together with the Plan shall be
treated as a single plan to the extent required under Section 409A for purposes of determining
whether an Employee may make a deferral election pursuant to Section 3.3(a) within thirty
(30) days of becoming eligible to participate in the Plan and for any other purposes under the
Plan as Section 409A shall require. |
16.21 |
|
USERRA. Notwithstanding anything herein to the contrary, any deferral or
distribution election provided to a Participant as necessary to satisfy the requirements of
the Uniformed Services Employment and Reemployment Rights Act of 1994, as amended, shall be
permissible hereunder. |
EX-31.1
Exhibit 31.1
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Russell P. Smyth, Chief Executive Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of H&R Block, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principals;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial
reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth
quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the registrants
ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrants internal control over financial reporting.
|
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|
Date: March 6, 2009 |
/s/ Russell P. Smyth
|
|
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Russell P. Smyth |
|
|
Chief Executive Officer
H&R Block, Inc. |
|
EX-31.2
Exhibit 31.2
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Becky S. Shulman, Chief Financial Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of H&R Block, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principals;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial
reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth
quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the registrants
ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrants internal control over financial reporting.
|
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Date: March 6, 2009 |
/s/ Becky S. Shulman
|
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Becky S. Shulman |
|
|
Chief Financial Officer
H&R Block, Inc. |
|
EX-32.1
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of H&R Block, Inc. (the Company) on Form 10-Q for
the period ending January 31, 2009 as filed with the Securities and Exchange Commission on the date
hereof (the Report), I, Russell P. Smyth, Chief Executive Officer of the Company, certify
pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
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The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and |
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(2) |
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The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company. |
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/s/ Russell P. Smyth
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Russell P. Smyth |
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Chief Executive Officer
H&R Block, Inc. |
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March 6, 2009 |
EX-32.2
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of H&R Block, Inc. (the Company) on Form 10-Q for
the period ending January 31, 2009 as filed with the Securities and Exchange Commission on the date
hereof (the Report), I, Becky S. Shulman, Chief Financial Officer of the Company, certify
pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
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(1) |
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The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and |
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(2) |
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The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company. |
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/s/ Becky S. Shulman
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Becky S. Shulman |
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Chief Financial Officer
H&R Block, Inc. |
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March 6, 2009 |