Settlement Agreement - Herbert Dicker, HBD Inc., Robert Hildorf, RKL Inc., Ray Jiruska, HRB LLC, RLJ Enterprises Inc., DFJ Enterprises Inc., RRJ Enterprises Inc., DEJ Enterprises Inc., Moore Business Service Inc., T.J. Enterprises Inc., Block Mountain West Inc., Orr Enterprises Limited Partnership, S.E. Iowa Business Services Inc., Taxsavers Inc., JBW LP, H&R Block Inc., Block Financial Corporation, HRB Royalty Inc., H&R Block Tax Services Inc. and H&R Block Eastern Tax Services Inc.
SETTLEMENT AGREEMENT
This Settlement Agreement (the "Agreement") is made and entered into
effective as of the 8th day of January, 2004 by and among (a) Herbert Dicker;
HBD, Inc.; Robert Hildorf; RKL, Inc.; Ray Jiruska; HRB, LLC; RLJ Enterprises,
Inc.; DFJ Enterprises, Inc.; RRJ Enterprises, Inc.; DEJ Enterprises, Inc.; Moore
Business Service, Inc. ("MBS"); T.J. Enterprises, Inc. ("TJ Enterprises"); Block
Mountain West, Inc. ("BMWI"); Orr Enterprises Limited Partnership ("Orr"); S.E.
Iowa Business Services, Inc. ("S.E. IBS"); Taxsavers, Inc. and JBW Limited
Partnership ("JBW") (collectively, the "Plaintiffs"); and (b) H&R Block, Inc.;
Block Financial Corporation; HRB Royalty, Inc.; H&R Block Tax Services, Inc. and
H&R Block Eastern Tax Services, Inc. (collectively, the "Defendants").
RECITALS
A. Plaintiffs have asserted various claims against Defendants related to
alleged breaches of contract and certain other claims and Defendants have
asserted certain counterclaims against Plaintiffs, all as more fully described
in the pleadings filed in the lawsuit of Smith, et. al. v. H&R Block, Inc. et.
al., Case No. 99CV206379, Cir. Ct. of Jackson County, MO (the "Litigation").
B. On October 29, 2003, judgment (the "JBW Judgment") was entered in the
Litigation in favor of JBW in the following amounts: (1) with respect to the
fair and equitable payment set forth in paragraph 24 of the applicable major
franchise agreements, judgment in the amount of $3,197,046.00 and (2) with
respect to the breach of contract claim arising out of paragraph 2 of the
applicable major franchise agreements, judgment in the amount of $921,973.00.
C. Plaintiffs and Defendants have each filed various post-judgment motions
with respect to the JBW Judgment.
D. The parties desire to settle and compromise the Litigation.
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AGREEMENT
In consideration of the respective obligations set forth below, and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. Aggregate Payment. HRB Royalty, Inc. or its affiliates ("Block") shall
pay the Plaintiffs an aggregate amount of $130,095,867.84 on or before the close
of business on January 23, 2004. The amount set forth in this paragraph reflects
and includes all of the components, computations and adjustments, including
those as to rent and yellow pages advances by certain franchisees and those as
to the JBW Judgment, set forth in the Transcript of Proceedings of Settlement
Agreement before the Honorable Jay A. Daugherty, attached hereto as Exhibit C.
2. Method of Payment. The payment of the sum set forth in Section 1 of
this Agreement shall be made by Block via wire transfer to the Lathrop & Gage
trust account, and the division of that sum among the Plaintiffs will be at the
sole discretion of the Plaintiffs. The Plaintiffs have already agreed to that
division among themselves, and such amount will be divided by the Plaintiffs and
their counsel upon receipt of the sum from Block.
3. Dismissals with Prejudice. Upon receipt by Plaintiffs' counsel of the
sum set forth in Section 1 of this Agreement, the parties through their counsel
shall file with the Jackson County Circuit Court a stipulation of dismissal with
prejudice of their claims and counterclaims in the Litigation in the form
attached hereto as Exhibit D. The stipulation of dismissal shall provide that
each of the parties shall bear their own respective costs, including but not
limited to their attorneys' fees. The parties acknowledge that Block's dismissal
of Count I of its counterclaims does not affect the validity or enforceability
of a) the Franchisee's covenant not to compete contained in any major franchise
agreement or b) any Exhibit B Agreements.
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In addition, plaintiffs JBW and Taxsavers, Inc. agree to join with
Defendants in a stipulation to dismiss with prejudice the case numbered C.A. No.
4-00-CV-00488 WRW, now stayed and administratively closed in the United States
District Court for the Eastern District of Arkansas.
4. Satisfaction of Judgment. Upon receipt by Plaintiff's counsel of the
payment set forth in Section 1 of this Agreement, JBW, prior to its filing of a
dismissal with prejudice of its claims in the Litigation, shall file a
satisfaction of the JBW Judgment entered on October 29, 2003. Said satisfaction
shall contain a provision stating that all court costs have been satisfied.
5. Non-Competition Agreements. Each person who is an equity owner of any
of the Plaintiffs and who was actively working in the business operated under
the respective major franchise agreements (as identified by name below, and
collectively, the "Equity Owners") shall be subject to the non-competition
provisions of his or her respective major franchise agreements by virtue of
signing a written agreement in the form attached hereto as Exhibit B. Plaintiffs
shall cause all Equity Owners listed below to sign the Exhibit B Agreements and
Plaintiffs shall deliver the executed forms to Jennifer Gille Bacon on or before
the close of business on Tuesday, January 20, 2004. Notwithstanding anything
herein to the contrary, Robert Russell, the son of Beverly Fisher, shall not be
subject to this Section 5 and shall not be required to sign an Exhibit B
Agreement. The obligations of the individuals who sign an Exhibit B Agreement
shall not extend beyond the obligations contained in the underlying major
franchise agreements. For example, to the extent the major franchise agreement
provides for governance under Missouri law, Missouri law shall also apply to the
obligations of the individuals signing the Exhibit B Agreement. The individuals
who are the Equity Owners and who shall be required pursuant to this provision
to sign the Exhibit B Agreements are as follows:
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a. JBW: James H. Williams, Sr.
b. Block Mountain West, Inc.: Monte Nelson, David Nelson and
Michael Nelson
c. TJ Enterprises, Inc.: Monte Nelson, David Nelson and Michael
Nelson
d. HRB, L.L.C.: Rodney Jiruska and David Jiruska
e. Moore Business Service, Inc.: Stephen A. Moore, Jr.
d. Taxsavers, Inc.: C. Dale Stuart, Jr.
e. HBD, Inc.: Herbert Dicker
f. RKL, Inc.: Kurt Hildorf
g. S.E. Iowa Business Services, Inc.: Beverly Fisher
h. Orr Enterprises Limited Partnership: Harold Orr
6. Allocation. Block shall prepare an initial proposed allocation for tax
purposes of the payment made under this Agreement ("allocation") among the
various assets that have been or will be transferred and shall forward the
proposed allocation to Plaintiffs' counsel, who will respond with any good faith
objections, comments, or proposed changes to that allocation. To the extent
there is a dispute regarding the allocation, the parties shall negotiate among
themselves in a further good faith effort to resolve any differences. In the
event that the parties, despite such good faith negotiations, are unable to
agree as to such allocation, they shall submit the dispute regarding such
allocation to mediation before the Honorable Jay A. Daugherty. If, despite the
efforts of the mediator, the parties are unable to resolve their differences
regarding such allocation, each party shall be free to make its own allocation
of the various items for tax purposes.
7. Accounting Firms. Block shall provide a sworn statement by an officer
of RSM McGladrey, Inc. ("RSM") in the form attached to this Agreement as Exhibit
A. The signed statement shall be delivered to Bernard J. Rhodes on or before the
close of business on Tuesday, January 20, 2004. The parties also acknowledge
that a de minimis number of tax returns may have been
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randomly prepared by RSM McGladrey within the former territories of plaintiffs
Orr, Jiruska and S.E. IBS, and agree that less than $100,000 worth of such
returns in any given year will not be deemed to be inconsistent with any
representations in Exhibit A.
8. Entire Agreement. This writing memorializes the binding oral agreement
reached by the parties on January 8, 2004 as reflected in the Transcript of
Proceedings attached hereto as Exhibit C and continues the integration clause
contained therein (at pages 22-23) subject to the understanding and agreement
that Section 6 and the final two sentences of Section 3 of this writing amend
and/or supplement the binding oral agreement ab initio.
9. Severability. In the event any provision of this Agreement shall be
rendered illegal, unenforceable, or invalid for any reason, the remainder of the
Agreement shall constitute and remain a valid, binding contract imposing legal
obligations upon all parties.
10. Deliveries. Plaintiffs will provide Defendants executed originals of
the Exhibit B Agreements for each of the Equity Owners. Defendants will provide
Plaintiffs an executed original of the statement referenced in Section 7 hereof.
11. Timing of Payment. Subject to Block's receipt of the signed Exhibit B
Agreements referenced above, Block shall wire transfer the sums required by this
Agreement to Plaintiffs' counsel on or before the close of business on Friday,
January 23, 2004. The Tuesday, January 20, 2004, deadline for submission of the
signed Exhibit B Agreements shall similarly be the deadline for the submission
by Block to Plaintiffs' counsel of the signed statement of the RSM McGladrey
officer referenced in Section 7 hereof. In the event Block does not receive all
of the above-referenced Exhibit B Agreements by the close of business on
Tuesday, January 20, 2004, Block's obligation to wire transfer the sums required
by this Agreement shall be delayed until the third business day after the day on
which Block receives all such fully executed Exhibit B Agreements.
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12. This Agreement may be signed in counterparts.
HBD, INC.
By:
-----------------------------------
Printed Name:
------------------------
Its:
---------------------------------
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HERBERT DICKER
S.E. IOWA BUSINESS SERVICES, INC.
By:
-----------------------------------
Printed Name:
------------------------
Its:
---------------------------------
RKL, INC.
By:
-----------------------------------
Printed Name:
------------------------
Its:
---------------------------------
--------------------------------------
ROBERT HILDORF
HRB, LLC
By:
-----------------------------------
Printed Name:
------------------------
Its:
---------------------------------
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RLJ ENTERPRISES, INC.
By:
-----------------------------------
Printed Name:
------------------------
Its:
---------------------------------
DFJ ENTERPRISES, INC.
By:
-----------------------------------
Printed Name:
------------------------
Its:
---------------------------------
RRJ ENTERPRISES, INC.
By:
-----------------------------------
Printed Name:
------------------------
Its:
---------------------------------
DEJ ENTERPRISES, INC.
By:
-----------------------------------
Printed Name:
------------------------
Its:
---------------------------------
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RAY JIRUSKA
T.J. ENTERPRISES, INC.
By:
-----------------------------------
Printed Name:
------------------------
Its:
---------------------------------
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MOORE BUSINESS SERVICE, INC.
By:
-----------------------------------
Printed Name:
------------------------
Its:
---------------------------------
BLOCK MOUNTAIN WEST, INC.
By:
-----------------------------------
Printed Name:
------------------------
Its:
---------------------------------
ORR ENTERPRISES LIMITED PARTNERSHIP
By:
-----------------------------------
Printed Name:
------------------------
Its:
---------------------------------
TAXSAVERS, INC.
By:
-----------------------------------
Printed Name:
------------------------
Its:
---------------------------------
JBW LIMITED PARTNERSHIP
By:
-----------------------------------
Printed Name:
------------------------
Its:
---------------------------------
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H&R BLOCK, INC.
By:
-----------------------------------
Printed Name:
------------------------
Its:
---------------------------------
BLOCK FINANCIAL CORPORATION
By:
-----------------------------------
Printed Name:
------------------------
Its:
---------------------------------
HRB ROYALTY, INC.
By:
-----------------------------------
Printed Name:
------------------------
Its:
---------------------------------
H&R BLOCK TAX SERVICES, INC.
By:
-----------------------------------
Printed Name:
------------------------
Its:
---------------------------------
H&R BLOCK EASTERN TAX SERVICES, INC.
By:
-----------------------------------
Printed Name:
------------------------
Its:
---------------------------------
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EXHIBIT A
RSM AFFIDAVIT
AFFIDAVIT OF
DOUGLAS W. OPHEIM
STATE OF MINNESOTA )
) SS:
COUNTY OF HENNEPIN )
BEFORE ME, the undersigned notary public, personally appeared Douglas W.
Opheim, who, having been first duly sworn by me, deposes and says that:
1. I am the Chief Financial Officer of RSM McGladrey, Inc.
2. When RSM McGladrey, an H&R Block subsidiary, purchased certain
assets from McGladrey and Pullen, LLP, RSM deliberately declined to
purchase the tax operations in the franchise territories in which
any of H&R Block's major franchisees operated, in order to remain in
compliance with their Major Franchise Agreements.
3. Our understanding is that those tax operations were transferred to a
subsidiary of a partnership owned by McGladrey & Pullen or some or
all of McGladrey & Pullen's partners. Those partners have operated
that tax business under the name McGladrey and Pullen Tax Services.
4. The transaction was structured such that no Block affiliate receives
any revenue from McGladrey & Pullen's tax preparation services.
Therefore, no revenue is received by Block from those services to
which the 55% payment set out in Paragraph 2 of the Major Franchise
Agreement applied.
5. To the best of my knowledge, neither RSM nor any other affiliate of
H&R Block has otherwise received any revenue from tax preparation
services performed at any offices in these territories, and RSM has
performed no such services at offices in these territories prior to
September 21, 2003.
6. The undersigned acknowledges that a de minimis number of tax returns
may have been randomly performed by RSM McGladrey within the former
Orr and Jiruska territories, and understands that less than $100,000
worth of such returns in any given year will not be deemed to be
inconsistent with any representation herein.
7. Further affiant sayeth naught.
--------------------------------
Douglas W. Opheim
<PAGE>
Subscribed and sworn to before me this ____ day of January, 2004.
--------------------------------
Notary Public
My commission expires:
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EXHIBIT B
FORM OF NON-COMPETITION AGREEMENT
I agree to be bound personally by the Franchisee's post-termination
non-competition provisions of the Major Franchise Agreements identified on
Exhibit 1 to this Agreement for the ______________ franchises. The Franchise
Agreements' provisions regarding arbitration shall not apply. The Agreement's
provisions regarding applicable laws shall apply.
Dated:
---------------------------- --------------------------------
--------------------------------
Printed Name
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EXHIBIT D
IN THE CIRCUIT COURT OF JACKSON COUNTY, MISSOURI
AT KANSAS CITY
DIVISION 15
Wm. R. Smith, Inc., et al., )
)
Plaintiffs, )
)
v. ) Case No. 99 CV 206379
)
H&R Block, Inc., et al., )
)
Defendants. )
STIPULATION FOR DISMISSAL OF ALL CLAIMS AND COUNTERCLAIMS
All remaining plaintiffs in this action, namely Herbert Dicker, HBD, Inc.,
Robert Hildorf, RKL, Inc., Ray Jiruska, HRB, LLC, RLJ Enterprises, Inc., DFJ
Enterprises, Inc., RRJ Enterprises, Inc., DEJ Enterprises, Inc., Moore Business
Service, Inc., T.J. Enterprises, Inc., Block Mountain West, Inc., Orr
Enterprises Limited Partnership, S.E. Iowa Business Services, Inc., JBW Limited
Partnership, and Taxsavers, Inc. (collectively "Plaintiffs"), and all defendants
(collectively "Block"), through their respective undersigned counsel, hereby
stipulate and agree as follows:
All claims asserted herein by Plaintiffs against Block shall be dismissed
with prejudice;
All counterclaims asserted herein by Block against Plaintiffs shall be
dismissed with prejudice; and
The parties hereto shall bear their own costs, including attorneys' fees.
<PAGE>
----------------------------- --------------------------------
Bernard J. Rhodes R. Lawrence Ward
R. Kent Sellers Jennifer Gille Bacon
LATHROP & GAGE L.C. Karen R. Glickstein
2345 Grand Boulevard Shughart, Thomson & Kilroy, P.C.
Kansas City, MO 64108 120 West 12th Street, Suite 1700
Kansas City, MO 64105
W. Michael Garner
DADY & GARNER, P.A. Peter J. Klarfeld
4000 IDS Center Arthur I. Cantor
80 South Eighth Street WILEY REIN & FIELDING LLP
Minneapolis, MN 55402 1776 K Street, NW
Washington, DC 20006
ATTORNEYS FOR PLAINTIFFS
ATTORNEYS FOR DEFENDANTS