Employment Agreement - H&R Block Services Inc. and Thomas L. Zimmerman


                              EMPLOYMENT AGREEMENT

                  THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into as of
November 1, 2001, by and between H&R Block Services, Inc., a Missouri
corporation (the "Company"), and Thomas L. Zimmerman ("Executive").

                                   ARTICLE ONE

                                   EMPLOYMENT

                  1.01 - Agreement as to Employment. Effective June 30, 2001
(the "Employment Date"), the Company hereby employs Executive to serve in the
capacity set forth in Section 1.02, and Executive hereby accepts such employment
by the Company, subject to the terms of this Agreement. The Company reserves the
right, in its sole discretion, to change the title of Executive at any time.

                  1.02 - Duties.

                  (a) Executive is employed by the Company to serve as its
President, U.S. Tax Operations, subject to the authority and direction of the
Board of Directors of the Company and the President of the Company. Subject to
the foregoing, Executive will have such authority and responsibility and duties
as are normally associated with the position of President, U.S. Tax Operations.
The Company reserves the right to modify, delete, add, or otherwise change
Executive's job responsibilities, in its sole discretion, at any time. Executive
will perform such other duties as are assigned to Executive from time to time.

                  (b) So long as Executive is employed under this Agreement,
Executive agrees to devote Executive's full business time and efforts
exclusively on behalf of the Company and to competently and diligently discharge
Executive's duties hereunder. Executive will not be prohibited from engaging in
such personal, charitable, or other nonemployment activities that do not
interfere with Executive's full-time employment hereunder and that do not
violate the other provisions of this Agreement or the H&R Block, Inc. Code of
Business Ethics & Conduct, which Executive acknowledges having read and
understood. Executive will comply fully with all reasonable policies of the
Company as are from time to time in effect and applicable to Executive's
position. Executive understands that the business of H&R Block, Inc. ("Block"),
the Company, and/or any other direct or indirect subsidiary of Block (each such
other subsidiary an "Affiliate") may be subject to governmental regulation, some
of which may require Executive to submit to background investigation as a
condition of Block, the Company, and/or Affiliates' participation in certain
activities subject to such regulation. If Executive, Block, the Company, or
Affiliates are unable to participate, in whole or in part, in any such activity
as the result of any action or inaction on the part of Executive, then this
Agreement and Executive's employment hereunder may be terminated by the Company
without notice.


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                  1.03 - Compensation. The Company will pay to Executive a gross
salary at an annual rate of $310,000 ("Base Salary"), payable semimonthly or at
any other pay periods as the Company may use for its other executive employees.
The Base Salary will be reviewed for adjustment no less often than annually
during the term of Executive's employment hereunder and, if adjusted, such
adjusted amount will become the "Base Salary" for purposes of this Agreement.

                  1.04 - June 30, 2001 Stock Option Grant. As additional
consideration for entering into this Agreement, Executive was granted as of June
30, 2001, a stock option under Block's 1993 Long-Term Executive Compensation
Plan, as amended (the "1993 Plan") to purchase 30,000 shares of Block's common
stock at an option price per share equal to $64.55, such stock option being
conditioned on the entry into this Agreement and otherwise having terms and
conditions consistent with the terms and conditions of options granted to other
senior executive officers of Block and its subsidiaries.

                  1.05 - Relocation Benefits.

                  (a) The Company will reimburse Executive for reasonable
packing, shipping, transportation costs and other expenses incurred by Executive
in relocating Executive, Executive's family and personal property to the Greater
Kansas City Area, in accordance with the H&R Block Executive Relocation Program.

                  (b) To the extent that Executive incurs taxable income related
to any relocation benefits paid pursuant to this Agreement, the Company will pay
to Executive such additional amount as is necessary to "gross up" such benefits
and cover the anticipated income tax liability resulting from such taxable
income.

                  1.06 - Business Expenses. The Company will promptly pay
directly, or reimburse Executive for, all business expenses, to the extent such
expenses are paid or incurred by Executive during the term hereof in accordance
with the Company's policy in effect from time to time and to the extent such
expenses are reasonable and necessary to the conduct by Executive of the
Company's business.

                  1.07 - Fringe Benefits. During the term of Executive's
employment hereunder, and subject to the discretionary authority given to the
applicable benefit plan administrators, the Company will make available to
Executive such insurance, sick leave, deferred compensation, short-term
incentive compensation, bonuses, stock options, retirement, vacation, and other
like benefits as are approved and provided from time to time to the other
executive-level employees of the Company or Affiliates.


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                  1.08 - Termination of Employment.

                  (a) Without Notice. The Company may, at any time, in its sole
discretion, terminate this Agreement and the employment of Executive without
notice in the event of:

                           (i) Executive's misconduct that interferes with or
         prejudices the proper conduct of the business of Block, the Company or
         any Affiliate or which may reasonably result in harm to the reputation
         of Block, the Company and/or any Affiliate; or

                           (ii) Executive's commission of an act materially and
         demonstrably detrimental to the good will of Block or any subsidiary of
         Block, which act constitutes gross negligence or willful misconduct by
         Executive in the performance of Executive's material duties to Block or
         such subsidiary; or

                           (iii) Commission by Executive of any act of
         dishonesty or breach of trust resulting or intending to result in
         material personal gain or enrichment of Executive at the expense of
         Block or any subsidiary of Block; or

                           (iv) Executive's violation of Article Two or Three of
         this Agreement; or

                           (v) Executive's conviction of a misdemeanor
         (involving an act of moral turpitude) or a felony; or

                           (vi) Executive's disobedience, insubordination or
         failure to discharge Executive's duties; or

                           (vii) Executive's suspension by the Internal Revenue
         Service from participation in the Electronic Filing Program; or

                           (viii) The inability of Executive, Block, the
         Company, and/or an Affiliate to participate, in whole or in part, in
         any activity subject to governmental regulation as the result of any
         action or inaction on the part of Executive, as described in Section
         1.02(b); or

                           (ix) Executive's death or total and permanent
         disability. The term "total and permanent disability" will have the
         meaning ascribed thereto under any long-term disability plan maintained
         by the Company or Block for executives of the Company.

                  (b) With Notice. Either party may terminate this Agreement for
any reason, or no reason, by providing not less than 45 days' prior written
notice of such termination to the other party, and, if such notice is properly
given, this Agreement and Executive's employment hereunder will terminate as of
the close of business on the 45th day after such notice is deemed to have been
given or such later date as is specified in such notice.


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                  (c) Termination Due to a Change of Control.

                           (i) If Executive terminates Executive's employment
         under this Agreement during the 180-day period following the date of
         the occurrence of a "Change of Control" of Block then, upon any such
         termination of Executive's employment and conditioned on Executive's
         execution of an agreement with the Company under which Executive
         releases all known and potential claims against Block, the Company, and
         Affiliates, the Company will provide Executive with Executive's
         election (the "Change of Control Election") of the same level of
         severance compensation and benefits as would be provided under the H&R
         Block Severance Plan (the "Severance Plan") as the Severance Plan
         exists either (A) on the date of this Agreement or (B) on Executive's
         last day of active employment by the Company or any Affiliate (the
         "Last Day of Employment"), as if Executive had incurred a "Qualifying
         Termination" (as such term is defined in the Severance Plan). The
         Severance Plan as it exists on the date of this Agreement is attached
         hereto as Exhibit A. Executive must notify the Company in writing
         within 5 business days after Executive's Last Day of Employment of
         Executive's Change of Control Election. Severance compensation and
         benefits provided under this Section 1.08(c) will terminate immediately
         if Executive violates Sections 3.02, 3.03, or 3.05 of this Agreement or
         becomes reemployed with the Company or an Affiliate.

                           (ii) For the purpose of this subsection, a "Change of
         Control" means:

                                    (A) the acquisition, other than from Block,
                  by any individual, entity or group (within the meaning of
                  Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
                  1934, as amended (the "Exchange Act")), of beneficial
                  ownership (within the meaning of Rule 13d-3 promulgated under
                  the Exchange Act) of 35% or more of the then outstanding
                  voting securities of Block entitled to vote generally in the
                  election of directors, but excluding, for this purpose, any
                  such acquisition by Block or any of its subsidiaries, or any
                  employee benefit plan (or related trust) of Block or its
                  subsidiaries, or any corporation with respect to which,
                  following such acquisition, more than 50% of the then
                  outstanding voting securities of such corporation entitled to
                  vote generally in the election of directors is then
                  beneficially owned, directly or indirectly, by all or
                  substantially all of the individuals and entities who were the
                  beneficial owners of the voting securities of Block
                  immediately prior to such acquisition in substantially the
                  same proportion as their ownership, immediately prior to such
                  acquisition, of the then outstanding voting securities of
                  Block entitled to vote generally in the election of directors,
                  as the case may be; or

                                    (B) individuals who, as of the date hereof,
                  constitute the Board of Directors of Block (generally, the
                  "Board," and as of the date hereof, the "Incumbent Board")
                  cease for any reason to constitute at least a majority of the
                  Board, provided that any individual or individuals becoming a
                  director subsequent 


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                  to the date hereof, whose election, or nomination for election
                  by Block's shareholders, was approved by a vote of at least a
                  majority of the Board (or nominating committee of the Board)
                  will be considered as though such individual were a member or
                  members of the Incumbent Board, but excluding, for this
                  purpose, any such individual whose initial assumption of
                  office is in connection with an actual or threatened election
                  contest relating to the election of the directors of Block (as
                  such terms are used in Rule 14a-11 of Regulation 14A
                  promulgated under the Exchange Act); or

                                    (C) the completion of a reorganization,
                  merger or consolidation approved by the shareholders of Block,
                  in each case, with respect to which all or substantially all
                  of the individuals and entities who were the respective
                  beneficial owners of the voting securities of Block
                  immediately prior to such reorganization, merger or
                  consolidation do not, following such reorganization, merger or
                  consolidation, beneficially own, directly or indirectly, more
                  than 50% of the then outstanding voting securities entitled to
                  vote generally in the election of directors of the corporation
                  resulting from such reorganization, merger or consolidation,
                  or a complete liquidation or dissolution of Block, as approved
                  by the shareholders of Block, or the sale or other disposition
                  of all or substantially all of the assets of Block, as
                  approved by the shareholders of Block.

                  (d) Severance. Executive will receive severance compensation
and benefits as would be provided under the Severance Plan, as the same may be
amended from time to time, if Executive incurs a "Qualifying Termination," as
such term is defined in the Severance Plan, and executes an agreement with the
Company under which Executive releases all known and potential claims against
Block, the Company, and Affiliates. Such compensation and benefits will be
Executive's election (the "Severance Election") of the same level of severance
compensation and benefits as would be provided under the Severance Plan as such
plan exists either (A) on the date of this Agreement or (B) Executive's Last Day
of Employment. The Severance Plan as it exists on the date of this Agreement is
attached hereto as Exhibit A. Executive must notify the Company in writing
within 5 business days after Executive's Last Day of Employment of Executive's
Severance Election. Severance compensation and benefits provided under this
Section 1.08(d) will terminate immediately if Executive violates Sections 3.02,
3.03, or 3.05 of this Agreement or becomes reemployed with the Company or an
Affiliate.

                  (e) Further Obligations. Upon termination of Executive's
employment under this Agreement, neither the Company, Block, nor any Affiliate
will have any further obligations under this Agreement and no further payments
of Base Salary or other compensation or benefits will be payable by the Company,
Block, or any Affiliate to Executive, except (i) as set forth in this Section
1.08, (ii) as required by the express terms of any written benefit plans or
written arrangements maintained by the Company or Block and applicable to
Executive at the time of such termination of Executive's employment, or (iii) as
may be required by law. Any termination of this Agreement, however, will not be
effective as to Sections 3.02, 3.03 and 3.05, or any other portions or


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provisions of this Agreement which, by their express terms, require performance
by either party following termination of this Agreement.

                                   ARTICLE TWO

                                 CONFIDENTIALITY

                  2.01 - Background and Relationship of Parties. The parties
hereto acknowledge (for all purposes including, without limitation, Articles Two
and Three of this Agreement) that Block and its subsidiaries have been and will
be engaged in a continuous program of acquisition and development respecting
their businesses, present and future, and that, in connection with Executive's
employment by the Company, Executive will be expected to have access to all
information of value to the Company and Block and that Executive's employment
creates a relationship of confidence and trust between Executive and Block with
respect to any information applicable to the businesses of Block and its
subsidiaries. Executive will possess or have unfettered access to information
that has been created, developed, or acquired by Block and its subsidiaries or
otherwise become known to Block and its subsidiaries and which has commercial
value in the businesses in which Block and its subsidiaries have been and will
be engaged and has not been publicly disclosed by Block. All information
described above is hereinafter called "Proprietary Information." By way of
illustration, but not limitation, Proprietary Information includes trade
secrets, customer lists and information, employee lists and information,
developments, systems, designs, software, databases, know-how, marketing plans,
product information, business and financial information and plans, strategies,
forecasts, new products and services, financial statements, budgets,
projections, prices, and acquisition and disposition plans. Proprietary
Information does not include any portions of such information which are now or
hereafter made public by third parties in a lawful manner or made public by
parties hereto without violation of this Agreement.

                  2.02 - Proprietary Information is Property of Block.

                  (a) All Proprietary Information is the sole property of Block
(or the applicable subsidiary of Block) and its assigns, and Block (or the
applicable subsidiary of Block) is the sole owner of all patents, copyrights,
trademarks, names, and other rights in connection therewith and without regard
to whether Block (or any subsidiary of Block) is at any particular time
developing or marketing the same. Executive hereby assigns to Block any rights
Executive may have or may acquire in such Proprietary Information. At all times
during and after Executive's employment with the Company or any Affiliate,
Executive will keep in strictest confidence and trust all Proprietary
Information and Executive will not use or disclose any Proprietary Information
without the written consent of Block, except as may be necessary in the ordinary
course of performing duties as an employee of the Company or as may be required
by law or the order of any court or governmental authority.

                  (b) In the event of any termination of Executive's employment
hereunder, Executive will promptly deliver to the Company all copies of all
documents, notes, drawings, 


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programs, software, specifications, documentation, data, Proprietary
Information, and other materials and property of any nature belonging to Block
or any subsidiary of Block and obtained during the course of Executive's
employment with the Company. In addition, upon such termination, Executive will
not remove from the premises of Block or any subsidiary of Block any of the
foregoing or any reproduction of any of the foregoing or any Proprietary
Information that is embodied in a tangible medium of expression.

                                  ARTICLE THREE

           NON-HIRING; NON-SOLICITATION; NO CONFLICTS; NON-COMPETITION

                  3.01 - General. The parties hereto acknowledge that, during
the course of Executive's employment by the Company, Executive will have access
to information valuable to the Company and Block concerning the employees of
Block and its subsidiaries ("Block Employees") and, in addition to Executive's
access to such information, Executive may, during (and in the course of)
Executive's employment by the Company, develop relationships with such Block
Employees whereby information valuable to Block and its subsidiaries concerning
the Block Employees was acquired by Executive. Such information includes,
without limitation: the identity, skills, and performance levels of the Block
Employees, as well as compensation and benefits paid by Block to such Block
Employees. Executive agrees and understands that it is important to protect
Block, the Company, Affiliates and their employees, agents, directors, and
clients from the unauthorized use and appropriation of Block Employee
information, Proprietary Information, and trade secret business information
developed, held, or used by Block, the Company, or Affiliates, and to protect
Block, the Company, and Affiliates and their employees, agents, directors, and
customers Executive agrees to the covenants described in this Article III.

                  3.02 - Non-Hiring. During the period of Executive's employment
hereunder, and for a period of 1 year after Executive's Last Day of Employment,
Executive may not directly or indirectly recruit, solicit, or hire any Block
Employee or otherwise induce any such Block Employee to leave the employment of
Block (or the applicable employer-subsidiary of Block) to become an employee of
or otherwise be associated with any other party or with Executive or any company
or business with which Executive is or may become associated. The running of the
1-year period will be suspended during any period of violation and/or any period
of time required to enforce this covenant by litigation or threat of litigation.

                  3.03 - Non-Solicitation. During the period of Executive's
employment hereunder and during the time Executive is receiving payments
hereunder, and for 2 years after the later of Executive's Last Day of Employment
or cessation of such payments, Executive may not directly or indirectly solicit
or enter into any arrangement with any person or entity which is, at the time of
the solicitation, a significant customer of the Company or an Affiliate for the
purpose of engaging in any business transaction of the nature performed by the
Company or such Affiliate, or contemplated to be performed by the Company or
such Affiliate, for such customer, provided that this Section 3.03 will only
apply to customers for whom Executive personally provided services 


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while employed by the Company or an Affiliate or customers about whom or which
Executive acquired material information while employed by the Company or an
Affiliate. The running of the 2-year period will be suspended during any period
of violation and/or any period of time required to enforce this covenant by
litigation or threat of litigation.

                  3.04 - No Conflicts. Executive represents in good faith that,
to the best of Executive's knowledge, the performance by Executive of all the
terms of this Agreement will not breach any agreement to which Executive is or
was a party and which requires Executive to keep any information in confidence
or in trust. Executive has not brought and will not bring to the Company or
Block nor will Executive use in the performance of employment responsibilities
at the Company any proprietary materials or documents of a former employer that
are not generally available to the public, unless Executive has obtained express
written authorization from such former employer for their possession and use.
Executive has not and will not breach any obligation of confidentiality that
Executive may have to former employers and Executive will fulfill all such
obligations during Executive's employment with the Company.

                  3.05 - Non-Competition. During the period of Executive's
employment hereunder and during the time Executive is receiving payments
hereunder, and for 2 years after the later of Executive's Last Day of Employment
or cessation of such payments, Executive may not engage in, or own or control
any interest in (except as a passive investor in less than one percent of the
outstanding securities of publicly held companies), or act as an officer,
director or employee of, or consultant, advisor or lender to, any firm,
corporation, partnership, limited liability company, institution, business,
government agency, or entity that engages in any line of business that is
competitive with any Line of Business of Block (as defined below), provided that
this Section 3.05 will not apply to Executive if Executive's primary place of
employment by the Company or an Affiliate as of the Last Day of Employment is in
either the State of California or the State of North Dakota. "Line of Business
of Block" means any line of business (including lines of business under
evaluation or development) of the Company, as well as any one or more lines of
business (including lines of business under evaluation or development) of any
Affiliate by which Executive was employed during the two-year period preceding
the Last Day of Employment, provided that, "Line of Business of Block" will in
all events include, but not be limited to, the income tax return preparation
business, and provided further that if Executive's employment was, as of the
Last Day of Employment or during the 2-year period immediately prior to the Last
Day of Employment, with HRB Management, Inc. or any successor entity thereto,
"Line of Business of Block" means any line of business (including lines of
business under evaluation or development) of Block and all of its subsidiaries.
The running of the 2-year period will be suspended during any period of
violation and/or any period of time required to enforce this covenant by
litigation or threat of litigation.

                  3.06 - Reasonableness of Restrictions. Executive and the
Company acknowledge that the restrictions contained in this Agreement are
reasonable, but should any provisions of any Article of this Agreement be
determined to be invalid, illegal, or otherwise unenforceable or unreasonable in
scope by any court of competent jurisdiction, the validity, legality, and


                                       8


enforceability of the other provisions of this Agreement will not be affected
thereby and the provision found invalid, illegal, or otherwise unenforceable or
unreasonable will be considered by the Company and Executive to be amended as to
scope of protection, time, or geographic area (or any one of them, as the case
may be) in whatever manner is considered reasonable by that court and, as so
amended, will be enforced.

                                  ARTICLE FOUR

                                  MISCELLANEOUS

                  4.01 - Third-Party Beneficiary. The parties hereto agree that
Block is a third-party beneficiary as to the obligations imposed upon Executive
under this Agreement and as to the rights and privileges to which the Company is
entitled pursuant to this Agreement, and that Block is entitled to all of the
rights and privileges associated with such third-party-beneficiary status.

                  4.02 - Entire Agreement. This Agreement constitutes the entire
agreement and understanding between the Company and Executive concerning the
subject matter hereof. This Agreement cancels and supercedes Executive's
employment agreement with H&R Block Tax Services, Inc. dated January 20, 1998,
and any amendments, modifications, or supplements thereto. No modification,
amendment, termination, or waiver of this Agreement will be binding unless in
writing and signed by Executive and a duly authorized officer of the Company.
Failure of the Company, Block, or Executive to insist upon strict compliance
with any of the terms, covenants, or conditions hereof will not be deemed a
waiver of such terms, covenants, and conditions.

                  4.03 - Specific Performance by Executive. The parties hereto
acknowledge that money damages alone will not adequately compensate the Company
or Block or Executive for 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 either party, in addition to all other remedies
available at law, in equity or otherwise, a wronged party will be entitled to
injunctive relief compelling specific performance of (or other compliance with)
the terms hereof.

                  4.04 - Successors and Assigns. This Agreement is binding upon
Executive and the heirs, executors, assigns and administrators of Executive or
Executive's estate and property and will inure to the benefit of the Company,
Block and their successors and assigns. Executive may not assign or transfer to
others the obligation to perform Executive's duties hereunder. The Company may
assign this Agreement to an Affiliate with the consent of Executive, in which
case, after such assignment, the "Company" means the Affiliate to which this
Agreement has been assigned.

                  4.05 - Withholding Taxes. From any payments due hereunder to
Executive from the Company, there will be withheld amounts reasonably believed
by the Company to be sufficient to satisfy liabilities for federal, state, and
local taxes and other charges and customary withholdings. Executive remains
primarily liable to such authorities for such taxes and charges to the extent
not actually paid by the Company. This Section 4.05 does not affect the
Company's obligation to 


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"gross up" any relocation benefits paid to Executive pursuant to Subsection
1.05(b).

                  4.06 - Indemnification. To the fullest extent permitted by law
and Block's Bylaws, the Company hereby indemnifies during and after the period
of Executive's employment hereunder Executive from and against all loss, costs,
damages, and expenses including, without limitation, legal expenses of counsel
selected by the Company to represent the interests of Executive (which expenses
the Company will, to the extent so permitted, advance to executive as the same
are incurred) arising out of or in connection with the fact that Executive is or
was a director, officer, employee, or agent of the Company or Block or serving
in such capacity for another corporation at the request of the Company or Block.
Notwithstanding the foregoing, the indemnification provided in this Section 4.06
will not apply to any loss, costs, damages, and expenses arising out of or
relating in any way to any employment of Executive by any former employer or the
termination of any such employment.

                  4.07 - Right to Offset. To the extent not prohibited by
applicable law and in addition to any other remedy, the Company has the right
but not the obligation to offset any amount that Executive owes the Company
under this Agreement against any amounts due Executive by Block, the Company, or
Affiliates.

                  4.08 - Waiver of Jury Trial. Both parties to this Agreement,
and Block, as a third-party beneficiary pursuant to Section 4.01 of this
Agreement, waive any and all right to any trial by jury in any action or
proceeding directly or indirectly related to this Agreement and Executive's
employment hereunder.

                  4.09 - Notices. All notices required or desired to be given
hereunder must be in writing and will be deemed served and delivered if
delivered in person or mailed, postage prepaid to Executive at: 4400 Main
Street, Kansas City, Missouri 64111; and to the Company at: 4400 Main Street,
Kansas City, Missouri 64111, Attn: President, with a copy to H&R Block, Inc.,
4400 Main Street, Kansas City, Missouri 64111, Attn: Corporate Secretary; or to
such other address and/or person designated by either party in writing to the
other party. Any notice given by mail will be deemed given as of the date it is
so mailed and postmarked or received by a nationally recognized overnight
courier for delivery.

                  4.10 - Counterparts. This Agreement may be signed in
counterparts and delivered by facsimile transmission confirmed promptly
thereafter by actual delivery of executed counterparts.


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         Executed as a sealed instrument under, and to be governed by, construed
and enforced in accordance with, the laws of the State of Missouri.

                                                    EXECUTIVE:



Dated: 11/1/01                                      /s/ Thomas L. Zimmerman
       -------------------                          ----------------------------
                                                    Thomas L. Zimmerman

Accepted and Agreed:

H&R BLOCK SERVICES, INC.
a Missouri corporation

By: /s/ Jeffrey W. Yabuki
    --------------------------------
    Jeffrey W. Yabuki
    President

Dated: 1-15-02            
       -------------------


                                       11


                         EMPLOYMENT AGREEMENT EXHIBIT A
                            H&R BLOCK SEVERANCE PLAN
                            (AS AMENDED MAY 17, 2001)


1. PURPOSE. The H&R Block Severance Plan is a welfare benefit plan established
by HRB Management, Inc., an indirect subsidiary of H&R Block, Inc., for the
benefit of certain subsidiaries of H&R Block, Inc. in order to provide severance
compensation and benefits to certain employees of such subsidiaries whose
employment is involuntarily terminated under the conditions set forth herein.
This document constitutes both the plan document and the summary plan
description required by the Employee Retirement Income Security Act of 1974.

2. DEFINITIONS.

         (a) "Company" means H&R Block, Inc.

         (b) "Employee" means a regular full-time or part-time, active employee
         of a Participating Employer whose employment with a Participating
         Employer is not subject to an employment contract that contains a
         provision that includes severance benefits. This definition expressly
         excludes seasonal, temporary and inactive employees of a Participating
         Employer and employees who are customarily employed by a Participating
         Employer less than 20 hours per week.

         (c) "ERISA" means the Employee Retirement Income Security Act of 1974,
         as amended.

         (d) "Hour of Service" means each hour for which an individual was
         entitled to compensation as a regular full-time or part-time employee
         from a subsidiary of the Company.

         (e) "Line of Business of the Company" with respect to a Participant
         means any line of business of the Participating Employer by which the
         Participant was employed as of the Termination Date, as well as any one
         or more lines of business of any other subsidiary of the Company by
         which the Participant was employed during the two-year period preceding
         the Termination Date, provided that, if Participant's employment was,
         as of the Termination Date or during the two-year period immediately
         prior to the Termination Date, with HRB Management, Inc. or any
         successor entity thereto, "Line of Business of the Company" shall mean
         any lines of business of the Company and all of its subsidiaries.

         (f) "Participant" means an Employee who has incurred a Qualifying
         Termination and has signed a Release that has not been revoked during
         any 


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         revocation period provided under the Release.

         (g) "Participating Employer" means a direct or indirect subsidiary of
         the Company (i) listed on Schedule A, attached hereto, which may change
         from time to time to reflect new Participating Employers or withdrawing
         Participating Employers, and (ii) approved by the Plan Sponsor for
         participation in the Plan.

         (h) "Plan" means the "H&R Block Severance Plan," as stated herein, and
         as may be amended from time to time.

         (i) "Plan Administrator" and "Plan Sponsor" means HRB Management, Inc.
         The address and telephone number of HRB Management, Inc. is 4400 Main
         Street, Kansas City, Missouri 64111, (816) 753-6900. The Employer
         Identification Number assigned to HRB Management, Inc. by the Internal
         Revenue Service is 43-1632589.

         (j) "Qualifying Termination" means the involuntary termination of an
         Employee, but does not include a termination resulting from:

                  (i) the termination of an Employee as a result of the
                  elimination of the Employee's position where the Employee was
                  offered another position with a subsidiary of the Company at a
                  comparable salary and benefit level, or where the termination
                  results from a sale of assets or other corporate acquisition;

                  (ii) the redefinition of an Employee's position to a lower
                  salary rate;

                  (iii) the termination of an Employee for cause; or

                  (iv) the non-renewal of employment contracts.

         (k) "Release" means that agreement signed by and between an Employee
         who is eligible to participate in the Plan and the Employee's
         Participating Employer under which the Employee releases all known and
         potential claims against the Employee's Participating Employer and all
         of such employer's parents, subsidiaries, and affiliates.

         (l) "Release Date" means, with respect to a Release that includes a
         revocation period, the date immediately following the expiration date
         of the revocation period in the Release that has been fully executed by
         both parties. "Release Date" means, with respect to a Release that does
         not include a revocation period, the date the Release has been fully
         executed by both parties.

         (m) "Severance Period" means the period of time during which a
         Participant may receive benefits under this Plan. The Severance Period
         with 


                                       2


         respect to a Participant begins on the Termination Date. A
         Participant's Severance Period will be the shorter of (i) 12 months or
         (ii) a number of months equal to the whole number of Years of Service
         determined under Section 2(p), unless earlier terminated in accordance
         with Section 8 of the Plan.

         (n) "Termination Date" means the date the Employee severs employment
         with a Participating Employer.

         (o) "Monthly Salary" means -

                  (i) with respect to an Employee paid on a salary basis, the
                  Employee's current annual salary divided by 12; and

                  (ii) with respect to an Employee paid on an hourly basis, the
                  Employee's current hourly rate times the number of hours he or
                  she is regularly scheduled to work per week multiplied by 52
                  and then divided by 12.

         (p) "Year of Service" means each period of 12 consecutive months ending
         on the Employee's employment anniversary date during which the Employee
         had at least 1,000 Hours of Service. In determining a Participant's
         Years of Service, the Participant will be credited with a partial Year
         of Service for his or her final period of employment commencing on his
         or her most recent employment anniversary date equal to a fraction
         calculated in accordance with the following formula:

           Number of days since most recent employment anniversary date
           ------------------------------------------------------------
                                       365

         Despite an Employee's Years of Service calculated in accordance with
         the above, an Employee whose pay grade at his or her Participating
         Employer fits in the following categories at the time of the Qualifying
         Termination will be credited with no less than the specified Minimum
         Years of Service and no more than the specified Maximum Years of
         Service listed in the following table as applicable to such pay grade:

MINIMUM YEARS MAXIMUM YEARS PAY GRADE OF SERVICE OF SERVICE --------- ------------- ------------- 81-89 and 231-235 6 18 65-80, 109-110, 3 18 and 218-230 57-64, 105-108, 1 18 and 210-217 48-56, 100-102, 1 18 and 200-209
3 3. ELIGIBILITY AND PARTICIPATION. All Employees who incur a Qualifying Termination and sign a Release are eligible to participate in the Plan. An eligible Employee will become a Participant in the Plan as of the Termination Date. 4. SEVERANCE COMPENSATION. (a) Amount. Subject to Section 8, each Participant will receive during the Severance Period from the applicable Participating Employer aggregate severance compensation equal to: (i) the Participant's Monthly Salary multiplied by the Participant's Years of Service; plus (ii) one-twelfth of the Participant's target payout under the Short-Term Incentive Program of the Participating Employer in effect at the time of his or her Termination Date multiplied by the Participant's Years of Service; plus (iii) an amount to be determined by the Participating Employer at its sole discretion, which amount may be zero. (b) Timing of Payments. Except as stated in Section 4(c), and subject to Section 8, (i) the sum of any amounts determined under Sections 4(a)(i) and 4(a)(ii) of the Plan will be paid in semi-monthly or bi-weekly installments (the timing and amount of each installment as determined by the Participating Employer) during the Severance Period beginning after the later of the Termination Date or the Release Date; and (ii) any amounts determined under Section 4(a)(iii) of the Plan will be paid in one lump sum within 15 days after the later of the Termination Date or the Release Date, unless otherwise agreed in writing by the Participating Employer and Participant or otherwise required by law. (c) Death. In the event of the Participant's death prior to receiving all payments due under this Section 4, any unpaid severance compensation will be paid (i) in the same manner as are death benefits under the Participant's basic life insurance coverage provided by the Participant's Participating Employer, and (ii) in accordance with the Participant's beneficiary designation under such coverage. If no such coverage exists, or if no beneficiary designation exists under such coverage as of the date of death of the Participant, the severance compensation will be paid to the Participant's estate in one-lump sum. 4 5. HEALTH AND WELFARE BENEFITS. (a) Benefits. In addition to the severance compensation provided pursuant to Section 4 of the Plan, a Participant may continue to participate in the following health and welfare benefits provided by his or her Participating Employer during the Severance Period on the same basis as employees of the Participating Employer: (i) medical; (ii) dental; (iii) vision; (iv) employee assistance; (v) medical expense reimbursement and dependent care expense reimbursement benefits provided under a cafeteria plan; (vi) life insurance (basic and supplemental); and (vii) accidental death and dismemberment insurance (basic and supplemental). For the purposes of any of the above-described benefits provided under a Participating Employer's cafeteria plan, a Qualifying Termination constitutes a "change in status" or "life event." (b) Payment and Expiration. Payment of the Participant's portion of contribution or premiums for such selected benefits will be withheld from any severance compensation payments paid to the Participant under this Plan. The Participating Employer's partial subsidization of such coverages will remain in effect until the earlier of: (i) the expiration or earlier termination of the Employee's Severance Period, after which time the Participant may be eligible to elect to continue coverage of those benefits listed above that are provided under group health plans in accordance with his or her rights under Section 4980B of the Internal Revenue Code; or (ii) the Participant's attainment of or eligibility to attain health and welfare benefits through another employer after which time the Participant may be eligible to elect to continue coverage of those benefits listed above that are provided under group health plans in accordance with his or her rights under Section 4980B of the Internal 5 Revenue Code. 6. STOCK OPTIONS. (a) Accelerated Vesting. Any portion of any outstanding incentive stock options and nonqualified stock options that would have vested during the 18-month period following the Termination Date had the Participant remained an employee with the Participating Employer during such 18-month period will vest as of the Termination Date. This Section 6(a) applies only to options (i) granted to the Participant under the Company's 1993 Long-Term Executive Compensation Plan, or any successor plan to its 1993 Long-Term Executive Compensation Plan, not less than 6 months prior to his or her Termination Date and (ii) outstanding at the close of business on such Termination Date. The determination of accelerated vesting under this Section 6(a) shall be made as of the Termination Date and shall be based solely on any time-specific vesting schedule included in the applicable stock option agreement without regard to any accelerated vesting provision not related to the Plan in such agreement. (b) Post-Termination Exercise Period. Subject to the expiration dates and other terms of the applicable stock option agreements, the Participant may elect to have the right to exercise any outstanding incentive stock options and nonqualified stock options granted prior to the Termination Date to the Participant under the Company's 1984 Long-Term Executive Compensation Plan, its 1993 Long-Term Executive Compensation Plan, or any successor plan to its 1993 Long-Term Executive Compensation Plan that are vested as of the Termination Date (or, if later, the Release Date), whether due to the operation of Section 6(a), above, or otherwise, at any time during the Severance Period and, except in the event that the Severance Period terminates pursuant to Section 8(a), for a period up to 3 months after the end of the Severance Period (notwithstanding Section 8). Any such election shall apply to all outstanding incentive stock options and nonqualified stock options, will be irrevocable and must be made in writing and delivered to the Plan Administrator on or before the later of the Termination Date or Release Date. If the Participant fails to make an election, the Participant's right to exercise such options will expire 3 months after the Termination Date. (c) Stock Option Agreement Amendment. The operation of Sections 6(a) and 6(b), above, are subject to the Participant's execution of an amendment to any affected stock option agreements. 7. OUTPLACEMENT SERVICES. In addition to the benefits described above, career transition counseling or outplacement services may be provided upon the Participant's Qualifying Termination. Such outplacement service will be provided at the Participating Employer's sole discretion. Outplacement services are designed to assist employees in their search for new employment and to facilitate a smooth 6 transition between employment with the Participating Employer and employment with another employer. Any outplacement services provided under this Plan will be provided by an outplacement service chosen by the Participating Employer. The Participant is not entitled to any monetary payment in lieu of outplacement services. 8. TERMINATION OF BENEFITS. Any right of a Participant to severance compensation and benefits under the Plan, and all obligations of his or her Participating Employer to pay any unpaid severance compensation or provide benefits under the Plan will terminate as of the day: (a) The Participant has engaged in any conduct described in Sections 8(a)(i), 8(a)(ii), 8(a)(iii) or 8(a)(iv), below, as the same may be limited pursuant to Section 8(a)(vi). (i) During the Severance Period, the Participant's engagement in, ownership of, or control of any interest in (except as a passive investor in less than one percent of the outstanding securities of publicly held companies), or acting as an officer, director or employee of, or consultant, advisor or lender to, any firm, corporation, partnership, limited liability company, institution, business, government agency, or entity that engages in any line of business that is competitive with any Line of Business of the Company, provided that this Section 8(a)(i) shall not apply to the Participant if the Participant's primary place of employment by a subsidiary of the Company as of the Termination Date is in either the State of California or the State of North Dakota. (ii) During the Severance Period, the Participant employs or solicits for employment by any employer other than a subsidiary of the Company any employee of any subsidiary of the Company, or recommends any such employee for employment to any employer (other than a subsidiary of the Company) at which the Participant is or intends to be (A) employed, (B) a member of the Board of Directors, (C) a partner, or (D) providing consulting services. (iii) During the Severance Period, the Participant directly or indirectly solicits or enters into any arrangement with any person or entity which is, at the time of the solicitation, a significant customer of a subsidiary of the Company for the purpose of engaging in any business transaction of the nature performed by such subsidiary, or contemplated to be performed by such subsidiary, for such customer, provided that this Section 8(a)(iii) shall only apply to customers for whom the Participant personally provided services while employed by a subsidiary of the Company or customers about whom or which the Participant acquired material information while employed by a subsidiary of the Company. 7 (iv) During the Severance Period, the Participant misappropriates or improperly uses or discloses confidential information of the Company and/or its subsidiaries. (v) If the Participant engaged in any of the conduct described in Sections 8(a)(i), 8(a)(ii), 8(a)(iii) or 8(a)(iv) during or after Participant's term of employment with a Participating Employer, but prior to the commencement of the Severance Period, and such engagement becomes known to the Participating Employer during the Severance Period, such conduct shall be deemed, for purposes of Sections 8(a)(i), 8(a)(ii), 8(a)(iii) or 8(a)(iv) to have occurred during the Severance Period. (vi) If the Participant is a party to an employment contract with a Participating Employer that contains a covenant or covenants relating to the Participant's engagement in conduct that is the same as or substantially similar to the conduct described in any of Sections 8(a)(i), 8(a)(ii), 8(a)(iii) or 8(a)(iv), and any specific conduct regulated in such covenant or covenants in such employment contract is more limited in scope geographically or otherwise than the corresponding specific conduct described in any of such Sections 8(a)(i), 8(a)(ii), 8(a)(iii) or 8(a)(iv), then the corresponding specific conduct addressed in the applicable Section 8(a)(i), 8(a)(ii), 8(a)(iii) or 8(a)(iv) shall be limited to the same extent as such conduct is limited in the employment contract and the Participating Employer's rights and remedy with respect to such conduct under this Section 8 shall apply only to such conduct as so limited. (b) The Participant is rehired by his or her Participating Employer or hired by any other subsidiary of the Company. 9. AMENDMENT AND TERMINATION. The Plan Sponsor reserves the right to amend the Plan or to terminate the Plan and all benefits hereunder in their entirety at any time. 10. ADMINISTRATION OF PLAN. The Plan Administrator has the power and discretion to construe the provisions of the Plan and to determine all questions relating to the eligibility of employees of Participating Employers to become Participants in the Plan, and the amount of benefits to which any Participant may be entitled thereunder in accordance with the Plan. Not in limitation, but in amplification of the foregoing and of the authority conferred upon the Plan Administrator, the Plan Sponsor specifically intends that the Plan Administrator 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 Plan Administrator will be binding on all Employees, Participants, and Beneficiaries, and is intended to be subject to the most deferential standard of judicial review. Such standard of review is not to be affected by any 8 real or alleged conflict of interest on the part of the Plan Administrator. The decision of the Plan Administrator upon all matters within the scope of its authority will be final and binding. 11. CLAIMS PROCEDURES. (a) FILING A CLAIM FOR BENEFITS. Participants are not required to submit claim forms to initiate payment of benefits under this Plan. To make a claim for benefits, individuals other than Participants who believe they are entitled to receive benefits under this Plan and Participants who believe they have been denied certain benefits under the Plan must write to the Plan Administrator. These individuals and such Participants are hereinafter referred to in this Section 11 as "Claimants." Claimants must notify the Plan Administrator if they will be represented by a duly authorized representative with respect to a claim under the Plan. (b) INITIAL REVIEW OF CLAIMS. The Plan Administrator will evaluate a claim for benefits under the Plan. The Plan Administrator may solicit additional information from the Claimant if necessary to evaluate the claim. If the Plan Administrator denies all or any portion of the claim, the Claimant will receive, within 90 days after the receipt of the written claim, a written notice setting forth: (i) the specific reason for the denial; (ii) specific references to pertinent Plan provisions on which the Plan Administrator based its denial; (iii) a description of any additional material and information needed for the Claimant to perfect his or her claim and an explanation of why the material or information is needed; and (iv) that any appeal the Claimant wishes to make of the adverse determination must be in writing to the Plan Administrator within 60 days after receipt of the notice of denial of benefits. The notice must advise the Claimant that his or her failure to appeal the action to the Plan Administrator in writing within the 60-day period will render the Plan Administrator's determination final, binding and conclusive. The notice must further advise the Claimant of his or her right to bring a civil action under Section 502(a) of ERISA following the exhaustion of the claims procedures described herein. (c) APPEAL OF DENIED CLAIM AND FINAL DECISION. If the Claimant should appeal to the Plan Administrator, the Claimant, or his or her duly authorized representative, must submit, in writing, whatever issues and comments the Claimant or his or her duly authorized representative feels are 9 pertinent. The Claimant, or his or her duly authorized representative, may review and request pertinent Plan documents. The Plan Administrator will reexamine all facts related to the appeal and make a final determination as to whether the denial of benefits is justified under the circumstances. The Plan Administrator will advise the Claimant in writing of its decision within 60 days of the Claimant's written request for review, unless special circumstances (such as a hearing) require an extension of time, in which case the Plan Administrator will make a decision as soon as possible, but no later than 120 days after its receipt of a request for review. 12. PLAN FINANCING. The benefits to be provided under the Plan will be paid by the applicable Participating Employer, as incurred, out of the general assets of such Participating Employer. 13. GENERAL INFORMATION. The Plan's records are maintained on a calendar year basis. The Plan Number is 509. The Plan is self-administered and is considered a severance plan. 14. GOVERNING LAW. The Plan is established in the State of Missouri. To the extent federal law does not apply, any questions arising under the Plan will be determined under the laws of the State of Missouri. 15. ENFORCEABILITY; SEVERABILITY. If a court of competent jurisdiction determines that any provision of the Plan is not enforceable, then such provision shall be enforceable to the maximum extent possible under applicable law, as determined by such court. The invalidity or unenforceabilty of any provision of the Plan, as determined by a court of competent jurisdiction, will not affect the validity or enforceability of any other provision of the Plan and all other provisions will remain in full force and effect. 16. WITHHOLDING OF TAXES. The applicable Participating Employer may withhold from any benefit payable under the Plan all federal, state, city or other taxes as may be required pursuant to any law, governmental regulation or ruling. The Participant shall pay upon demand by the Company or the Participating Employer any taxes required to be withheld or collected by the Company or the Participating Employer upon the exercise by the Participant of a nonqualified stock option granted under the Company's 1984 Long-Term Executive Compensation Plan or its 1993 Long-Term Executive Compensation Plan. If the Participant fails to pay any such taxes associated with such exercise upon demand, the Participating Employer shall have the right, but not the obligation, to offset such taxes against any unpaid severance compensation under this Plan. 17. NOT AN EMPLOYMENT AGREEMENT. Nothing in the Plan gives an Employee any rights (or imposes any obligations) to continued employment by his or her Participating Employer or other subsidiary of the Company, nor does it give such Participating Employer any rights (or impose any obligations) for the continued 10 performance of duties by the Employee for the Participating Employer or any other subsidiary of the Company. 18. NO ASSIGNMENT. The Employee's right to receive payments of severance compensation and benefits under the Plan are not assignable or transferable, whether by pledge, creation of a security interest, or otherwise. In the event of any attempted assignment or transfer contrary to this section, the applicable Participating Employer will have no liability to pay any amount so attempted to be assigned or transferred. 19. SERVICE OF PROCESS. The Secretary of the Plan Administrator is designated as agent for service of legal process. Service of legal process may be made upon the Secretary of the Plan Administrator at: HRB Management, Inc. Attn: Secretary 4400 Main Street Kansas City, Missouri 64111 20. STATEMENT OF ERISA RIGHTS. As a participant in the Plan, you are entitled to certain rights and protections under ERISA, which provides that all Plan Participants are entitled to: (a) examine without charge, at the Plan Administrator's office, all documents governing the Plan and a copy of the latest annual report (Form 5500 Series) filed by the Plan with the U.S. Department of Labor and available at the Public Disclosure Room of the Pension and Welfare Benefit Administration; (b) obtain, upon written request to the Plan Administrator, copies of documents governing the operation of the Plan, copies of the latest annual report (Form 5500 Series) and an updated summary plan description. The Plan Administrator may make a reasonable charge for the copies; and (c) receive a summary of the Plan's annual financial report if required to be filed for the year. The Plan Administrator is required by law to furnish each participant with a copy of this summary annual report if an annual report is required to be filed for the year. In addition to creating rights for Plan Participants, ERISA imposes duties upon the people who are responsible for the operation of the Plan. The people who operate your Plan, called "fiduciaries" of the Plan, have a duty to do so prudently and in the interest of you and other Plan Participants and beneficiaries. No one, including your Participating Employer or any other person, may fire you or otherwise discriminate against you in any way to prevent you from obtaining a welfare benefit or exercising your rights under ERISA. 11 If your claim for a welfare benefit is denied or ignored, in whole or in part, you have the right to know why this was done, to obtain copies of documents relating to the decision without charge, and to appeal any denial, all within certain time schedules. Under ERISA, there are steps you can take to enforce the above rights. For instance, if you request a copy of plan documents or the latest annual report from the Plan and do not receive them within 30 days, you may file suit in a Federal court. In such a case, the court may require the Plan Administrator to provide the materials to you and pay you up to $110 a day until you receive the materials, unless the materials were not sent because of reasons beyond the control of the Plan Administrator. If you have a claim for benefits that is denied or ignored, in whole or in part, you may file suit in a state or Federal court. If it should happen that you are discriminated against for asserting your rights, you may seek assistance from the U. S. Department of Labor, or you may file suit in a Federal court. The court will decide who should pay court costs and legal fees. If you are successful, the court may order the person you have sued to pay these costs and fees. If you lose, the court may order you to pay these costs and fees, for example, if it finds your claim is frivolous. If you have any questions about the Plan, you should contact the Plan Administrator. If you have questions about this statement or about your rights under ERISA, or if you need assistance in obtaining documents from the Plan Administrator, you should contact the nearest office of the Pension and Welfare Benefits Administration, U.S. Department of Labor, listed in your telephone directory or the Division of Technical Assistance and Inquiries, Pension and Welfare Benefits Administration, U.S. Department of Labor, 200 Constitution Avenue N.W., Washington, D.C. 20210. You may also obtain certain publications about your rights and responsibilities under ERISA by calling the publications hotline of the Pension and Welfare Benefits Administration. 12 IN WITNESS WHEREOF, HRB Management, Inc. adopts this Severance Plan effective this 23rd day of April, 2001. HRB MANAGEMENT, INC. /s/ Mark A. Ernst ------------------------------------- Mark A. Ernst President and Chief Executive Officer 13 SCHEDULE A PARTICIPATING EMPLOYERS Block Financial Corporation Financial Marketing Services, Inc. Franchise Partner, Inc. H&R Block Investments, Inc. H&R Block Services, Inc. and its U.S.-based direct and indirect subsidiaries HRB Business Services, Inc. HRB Management, Inc. HRB Retail Services, Inc. Olde Financial Corporation and its U.S.-based direct and indirect subsidiaries, which subsidiaries include H&R Block Financial Advisors, Inc. 14