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Loan Participation Agreement

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Sectors: Services
Governing Law: Delaware, View Delaware State Laws
Effective Date: January 06, 2003
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EXHIBIT 10.3


WAIVER OF RIGHTS UNDER
AMENDED AND RESTATED REFUND ANTICIPATION
LOAN PARTICIPATION AGREEMENT


This Waiver of Rights Under Amended and Restated Refund Anticipation Loan Participation Agreement (this "Waiver"), dated as of January 6, 2003, is made by and among Block Financial Corporation ("BFC"), Household Tax Masters Inc. ("Tax Masters"), and H & R Block Services, Inc. ("Block Services").


RECITALS


A. BFC, Tax Masters and Household Bank, f.s.b. ("HB") have entered into that
certain Amended and Restated Refund Anticipation Loan Participation
Agreement, dated as of January 6, 2003 (the "Amended and Restated
Participation Agreement"). Capitalized terms that are not defined herein
shall have the meanings assigned to such terms in the Amended and Restated
Participation Agreement.


B. The Amended and Restated Participation Agreement amended and restated the
predecessor agreement to, among other things, provide for Imperial Capital
Bank, a California state chartered commercial bank ("ICB"), to replace HB
as the originator of RALs and issuer of RACs.


C. Subject to the terms and conditions of the Amended and Restated
Participation Agreement, BFC has the right to purchase Participation
Interests in RALs from Tax Masters.


D. For the 2003 Tax Period, Tax Masters desires to fund its purchases of
Participation Interests in RALs from ICB pursuant to a Revolving Purchase
Agreement, dated as of January 3, 2003 (the "Purchase Agreement").


E. Tax Masters and BFC considered having BFC fund its purchases of
Participation Interests in RALs by becoming a party to the Purchase
Agreement.


F. BFC decided not to become a party to the Purchase Agreement, and instead,
BFC and Tax Masters agreed that BFC would waive its right to purchase any
Participation Interests under the Amended and Restated Participation
Agreement (and forgo the income associated with such Participation
Interests) solely with respect to Pool RALs originated during the period
from January 1, 2003 to April 30, 2003 (the "2003 Waiver Period"), in
return for certain payments by Tax Masters to BFC as provided for in this
Waiver.


AGREEMENT


NOW, THEREFORE, in consideration of the forgoing, the covenants and agreements of the parties hereto and other good and valuable consideration, the receipt


and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:


Section 1. Waivers and Waiver Payment.


(a) BFC hereby:


(i) waives its right to purchase from Tax Masters, solely with
respect to the 2003 Waiver Period, Participation Interests under the
Amended and Restated Participation Agreement, whether pursuant to
Section 2.1 thereof or otherwise, and the parties hereby agree that
the Applicable Percentage under the Amended and Restated
Participation Agreement with respect to the 2003 Waiver Period for
both Corporate Pool RALs and Major Franchisee Pool RALs shall be 0%;


(ii) waives its rights to indemnification, solely for the 2003
Tax Period, pursuant to paragraph 1(B) (regarding RALs made to Iowa
residents) of that certain letter agreement, dated November 11, 2002
(the "ICB Consent Letter"), by and among H&R Block Services, Inc.,
H&R Block Tax Services, Inc., HRB Royalty, Inc., BFC, Tax Masters,
HB, Beneficial Franchise Company, Inc., and Household Finance
Corporation;


(iii) waives all rights pursuant to Section 2.4(g) and Section
3.3(c) of the Amended and Restated Participation Agreement to audit
Tax Masters' servicing expenses for calendar year 2003; and


(iv) waives its rights, solely for the 2003 Tax Period, to
collect a licensing fee with respect to electronic refund advances
(ERAs"); and


(b) Block Services hereby waives its rights, solely for the 2003 Tax
Period, to collect the License Fee (as such term is defined in the RAL
Operations Agreement) payable pursuant to Section 5.4 of the RAL
Operations Agreement solely with respect to RALs made at Block Offices
other than Corporate Franchise offices;


all in exchange for the payment by Tax Masters to BFC of an amount equal to $133,000,000.00 (the "Waiver Payment"). Tax Masters agrees to deposit on January 7, 2003, the Waiver Payment with Bank One, N.A. (the "Escrow Agent") pursuant to an Escrow Agreement (the "Escrow Agreement"), dated as of January 6, 2003, to be executed by BFC, Tax Masters and the Escrow Agent, substantially in the form attached hereto as Exhibit A. The Waiver Payment shall be paid to BFC by the Escrow Agent in installments on each Friday during the months of January, February, March and April, 2003, in accordance with Schedule 1 attached hereto but subject to the terms and conditions of Section 4 hereof. The fees and expenses of the Escrow Agent shall be paid as set forth in the Escrow Agreement. Interest and other investment income shall be paid equally to BFC and Tax Masters; provided, however, that in the event any installment of the Waiver Payment is reduced as described in paragraph (b) of Section 4 below, and there is a final determination in accordance with


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the procedures set forth in paragraph (c) of Section 4 below that such installment should not have been reduced, then all interest and other investment income attributable to the amount by which such installment was reduced shall be paid solely to BFC.


Section 2. True-Up for Delinquencies.


(a) On or before January 15, 2004 (the "True-Up Date"), Tax Masters
and BFC shall calculate the following amounts with respect to the Pool
RALs for the 2003 Tax Period:


(i) "2003 Delinquent Pool RALs" shall mean all Pool RALs that
were originated during the 2003 Tax Period and that appear in the
L05 Report (Company Owned Unpaid Loan Analysis) and the L35 Report
(Major Franchisee Unpaid Loan Analysis) dated December 31, 2003.


(ii) "Actual Delinquency Percentage" shall be an amount,
computed as a decimal carried to eight places, equal to the December
31 Delinquency Amount divided by the Aggregate RAL Principal
Balance;


(iii) "Aggregate RAL Principal Balance" shall mean the
aggregate principal amount of all Pool RALs that were originated
during the 2003 Tax Period;


(iv) "Assumed Future Recovery Percentage" is a fixed amount
equal to 0.28;


(v) "Base Delinquency Percentage" is a fixed amount equal to
0.0055;


(vi) "BFC Recovery Percentage" shall be an amount, computed as
a decimal carried to five places, equal to the quotient of (A) the
product of the Actual Delinquency Percentage multiplied by
$4,986,000,000, divided by (B) the December 31 Delinquency Amount.


(vii) "December 31 Delinquency Amount" with respect to 2003
Delinquent Pool RALS shall be an amount equal to the sum of the
"Dollars Unpaid" amounts that appear in the L05 Report (Company
Owned Unpaid Loan Analysis) and the L35 Report (Major Franchise
Unpaid Loan Analysis) dated December 31, 2003.


Tax Masters shall provide BFC with all information reasonably requested by
BFC to calculate the foregoing amounts.


(b) If the Actual Delinquency Percentage is less than 0.0100:


(i) but greater than the Base Delinquency Percentage, then on
the True-Up Date, BFC shall remit to Tax Masters an amount equal to
the


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product of $4,986,000,000 multiplied by X, where X is an amount
equal to the Actual Delinquency Percentage minus the Base
Delinquency Percentage; or


(ii) and less than the Base Delinquency Percentage, then on
the True-Up Date, Tax Masters shall remit to BFC an amount equal to
the product of $4,986,000,000 multiplied by X, where X is an amount
equal to the Base Delinquency Percentage minus the Actual
Delinquency Percentage; and


(iii) on the True-Up Date, Tax Masters shall remit to BFC an
amount equal to the product of (
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