UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission file number 0-22324
JACKSON HEWITT INC.
(Exact name of small business issuer as specified in its charter)
Virginia 54-1349705
(State of organization) (I.R.S. Employer Identification No.)
4575 Bonney Road, Virginia Beach, Virginia 23462
(Address of principal executive office)
(757) 473-3300
(Registrant's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by
Section 12, 13 or 15(d) of the Exchange Act during the past 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.
[X] Yes [ ] No
State the number of shares outstanding of each of the issuer's classes of
common stock, as of the last practicable date: 4,514,806
Transitional Small Business Issuer Format (check one): [ ] Yes [X] No
<PAGE>
JACKSON HEWITT INC.
Quarterly Report on Form 10-QSB
Table of Contents
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE
<S> <C>
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of July 31, 1996 (unaudited) and
April 30, 1996.................................................................... 3
Condensed Consolidated Statements of Operations for the Three Months Ended
July 31, 1996 and 1995 (unaudited)................................................ 5
Condensed Consolidated Statement of Shareholders' Equity for the Three Months
Ended July 31, 1996 (unaudited)................................................... 6
Condensed Consolidated Statements of Cash Flows for the Three Months Ended
July 31, 1996 and 1995 (unaudited)................................................ 7
Notes to Condensed Consolidated Financial Statements.............................. 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations... 11
PART II OTHER INFORMATION
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
</TABLE>
<PAGE>
Jackson Hewitt Inc.
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
July 31, April 30,
1996 1996
----------------- -----------------
(Unaudited)
<S> <C>
Assets
Current assets:
Cash and cash equivalents $229,390 $3,557,861
Receivables (notes 2 and 7):
Trade accounts 2,379,973 3,171,035
Notes receivable, current portion 4,390,077 4,376,338
Allowance for doubtful accounts (1,300,016) (1,366,250)
Interest 587,077 328,049
----------------- -----------------
Total receivables, net 6,057,111 6,509,172
----------------- -----------------
Tax benefit (note 4) 803,814 -
Prepaid expenses and supplies 347,532 259,591
Deferred income taxes 697,000 828,000
----------------- -----------------
Total current assets 8,134,847 11,154,624
----------------- -----------------
Property and equipment, at cost:
Property and equipment 4,021,708 3,956,475
Computer software 899,049 877,139
----------------- -----------------
4,920,757 4,833,614
Less accumulated depreciation and amortization 1,978,954 1,802,689
----------------- -----------------
2,941,803 3,030,925
Intangible assets, net (notes 5 and 7):
Customer lists, net 2,525,727 1,366,409
Other, net 750,318 162,215
----------------- -----------------
3,276,045 1,528,624
Notes receivable, less current portion (notes 2 and 7) 9,994,472 9,797,258
Other assets 299,258 444,430
----------------- -----------------
10,293,730 10,241,688
----------------- -----------------
$24,646,425 $25,955,861
================= =================
(continued)
</TABLE>
<PAGE>
Jackson Hewitt Inc.
Condensed Consolidated Balance Sheets (continued)
<TABLE>
<CAPTION>
July 31, April 30,
1996 1996
----------------- -----------------
(Unaudited)
<S> <C>
Liabilities, Redeemable Convertible Preferred Stock
and Shareholders' Equity
Current liabilities:
Line of credit agreement (note 6) $4,438,924 -
Current installments of notes payable (note 7) 1,355,506 $462,166
Current installments of capital lease obligations 598,504 582,645
Accounts payable and other liabilities 2,054,162 3,108,570
Accrued payroll and related liabilities 375,912 936,158
Income taxes payable 155,303 1,138,202
Deferred franchise fees 248,694 207,500
----------------- -----------------
Total current liabilities 9,227,005 6,435,241
Notes payable, excluding current installments (note 7) 1,787,852 1,480,873
Capital lease obligations, excluding current installments 457,812 599,044
Convertible notes 762,750 762,750
----------------- -----------------
3,008,414 2,842,667
Stock purchase warrants (note 6) - 609,492
Deferred credits:
Income taxes, net 1,266,380 1,059,000
Minority interest 120,075 1,902,420
----------------- -----------------
Total liabilities 13,621,874 12,848,820
Series A redeemable convertible preferred stock, no par value;
1,000,000 shares authorized; 504,950 shares issued
and outstanding 3,380,858 3,277,792
Shareholders' equity:
Common stock, $.02 par value:
Authorized shares - 10,000,000
Issued and outstanding shares - 4,514,806 as of
July 31, 1996 and 4,408,056 as of April 30, 1996 90,296 88,161
Additional capital 7,665,678 7,180,038
Retained earnings 1,091,694 3,765,025
Stock subscription receivable (note 8) (1,203,975) (1,203,975)
----------------- -----------------
Shareholders' equity 7,643,693 9,829,249
Commitments, contingencies and subsequent
event (notes 6 and 8)
----------------- -----------------
$24,646,425 $25,955,861
================= =================
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
Jackson Hewitt Inc.
Condensed Consolidated Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
Three months ended July 31
-------------------------------------
1996 1995
----------------- -----------------
<S> <C>
Revenue $979,941 $758,258
Selling, general, and administrative expenses 3,055,793 3,222,183
----------------- -----------------
Loss from operations (2,075,852) (2,463,925)
----------------- -----------------
Other income (expenses):
Interest income 458,902 472,722
Interest expense (320,594) (215,558)
Gain (loss) on sale of intangible assets and property
and equipment (15,211) 109,813
Minority interest (14,937) (3,847)
----------------- -----------------
108,160 363,130
----------------- -----------------
Loss before provision for income taxes
and extraordinary item (1,967,692) (2,100,795)
Income tax benefit (note 4) (645,815) (774,436)
----------------- -----------------
Net loss before extraordinary item (1,321,877) (1,326,359)
----------------- -----------------
Extraordinary loss on early extinguishment of stock
purchase warrant obligation (note 6) (1,248,388) -
----------------- -----------------
Net loss (2,570,265) (1,326,359)
----------------- -----------------
Dividends accrued on Series A redeemable convertible
preferred stock (82,593) (75,093)
Accretion of preferred stock to estimated liquidation value (20,473) (19,871)
----------------- -----------------
Net loss attributable to common shareholders ($2,673,331) ($1,421,323)
================= =================
Net loss per common share (note 3):
Net loss before extraordinary item ($0.32) ($0.33)
================= =================
Net loss ($0.59) ($0.33)
================= =================
Weighted average shares outstanding 4,501,441 4,300,364
================= =================
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
Jackson Hewitt Inc.
Condensed Consolidated Statement of Shareholders' Equity
For the Three Months Ended July 31, 1996
(unaudited)
<TABLE>
<CAPTION>
Common Stock Stock Total
-------------------------- Additional Retained Subscription Shareholders'
Shares Amount Capital Earnings Receivable Equity
----------------------------------------------------------------------------------------------
<S> <C>
Balance at April 30, 1996 4,408,056 $88,161 $7,180,038 $3,765,025 ($1,203,975) $9,829,249
Dividends accrued on
redeemable convertible
preferred stock - - - (82,593) - (82,593)
Accretion of preferred
stock to estimated
liquidation value - - - (20,473) - (20,473)
Stock purchase warrants
(note 6) - - 7,400 - - 7,400
Net shares issued
in acquisition of
franchisee (note 7) 106,750 2,135 478,240 - - 480,375
Net loss - - - (2,570,265) - (2,570,265)
----------------------------------------------------------------------------------------------
Balance at July 31, 1996 4,514,806 $90,296 $7,665,678 $1,091,694 ($1,203,975) $7,643,693
==============================================================================================
</TABLE>
<PAGE>
Jackson Hewitt Inc.
Condensed Consolidated Statements of Cash Flows (unaudited)
<TABLE>
<CAPTION>
Three Months Ended July 31
-------------------------------------
1996 1995
----------------- -----------------
<S> <C>
Net cash used in operations ($6,082,683) ($3,012,798)
Investing activities:
Notes receivable financing of franchisees - (293,499)
Payments received from franchisees 36,706 259,214
Purchases of customer lists and other assets - (3,259)
Purchases of property and equipment (113,758) (41,963)
----------------- -----------------
Net cash used in investing activities (77,052) (79,507)
----------------- -----------------
Financing activities:
Net borrowings under lines of credit 4,438,924 1,993,682
Repayments of long-term debt (44,278) (123,920)
Proceeds from long-term debt 452,500 114,636
Repayments of obligations under capital leases (139,915) (104,913)
Retirement of stock purchase warrant obligation (1,875,967) -
----------------- -----------------
Net cash provided by financing activities 2,831,264 1,879,485
----------------- -----------------
Net decrease in cash ($3,328,471) ($1,212,820)
================= =================
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
Jackson Hewitt Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
July 31, 1996
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Article 310
of Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of adjustments of a normal recurring nature) considered necessary for a fair
presentation have been included. Operating results for the three month period
ended July 31, 1996 are not necessarily indicative of the results that may be
expected for the year ended April 30, 1997. For further information, refer to
the consolidated financial statements and footnotes thereto included in the
Jackson Hewitt Inc. annual report on Form 10-KSB for the year ended April 30,
1996.
2. Notes Receivable
At July 31, 1996, the Company had an investment in notes and related interest
receivable of approximately $2,279,000 which had recorded values that exceeded
the fair value of the underlying collateral by approximately $447,000. In
addition, the Company had trade accounts receivable due from these business
partners of approximately $188,000 at July 31, 1996. The Company has reflected
an allowance of $635,000 for this impairment in the accompanying consolidated
balance sheet. Activity in the allowance for doubtful accounts for the three
months ended July 31, 1996 is summarized as follows:
Beginning balance $1,366,250
Additions charged to expense 266,823
Write-offs (333,057)
=================
Ending balance $1,300,016
=================
The Company's average investment in impaired notes receivable during the quarter
ended July 31, 1996 was approximately $2,272,000. Interest income related to
these notes of approximately $68,000 has been included in the accompanying
consolidated statements of operations.
3. Net Loss Per Common Share
Net loss per common share is based on the weighted average number of shares of
common stock outstanding during the period, including the dilutive effects of
stock options and warrants. Net loss is adjusted for dividends accrued on Series
A Redeemable Convertible Preferred Stock and accretion of preferred stock
issuance costs to arrive at net loss per common share. The Company's convertible
notes and redeemable convertible preferred stock are excluded from the
calculation of net loss per common share because they are not common stock
equivalents.
4. Income Taxes
The Company's business is seasonal with anticipated losses during the first
three quarters. The Company anticipates taxable income for the fiscal year and,
therefore, has provided a benefit for income taxes.
<PAGE>
Jackson Hewitt Inc.
Notes to Condensed Consolidated Financial Statements (continued)
5. Acquisition of Franchise Assets
During the quarter ended July 31, 1996, the Company acquired the client lists
and other assets of 8 Jackson Hewitt franchises for a total purchase price of
$656,511. The Company canceled notes and accounts receivable of $651,625, and
assumed franchisee obligations totaling $4,886 to complete these transactions.
The purchase price is allocated among the assets acquired based on the relative
fair value of the underlying assets. The portion allocated to customer lists is
generally based on a percentage of gross revenue generated by the respective
franchises. The purchase price was allocated among the assets purchased during
the quarter as follows:
Customer lists $431,591
Other intangible assets, primarily goodwill 22,995
Amounts charged against allowance
for doubtful accounts 201,925
================
Total $656,511
================
6. Line of Credit and Extraordinary Item
In June 1996, the Company's lender renewed the Company's revolving capital
facility (the Facility) through July 31, 1997. In August 1996, the Company's
lender extended a commitment to increase the amount available under the
Facility. Under the terms of the commitment, amounts which can be borrowed under
the Facility vary from $2,000,000 to $7,900,000 throughout the year. Under the
terms of the commitment, the Facility bears interest, which is payable monthly,
at prime plus 0.5% on the first $6,500,000 and at prime plus 1.25% on amounts in
excess of $6,500,000. The Facility contains certain maintenance and restrictive
covenants, including but not limited to a total liabilities to tangible net
worth ratio and a current ratio. At July 31, 1996, the Company had borrowed
$4,438,924 against the Facility.
In conjunction with the renewal of the Facility, in June 1996 the Company agreed
to repurchase the put option on all of the warrants and retire 572,549 of the
582,549 warrants held by the lender for $1,875,967. The Company financed the
purchase using amounts available under the Facility. A loss of approximately
$1,248,000 associated with the early extinguishment of the put warrant liability
is reflected as an extraordinary item in the accompanying condensed consolidated
statement of operations for the three months ended July 31, 1996. The remaining
outstanding purchase warrants at July 31, 1996 have been included in additional
capital in the accompanying condensed consolidated balance sheet.
At July 31, 1996, the Company was not in compliance with the total liabilities
to tangible net worth covenant in the agreement governing the Facility. In
September 1996, the lender amended the covenant to resolve the instance of
noncompliance.
7. Acquisition
On July 31, 1996, the Company completed an exchange of 106,750 shares of the
Company's common stock, net of shares retired, for all of the outstanding stock
of Oden Inc., a franchisee. The total purchase price, based upon the market
value of the Company's stock at July 31, 1996, was $480,375. The transaction was
accounted for as a purchase and the resulting goodwill will be amortized over 15
years. Assets acquired and liabilities assumed in the purchase are as follows:
<PAGE>
Jackson Hewitt Inc.
Notes to Condensed Consolidated Financial Statements (continued)
7. Acquisition (continued)
Assets acquired:
Cash $5,195
Accounts receivable 55,587
Notes and interest receivable 645,693
Prepaid expenses 1,480
Fixed assets 22,295
Customer lists 837,911
Goodwill 575,785
Other assets 9,016
-------------
Total assets 2,152,962
-------------
Liabilities assumed:
Accounts payable 483,176
Notes and interest payable 1,009,031
Deferred income taxes 180,380
-------------
Total liabilities 1,672,587
-------------
Purchase price $480,375
=============
Included in accounts payable and notes and interest payable are amounts due to
the Company of $464,821 and $182,970, respectively, which have been eliminated
in consolidation from the accompanying consolidated balance sheet as of July 31,
1996. The remaining notes payable are due to former Oden shareholders and are
due in varying installments from February 1997 to February 1998.
The following unaudited pro forma financial information combines the results of
operations of the Company and Oden as if the acquisition occurred at the
beginning of fiscal 1997 and 1996, respectively, after giving effect to certain
adjustments, including the depreciation and amortization of assets based on
their fair values and intercompany eliminations. The unaudited pro forma
information does not purport to represent what the results of operations of the
Company would have been if such transactions had in fact occurred on such dates
or to project the Company's results of operations as of any future dates or for
any future period.
<TABLE>
<CAPTION>
Three months ended Year ended
July 31, 1996 April 30, 1996
---------------------- ---------------------
(unaudited)
<S> <C>
Revenue $951,869 $25,723,168
Net income (loss) before extraordinary item (1,188,284) 2,308,500
Net income (loss) ($2,436,672) $2,308,500
Net income (loss) per common share:
Net income (loss) before extraordinary item ($0.29) $0.38
Net income (loss) ($0.56) $0.38
</TABLE>
8. Stock Subscription Receivable
The stock subscription receivable reflected in the accompanying unaudited
condensed consolidated balance sheets was due from the Company's Chairman of the
Board of Directors on April 30, 1996. On September 9, 1996, John Hewitt informed
the Company of his intention to resign from the Company effective immediately.
The Company is currently negotiating the terms of Mr. Hewitt's severance. Mr.
Hewitt intends to remain a member of the Company's Board of Directors.
<PAGE>
JACKSON HEWITT INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
The Company operates in one industry segment with two lines of
business: franchised and Company-owned stores. The Company does not currently
allocate costs or determine profitability by lines of business. However, it has
developed limited profitability analyses related to the franchise fee component
of total franchise revenue, as further discussed below.
Seasonality
Historically, the Company has generated substantially all of its
revenue during January through April of each year. During 1996, the Company
generated 89% of its revenue during this period. Therefore, the Company operates
at a loss during the first three quarters of each fiscal year, during which time
it incurs costs associated with preparing for the following tax season.
Results of Operations
The Company's total revenue for the first three months of 1997 was $1.0
million compared to $0.8 million for the first three months of 1996 (all
references in this section of the discussion are to the Company's fiscal years)
primarily due to an increase of $0.1 million in franchise fee revenue net of the
allowance for refunds as a result of improved franchise sales. Operating losses
from sales of franchises, defined as franchise fees less the Company's estimated
costs of securing such sale (e.g. payroll allocations of its franchise
department, legal department, training department and allocations of appropriate
indirect costs) approximated $0.3 million and $0.2 million for the three months
ended July 31, 1996 and 1995, respectively. The Company had anticipated
operating losses from the sale of franchises for each respective interim period.
Selling, general and administrative ("SG&A") expenses decreased 5.4% to
$3.1 million for the first three months of fiscal 1997 from $3.2 million for the
first quarter of fiscal 1996. SG&A expenses increased $0.2 million in corporate
administrative functions primarily due to increased advertising expenses. Field
operations expenses decreased $0.3 million as a result of a reduction in
Company-operated Copy Pack & Ship stores in the first quarter of 1997.
Other income and expense decreased to $0.1 million from $0.4 million in
1996. The decrease is primarily attributable to an increase in interest expense
related to loan discount amortization associated with warrants issued in fiscal
1996 by the Company's primary lender and a decrease in the gain on sale of
intangible assets and property and equipment.
Liquidity and Capital Resources
In June 1996, the Company's lender renewed the Company's revolving
capital facility (the Facility) through July 31, 1997. On September 10, 1996,
the Company's lender amended the Facility to increase the amount available.
Under the terms of the amendment, amounts which can be borrowed under the
Facility vary from $2.0 million to $7.9 million throughout the year. The
Facility bears interest, payable monthly, at prime plus 0.5% on the first $6.5
million and at prime plus 1.25% on amounts in excess of $6.5 million. The
Facility contains certain maintenance and restrictive covenants, including but
not limited to a total liabilities to tangible net worth ratio and a current
ratio. At July 31, 1996, the Company had borrowed $4.4 million against the
Facility.
In conjunction with the renewal of the Facility, on June 7, 1996, the
Company agreed to repurchase the put option on all of the warrants and retire
572,549 of the 582,549 outstanding warrants held by the lender for approximately
$1.9 million. The Company financed the transaction using amounts available under
the Facility. A loss of approximately $1.2 million associated with the early
extinguishment of the put warrant liability is reflected as an extraordinary
item in the Company's results of operations for the three months ended July 31,
1996.
At July 31, 1996, the Company was not in compliance with the total
liabilities to tangible net worth covenant in the agreement governing the
Facility. In September 1996, the lender amended the covenant to resolve the
instance of noncompliance.
Cash flows from the Company's operating, investing and financing
activities are disclosed in the accompanying condensed consolidated statement of
cash flows. In the three months ended July 31, 1996, the Company used $6.1
million in operations as compared with $3.0 million for the three months ended
July 31, 1995. The increase is primarily attributable to a partnership minority
interest withdrawal of $1.8 million in May, increased income tax payments of
$0.7 million in the first quarter of 1997 and decreased payments received in the
first quarter of 1997 from companies who were sold equipment used in
Company-operated offices of $0.5 million.
The Company's investing activities used $0.1 million each in the
three months ended July 31, 1996 and 1995.
The Company's financing activities for the three months ended July 31,
1996 provided $2.8 million compared with $1.9 million provided in the three
months ended July 31, 1995. The increase is primarily attributable to increased
borrowings under the Company's working capital facility of $2.4 million and
proceeds of a loan from one of the Company's lenders of $0.4 million which were
partially offset by a $1.9 million payment for the retirement of the put and the
majority of the outstanding warrants held by the Company's lender as discussed
above.
The Company's current assets at July 31, 1996 were $8.1 million
compared to $11.2 million at April 30, 1996. The decrease resulted primarily
from a decrease of $3.3 million in cash which is discussed above.
During the first quarter of 1997, the Company acquired the client lists
and other assets of 8 franchises for a total purchase price of $0.7 million, in
exchange for the cancellation of outstanding notes and accounts receivable.
In July 1996, the Company completed an exchange of 106,750 shares, net
of shares retired, of the Company's common stock for ownership in Oden Inc. The
acquisition was accounted for as a purchase and as a result, all of the assets
and liabilities were adjusted to their fair values with the excess purchase
price allocated to goodwill.
<PAGE>
Part II Other Information
Item 5. Other Information
On September 9, 1996, John Hewitt informed the Company of his
intention to resign from the Company effective immediately. The Company is
currently negotiating the terms of Mr. Hewitt's severance. Mr. Hewitt
intends to remain a member of the Company's Board of Directors.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 10.1 NationsBank First Amendment to Amended and
Restated Credit Agreement and Waiver Agreement dated September 10, 1996.
(b) None
<PAGE>
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed by the undersigned, thereunto duly authorized.
Jackson Hewitt Inc.
By /s/ Christopher Drake
------------------------
Christopher Drake
Controller &
Chief Financial Officer
September 13, 1996
FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
AND
WAIVER AGREEMENT
THIS FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT is dated
as of September 10, 1996, between JACKSON HEWITT, INC., a Virginia corporation
(the "Company"), and NATIONSBANK, N.A., formerly known as NationsBank of
Virginia, N.A. (the "Bank").
RECITALS
The Company and the Bank are parties to (i) a Credit Agreement dated as
of June 28, 1994, as amended by First Amendment to Credit Agreement dated as of
October 19, 1994 and by Second Amendment to Credit Agreement dated as of January
4, 1995, (ii) an Amended and Restated Credit Agreement dated as of July 17,
1995, as amended by First Amendment to Amended and Restated Credit Agreement
dated as of October 17, 1995 and by Second Amendment to Amended and Restated
Credit Agreement dated as of April 30, 1996, and (iii) an Amended and Restated
Credit Agreement dated as of June 7, 1996 (the "Original Agreement"). The
Company and the Bank now wish to make certain changes to the Original Agreement.
AGREEMENT
The Company and the Bank agree as follows:
1. Capitalized terms used herein and not defined herein shall have the
same meanings as in the Original Agreement.
2. The following definitions are added to Section 1.1 of the Original
Agreement:
" "Guarantee": the guarantee of the Guarantors dated as of
September 10, 1996, as it may be amended, supplemented or otherwise modified
from time to time."
" "Guarantors": the collective reference to Hewfant, Inc. and
Oden, Inc., individually, a "Guarantor"."
3. The definition of "Loan Documents" in the Original Agreement is
deleted and the following substituted therefor:
" "Loan Documents": the collective reference to this
Agreement, the Notes, the Guarantee, the Security Documents and all additional
documents which may from time to time be delivered
1
<PAGE>
by the Company pursuant hereto; all as they may be amended from
time to time; individually, a "Loan Document"."
4. The definition of "Working Capital Note" in Section 1.1
of the Original Agreement is deleted and the following
substituted therefor:
" "Working Capital Note": the Amended and Restated Working
Capital Note dated September 10, 1996 to be executed and delivered by the
Company to the Bank in the maximum principal amount of $7,900,000.00, amending
and restating the Line of Credit Note dated June 28, 1994, as amended by First
Allonge to Line of Credit Note dated as of January 12, 1995, and as amended by
Amended and Restated Line of Credit Note dated July 17, 1995, and as further
amended by Amended and Restated Working Capital Note dated June 7, 1996,
substantially in the form of Exhibit A, as it may be amended, supplemented or
otherwise modified from time to time."
5. Section 2.1(a) of the Original Agreement is deleted and the
following substituted therefor:
"(a) Subject to the terms and conditions hereof, the Bank
agrees to make Loans to the Company from time to time during the Working Capital
Commitment Period in an aggregate principal amount at any one time outstanding
not to exceed
(i) Three Million Four Hundred Thousand Dollars
($3,400,000.00) from June 7, 1996 through June 30, 1996;
(ii) Five Million Four Hundred Thousand Dollars
($5,400,000.00) from July 1, 1996 through August 31, 1996;
(iii) Five Million Nine Hundred Thousand Dollars
($5,900,000.00) from September 1, 1996 through September 30, 1996;
(iv) Six Million Nine Hundred Thousand Dollars
($6,900,000.00) from October 1, 1996 through October 31, 1996;
(v) Seven Million Four Hundred Thousand Dollars
($7,400,000.00) from November 1, 1996 through November 30,
1996;
(vi) Seven Million Nine Hundred Thousand Dollars
($7,900,000.00) from December 1, 1996 through February 15, 1997;
(vii) Six Million Nine Hundred Thousand Dollars
($6,900,000.00) from February 16, 1997 through February 28, 1997;
(viii) Four Million Four Hundred Thousand Dollars
2
<PAGE>
($4,400,000.00) from March 1, 1997 through March 15, 1997;
(ix) Three Million Four Hundred Thousand Dollars
($3,400,000.00) from March 16, 1997 through April 30, 1997; and
(x) Two Million Dollars ($2,000,000.00) from May 1, 1997
through July 31, 1997."
6. Section 2.2 of the Original Agreement is deleted and the
following substituted therefor:
"Section 2.2 Working Capital Note. The Loans made by the
Bank pursuant to the Working Capital Commitment shall be evidenced by the
Working Capital Note, payable to the order of the Bank, representing the
obligation of the Company to pay the aggregate unpaid principal amount of all
Loans made thereunder by the Bank. The Bank is authorized to endorse the date
and amount of each Loan of the Bank and each payment of principal with respect
thereto on a schedule to be annexed to the Working Capital Note or otherwise on
the records of the Bank, which endorsement shall constitute prima facie evidence
of the accuracy of the information endorsed. The Working Capital Note shall (a)
be dated September 10, 1996, (b) be stated to mature on the Working Capital
Termination Date, and (c) bear interest for the period from the date thereof on
the unpaid principal amount thereof from time to time outstanding at a rate per
annum equal to (i) the NationsBank Rate plus one-half percent (.5%) on each
dollar outstanding up to an amount of $6,500,000 and (ii) the NationsBank Rate
plus one and one-quarter percent (1.25%) on each dollar outstanding in excess of
$6,500,000. Interest only accrued on the Working Capital Note shall be payable
on the first day of each month, commencing on the first such date to occur after
the date hereof and on the Working Capital Termination Date."
7. Section 2.6(b) of the Original Agreement is deleted and the
following substituted therefor:
"(b) The Company shall pay to the Bank a commitment fee of
$25,000 on February 15, 1997."
8. Section 3.15 of the Original Agreement is deleted and the following
substituted therefor:
"Section 3.15 Subsidiaries. The Company has no Subsidiaries
except Hewfant, Inc. and Oden, Inc."
9. The following is added as a new Section 4.4 to the
Original Agreement:
3
<PAGE>
"Section 4.4 Conditions to Amendment and Waiver. The
obligation of the Bank to enter into the First Amendment to Amended and Restated
Credit Agreement and Waiver Agreement is subject to the satisfaction of the
following conditions precedent:
(a) The Bank shall have received the First Amendment to Amended and
Restated Credit Agreement and Waiver Agreement, duly executed and delivered by a
Responsible Officer of the Company.
(b) The Bank shall have received the Guarantee, duly executed and
delivered by a duly authorized Responsible Officer of each of the Guarantors.
(c) The Bank shall have received a copy of the resolutions (in form
and substance satisfactory to the Bank) of the Board of Directors of each
Guarantor authorizing the execution, delivery and performance of the Guarantee,
certified by the Secretary or the Assistant Secretary of each Guarantor. Such
certificate shall state that the resolutions set forth therein have not been
amended, modified, revoked or rescinded as of the date of such certificate.
(d) The Bank shall have received a certificate of the Secretary or an
Assistant Secretary of each Guarantor, as to the incumbency and signature of the
officers of each Guarantor executing the Guarantee and any certificate or other
document to be delivered pursuant hereto or thereto, together with evidence of
the incumbency of such Secretary or Assistant Secretary.
(e) The Bank shall have received such additional information as it
shall have reasonably requested; and all corporate and other proceedings and all
other documents and legal matters in connection with the Guarantee shall be
satisfactory in form and substance to the Bank and its counsel."
10. Section 5.10(b) of the Original Agreement is deleted and the
following substituted therefor:
"(b) a ratio of Indebtedness minus Subordinated Debt to
Tangible Net Worth plus Subordinated Debt of not more than (i) 1.20 to 1.00 at
April 30, 1996, (ii) 1.75 to 1.00 at July 31, 1996, (iii) 2.25 to 1.00 at
October 31, 1996, and January 31, 1997, and (iv) 1.00 to 1.00 at April 30, 1997;
and"
11. Section 6.4 of the Original Agreement is deleted and the following
substituted therefor:
4
<PAGE>
"Section 6.4 Prohibition of Fundamental Changes;
Acquisitions.
(a) Enter into any transaction of merger or consolidation or
amalgamation, or liquidate, wind up or dissolve itself (or suffer any
liquidation or dissolution), convey, sell, lease, transfer or otherwise dispose
of, in one transaction or a series of transactions, all or any part of its
business or assets, whether now owned or hereafter acquired (including, without
limitation, receivables and leasehold interests but excluding obsolete or worn
out property, or inventory disposed of in the ordinary course of business),or
make any material change in its present method of conducting business;
(b) Acquire by purchase or otherwise all or substantially all the
business or assets of, or stock or other evidence of beneficial ownership of,
any Person, provided that the purchase or sale of a franchise to provide tax
services will not violate this Section 6.4(b) if after the consummation of such
a purchase, the Company will be in compliance with all the terms and conditions
of this Agreement, including, without limitation, the financial covenants
contained in Section 5.10.
12. The Bank hereby waives the violation of Section 6.6 of the
Original Agreement relating to Investments and Section 6.11 of the Original
Agreement relating to Subsidiaries caused by the Company's acquisition of Oden,
Inc., a wholly-owned subsidiary of the Company. Such waiver in no way waives
any other or future violation of such sections.
13. Except as specifically set forth herein, the terms and
conditions of the Original Agreement remain in effect.
IN WITNESS WHEREOF, the parties hereto have caused this
First Amendment to Amended and Restated Credit Agreement to be
signed, sealed and delivered by their properly and duly
authorized officers as of the day and year first above-written.
JACKSON HEWITT, INC.
By: /s/ Keith E. Alessi [Seal]
-----------------------------
Title: President/CEO
-------------------------
5
<PAGE>
NATIONSBANK, N.A.
By: /s/ Paula H. Smith [Seal]
----------------------------
Title: Senior Vice President
-------------------------
6
<PAGE>
Jackson Hewitt, Inc. delivered to NationsBank, N.A., formerly known as
NationsBank of Virginia, N.A., its Line of Credit Note dated June 28, 1994 in
the original principal amount of $4,000,000, as amended by First Allonge to Line
of Credit Note dated as of January 12, 1995 increasing the principal amount to
$4,500,000, and as amended by Amended and Restated Line of Credit Note dated
July 17, 1995, and as amended by Amended and Restated Working Capital Note dated
June 7, 1996 increasing the principal amount to $6,900,000 (the "Original
Note"). The parties now wish to make additional amendments to the Original Note
and hereby agree that the Original Note shall be amended and restated in its
entirety from and after the date hereof to read as follows:
AMENDED AND RESTATED WORKING CAPITAL NOTE
Norfolk, Virginia
$7,900,000.00 September 10, 1996
ON THE WORKING CAPITAL TERMINATION DATE, as defined in the hereinafter
defined Credit Agreement, FOR VALUE RECEIVED, the undersigned maker, JACKSON
HEWITT, INC., promises to pay to NATIONSBANK, N.A., or order, without offset, at
the banking headquarters of NationsBank, N.A., Norfolk, Virginia, or at such
other place as the holder hereof may hereafter from time to time designate in
writing, in lawful money of the United States which shall be legal tender in the
payment of all debts and dues, public and private, at the time of payment, the
principal sum of Seven Million Nine Hundred Thousand and 00/100 Dollars
($7,900,000.00) or such portion thereof outstanding hereunder which has been
advanced to the undersigned maker pursuant to the provisions of that certain
Amended and Restated Credit Agreement dated as of June 7, 1996, as amended by
First Amendment to Amended and Restated Credit Agreement dated the date hereof
(as the same may be amended, supplemented or otherwise modified from time to
time, hereinafter referred to as the "Credit Agreement") between Jackson Hewitt,
Inc. and NationsBank, N.A.
The maker promises to pay interest on the outstanding principal amount
hereof for each day from the date hereof until paid, monthly on the first day of
each month, commencing on the first such date after the date hereof, at a rate
per annum equal to (i) the NationsBank Rate plus one-half percent (.5%) on each
dollar outstanding up to and including an amount of $6,500,000
-1-
<PAGE>
and (ii) the NationsBank Rate plus one and one-quarter percent (1.25%) on each
dollar outstanding in excess of $6,500,000. "NationsBank Rate" means the rate
publicly announced by NationsBank, N.A. from time to time as its prime rate;
provided that any overdue principal and, to the extent permitted by law, any
overdue interest shall bear interest for each day until paid at a rate per annum
equal to the sum of 3% plus the rate otherwise applicable for such day. Interest
on this Note shall be adjusted automatically on and as of the effective date of
any change in the NationsBank Rate and shall be computed on the basis of a year
of 360 days and paid for the actual number of days for which due. This Note is
delivered pursuant to the Credit Agreement, the terms of which are incorporated
herein by reference. The Credit Agreement contains provisions concerning late
charges, prepayments and other matters relating to this Note.
Each person liable hereon in any capacity, whether as maker, endorser,
surety, guarantor or otherwise, (i) waives homestead exemptions, (ii) waives
presentment, demand, protest and notice of every kind respecting this Note,
(iii) agrees that the holder hereof, at any time or times, without notice to or
the consent of them or any of them, may grant extensions of time, without limit
as to the number or the aggregate period of such extensions, for the payment of
any principal or interest due hereon, and (iv) to the extent not prohibited by
law, waives the benefit of any law or rule of law intended for his advantage or
protection as an obligor hereunder or providing for his release or discharge
from liability hereon, in whole or in part, on account of any facts or
circumstances other than full and complete payment of all amounts due hereunder,
including, but not limited to, any statute giving any person the right to
require (or providing for his discharge in the absence of) the institution of
any suit hereon.
For the purposes of this Note, the word "person" shall include
individuals, corporations, partnerships, and all other entities.
The occurrence of any "Event of Default" (as defined in the Credit
Agreement) shall constitute a default hereunder whereupon the entire balance of
principal with all interest then accrued shall, at the option of the holder
hereof, become immediately due and payable.
This Note is made and executed under, and in all respects shall be
construed and governed by, the laws of the State of Virginia.
-2-
<PAGE>
This Note is secured by the Security Documents, all as defined in the
Credit Agreement.
WITNESS the following signatures and seals:
JACKSON HEWITT, INC.
By:_______________________[Seal]
Title:__________________________
NATIONSBANK, N.A.
By:_______________________[Seal]
Title:__________________________
-3-
<PAGE>
WAIVER AGREEMENT
THIS WAIVER AGREEMENT is dated as of September 10, 1996, between
JACKSON HEWITT, INC., a Virginia corporation (the "Company"), and NATIONSBANK,
N.A., formerly known as NationsBank of Virginia, N.A. (the "Bank").
The Company and the Bank are parties to an Amended and Restated Credit
Agreement dated as of June 7, 1996 (the "Original Agreement"). The Company and
the Bank have entered into a First Amendment to Amended and Restated Credit
Agreement and Waiver Agreement dated as of September 10, 1996 (the "Amendment").
Capitalized terms used herein and not defined herein shall have the
same meanings as in the Original Agreement and the Amendment.
Section 9 of the Amendment amends the Original Agreement by adding a
new Section 4.4 to provide certain conditions to the obligation of the Bank to
enter into the Amendment. The Company has requested, and the Bank has agreed,
that the conditions set forth in Section 4.4(b), (c) and (d) will be waived
until October 10, 1996. The Company agrees that the failure to satisfy such
conditions by October 10, 1996 will constitute an Event of Default under the
Original Agreement as modified by the Amendment.
WITNESS the following signatures and seals.
JACKSON HEWITT, INC.
By:________________________[Seal]
Title:___________________________
NATIONSBANK, N.A.
By:________________________[Seal]
Title:___________________________
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