SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. ___)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
Jackson Hewitt Inc.
(Name of Registrant as Specified in its Charter)
N/A
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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PRELIMINARY PROXY MATERIALS
JACKSON HEWITT INC.
4575 Bonney Road
Virginia Beach, Virginia 23462
September __, 1996
Dear Shareholder:
You are cordially invited to attend the 1996 Annual Meeting of
Shareholders of Jackson Hewitt Inc. that will be held at the Grand Affairs, 2036
East Pleasure House Road, Virginia Beach, Virginia 23455, at 9:00 a.m. Eastern
Time, on Monday, October 7, 1996.
Enclosed are a Notice of the Annual Meeting, a Proxy Card, and a Proxy
Statement containing information about the matters to be acted upon at the
meeting. Directors and Officers of the Company, as well as a representative of
KPMG Peat Marwick LLP, will be present at the Annual Meeting to respond to any
questions our shareholders may have.
It is important that your shares be represented at the meeting.
Accordingly, we urge you to sign and date the enclosed Proxy Card and promptly
return it to us in the enclosed, self-addressed, postage paid envelope, even if
you are planning to attend the meeting. If you attend the meeting, you may vote
in person even if you have previously returned your Proxy Card.
If you are not currently receiving quarterly information from Jackson
Hewitt and would like to be put on our mailing list, please contact Martha
O'Gorman, Investor Relations at 1-800-234-1040 or write c/o Jackson Hewitt, 4575
Bonney Road, Virginia Beach, VA 23462. Our e-mail address on the Internet is
[email protected].
We look forward to the 1996 Annual Meeting of Shareholders and we hope
you will attend the meeting or be represented by Proxy.
Sincerely,
John T. Hewitt
Chairman of the Board
<PAGE>
JACKSON HEWITT INC.
4575 Bonney Road
Virginia Beach, Virginia 23462
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD
MONDAY, OCTOBER 7, 1996
TO THE SHAREHOLDERS:
NOTICE IS HEREBY GIVEN THAT the Annual Meeting of Shareholders of
Jackson Hewitt Inc. will be held at the Grand Affairs, 2036 East Pleasure House
Road, Virginia Beach, Virginia 23455, at 9:00 a.m. Eastern Time, on Monday,
October 7, 1996, for the following purposes:
1. To approve an amendment to the Company's Articles of
Incorporation to create a classified Board of Directors.
2. To elect a total of four (4) directors:
2.1 Two (2) of whom will be Class A directors to hold office
for a term of one year and until their successors are
elected and qualified; and
2.2 Two (2) of whom will be Class B directors to hold office
for a term of two years and until their successors are
elected and qualified.
3. To approve an amendment to the Jackson Hewitt 1994 Long-Term
Incentive Plan to increase the number of shares of the Company's
Common Stock that may be issued thereunder from 198,000 shares to
698,000 shares.
4. To ratify the appointment of KPMG Peat Marwick LLP as independent
auditors for the ensuing year.
5. To act upon a shareholder proposal.
6. To transact such other business as may properly come before the
meeting or any adjournment thereof.
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Information concerning the matters to be acted upon at the meeting is
set forth in the accompanying Proxy Statement. The Board of Directors has
established the close of business on August 9, 1996 as the record date for the
determination of Shareholders entitled to notice of and to vote at the Annual
Meeting or any adjournments thereof.
By Order of the Board of Directors
Martha O'Gorman, Secretary
Virginia Beach, Virginia
September __, 1996
PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE
ENCLOSED ENVELOPE. IF YOU ATTEND THE MEETING, YOU MAY VOTE EITHER IN PERSON OR
THROUGH YOUR PROXY.
<PAGE>
PROXY STATEMENT
This Proxy Statement and the enclosed proxy card (the "Proxy") are
furnished in connection with the solicitation of proxies on behalf of the Board
of Directors of Jackson Hewitt Inc. (the "Company") to be voted at the Annual
Meeting of Shareholders (the "Annual Meeting") to be held at the Grand Affairs,
2036 East Pleasure House Road, Virginia Beach, Virginia 23455, at 9:00 a.m.
Eastern Time, Monday, October 7, 1996, and at any adjournment thereof, for the
purposes set forth in the accompanying Notice of Meeting.
Only shareholders of record at the close of business on August 9, 1996
(the "Record Date") are entitled to notice of and to vote at the Annual Meeting.
This Proxy Statement and the enclosed Proxy are being mailed on or about
September __, 1996.
REVOCABILITY OF PROXY
Execution of the enclosed Proxy will not affect a shareholder's right to attend
the Annual Meeting and vote in person. If your Proxy is properly signed,
received by the Company and not revoked by you, the shares to which it pertains
will be voted at the Annual Meeting in accordance with your instructions. If a
shareholder does not return a signed Proxy, his or her shares cannot be voted by
proxy.
PERSON MAKING THE SOLICITATION
The cost of soliciting Proxies will be borne by the Company. In addition
to solicitation by mail, the Company will request banks, brokers and other
custodians, nominees and fiduciaries to send proxy materials to the beneficial
owners and to secure their voting instructions if necessary. The Company, upon
request, will reimburse them for their expenses in so doing. Officers and
regular employees of the Company may solicit Proxies personally, by telephone or
by telegram from some shareholders if Proxies are not received promptly, for
which no additional compensation will be paid.
VOTING SHARES AND VOTE REQUIRED
On the Record Date, the Company had 4,515,306 shares of common stock
outstanding (the "Common Stock") and 504,950 shares of Series A Convertible
Preferred Stock outstanding (the "Preferred Stock"). Each share of Common Stock
is entitled to one vote on each matter presented at the Annual Meeting, other
than the election of the director to be elected by the holders of the Preferred
Stock (the "Preferred Shareholders' Director"), for whom the holders of Common
Stock will not vote. Each share of Preferred Stock is also entitled to one vote
on each matter presented at the Annual Meeting, other than election of the four
directors to be elected by the holders of Common Stock (the "Common
Shareholders' Directors"), for
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whom the holders of Preferred Stock will not vote. The holders of Common Stock
and the holders of the Preferred Stock vote as a single class on all matters
other than the election of directors.
The affirmative vote of more than two-thirds of the outstanding shares
of Common Stock and Preferred Stock, voting as a single class, is required to
approve the proposed amendment to the Company's Articles of Incorporation to
create a classified Board of Directors. Directors are elected by a plurality of
the votes cast by the appropriate class of shareholders at the Annual Meeting. A
majority of shares present and entitled to vote in person or by proxy is
required to approve the proposed amendment to the 1994 Long-Term Incentive Plan.
A majority of the votes cast is required to ratify the appointment of auditors
and to approve the shareholder proposal. Abstentions will be, but broker
non-votes will not be, considered shares "present and entitled to vote."
Abstentions, broker non-votes, and withheld votes will not be considered "votes
cast" based on the Company's understanding of state law requirements and the
Company's Articles of Incorporation and Bylaws.
All shareholder meeting proxies, ballots and tabulations that identify
individual shareholders are kept secret, and no such document shall be available
for examination, nor shall the identity or the vote of any shareholder be
disclosed except as may be necessary to meet legal requirements and the laws of
Virginia. The votes will be counted and certified by David Few and Martha
O'Gorman, who are employees of the Company and will act as the inspectors of
election.
Unless specified otherwise, the Proxy will be voted (i) FOR the proposed
amendment to the Company's Articles of Incorporation to create a classified
Board of Directors, (ii) FOR the election of the two nominees to serve as Class
A directors of the Company until the 1997 Annual Meeting of Shareholders and
until their successors are duly elected and qualified, (iii) FOR the election of
the two nominees to serve as Class B directors of the Company until the 1998
Annual Meeting of Shareholders and until their successors are duly elected and
qualified, (iv) FOR the proposed amendment to the Company's 1994 Long-Term
Incentive Plan, (v) FOR the ratification of the appointment of auditors, and
(vi) AGAINST the shareholder proposal. In the discretion of the Proxy holders,
the Proxies will also be voted for or against such other matters as may properly
come before the Annual Meeting. Management is not aware of any other matters to
be presented for action at the Annual Meeting.
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL
OWNERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of August 15, 1996 of (i)
each of the Company's directors and executive officers who own Common Stock;
(ii) each person (or group of affiliated persons) who is known by the Company to
own beneficially
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more than 5% of the Common Stock; and (iii) all of the Company's directors and
executive officers as a group. Except as otherwise noted below, all directors
and executive officers receive mail at the Company's headquarters, 4575 Bonney
Road, Virginia Beach, Virginia 23462. Unless otherwise noted, the persons named
in the table have sole voting and investment power with respect to all shares of
Common Stock shown as beneficially owned by them.
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Beneficial Ownership
Name Shares Percent
John T. Hewitt 273,761(1) 6.04%
Harry S. Gruner 168,316(2) 3.73
1119 St. Paul's Street
Baltimore, MD 21202
William P. Veillette 136,162(3) 3.01
Susan E. Ventresca 128,776(4) 2.85
Keith E. Alessi 9,000(5) *
John K. Seal 25,948(6) *
Paul Grunberg 566,402(7) 12.54
Route #2, Box 171
Valatie, NY 12184
Geocapital Partners 328,622(8) 7.28
2115 Linwood Street
Fort Lee, NJ 07024
All Directors and 795,488 17.30
Officers
as a Group (13
persons)
- ---------------------
* Less than 1% ownership
(1) Includes options to purchase 4,000 shares granted pursuant to the
Company's 1994 LongTerm Incentive Plan ("Incentive Plan"). Also
includes options to purchase 13,000 shares granted pursuant to
the Company's Employee Stock Option Plan, which are exercisable
between October 1 and October 31, 1996 ("Employee Option Plan").
(2) Consists of 168,316 shares of Preferred Stock held of record by
JMI Equity Fund, L.P. Mr. Gruner is a general partner of JMI
Equity Fund, L.P. Mr. Gruner has shared power to direct the
voting of and to direct the investment of such shares and
disclaims beneficial ownership of such shares except as to his
proportionate partnership interest in JMI Equity Fund, L.P.
(3) Includes (i) 29,300 shares owned jointly by Mr. William Veillette
and his wife, Tracy Veillette; (ii) 12,310 shares owned jointly
by Mr. William Veillette and his sister, Sally Veillette; (iii)
12,310 shares owned jointly by Mr. William Veillette and his
sister, Jeanne Bowerman; (iv) 50,000 shares owned by the
Veillette Family Trust, of which Mr. William Veillette shares
voting and investment power; and (v) 265 shares owned jointly by
Mr. William Veillette and his son, Peter J. Veillette. Does not
include (i) 3,487 shares owned outright by Mr. Veillette's wife,
Tracy Veillette, or (ii) 5,000 shares owned jointly by Tracy
Veillette and Susan Veillette. Also includes options to purchase
2,000 shares granted under the 1996 Non-Employee Director Stock
Option Plan ("Director Plan").
(4) Includes options to purchase 2,000 shares granted under the
Director Plan.
(5) Includes options to purchase 2,000 shares granted under the
Director Plan.
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(6) Includes options to purchase 400 shares granted pursuant to the
Incentive Plan. Also incudes options to purchase 2,000 shares
granted pursuant to the Employee Option Plan.
(7) Includes 153,020 shares of Common Stock owned by Family
Investments, a partnership in which Mr. Paul Grunberg is the
Managing General Partner and has a 15.8% interest. Does not
include (i) 105,273 shares owned outright by Mr. Grunberg's wife,
Judith Grunberg, and (ii) an aggregate of 123,153 shares owned
outright by Mr. Grunberg's three sons.
(8) Consists of 160,305 shares of Preferred Stock held of record by
Geocapital II, L.P. and 168,317 shares of Preferred Stock held of
record by Geocapital III, L.P. The sole general partner of
Geocapital II, L.P., Softven Management, L.P., of which Stephen
J. Clearman, Irwin Lieber, James Harrison and BVA Associates are
general partners, exercises voting and investment power with
respect to the shares held by Geocapital II, L.P. The sole
general partner of Geocapital III, L.P., Geocapital Management,
L.P., of which Stephen J. Clearman, Lawrence W. Lepard, Richard
A. Vines and BVA Associates III are general partners, exercises
voting and investment power with respect to the shares held by
Geocapital III, L.P.
PROPOSAL 1. APPROVAL OF A
CLASSIFIED BOARD OF DIRECTORS
The Company's Board of Directors has unanimously approved and
recommended that the shareholders of the Company approve an amendment to the
Company's Articles of Incorporation to provide for the classification of the
Board of Directors into two classes of Common Shareholders' Directors with
staggered terms of office.
Virginia law permits the Company to include a provision in its Articles
of Incorporation that provides for a classified board of directors. The proposed
classified board amendment to the Company's Articles of Incorporation and
conforming amendments to the Bylaws would provide that Common Shareholders'
Directors will be classified into two classes, as nearly equal in number as
possible. One class would hold office initially for a term expiring at the 1997
Annual Meeting of Shareholders; and another class would hold office initially
for a term expiring at the 1998 Annual Meeting of Shareholders. At each Annual
Meeting following this initial classification and election, the successors to
the class of directors whose terms expire at that meeting would be elected for a
term of office to expire at the second succeeding Annual Meeting after their
election, and until their successors have been duly elected and qualified. Under
Virginia law, directors chosen to fill vacancies on the classified board would
hold office until the next shareholders' meeting at which directors were
elected, even if a new director was filling an unexpired term in a class with
more than one year remaining in its term.
In addition, the proposed amendment provides that directors elected by
holders of Common Stock may only be removed by shareholders for cause. Virginia
law provides that directors may be removed by shareholders with or without
cause, unless the articles of incorporation provide that directors may be
removed only with cause.
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See "Proposal 2. Election of Directors" for information regarding the nominees
for Common Shareholders' Directors and the composition of each class of Common
Shareholders' Directors if this proposal is adopted. If the proposed amendment
to the Company's Articles of Incorporation is not approved, the four nominees to
serve as Common Shareholders' Directors will be nominated to serve a one-year
term until the 1997 Annual Meeting of Shareholders and until their successors
are elected and qualified.
Shareholders should be aware that the proposed classified board will
extend the time required to effect a change in control of the Board of Directors
and may discourage hostile takeover bids for the Company. If the Company
implements a classified board of directors, it will take at least two annual
meetings for a majority of shareholders to make a change in control of the Board
of Directors because only half of the Common Shareholders' Directors will be
elected at each annual meeting.
Advantages. The Company's Board of Directors has observed that certain
tactics, including the accumulation of substantial stock positions as a prelude
to an attempted takeover or significant corporate restructuring, have become
relatively common in corporate takeover practice. The Board of Directors is of
the opinion that such tactics can be highly disruptive to a company and can
result in dissimilar treatment of a company's shareholders. The Board of
Directors believes that the classified board proposal will assist the Board of
Directors in protecting the interests of the Company's shareholders in the event
of an unsolicited offer to acquire control of the Company. The Board also
believes that making directors removable only for cause will ensure that the
purpose of having a classified board as an anti-takeover measure will not be
circumvented by removing directors without cause. The classified board proposal
is also designed to assure continuity and stability in the Board of Directors'
leadership and policies. Although the Board may review other possible
anti-takeover programs, the Board has no present intention of proposing
additional amendments to the Articles of Incorporation that would affect the
ability of a third party to change control of the Company.
Disadvantages. Because of the additional time required to change control
of the Board of Directors, and the requirement that directors be removed only
for cause, the classified board proposal will tend to perpetuate present
management. In addition, because the classified board proposal will increase the
amount of time required for a takeover bidder to obtain control of the Company
without the cooperation of the Board of Directors, even if the takeover bidder
were to acquire a majority of the Company's outstanding stock, it will tend to
discourage certain tender offers, including some tender offers that shareholders
may feel would be in their best interests. However, the proposal is not intended
as a takeover-resistive measure in response to a specific threat. The classified
board proposal will also make it more difficult for the Company's shareholders
to change the composition of the Board of Directors even if the shareholders
believe such a change would be desirable.
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A copy of the proposed amendment to the Company's Articles of
Incorporation is attached to this Proxy Statement as Exhibit A.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE PROPOSED
AMENDMENT TO THE COMPANY'S ARTICLES OF INCORPORATION TO CREATE A CLASSIFIED
BOARD OF DIRECTORS.
PROPOSAL 2. ELECTION OF DIRECTORS
Subject to approval of the proposed amendment to the Company's Articles
of Incorporation to create a classified board of directors, the Board of
Directors (other than the Preferred Shareholders' Director designated by the
holders of the Company's Series A Convertible Preferred Stock) will be divided
into two classes, Class A and Class B, as such directors are elected at the 1996
Annual Meeting. The initial terms of the Class A Directors elected at the 1996
Annual Meeting will expire at the Company's 1997 Annual Meeting. The initial
terms of the Class B directors elected at the 1996 Annual Meeting will expire at
the 1998 Annual Meeting. Commencing with the 1997 Annual Meeting, directors will
be elected to serve for two years and until their successors are duly elected
and qualified. If the proposal to create a classified board is not approved, all
four nominees to serve as Common Shareholders' Directors will be nominated to
serve a one-year term.
Two persons have been nominated by the Board of Directors to serve as
the Class A Directors until the 1997 Annual Meeting of Shareholders and two
persons have been nominated by the Board of Directors to serve as the Class B
Directors until the 1998 Annual Meeting of Shareholders. One person has been
nominated by the Board of Directors to serve as the Preferred Shareholders'
Director until the 1997 Annual Meeting.
The Board of Directors recommends that the two nominees for the Class A
Directors, William P. Veillette and Susan E. Ventresca, be elected to serve as
the Class A Directors until the 1997 Annual Meeting of Shareholders and that the
two nominees for Class B Directors, John T. Hewitt and Keith E. Alessi, be
elected to serve as the Class B Directors until the 1998 Annual Meeting of
Shareholders. Proxies received by the Company will be voted for the election of
all four nominees unless marked to the contrary. A shareholder who desires to
withhold voting of the Proxy for all or one or more of the nominees may so
indicate on the Proxy. All of the nominees are currently members of the Board of
Directors and all have consented to be named and have indicated their intent to
serve, if elected. If any nominee becomes unable to serve, an event which is not
anticipated, the Proxy will be voted for a substitute nominee to be designated
by the Board of Directors, or the number of directors will be reduced.
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The holders of the Company's Preferred Stock are entitled to cause the
Board of Directors to nominate one person to serve as the Preferred
Shareholders' Director. The holders of the Preferred Stock have instructed the
Board of Directors to nominate Harry S. Gruner, a current director, to serve as
the Preferred Shareholders' Director until the 1997 Annual Meeting of
Shareholders.
The following information relates to the Company's nominees for
directors. There are no family relationships among any of the nominees nor among
any of the nominees and any executive officer, nor is there any arrangement or
understanding between any nominee and any other person pursuant to which the
nominee was selected, except as described above with respect to the Preferred
Shareholders' Director.
Proposal 2.1
Nominees for Class A Directors Whose Terms Will Expire in 1997
Mr. Veillette, 36, has been a District Manager for Otis Elevator Company
since 1992. From 1990 until 1992, he was an Account Manager for Otis Elevator
Company, and from 1988 to 1990, he was a Development Associate for the Trammell
Crow Company. Mr. Veillette has been a director since 1993 and is a member of
the Audit Committee, Compensation Committee and the Stock Option Committee.
Ms. Ventresca, 46, currently owns six Jackson Hewitt franchise
territories in upstate New York. From 1993 until July of 1994, Ms. Ventresca
was the Company's Director of Franchise Operations. From 1987 until 1993, Ms.
Ventresca served the Company as a Director of Field Operations, Regional
Director and District Manager. Ms. Ventresca was a District Manager at H & R
Block from 1981 until 1987. Ms. Ventresca has been a director since 1994 and is
a member of the Audit Committee, Compensation Committee and the Stock Option
Committee.
Proposal 2.2
Nominees for Class B Directors Whose Terms Will Expire in 1998
Mr. Hewitt, 47, the Chairman of the Board, served as Chief Executive
Officer of the Company or its predecessor from 1982 to 1996, and as President of
the Company from 1989 to 1996. Prior to serving the Company, Mr. Hewitt was a
Regional Director for H&R Block.
Mr. Alessi, 41, was appointed President and Chief Executive Officer of
the Company in June 1996. Prior to that time, Mr. Alessi served Farm Fresh,
Inc. ("Farm Fresh") as its Vice Chairman, Secretary, Treasurer and Chief
Financial Officer from
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1994 to 1996. Mr. Alessi is still a director and Vice Chairman of Farm Fresh,
and is also a director of FF Holdings Corporation, Farm Fresh's parent company.
From 1992 until 1994, Mr. Alessi was Chairman and Chief Executive Officer of
Virginia Supermarkets, Inc. From 1988 through 1992, Mr. Alessi was employed by
Farm Fresh and served as President at the time he left Farm Fresh. Mr. Alessi
is the Treasurer and a director of Drug Emporium and a director of New Cort
Holdings.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE FOUR NOMINEES TO SERVE AS THE
COMMON SHAREHOLDERS' DIRECTORS.
Nominee for Preferred Shareholders' Director Whose Term Will Expire in 1997
Mr. Gruner, 37, has been a general partner of JMI Equity Fund, a private
equity investment partnership, since November 1992. From August 1986 to October
1992, Mr. Gruner was a principal with Alex, Brown & Sons Incorporated. Mr.
Gruner is also a director of Brock International, Inc., a developer, marketer
and supporter of software systems, The META Group, Inc., a syndicated
information technology research company, Hyperion Software, Inc., a financial
software company and numerous privately held companies.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The business of the Company is managed under the direction of the Board
of Directors. The Board of Directors meets on a regularly scheduled basis during
the year to review significant developments affecting the Company and to act on
matters requiring approval by the Board of Directors. It also holds special
meetings when an important matter requires action by the Board of Directors
between scheduled meetings. The Board of Directors held fifteen meetings during
the Company's fiscal year ended April 30, 1996 ("1996 Fiscal Year"). In
accordance with the Rules of the NASDAQ National Market System, Ms. Ventresca,
and Messrs. Gruner and Veillette are independent directors. During the 1996
Fiscal Year, each member of the Board of Directors participated in more than 75%
of meetings of the Board of Directors and meetings of the applicable committees
during the period for which he or she was a director. The Company reimburses all
of its directors for travel and out of pocket expenses in connection with their
attendance at meetings of the Board of Directors. Non-employee directors elected
by the holders of the Company's Common Stock receive $6,000 a year in director
fees and are also eligible to participate in the 1996 Non-Employee Director
Stock Option Plan.
The Board of Directors has established Audit, Compensation and Stock
Option Committees. The members of these committees are noted in the director
biographies set forth elsewhere in this Proxy Statement. The Audit Committee is
empowered by the Board of Directors to, among other things, recommend the firm
to be employed by the Company as its independent auditor and to consult with
such auditor regarding audits and the adequacy of internal accounting controls.
The Audit Committee held
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two meetings in the 1996 Fiscal Year. The Compensation Committee makes
recommendations to the Board of Directors as to, among other things, the
compensation of the Chief Executive Officer, each officer who is also a director
of the Company and designated other members of senior management, as well as new
compensation and stock plans. The Compensation Committee met two times in the
1996 Fiscal Year. The Stock Option Committee determines awards under the
Company's 1994 Long-Term Incentive Plan. The Stock Option Committee met one time
in the 1996 Fiscal Year. The Board of Directors has no standing Nominating
Committee; however, the Board of Directors serves as a Nominating Committee of
the whole.
The Company will consider director-nominees recommended by shareholders,
although it has not actively solicited recommendations from shareholders for
nominees nor has it established any procedure for this purpose for the Annual
Meeting other than as set forth in the Bylaws of the Company. Section 2.6 of the
Company's Bylaws provides that nominations for directors by shareholders must be
made by a written notice (the "Nomination Notice") containing the following
information: (1) as to each individual nominated, (i) the name, date of birth,
business address and residence of such individual, (ii) the business experience
during the past five years of such nominee, including his or her principal
occupations and employment during such period, the name and principal business
of any corporation or other organization in which such occupations and
employment were carried on, and such other information as to the nature of his
or her responsibilities as may be sufficient to permit assessment of his or her
prior business experience, (iii) whether the nominee is or has ever been at any
time a director, officer or owner of 5% or more of any class of capital stock,
partnership interests or other equity interest of any corporation, partnership
or other entity, (iv) any directorships held by such nominee in any company with
a class of securities registered pursuant to Section 12 of the Securities
Exchange Act of 1934 (the "Exchange Act"), or subject to the requirements of
Section 15(d) of the Exchange Act or any company registered as an investment
company under the Investment Company Act of 1940; and (v) whether, in the last
five years, such nominee has been convicted in a criminal proceeding or has been
subject to a judgment, order, finding or decree of any federal or state
government or governmental agency, or any proceeding in bankruptcy, which may be
material to an evaluation of the ability or integrity of the nominee. In
addition, the person submitting the Nomination Notice must provide certain
information regarding his beneficial ownership of the Common Stock of the
Company. The nominee must consent to being named in a proxy statement as a
nominee and to serve as a director if elected. The Nomination Notice must be
delivered to the Company not later than 120 days in advance of the anniversary
date of the Company's proxy statement for the previous year's annual meeting or,
in the case of special meetings, at the close of business on the 7th day
following the date on which notice of such meeting is first given to the
Company's shareholders.
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EXECUTIVE COMPENSATION
Executive Compensation Tables
The following table presents an overview of executive compensation
awarded, earned or paid during the 1996, 1995 and 1994 fiscal years ended April
30 to John T. Hewitt, the Company's Chairman of the Board, who served as the
President and Chief Executive Officer during these periods, and to John K. Seal,
Director of Field Operations. No other executive officer's compensation totaled
over $100,000 during 1996.
Table 1. Summary Compensation
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation(1)
Securities
Underlying
Name and Principal Position Year Salary($) Bonus ($) Options (#)
--------------------------- ---- --------- --------- -----------
<S> <C>
John T. Hewitt 1996 $107,858 $115,000 20,000
Chairman of the Board 1995 200,299 -- 13,000
1994 160,437 -- 19,500
John K. Seal 1996 62,513 106,985 2,000
Director of Field Operations 1995 66,815 -- 2,000
1994 63,122 -- 500
</TABLE>
- --------------------------------
(1) There were no Restricted Stock Awards, Stock Appreciation Rights or Long
Term Incentive Plan payouts paid in 1996, 1995 or 1994.
11
<PAGE>
Table 2 provides a summary of compensation related stock options granted
to Mr. Hewitt and Mr. Seal during the fiscal year ended April 30, 1996.
Table 2. Stock Option Grants in the Last Fiscal Year
<TABLE>
<CAPTION>
Percent
Number of of Total Options
Securities Granted to Exercise or
Underlying Employees in Base Price
Name Options Fiscal Year ($/sh) Expiration Date(1)
Granted
<S> <C>
John T. Hewitt 20,000 20.7% 3.50 May 1, 2005
John K. Seal 2,000 2.1% 3.50 May 1, 2005
</TABLE>
- --------------------------------
(1) The options were granted pursuant to the Company's 1994 Long-Term
Incentive Plan. The options vest in five equal, annual tranches
commencing May 1, 1996 and ending May 1, 2000. Each tranche expires five
years after vesting, such that the first tranche expires if unexercised
on May 1, 2001 and the fifth tranche expires if unexercised on May 1,
2005.
The following table sets forth information for Mr. Hewitt and Mr. Seal
concerning unexercised options held as of April 30, 1996.
Table 3. Fiscal Year-End Option Values
Number of Securities Value of Unexercised
Underlying Unexercised Options in the Money Options
at Fiscal Year-End (#) at Fiscal Year-End ($)(1)
---------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
John T. Hewitt -- 33,000(2) -- --
John K. Seal -- 4,000(3) -- --
- ----------------------------
(1) Based on a market price of $3.38 per share, which was the last reported
sale price of the Company's common stock on NASDAQ/NMS during the fourth
quarter of the fiscal year ended April 30, 1996.
(2) Includes options to purchase 13,000 shares at $10 per share granted
under the Company's Employee Stock Option Plan. Also includes options to
purchase 20,000 shares at $3.50 per share granted under the Company's
1994 Long-Term Incentive Plan.
12
<PAGE>
(3) Includes options to purchase 2,000 shares at $10 per share granted under
the Company's Employee Stock Option Plan. Also includes options to
purchase 2,000 shares at $3.50 per share granted under the Company's
1994 Long-Term Incentive Plan.
Alessi Employment Agreement
Mr. Alessi is currently employed as the Company's President and Chief
Executive Officer under an employment agreement effective as of June 1996
("Alessi Employment Agreement"). The term of the Alessi Employment Agreement
expires April 30, 1997, but it can be extended by the mutual agreement of the
Company and Mr. Alessi. Mr. Alessi is paid an annual salary of $190,000 and will
receive an automatic bonus of $67,500 on April 30, 1997. An additional bonus of
$67,500 is payable on the same date if the Company achieves certain operating
targets to be mutually negotiated. The Alessi Employment Agreement includes a
covenant not to compete and imposes certain non-disclosure obligations on Mr.
Alessi with respect to the Company's confidential and proprietary information.
In addition, pursuant to the terms of the Alessi Employment Agreement,
Mr. Alessi has received an option to purchase 268,065 shares of Common Stock,
which on the grant date represented 5% of the issued and outstanding shares of
the Company's Common Stock ("Alessi Option"), subject to approval by
shareholders at the Annual Meeting of the proposal to increase the number of
shares available under the Company's 1994 Long-Term Incentive Plan. See
"Proposal 3. Approval of Amendment to the 1994 Long-Term Incentive Plan." The
exercise price for the Alessi Option is $4.81, which was the average closing
sale price of the Company's Common Stock on the 20 trading days preceding the
grant date. The Alessi Option consists of 83,160 incentive stock options and
184,905 non-qualified stock options, which become exercisable in four equal,
annual tranches commencing June 18, 1997.
Hewitt Employment Agreement
Mr. Hewitt, the Company's Chairman, who served as the Company's
President and Chief Executive Officer until Mr. Alessi's appointment to that
position, has entered into a new employment agreement with the Company effective
as of June 1996 ("Hewitt Employment Agreement"). Through April 30, 1997, it is
anticipated that Mr. Hewitt's efforts will be focused on strategic planning,
franchise sales and relationships with existing franchises. The term of Mr.
Hewitt's employment in this role expires April 30, 1997, but the terms of the
Hewitt Employment Agreement remain in effect until May 1, 2003. Under the Hewitt
Employment Agreement, Mr. Hewitt will receive $180,000 for performance of his
duties through April 30, 1997, and he is also entitled to receive a one-time
bonus of no more than $100,000 if the Company's income in the fiscal year ended
April 30, 1997, exceeds certain budgeted targets. After April 30, 1997, Mr.
Hewitt will receive payments of $180,000 in 1998 and 1999, and $100,000 in 2000,
2001, and 2002, in return for Mr. Hewitt's agreement to forego competition with
the Company and
13
<PAGE>
solicitation of the Company's customers, franchisees or employees through April
30, 2002.
In addition, the Hewitt Employment Agreement required Mr. Hewitt to
deliver to the Company a non-interest bearing seven-year note ("Hewitt Note")
evidencing certain debt owed by Mr. Hewitt to the Company. See "Certain
Relationships and Related Transactions." The Hewitt Note is secured by all of
Mr. Hewitt's shares of Company Common Stock; provided, however, that Mr. Hewitt
has the right to donate 25,000 shares of Common Stock to charitable
organizations. The Hewitt Employment Agreement provides that if the Company
terminates Mr. Hewitt's employment for cause, Mr. Hewitt will be required to
make full payment on the Hewitt Note within thirty days of termination. The debt
evidenced by the Hewitt Note will also accelerate and become due and payable if
Mr. Hewitt violates the prohibitions on competition and solicitation set forth
in the Hewitt Employment Agreement.
In connection with Mr. Hewitt's new employment arrangement with the
Company, Mr. Hewitt has received an option to purchase 67,016 shares of Common
Stock, which on the grant date represented 1.25% of the issued and outstanding
shares of the Company's Common Stock ("Hewitt Option"), subject to approval by
shareholders at the Annual Meeting of the proposal to increase the number of
shares available under the Company's 1994 Long-Term Incentive Plan. See
"Proposal 3. Approval of Amendment to the 1994 Long-Term Incentive Plan." The
exercise price for the Hewitt Option is $4.81, which was the average closing
sale price of the Company's Common Stock on the twenty trading days preceding
the grant. The Hewitt Option consists of 20,790 incentive stock options and
49,226 non-qualified stock options, all of which become exercisable in full on
June 18, 1997.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has entered into a number of transactions with (i) its
directors and executive officers, or (ii) entities controlled by its directors
and executive officers.
The Company has made five loans since October of 1994 to John T. Hewitt,
the Company's Chairman of the Board, and former President and Chief Executive
Officer, in the aggregate principal amount of approximately $1.2 million. As
described below, Mr. Hewitt used the proceeds of three of the loans to exercise
stock options granted to him by the Company.
In October 1994, the Company loaned Mr. Hewitt $195,000. In return, Mr.
Hewitt delivered to the Company an 11% promissory note under which all principal
and accrued interest was to be due and payable on April 30, 1996. Mr. Hewitt
used the proceeds of this loan to exercise options to purchase 19,500 shares of
the Company's Common Stock at $10 per share. The options had been granted to
14
<PAGE>
Mr. Hewitt by the Company under the Company's Employee Stock Option Plan for the
fiscal year ended April 30, 1994.
In December 1994, the Company loaned Mr. Hewitt a total of $874,215, in
return for which Mr. Hewitt delivered to the Company three 11% promissory notes
in the aggregate principal amounts of $730,499, $122,316, and $21,400,
respectively. Principal and accrued interest under each of these promissory
notes was to be due on April 30, 1996. The $730,499 loan was issued as a
replacement loan for previous loans by the Company to Mr. Hewitt. Mr. Hewitt
used the proceeds of the $730,499 loan to exercise the following stock options
granted to him by the Company: (i) options to purchase 135,420 shares of Company
Stock at $2.728 per share granted to Mr. Hewitt in 1988 in connection with a
line of credit made available by Mr. Hewitt to the Company; (ii) options to
purchase 30,000 shares of Common Stock at $4.20 per share granted to Mr. Hewitt
under the Company's Employee Stock Option Plan for the fiscal year ended April
30, 1992; and (iii) options to purchase 20,000 shares at $8.00 per share granted
to Mr. Hewitt under the Company's Employee Stock Option Plan for the fiscal year
ended April 30, 1993. The $730,499 loan also reflects $75,073 of accrued but
unpaid interest owed by Mr. Hewitt to the Company in connection with previous
promissory notes delivered by Mr. Hewitt to the Company. Mr. Hewitt used the
proceeds of the $122,316 loan to exercise options to purchase 70,785 shares of
the Company's Common Stock at $1.728 per share. These options were granted to
Mr. Hewitt by the Company in 1989.
The Company also made two personal loans to Mr. Hewitt, one of which was
the $21,400 loan in December of 1994, as described above, and the second of
which was a $150,000 loan in May of 1995. Mr. Hewitt has repaid the $21,400
loan. In connection with the May 1995 loan, Mr. Hewitt delivered to the Company
a 12% promissory note under which all principal and accrued interest was
originally due July 2, 1995. Mr. Hewitt repaid $51,000 on this obligation in
July 1995, and executed a new 12% $99,000 note, which subsequently became
subject to the terms of Mr. Hewitt's line of credit with the Company that is
described below.
The Company and Mr. Hewitt have entered into a new employment agreement,
the terms of which are described in detail in this Proxy Statement under
"Executive Compensation - Hewitt Employment Agreement." In connection with the
negotiation of this employment agreement, the Company and Mr. Hewitt agreed to
restructure all of Mr. Hewitt's debt to the Company described above, including
the debt that was originally due April 30, 1996, but was not repaid by Mr.
Hewitt at that time. Under the terms of this restructuring, Mr. Hewitt has
delivered to the Company a seven-year, non-interest bearing note in the
principal amount of $1,232,479 that is due in one payment on July 25, 2003
("Hewitt Note"). The principal amount of the Hewitt Note reflects all debt and
accrued interest owed by Mr. Hewitt to the Company as of July 25, 1996.
The obligations of Mr. Hewitt under the Hewitt Note are secured by the
256,761 shares of Company Common Stock that Mr. Hewitt owns, as reflected in the
15
<PAGE>
terms of a Stock Pledge Agreement ("Pledge Agreement"); provided, however, that
Mr. Hewitt is entitled to gift up to 25,000 of his shares to a qualified
charitable organization. As of the Record Date, the aggregate market value of
the 256,761 shares was $1,155,425, based on the last reported sale price of the
Company's Common Stock as of the Record Date. If an event of default occurs
under the terms of the Hewitt Note or the Pledge Agreement, the Company may
foreclose on Mr. Hewitt's Common Stock, however, Mr. Hewitt would not be
personally liable for the difference between the value of his shares of Common
Stock at the time of a foreclosure and the unpaid balance of the Hewitt Note. An
event of default under the Hewitt Note and the Stock Pledge Agreement includes a
breach by Mr. Hewitt of certain terms of his employment agreement with the
Company. See "Executive Compensation - Hewitt Employment Agreement."
In connection with the restructuring of Mr. Hewitt's debt to the
Company, the Company agreed to forgive approximately $99,000 owed by Mr. Hewitt
under a $200,000 line of credit with the Company that was made available in
early 1996. The line of credit accrued interest at the rate of 12% and all
amounts outstanding were to be due and payable April 30, 1997. The $99,000
balance on the line of credit reflected the amount owed on the $99,000 personal
loan made to Mr. Hewitt in May 1995, as described above. The Company has
terminated the line of credit.
The Company's management determines the purchase or sales price of
franchise sales, including transactions with affiliated parties, by reference to
the following board-approved formula: Purchase price equals the greater of (a)
120% of the franchise's gross revenues or (b) five times the franchise's
earnings before interest, taxes, depreciation and amortization. In most cases,
the purchase price equals 120% of gross revenues. This formula may then be
modified to take into account any offseason expenses incurred by the seller.
On July 11, 1994, the Company sold certain assets related to its
operation of a Company-owned office in Chesapeake, Virginia to Chestax Company,
50% of which is owned by Christopher Drake, the Company's Controller and Chief
Financial Officer. The purchase price of $ 272,764 was equal to approximately
120% of the gross revenues of the Jackson Hewitt office as of April 30, 1994 and
was paid for by Mr. Drake's delivery of an 11%, 5 year promissory note to the
Company. As of April 30, 1996, the unpaid balance of the promissory note was
$166,667. The Company's gain on the sale of these assets was $89,490.
The Company has repurchased a number of franchises from entities
controlled by the Company's directors and executive officers. The Company has
also repurchased a number of franchises from unaffiliated franchisees, primarily
as a result of franchisees' failure to comply with Company standards. In almost
all franchise repurchases, the Company pays the franchisee either the total
initial franchise fee or a fee generally in the range of 90-120% of the
franchisee's annual gross revenues. The consideration offered to franchisees by
the Company in repurchase transactions
16
<PAGE>
depends in large part on the Company's assessment of the likelihood that the
franchised offices will operate profitably.
On June 8, 1994, the Company purchased customer lists, client files,
furnishings, fixtures and equipment, and obtained a covenant not to compete
(collectively the "Assets") from DTMM Enterprises, Inc. ("DTMM"), and
immediately divided and resold the Assets to three different franchisees. The
Company acquired the Assets from DTMM for stock that the Company valued at
$1,328,380. After purchasing the Assets, the Company re-sold the Assets to three
different franchisees pursuant to three separate Agreements of Purchase and Sale
in exchange for 11%, 5 year promissory notes with an aggregate principal balance
of $1,454,470. One of the purchasing franchisees was PT Tax, which is owned by
Patricia Robertson, the Company's Director of Corporate Development, and her
husband. The principal amount of the promissory note delivered by PT Tax was
$189,519, and the unpaid balance of the note as of April 30, 1996 was $116,206.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires directors, officers and persons who beneficially own more than 10% of a
registered class of stock of the Company to file initial reports of ownership
(Form 3) and reports of changes in beneficial ownership (Forms 4 and 5) with the
SEC and NASDAQ. Such persons are also required under the rules and regulations
promulgated by the SEC to furnish the Company with copies of all Section 16(a)
forms they file.
Mr. Harry Gruner, who has served as a director since November 1995, did
not file a Form 3 until August 15, 1996, nine months late. Based solely on a
review of the copies of such forms furnished to the Company, the Company
believes that all other directors, officers and greater than 10% beneficial
owners have complied with the SEC interpretations regarding applicable Section
16(a) filing requirements.
PROPOSAL 3. APPROVAL OF AMENDMENT TO THE
1994 LONG-TERM INCENTIVE PLAN
Introduction
The Company's shareholders are being asked to approve an amendment to
the Company's 1994 Long-Term Incentive Plan (the "Plan") to increase the shares
of the Company's Common Stock available for awards under the Plan from 198,000
to 698,000. The Plan was initially adopted by the Board and approved by the
Company's shareholders at the 1994 Annual Meeting of Shareholders. Awards to
purchase up to 176,000 shares of Common Stock are currently subject to grant
under the Plan. The Plan was created as a means of attracting and retaining
outstanding management and employees and to promote a close identity of
interests between the
17
<PAGE>
Company's management and employees and its shareholders. The Company believes
that an adequate reserve of shares available for issuance under the Plan is
necessary to enable it to compete effectively with other companies to secure and
retain valuable employees.
In addition, the Company desires to structure its executive compensation
to qualify for deductibility under Section 162(m) of the Internal Revenue Code.
To qualify under 162(m) as performance-based compensation and, thus, avoid the
limit on deductibility, stock options must be granted under a plan which, among
other things, establishes a limit on the number of shares underlying options
which may be granted to any individual within a specified period of time.
Currently, the Plan provides only that no individual shall receive, over the
term of the Plan, more than an aggregate of 30% of the shares authorized for
grant under the Plan. To ensure that stock option grants qualify under 162(m),
shareholders are also being asked to approve an amendment to the Plan that
provides that no individual may receive awards for more than 500,000 shares in
the aggregate.
The following description is a summary of historical award information
and the key features of the Plan. A copy of the Plan, as amended, is attached as
Exhibit B to this Proxy Statement.
Historical Award Information
Under the terms of the Plan, awards can be made to participants in the
form of stock options, stock appreciation rights, restricted stock, and other
long-term performance awards. As of the Record Date, outstanding and unexercised
stock options granted under the Plan to purchase 176,000 shares of Common Stock
were held by 107 persons. 15,900 options have expired unexercised as a result of
the termination of employment of certain participants. Options granted under the
Plan typically have an exercise price equal to the fair market value of the
Common Stock on the date of grant. In addition, the options typically vest in
five equal, annual tranches and each tranche expires if unexercised five years
after vesting. As of the Record Date, no stock options have been exercised. No
awards have been made under the Plan except in the form of stock options. As of
the Record Date, approximately 180 employees of the Company were eligible to
participate in the Plan and the market price for the Common Stock on that date
was $4.50 per share.
The following table sets forth certain information regarding stock
option awards that have been granted under the Plan to certain executive
officers and employees. With respect to Mr. Alessi and Mr. Hewitt, the table
includes options that have been granted in connection with their new employment
arrangements with the Company, subject to shareholder approval of the proposed
amendment to the Plan. See "Executive Compensation - Alessi Employment
Agreement" and "Executive Compensation - Hewitt Employment Agreement." Directors
who are not executive
18
<PAGE>
officers or employees of the Company are not eligible for participation under
the Plan.
Shares of Common Stock
Beneficial Owner Underlying Options
Keith E. Alessi, President and
Chief Executive Officer 268,065(1)
John T. Hewitt, Chairman of 87,016(2)
the Board
John K. Seal, Director of Field 2,000
Operations
All executive officers as a 83,500
group(3)
All employees as a group(3) 176,000
(1) All of these options are conditioned upon shareholder approval of the
proposed amendment to the Plan.
(2) 67,016 of these options are conditioned upon shareholder approval of the
proposed amendment to the Plan.
(3) Excludes the 268,065 options and 67,016 options granted to Mr. Alessi
and Mr. Hewitt, respectively, that are conditioned upon shareholder
approval of the proposed amendment to the Plan.
Purpose
The Plan is intended to support the business goals of the Company and
facilitate securing, retaining and motivating management employees of high
caliber and potential. The Plan provides the Company with the flexibility
required to offer meaningful and rewarding performance based long-term
incentives to key individuals who are in positions in which their decisions,
actions and counsel significantly contribute to the success of the Company.
Administration of the Plan
The Stock Option Committee of the Board of Directors (the "Committee")
administers the Plan, subject to approval of the Board of Directors. The
Committee is authorized to (1) interpret the provisions of the Plan and to the
extent permissible under the Plan, to amend the Plan, (2) select participants
for award programs established under the Plan, (3) determine the size and type
of awards to be granted under the Plan, and (4) determine the terms of awards
made to participants under the Plan.
19
<PAGE>
Eligibility for Participation
Officers and other key contributing employees of the Company are
eligible for participation under the Plan.
Types of Awards
The Plan authorizes the Committee to grant (i) incentive and
non-qualified stock options, including replacement stock options, (ii) stock
appreciation rights, (iii) restricted stock, and (iv) other cash and stock-based
long-term performance awards to participants. At the time of grant of each award
under the Plan, the Committee determines the type of award to be made and the
specific terms of such grant (i.e. term, vesting, performance criteria, etc.).
Term of the Plan
The Plan became effective on September 16, 1994, the date shareholder
approval was obtained. The Plan will terminate on the tenth anniversary of that
date, after which no additional awards may be made under the Plan.
Shares Authorized for Awards under the Plan
698,000 shares of the Company's Common Stock have been reserved for the
issuance of awards under the Plan, any or all of which may be granted for awards
of incentive stock options. In addition, the 698,000 shares of Common Stock
subject to or related to awards under the Plan shall also be available
exclusively for the granting of replacement options. Such additional
authorization of shares for the granting of replacement option awards will not,
at any time, increase the potential for share dilution resulting from the Plan
to more than 698,000 shares.
In addition, no individual, including the Chief Executive Officer and
the Company's executive officers, shall receive, over the term of the Plan, more
than 500,000 of the shares authorized for grant under the Plan, including shares
subject to replacement options awarded under the Plan.
Stock Options
General. Stock Options, including replacement stock options granted
under the Plan are subject to the following conditions: (1) the maximum term for
any stock option granted under the Plan is ten years from the date of grant for
incentive stock options (five years in the case of an incentive stock option
granted to a holder of more than 10% of the Company's Common Stock) and ten
years and one day from the date of grant in the case of non-qualified stock
options, and (2) the option price cannot be less than 100% of the fair market
value of the Company's Common Stock on the date of grant in the case of
incentive stock options (110% of the fair market
20
<PAGE>
value of the Company's Common Stock in the case of an incentive stock option
granted to a holder of more than 10% of the Company's Common Stock) and cannot
be less than 85% of the fair market value of the Company's Common Stock on the
date of grant in the case of non-qualified stock options.
Any incentive options awarded to an optionee which do not meet the
requirements of the Internal Revenue Code of 1986, as amended (the "Code") will
be treated as non-qualified stock options.
The exercise price of a stock option may be paid through cash, a
stock-forstock swap, or a "cashless exercise" through a securities broker.
Except as provided by the Plan in the event of termination or as otherwise
provided by the Committee, no stock options shall be exercised unless held by an
optionee for six months from the date of grant. The Committee, in its sole
discretion, at the time of grant or during the term of an outstanding stock
option, may grant a stock option right for a Participant to receive a
replacement option grant in the event that the stock option is exercised through
a stock-for-stock swap. The number of shares subject to such granted replacement
options shall equal the difference between the number of shares subject to the
exercised portion of a stock option and the net shares received by the
Participant from such exercise. The Committee has the right, in its sole
discretion, to cancel, at any time, the right to receive future replacement
option grants should it decide that such future grants are no longer in the best
interest of the Company.
The Committee determines the terms of exercise of a stock option upon a
participant's termination of employment; however, options may not be exercised
for more than one year from the date of termination in the event of a
participant's death, three years in the event of a participant's retirement or
disability as defined in the Plan, or three months in the event of a
participant's termination without cause, as defined in the Plan (or in the case
of incentive stock options, for such shorter periods as permitted under the
Code). In the event of a participant's termination for cause, as defined in the
Plan, the term of an option will terminate as of the date of such event, unless
the Committee otherwise provides.
Tax Consequences. The Company is of the opinion that the grant of a
stock option, including a replacement stock option, will not result in
compensation income to a participant under the Code but the exercise of a stock
option could result in a taxable event, depending on whether the option is an
incentive or non-qualified stock option. The Company is of the opinion that a
participant will realize compensation income upon exercise of a non-qualified
stock option equal to the difference between the stock option exercise price and
the fair market value of the Company's Common Stock on the date of exercise and
that the Company will receive a corresponding tax deduction for the amount of
the compensation income that is recognized by a participant. In the case of
incentive stock options, the Company is of the opinion that no compensation
income would be realized upon exercise of an incentive stock option by a
participant (and thus no corresponding deduction would accrue to the Company)
21
<PAGE>
but that the excess of the fair market value on the date of exercise over the
option price is included in alternative minimum taxable income for alternative
minimum tax purposes.
Stock Appreciation Rights (SARs)
General. A stock appreciation right ("SAR") may be granted in tandem
with a stock option or as a freestanding award. If the SAR is granted in tandem
with a stock option, exercise of one security cancels the related security to
the extent of such exercise. SARs may be settled in stock or cash upon exercise.
The provisions of SARs with respect to exercisability upon termination of
employment are substantially the same as the termination provisions for stock
options.
Tax Consequences. The Company is of the opinion that a participant will
not realize any compensation income at the time of an SAR grant; however, a
participant will realize compensation income equal to the fair market value of
the stock or cash delivered to a participant upon exercise of the SAR and the
Company will be entitled to a deduction under the Code equal to the amount of
compensation income that is realized by a participant.
Restricted Stock
General. Restricted stock ("Restricted Stock") may be granted under the
Plan on such terms as determined by the Committee. Grants of Restricted Stock
may be conditioned upon the attainment of specified performance goals or such
other factors as the Committee deems appropriate.
Restricted Stock may not be disposed of by a participant until the
restrictions specified in the award expire. However, except as otherwise
provided by the Committee, a participant shall have with respect to any award of
Restricted Stock all the rights of shareholder of the Company, including the
right to vote the shares and receive any cash dividends paid on the shares.
Awards of Restricted Stock shall be forfeited upon termination of employment,
except as otherwise provided by the Committee.
Tax Consequences. The Company is of the opinion that at the time the
restricted stock is no longer subject to a substantial risk of forfeiture
(unless a special tax election has been made by a participant under the Code) a
participant will realize compensation income in an amount equal to the
difference between the fair market value of the stock and any amount paid by a
participant. The Company is also of the opinion that it will be entitled to a
corresponding tax deduction under the Code at such time and that the tax
deduction will be equal to the compensation income realized by a participant.
Dividends paid to a participant during a period of restriction will be taxable
as compensation income to a participant unless a special
22
<PAGE>
election under the Code has been made. In that event, the dividends paid to a
participant would be taxable as dividend income.
Long-Term Performance Awards
General. Long-Term performance awards may be granted under the Plan. The
Committee shall determine the type of awards to be granted, which shall include
units, shares, rights or any other denomination determined by the Committee to
be appropriate. The Committee shall determine the size of an award, the
performance objectives which relate to the award, and the time of the
performance period, which must be at least two years except in the event of a
"change of control" of the Company, as defined in the Plan. Performance awards
may be paid in cash and/or stock at the end of the performance period to the
extent earned. Upon termination of employment, the Committee shall determine if
and to what extent a participant shall be entitled to a prorated payment of
earned awards under the Plan.
Tax Consequences. With respect to performance awards the Company is of
the opinion that the employee will realize compensation income in an amount
equal to difference between the fair market value of such awards less any amount
paid when the participant's rights to such awards are no longer subject to a
substantial risk of forfeiture (unless a special tax election has been made by
the participant under the Code). The Company is also of the opinion that it will
be entitled to a corresponding tax deduction under the Code at such time and
that such deduction will be equal to the compensation income realized by a
participant.
Change of Control
Upon a change of control of the Company, as defined in the Plan, (1) any
stock appreciation rights outstanding for at least six months and any stock
options not previously exercisable and vested which have been held for at least
six months from the date of grant shall become fully vested and exercisable, (2)
restrictions applicable to any restricted stock awards shall lapse and such
shares shall be deemed fully vested, and (3) unless otherwise determined by the
Committee, any long-term performance awards shall be vested and paid out based
on the prorated target results for the applicable performance periods.
Additionally, at the discretion of the Committee, upon a change of control all
vested stock options, stock appreciation rights, and shares of restricted stock
may be purchased by the Committee at a price determined in accordance with the
Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE PROPOSED AMENDMENT
TO THE 1994 LONG-TERM INCENTIVE PLAN TO INCREASE THE SHARES AVAILABLE FOR AWARDS
UNDER THE PLAN.
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PROPOSAL 4. RATIFICATION OF APPOINTMENT OF AUDITORS
The Board of Directors, upon recommendation of its Audit Committee,
intends to appoint KPMG Peat Marwick LLP as the firm of independent certified
public accountants to audit the financial statements of the Company for the
fiscal year ending April 30, 1997, and the Board of Directors desires that such
appointment be ratified by the shareholders. KPMG Peat Marwick LLP has audited
the financial statements of the Company since the period ended April 30, 1995.
A representative of KPMG Peat Marwick LLP will be present at the Annual
Meeting and available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE APPOINTMENT OF
KPMG PEAT MARWICK LLP AS THE COMPANY'S INDEPENDENT AUDITORS.
PROPOSAL 5. SHAREHOLDER PROPOSAL
A shareholder has stated his intention to present the following proposal
at the Annual Meeting. The proposal and supporting statement, for which the
Board of Directors and the Company accept no responsibility, is set forth below.
The Board of Directors opposes this proposal for the reasons stated after the
proposal.
Mr. Dennis C. Hilliard, 4187 Ewell Road, Virginia Beach, Virginia 23455,
who is the record holder of 14,905 shares of Common Stock owned jointly with his
wife, has given notice that he intends to present for action at the Annual
Meeting the following resolution:
"RESOLVED that Section 6.9 of the Company Bylaws be amended to prohibit
the Board of Directors from amending Bylaws without shareholder approval."
The following statement was submitted in support of this resolution:
"Section 1.1 of the Company Bylaws requires (in part) that the annual
meeting of shareholders be held on the last Friday in the month of September
each year. The meeting for 1995 had been announced as scheduled for on or about
September 16, 1995 in the Notice of Annual Meeting provided on August 12, 1994.
On October 2, 1995, there was concern that the last Friday in September had
passed with no announcement about the annual meeting being held, canceled or
postponed. Accordingly, a shareholder request to "--inspect the Bylaws, Articles
of Incorporation, and amendments (if any) --" was made in accordance with the
Code of Virginia (ss. 13.1-771). The inspection was held on October 19, 1995 at
the Company home office. The Bylaws submitted for inspection contained no
amendment regarding any change of date of annual meeting.
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A letter to shareholders from the Chairman of the Board, John T. Hewitt,
dated October 17, 1995 advised that "the Company's annual meeting of
shareholders originally scheduled for October 19, 1995" was postponed. At the
annual meeting held on March 7, 1996, in response to a question, it was reported
by Company counsel that the Company Bylaws had been changed in regard to the
annual meeting.
On March 11, 1996 another shareholder request to "--inspect the Bylaws,
Articles of Incorporation and amendments (if any) --" was made. The inspection
was held on March 28, 1996 at the Company home office. Submitted for inspection
was a "Supplement to Amended and Restated Bylaws of Jackson Hewitt Inc.," which
stated in part that "--the Board of Directors of the Corporation amended Section
1.1 of the Bylaws solely with respect to the 1995 Annual Meeting to provide that
the 1995 Annual Meeting of Shareholders shall take place on such dates as the
Board of Directors may determine." This amendment was stated to have been
adopted by resolution of the Board on September 12, 1995. At shareholder
request, the Virginia State Corporation Commission (SCC) certified on April 11,
1996 that the last amendment to Company documents received by the SCC was in
August 1993.
Results of These Actions Were:
-- Failure to announce a change in Bylaws at the time of adoption, in
the Notice of Annual Meeting dated February 5, 1996 and at the annual meeting
itself (response to a question not being considered as an announcement), and
-- Failure to provide the SCC with timely notification of Bylaw changes,
and
-- Failure to present an Amendment to Bylaws (upon request for
inspection) as required by Virginia Code, and
-- Failure to announce to shareholders a change in annual meeting date
in a timely fashion (the original meeting date of September 16, 1995 having come
and gone without notification).
This offers ample evidence that the Board of Directors is not capable
(without supervision) of complying with the Company Bylaws in regard to amending
said Bylaws. Therefore it is appropriate to withdraw this authority.
I urge you therefore to adopt this amendment prohibiting Bylaw change
without approval of shareholders."
The Board of Directors favors a vote AGAINST the adoption of this
proposal for the following reasons:
Bylaws generally are intended to provide for the convenient and orderly
functioning of a company. However, while serving an important corporate
governance function, they remain subordinate to the articles of incorporation
and corporation law of the state in which a company is organized, as well as
other applicable state and federal laws and regulations. Illustratively, it is
state law, not
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the bylaws, that regulates the right to vote and provides for management of the
business by a board of directors.
In accordance with the Virginia Stock Corporation Act, under which the
Company is organized, and the terms of the Company's Bylaws, the Company's
Bylaws may be amended by the Board of Directors. Virginia law and the terms of
the Company's Bylaws also provide that the shareholders of the Company may amend
Bylaws. If the shareholders disagree with a Bylaw provision adopted by the Board
of Directors or if they desire to change a Bylaw provision, regardless of who
adopted it originally, they have the power to adopt an amendment.
In accordance with Virginia law, the Company's Bylaws are not filed with
the Virginia State Corporation Commission ("SCC"), nor is the Company required
to notify the SCC of any changes to its Bylaws. Under Virginia law, the only
documents relating to the corporate governance of the Company that are filed
with the SCC are the Articles of Incorporation. Any shareholder interested in
reviewing the Company's Bylaws may obtain a copy by writing to the Secretary of
the Company. In addition, the Chairman is prepared to respond to inquiries on
Bylaw changes at the Annual Meeting. While Virginia law does not require the
Board to notify shareholders of amendments to the Company's Bylaws, new Bylaws
are filed with the Securities and Exchange Commission under applicable rules and
regulations each time the Bylaws change, and any such amended Bylaws are
available to shareholders from the Company as described above.
Under the circumstances, the Board of Directors does not believe it is
necessary or appropriate to prohibit the Board of Directors from amending the
Company's Bylaws without shareholder approval. The Board is of the opinion that
important rights of shareholders are fully protected by the current Articles of
Incorporation, any changes in which are submitted to the shareholders for
approval. Similarly, Virginia law and the Company's Bylaws allow shareholders to
amend the Bylaws. In addition to hindering Board flexibility to utilize the
Bylaws to assure a convenient and orderly functioning of the Company, the
proposal would serve to increase the size of the proxy statement (in years in
which Bylaw amendments were submitted to shareholders for approval) at
additional cost to the Company without any corresponding benefit to the
shareholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THIS SHAREHOLDER
PROPOSAL. PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE SO VOTED UNLESS
SHAREHOLDERS SPECIFY A DIFFERENT CHOICE.
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OTHER MATTERS
The Board of Directors does not know of any matters that will be
presented for action at the Annual Meeting other than those described above or
matters incident to the conduct of the Annual Meeting. If, however, any other
matters not presently known to management should come before the Annual Meeting,
it is intended that the shares represented by the Proxy will be voted on such
matters in accordance with the discretion of the holders of such Proxy.
SUBMISSION OF PROPOSALS FOR 1997
The next Annual Meeting of Shareholders will be held on or about
September 26, 1997. Any shareholder of the Company who wishes to present a
proposal at the next Annual Meeting of Shareholders of the Company, and who
wishes to have such proposal included in the Company's proxy statement for that
meeting, must deliver a copy of such proposal to the Company at 4575 Bonney
Road, Virginia Beach, Virginia 23462, Attention: Chief Executive Officer, no
later than April 30, 1997.
GENERAL
The Company's 1996 Annual Report to Shareholders accompanies this Proxy
Statement. The 1996 Annual Report to Shareholders does not form any part of the
material for the solicitation of Proxies. Upon written request, the Company will
provide shareholders with a copy of its Annual Report on Form 10-KSB for the
fiscal year ended April 30, 1996, as filed with the Securities and Exchange
Commission, without charge. Please direct written requests for a copy of the
Form 10-KSB to: Keith E. Alessi, President and Chief Executive Officer, Jackson
Hewitt Inc., 4575 Bonney Road, Virginia Beach, Virginia 23462.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY PROMPTLY
By Order of the Board of Directors
September __, 1996
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EXHIBIT A
Copy of Proposed Amendment to Articles of
Incorporation to Create Classified Board
(a) Commencing with the 1996 annual meeting of shareholders, the Board
of Directors (other than any director designated by the holders of the
Corporation's Series A Convertible Preferred Stock) shall be divided into two
classes, Class A and Class B, as nearly equal in number as possible. At the 1996
annual meeting of shareholders, directors of the first class (Class A) shall be
elected to hold office for a term expiring at the 1997 annual meeting of
shareholders; and directors of the second class (Class B) shall be elected to
hold office for a term expiring at the 1998 annual meeting of shareholders. At
each annual meeting of shareholders after the 1996 annual meeting, the
successors to the class of directors whose terms then shall expire shall be
identified as being of the same class as the directors they succeed and elected
to hold office for a term expiring at the second succeeding annual meeting of
shareholders. When the number of directors is changed, any newly created
directorships or any decrease in directorships shall be apportioned among the
classes by the Board of Directors as to make all classes as nearly equal in
number as possible.
(b) Any director elected by the holders of the Corporation's Common
Stock may only be removed by shareholders for cause.
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EXHIBIT B
Amended Copy of
Jackson Hewitt 1994 Long-Term Incentive Plan
SECTION 1. Purpose; Definitions
The name of this plan is the Jackson Hewitt 1994 Long-Term Incentive
Plan (the "Plan"). The purpose of the Plan is to enable key employees of Jackson
Hewitt Inc. (the "Company") to (i) own shares of stock in the Company, (ii)
participate in the shareholder value which has been created, (iii) have a
mutuality of interest with other shareholders and (iv) enable the Company to
attract, retain and motivate key employees of particular merit.
For the purposes of the Plan, the following terms shall be defined as
set forth below:
(a) "Board" means the Board of Directors of the Company.
(b) "Cause" means a felony conviction of a Participant or the failure of
a Participant to contest prosecution for a felony, or a Participant's willful
misconduct or dishonesty, any of which is directly and materially harmful to the
business or reputation of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended from time
to time, and any successor thereto.
(d) "Committee" means the Committee referred to in Section 2 of the
Plan. If at any time no Committee shall be in office, then the functions of the
Committee specified in the Plan shall be exercised by the Board.
(e) "Company" means Jackson Hewitt Inc., a corporation organized under
the laws of the Commonwealth of Virginia or any successor organization.
(f) "Disability" means permanent and total disability as determined
under the Company's long-term disability program.
(g) "Disinterested Person" shall have the meaning set forth in Rule
16b-3(c)(2)(i) as promulgated by the Securities and Exchange Commission under
the Securities Exchange Act of 1934 (the "Exchange Act"), as that Rule existed
as of September 16, 1994, the date shareholders of the Company initially
approved the Plan.
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(h) "Early Retirement" means retirement, with consent of the Committee
at the time of retirement, from active employment with the Company pursuant to
the early retirement provisions of the pension plan of the Company.
(i) "Fair Market Value" means, as of any given date, the mean of the
highest and lowest quoted selling prices of the Stock on the NASDAQ National
Market (consolidated trading) or, if no such sale occurs on the NASDAQ National
Market on such date, the fair market value of the Stock as determined by the
Committee in good faith based on the best available facts and circumstances at
the time.
(j) "Incentive Stock Option" means any Stock Option intended to be and
designated as an "Incentive Stock Option" within the meaning of Section 422 of
the Code.
(k) "Insider" means a Participant who is subject to the requirements
of the Rules (as defined below).
(l) "Long-Term Performance Award" or "Long-Term Award" means an award
made pursuant to Section 8 below that is payable in cash and/or Stock (including
Restricted Stock) in accordance with the terms of the grant, based on Company,
business unit and/or individual performance over a period of at least two years.
(m) "Non-Qualified Stock Option" means any Stock Option that is not
an Incentive Stock Option.
(n) "Normal Retirement" means retirement from active employment with the
Company and any Subsidiary or Affiliate pursuant to the normal retirement
provisions of the pension plan of the Company.
(o) "Participant" means an employee to whom an Award is granted
pursuant to the Plan.
(p) "Plan" means the Jackson Hewitt 1994 Long-Term Incentive Plan, as
hereinafter amended from time to time.
(q) "Restricted Stock" means an award of shares of Stock that is subject
to restrictions pursuant to Section 7 below.
(r) "Retirement" means Normal or Early Retirement.
(s) "Rules" means Section 16 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and the regulations promulgated thereunder.
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(t) "Securities Broker" means the registered securities broker
acceptable to the Company who agrees to effect the cashless exercise of an
Option pursuant to Section 5(m) hereof.
(u) "Stock" means the Common Stock $0.02 par value per share, of the
Company.
(v) "Stock Appreciation Right" means the right, pursuant to an award
granted under Section 6 below, to surrender to the Company all (or a portion) of
a Stock Option in exchange for an amount equal to the difference between (i) the
Fair Market Value, as of the date such Stock Option (or such portion thereof) is
surrendered, of the shares of Stock covered by such Stock Option (or such
portion thereof), and (ii) the aggregate exercise price of such Stock Option (or
such portion thereof).
(w) "Stock Option" or "Option" means any option to purchase shares of
Stock (including Restricted Stock, if the Committee so determines) granted
pursuant to Section 5 below.
In addition, terms "Change-in-Control," "Potential Change-in-Control"
and "Change-in-Control Price" shall have meanings set forth, respectively, in
Sections 9(b), (c) and (d) below.
SECTION 2. Administration
The Plan shall be administered by a Committee of not less than two
Disinterested Persons, who shall be appointed by the Board of Directors of the
Company and who shall serve at the pleasure of the Board.
The Committee shall have the authority to grant to eligible employees,
pursuant to the terms of the Plan: (i) Stock Options, (ii) Stock Appreciation
Rights, (iii) Restricted Stock and/or (iv) Long-Term Performance Awards.
In particular, the Committee shall have the authority:
(i) to select the officers and other key employees of the Company
to whom Stock Options, Stock Appreciation Rights, Restricted Stock and Long-Term
Performance Awards may from time to time be granted hereunder;
(ii) to determine whether and to what extent Incentive Stock
Options, Non-Qualified Stock Options, Stock Appreciation Rights, Restricted
Stock and Long-Term Performance Awards, or any combination thereof, are to be
granted hereunder;
(iii) to determine the number of shares to be covered by each
such award granted hereunder;
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(iv) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any award granted hereunder: including, but not
limited to, the share price and any restriction or limitation, or any vesting
acceleration or forfeiture waiver regarding any Stock Option or other award
and/or the shares of Stock relating thereto, based on such factors as the
Committee shall determine, in its sole discretion;
(v) to determine whether and under what circumstances a Stock
Option may be settled in cash or stock, including Restricted Stock under Section
5(1);
(vi) to determine whether and under what circumstances a Stock
Option may be exercised without a payment of cash under Section 5(m); and
(vii) to determine whether, to what extent and under what
circumstances Stock and other amounts payable with respect to an award under
this Plan shall be deferred either automatically or at the election of the
participant.
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable; to interpret the terms and provisions of the
Plan and any award issued under the Plan (and any agreements relating thereto);
and to otherwise supervise the administration of the Plan.
All decisions made by the Committee pursuant to the provisions of the
Plan shall be final and binding on all persons, including the Company and Plan
Participants.
SECTION 3. Stock Subject to the Plan
(a) Stock Subject to Plan. The stock to be subject or related to awards
under the Plan shall be authorized and unissued shares of the Company's Stock.
The maximum number of shares of Stock authorized with respect to the grant of
awards under the Plan, subject to adjustment in accordance with paragraph 3(d)
below, shall be up to 698,000 shares of Stock and any or all of such 698,000
shares of Stock may be granted for awards of incentive stock options.
In addition, the 698,000 shares of Stock subject to or related to awards
under the Plan shall also be available for the granting of replacement options
under Section 5(e) below to all Company employees. Such additional authorization
of Stock for the granting of replacement options shall not, at any time, cause
the maximum shareholder dilution caused by the Plan to exceed 698,000 shares of
Stock.
Notwithstanding the foregoing, no individual shall receive, over the
term of the Plan, more than 500,000 shares authorized for grant under the Plan,
including shares subject to replacement options awarded under the Plan.
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(b) Computation of Stock Available for the Plan. For the purpose of
computing the total number of shares of Stock available for distribution at any
time in each calendar year during which the Plan is in effect in connection with
the exercise of options awarded under the Plan, there shall be debited against
the total number of shares of Stock determined to be available pursuant to
paragraphs (a) and (c) of this Section 3, the maximum number of shares of Stock
subject to issuance upon exercise of options or other stock based awards made
under the Plan. However, in any Plan year, the total number of shares that may
be granted under this Plan shall not exceed the total, as determined in
paragraphs (a) and (c) of this Section 3.
(c) Unused, Forfeited and Reacquired Shares. Any unused portion of the
shares annually available for award shall be carried forward and shall be made
available for Plan awards in succeeding calendar years. The shares related to
the unexercised or undistributed portion of any terminated, expired or forfeited
award for which no material benefit was received by a participant (i.e.
dividends) also shall be made available for distribution in connection with
future awards under the Plan to the extent permitted to receive exemptive relief
pursuant to the Rules. Any shares made available for distribution in connection
with future awards under this Plan pursuant to this paragraph (c) shall be in
addition to the shares available pursuant to paragraph (a) of this Section 3.
(d) Other Adjustment. In the event of any merger, reorganization,
consolidation, recapitalization, Stock dividend, or other change in corporate
structure affecting the Stock, such substitution or adjustment shall be made in
the aggregate number of shares reserved for issuance under the Plan, in the
number and option price of shares subject to outstanding Options granted under
the Plan and in the number and price of shares subject to other Awards made
under the Plan, as may be determined to be appropriate by the Committee in its
sole discretion, provided that the number of shares subject to any award shall
always be a whole number. Such adjusted option price shall also be used to
determine the amount payable by the Company upon the exercise of any Stock
Appreciation Right associated with any Stock Option.
SECTION 4. Eligibility
Officers and other key employees of the Company (but excluding members
of the Committee and any person who serves only as a director) who are
responsible for or contribute to the management, growth and/or profitability of
the business of the Company and/or its Subsidiaries and Affiliates are eligible
to be granted awards under the Plan.
SECTION 5. Stock Options
Stock Options may be granted alone, in addition to or in tandem with
other awards granted under the Plan. Any Stock Option granted under the Plan
shall be in such form as the Committee may from time to time approve.
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Stock Options granted under the Plan may be of two types: (i) Incentive
Stock Options and (ii) Non-Qualified Stock Options.
The Committee shall have the authority to grant any optionee Incentive
Stock Options, Non-Qualified Stock Options, or both types of Stock Options (in
each case with or without Stock Appreciation Rights). To the extent that any
Stock Option does not qualify as an Incentive Stock Option, it shall constitute
a separate Non-Qualified Stock Option.
Anything in the Plan to the contrary notwithstanding, no term of this
Plan relating to Incentive Stock Options shall be interpreted, amended or
altered, nor shall any discretion or authority granted under the Plan be so
exercised, so as to disqualify the Plan under Section 422 of the Code, or,
without the consent of the optionee(s) affected, to disqualify any Incentive
Stock Option under such Section 422.
Options granted under the Plan shall be subject to the following terms
and conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem
appropriate:
(a) Option Price. The option price per share of Stock purchasable under
a Non-Qualified Stock Option shall be determined by the Committee at the time of
grant but shall be not less than 85% of the Fair Market Value of the Stock at
the time of grant or in the case of Incentive Stock Options not less than 100%
of Fair Market Value. However, any Incentive Stock Option granted to any
optionee who, at the time the option is granted, owns more than 10% of the
voting power of all classes of stock of the Company or of a Parent or Subsidiary
corporation, shall have an exercise price no less than 110% of Fair Market Value
per share on date of the grant.
(b) Option Term. The term of each Stock Option shall be fixed by the
Committee, but no Incentive Stock Option shall be exercisable more than ten
years after the date the Option is granted and no Non-Qualified Stock Option
shall be exercisable more than ten years and one day after the date the Option
is granted. However, any option granted to any optionee who, at the time the
option is granted owns more than 10% of the voting power of all classes of Stock
of the Company or of a Parent or Subsidiary corporation may not have a term of
more than five years. No option may be exercised by any person after expiration
of the term of the option.
(c) Exercisability. Stock Options shall be exercisable at such time or
times and subject to such terms and conditions as shall be determined by the
Committee at or after grant, provided, however, that, except as provided in
Section 5(g) and Section 9, unless otherwise determined by the Committee at or
after grant, no Stock Option shall be exercisable during the six months
following the date of the granting of the Option. If the Committee provides, in
its discretion, that any Stock Option is exercisable only in installments, the
Committee may waive such installment exercise
B-6
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provisions at any time at or after grant in whole or in part, based on such
factors as the Committee shall determine, in its sole discretion.
(d) Method of Exercise. Subject to whatever installment exercise
provisions apply under Section 5(c), Stock Options may be exercised in whole or
in part at any time and from time to time during the option period, by giving
written notice of exercise to the Company specifying the number of shares to be
purchased.
Such notice shall be accompanied by payment in full of the purchase
price, either by certified or bank check, or such other instrument as the
Committee may accept. As determined by the Committee, in its sole discretion, at
or after grant, payment in full or in part may also be made in the form of
unrestricted Stock already owned by the optionee or, in the case of the exercise
of a Non-Qualified Stock Option of Restricted Stock subject to an award
hereunder (based, in each case, on the Fair Market Value of the Stock on the
date the option is exercised, as determined by the Committee), provided,
however, that, in the case of an Incentive Stock Option, the right to make a
payment in the form of already owned shares may be authorized only at the time
the option is granted.
The Committee, in its sole discretion, may at the time of grant or such
later time as it determines, permit payment of the option exercise price of a
Non-Qualified Stock Option to be made in whole or in part in the form of
Restricted Stock. If such payment is permitted, then such Restricted Stock (and
any replacement shares relating thereto) shall remain (or be) restricted in
accordance with the original terms of the Restricted Stock award in question,
and any additional Stock received upon the exercise, shall be subject to the
same forfeiture restrictions, unless otherwise determined by the Committee, in
its sole discretion, at or after grant.
If payment of the Option exercise price of a Non-Qualified Option is
made in whole or in part in the form of unrestricted stock already owned by the
Participant, the Company may require that the stock be owned by the Participant
for a period of six months or longer so that such payment would not result in a
pyramid exercise.
No shares of Stock shall be issued until full payment therefor has been
made. An optionee shall generally have the rights to dividends or other rights
of a shareholder with respect to shares subject to the Option when the optionee
has given written notice of exercise, has paid in full for such shares, and, if
requested, has given the representation described in Section 12(a).
(e) Replacement Options. If an Option granted pursuant to the Plan may
be exercised by an optionee by means of a stock-for-stock swap method of
exercise as provided in 5(d) above, then the Committee may, in its sole
discretion, at the time of the original option grant or at such subsequent time
during the term of such option as the Committee, in its sole discretion, shall
deem appropriate, authorize the Participant to automatically receive a
replacement option pursuant to this part of the
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Plan. This replacement option shall cover a number of shares determined by the
Committee, but in no event more than the number of shares equal to the
difference between the number of shares covered by the original option exercised
and the net shares received by the Participant from such exercise. The exercise
price of the replacement option shall equal the then current Fair Market Value,
and with a term extending to the expiration date of the original Option.
The Committee shall have the right, in its sole discretion and at any
time, to discontinue the automatic grant of replacement options if it determines
the continuance of such grants to no longer be in the best interest of the
Company.
(f) Non-transferability of Options. No Stock Option shall be
transferable by the optionee otherwise than by will or by the laws of descent
and distribution, and all Stock Options shall be exercisable, during the
optionee's lifetime, only by the optionee.
(g) Termination by Reason of Death. Subject to Section 5(k), if an
optionee's employment by the Company and any Subsidiary or Affiliate terminates
by reason of death, any Stock Option held by such optionee may thereafter be
exercised, to the extent then exercisable or on such accelerated basis as the
Committee may determine at or after grant, by the legal representative of the
estate or by the legatee of the optionee under the will of the optionee, for a
period of one year (or such shorter period as the Committee may specify at
grant) from the date of such death or until the expiration of the stated term of
such Stock Option, whichever period is the shorter.
(h) Termination by Reason of Disability. Subject to Section 5(k), if an
optionee's employment by the Company and any Subsidiary or Affiliate terminates
by reason of Disability, any Stock Option held by such optionee may thereafter
be exercised by the optionee, to the extent it was exercisable at the time of
termination, or on such accelerated basis as the Committee may determine at or
after grant, for a period of three years (or such shorter period as the
Committee may specify at grant) from the date of such termination of employment
or until the expiration of the stated term of such Stock Option, whichever
period is the shorter, provided, however, that if the optionee dies within such
three-year period (or such shorter period as the Committee shall specify at
grant), any unexercised Stock Option held by such optionee shall, at the sole
discretion of the Committee, thereafter be exercisable to the extent to which it
was exercisable at the time of death for a period of twelve months from the date
of such death or until the expiration of the stated term of such Stock Option,
whichever period is the shorter. In the event of termination of employment by
reason of Disability, if an Incentive Stock Option is exercised after the
expiration of the exercise periods that apply for purposes of Section 422 of the
Code, such Stock Option will thereafter be treated as a Non-Qualified Stock
Option.
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(i) Termination by Reason of Retirement. Subject to Section 5(k), if an
optionee's employment by the Company terminates by reason of Normal or Early
Retirement, any Stock Option held by such optionee may thereafter be exercised
by the optionee, to the extent it was exercisable at the time of such Retirement
or on such accelerated basis as the Committee may determine at or after grant,
for a period of three years (or such shorter period as Committee may specify at
grant) from the date of such termination of employment or the expiration of the
stated term of such Stock Option, whichever period is the shorter; provided,
however, that, if the optionee dies within such three-year period, any
unexercised Stock Option held by such optionee shall, at the sole discretion of
the Committee, thereafter be exercisable, to the extent to which it was
exercisable at the time of death, for a period of twelve months from the date of
such death or until the expiration of the stated term of such Stock Option,
whichever period is the shorter. In the event of termination of employment by
reason of Retirement, if an Incentive Stock Option is exercised after the
expiration of the exercise periods that apply for purposes of Section 422 of the
Code, such Stock Option will thereafter be treated as a Non-Qualified Stock
Option.
(j) Other Termination. Unless otherwise determined by the Committee at
or after grant, if an optionee's employment by the Company terminates for any
reason other than death, Disability or Normal or Early Retirement, the Stock
Option shall thereupon terminate, except that such Stock Option may be exercised
for the lesser of three months or the balance of such Stock Option's term if the
optionee is involuntarily terminated by the Company without Cause.
(k) Incentive Stock Option Limitations. To the extent required for
"incentive stock option" status under Section 422 of the Code, the aggregate
Fair Market Value (determined as of the time of grant) of the stock with respect
to which Incentive Stock Options granted after 1986 are exercisable for the
first time by the optionee during any calendar year under the Plan and/or any
other stock option plan of the Company (within the meaning of Section 425 of the
Code) after 1986 shall not exceed $100,000.
To the extent (if any) permitted under Section 422 of the Code, if (i) a
participant's employment with the Company is terminated by reason of death,
Disability or Retirement and (ii) the portion of any Incentive Stock Option that
is otherwise exercisable during the post-termination period specified under
Section 5(g), (h) or (i), applied without regard to this Section 5(k), is
greater than the portion of such option that is exercisable as an "incentive
stock option" during such post-termination period under Section 422, such
post-termination period shall automatically be extended (but not beyond the
original option term) to the extent necessary to permit the optionee to exercise
such Incentive Stock Option. The Committee is also authorized to provide at
grant for a similar extension of the post-termination exercise period in the
event of a Change-in-Control.
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<PAGE>
(l) Cash-out of Option: Settlement of Spread Value in Restricted Stock.
On receipt of written notice to exercise, the Committee may, in it sole
discretion, elect to cash out all or part of the portion of the option(s) to be
exercised by paying the optionee an amount, in cash or Stock, equal to the
excess of the Fair Market Value of the Stock over the option price (the "Spread
Value") on the effective date of such cash-out.
In addition, if the option agreement so provides at grant or is amended
after grant and prior to exercise to so provide (with the optionee's consent),
the Committee may require that all or part of the shares to be issued with
respect to the Spread Value of an exercised option take the form of Restricted
Stock, which shall be valued on the date of exercise on the basis of the Fair
Market Value of such Restricted Stock determined without regard to the
forfeiture restrictions involved.
(m) Cashless Exercise. To the extent permitted under the applicable laws
and regulations under Section 16 of the Securities Exchange Act of 1934, as
amended, and the Rules promulgated thereunder, and with the consent of the
Committee, the Company agrees to cooperate in a "cashless exercise" of an
Option. The cashless exercise shall be effected by the Participant delivering to
the Securities Broker instructions to sell a sufficient number of shares of
Common Stock to cover the costs and expenses associated therewith.
SECTION 6. Stock Appreciation Rights
(a) Grant and Exercise. Stock Appreciation Rights may be granted in
conjunction with all or part of any Stock Option granted under the Plan. In the
case of a Non-Qualified Stock Option, such rights may be granted either at or
after the time of the grant of such Stock Option. In the case of an Incentive
Stock Option, such rights may be granted only at the time of the grant of such
Stock Option.
A Stock Appreciation Right or applicable portion thereof granted with
respect to a given Stock Option shall terminate and no longer be exercisable
upon the termination or exercise of the related Stock Option, except that,
unless otherwise determined by the Committee, in its sole discretion, at the
time of grant, a Stock Appreciation Right granted with respect to less than the
full number of shares covered by a related Stock Option shall not be reduced
until the number of shares covered by an exercise or termination of the related
Stock Option exceeds the number of shares not covered by the Stock Appreciation
Right.
A Stock Appreciation Right may be exercised by an optionee, in
accordance with Section 6(b), by surrendering the applicable portion of the
related Stock Option. Upon such exercise and surrender, the optionee shall be
entitled to receive an amount determined in the manner prescribed in Section
6(b). Stock Options which have been so surrendered, in whole or in part, shall
no longer be exercisable to the extent the related Stock Appreciation Rights
have been exercised.
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(b) Terms and Conditions. Stock Appreciation Rights shall be subject to
such terms and conditions, not inconsistent with the provisions of the Plan, as
shall be determined from time to time by the Committee, including the following:
(i) Stock Appreciation Rights shall be exercisable only at such
time or times and to the extent that the Stock Options to which they relate, if
any, shall be exercisable in accordance with the provisions of Section 5 and
this Section 6 of the Plan; provided, however, that any Stock Appreciation Right
granted subsequent to the grant of the related Stock Option shall not be
exercisable during the first six months of its term, except that this special
limitation shall not apply in the event of death or Disability of the optionee
prior to the expiration of the six-month period.
(ii) Upon the exercise of a Stock Appreciation Right, an optionee
shall be entitled to receive up to, but not more than, an amount in cash and/or
shares of Stock equal in value to the excess of the Fair Market Value of one
share of Stock over the option price per share specified in the related Stock
Option, multiplied by the number of shares in respect of which the Stock
Appreciation Right shall have been exercised, with the Committee having the
right to determine the form of payment.
(iii) Stock Appreciation Rights shall be transferable only when
and to the extent that the underlying Stock Option would be transferable under
Section 5(e) of the Plan.
(iv) Upon the exercise of a Stock Appreciation Right, the Stock
Option or part thereof to which such Stock Appreciation Right is related shall
be deemed to have been exercised for the purpose of the limitation set forth in
Section 3 of the Plan on the number of shares of Stock to be issued under the
Plan, but only to the extent of the number of shares issued under the Stock
Appreciation Right at the time of exercise based on the value of the Stock
Appreciation Right at such time.
(v) A Stock Appreciation Right granted in connection with an
Incentive Stock Option may be exercised only if and when the market price of the
Stock subject to the Incentive Stock Option exceeds the exercise price of such
Stock Option.
(vi) In its sole discretion, the Committee may provide, at the
time of grant of a Stock Appreciation Right under this Section 6, that such
Stock Appreciation Right can be exercised only in the event of a
Change-in-Control and/or a Potential Change-in-Control, subject to such terms
and conditions as the Committee may specify at grant.
(vii) The Committee, in its sole discretion, may also provide
that, in the event of a Change-in-Control and/or a Potential Change-in-Control,
the amount to be paid upon the exercise of a Stock Appreciation Right shall be
based on the
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Change-in-Control Price, subject to such terms and conditions as the Committee
may specify at grant.
(c) Section 16(b) Compliance. The Committee may establish such
additional terms and conditions, without limiting the foregoing, as it
determines to be necessary or desirable to avoid "short-swing profit" liability
in connection with a Stock Appreciation Right under Section 16(b) of Securities
Exchange Act of 1934.
SECTION 7. Restricted Stock
(a) Administration. Shares of Restricted Stock may be issued either
alone or in addition to other awards granted under the Plan. The Committee shall
determine the officers and key employees of the Company and its Subsidiaries and
Affiliates to whom, and the time or times at which, grants of Restricted Stock
will be made, the number of shares to be awarded, the price (if any) to be paid
by the recipient of Restricted Stock (subject to Section 7(b)), the time or
times within which such awards may be subject to forfeiture, and all other
conditions of the awards.
The Committee may condition the grant of Restricted Stock upon the
attainment of specified performance goals or such other factors as the Committee
may determine, in its sole discretion.
The provisions of Restricted Stock awards need not be the same with
respect to each recipient.
(b) Awards and Certificates. The prospective recipient of a Restricted
Stock award shall not have any rights with respect to such award, unless and
until such recipient has executed an agreement evidencing the award and has
delivered a fully executed copy thereof to the Company, and has otherwise
complied with the applicable terms and conditions of such award.
(i) The purchase price for shares of Restricted Stock shall be
equal to or less than their par value and may be zero.
(ii) Awards of Restricted Stock must be accepted within a period
of 60 days (or such shorter period as the Committee may specify at grant) after
the award date, by executing a Restricted Stock Award Agreement and paying
whatever price (if any) is required under Section 7(b)(i).
(iii) Each participant receiving a Restricted Stock award shall
be issued a stock certificate in respect of such shares of Restricted Stock.
Such certificate shall be registered in the name of such participant, and shall
bear an appropriate legend referring to the terms, conditions, and restrictions
applicable to such award, substantially in the following form:
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The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions (including
forfeiture) of the Jackson Hewitt 1994 Long-Term Incentive Plan and an
Agreement entered into between the registered owner and Jackson Hewitt
Inc. Copies of such Plan and Agreement are on file in the offices of
Jackson Hewitt Inc., 4575 Bonney Road, Virginia Beach, Virginia 23462
Attention: General Counsel.
(iv) The Committee shall require that the stock certificates evidencing
such shares be held in custody by the Company until the restrictions thereon
shall have lapsed, and that, as a condition of any Restricted Stock award, the
participant shall have delivered a stock power, endorsed in blank, relating to
the Stock covered by such award.
(c) Restrictions and Conditions. The shares of Restricted Stock awarded
pursuant to this Section 7 shall be subject to the following restrictions and
conditions:
(i) Subject to the provisions of this Plan and the award
agreement, during a period set by the Committee commencing with the date of such
award (the "Restriction Period"), the participant shall not be permitted to
sell, transfer, pledge, assign or otherwise encumber shares of Restricted Stock
awarded under the Plan. Within these limits, the Committee, in its sole
discretion, may provide for the lapse of such restrictions in installments and
may accelerate or waive such restrictions in whole or in part, based on service,
performance and/or such other factors or criteria as the Committee may
determine, in its sole discretion
(ii) Except as provided in this paragraph (ii) and Section
7(c)(i), the participant shall have, with respect to the shares of Restricted
Stock, all of the rights of a shareholder of the Company, including the right to
vote the shares, and the right to receive any cash dividends. The Committee, in
its sole discretion, as determined at the time of award, may permit or require
the payment of cash dividends to be deferred and, if the Committee so
determines, reinvested in additional Restricted Stock to the extent shares are
available under Section 3.
(iii) Subject to the applicable provisions of the award agreement
and this Section 7, upon termination of a participant's employment with the
Company for any reason during the Restriction Period, all shares still subject
to restriction shall be forfeited by the participant.
(iv) In the event of hardship or other special circumstances of a
participant whose employment with the Company is involuntarily terminated (other
than for Cause), the Committee may, in it sole discretion, waive in whole or in
part any or all remaining restrictions with respect to such participant's shares
of Restricted Stock, based on such factors as the Committee may deem
appropriate.
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<PAGE>
(v) If and when the Restriction Period expires without a prior
forfeiture of the Restricted Stock subject to such Restriction Period, the
certificates for such shares shall be delivered to the participant promptly.
SECTION 8. Long Term Performance Awards
(a) Awards and Administration. Long Term Performance Awards may be
awarded either alone or in addition to other awards granted under the Plan. The
Committee shall determine the nature, length and starting date of the
performance period (the "Performance Period") for each Long Term Performance
Award, which shall be at least two years (subject to Section 9 below), and shall
determine the performance objectives to be used in valuing Long Term Performance
Awards and determining the extent to which such Long Term Performance Awards
have been earned. Performance objectives may vary from participant to
participant and between groups of participants and shall be based upon such
Company, business unit and/or individual performance factors and criteria as the
Committee may deem appropriate, including, but not limited to, earnings per
share or return on equity. Performance Periods may overlap and participants may
participate simultaneously with respect to Long Term Performance Awards that are
subject to different Performance Periods and/or different performance factors
and criteria.
At the beginning of each Performance Period, the Committee shall
determine for each Long Term Performance Award subject to such Performance
period the range of dollar values or number of shares of Stock to be awarded to
the participant at the end of the performance Period if and to the extent that
the relevant measure(s) of performance for such Long Term Performance Award is
(are) met. Such dollar values or number of shares of Stock may be fixed or may
vary in accordance with such performance and/or other criteria as may be
specified by the Committee, in its sole discretion.
(b) Adjustment of Awards. In the event of special or unusual events or
circumstances affecting the application of one or more performance objectives to
a Long Term Performance Award, the Committee may revise the performance
objectives and/or underlying factors and criteria applicable to the Long Term
Performance Awards affected, to the extent deemed appropriate by the Committee,
in its sole discretion, to avoid unintended windfalls or hardship.
(c) Termination of Employment. Subject to Section 9 below and unless
otherwise provided in the applicable award agreement(s), if a participant
terminates employment with the Company during a Performance Period because of
death, Disability or Retirement, such participant shall be entitled to a payment
with respect to each outstanding Long Term Performance Award at the end of the
applicable Performance Period:
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(i) based, to the extent relevant under the terms of the award,
upon the participant's performance for the portion of such Performance Period
ending on the date of termination and the performance of the applicable business
unit(s) for the entire Performance Period, and
(ii) prorated, where deemed appropriate by the Committee, for the
portion of the Performance Period during which the participant was employed by
the Company, all as determined by the Committee, in its sole discretion.
However, the Committee may provide for an earlier payment in settlement
of such award in such amount and under such terms and conditions as the
Committee deems appropriate.
Subject to Section 9 below, if a participant terminates employment with
the Company during a Performance Period for any other reason, then such
participant shall not be entitled to any payment with respect to the Long Term
Performance Awards subject to such Performance Period, unless the Committee
shall otherwise determine, in its sole discretion.
(d) Form of Payment. The earned portion of a Long Term Performance Award
may be paid currently or on a deferred basis with such interest or earnings
equivalent as may be determined by the Committee, in its sole discretion.
Payment shall be made in the form of cash or whole shares of Stock, including
Restricted Stock, either in a lump sum payment or in annual installments
commencing as soon as practicable after the end of the relevant Performance
Period, all as the Committee shall determine at or after grant. If and to the
extent a Long Term Performance Award is payable in Stock and the full amount of
such value is not paid in Stock, then the shares of Stock representing the
portion of the value of the Long Term Performance Award not paid in Stock shall
again become available for award under the Plan.
SECTION 9. Change in Control Provisions
(a) Impact of Event. In the event of:
(i) a "Change in Control" as defined in Section 9(b), unless
otherwise determined by the Committee or the Board at or after grant, but prior
to the occurrence of such Change in Control, or
(ii) a "Potential Change in Control" as defined in Section 9(c),
but only if and to the extent so determined by the Committee or the Board at or
after grant (subject to any right of approval expressly reserved by the
Committee or the Board at the time of such determination),
the following acceleration and valuation provisions shall apply:
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A. Any Stock Appreciation Rights outstanding for at least six
months and any Stock Options awarded under the Plan not previously exercisable
and vested which have been held for at least six months from the date of grant,
shall become fully vested and exercisable.
B. The restrictions applicable to any Restricted Stock awards
under the Plan shall lapse and such shares and awards shall be deemed fully
vested.
C. The value of all outstanding Stock Options, Stock Appreciation
Rights and Restricted Stock awards shall, unless otherwise determined by the
Committee at or after grant, be cashed out on the basis of the "Change in
Control Price" as defined in Section 9(d) as of the date such Change in Control
or such Potential Change in Control is determined to have occurred or such other
date as the Committee may determine prior to the Change in Control.
D. Any outstanding Long Term Performance Awards shall be vested
and paid out based on the prorated target results for the Performance Periods in
question, unless the Committee provides at or after grant and prior to the
Change in Control event, for a different payment.
(b) Definition of "Change in Control." For purposes of Section 9(a), a
"Change in Control" means the happening of any of the following:
(i) When any "person," as such term is used in Sections 13(d) and
14(d) of the Exchange Act (other than the Company or a Subsidiary or any Company
employee benefit plan (including any trustee of such plan acting as trustee)),
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly of securities of the Company representing
20 percent or more of the combined voting power of the Company's then
outstanding securities without the consent of a majority of the Board;
(ii) The occurrence of any transactions or event relating to the
Company required to be described pursuant to the requirements of Item 5(f) of
Schedule 13A of the Exchange Act;
(iii) When, during any period of two consecutive years during the
existence of the Plan, the individuals who, at the beginning of such period,
constitute the Board of Directors of the Company cease for any reason other than
death to constitute at least a two-thirds majority thereof, provided, however,
that a director who was not a director at the beginning of such period shall be
deemed to have satisfied the two-year requirement if such director was elected
by, or on the recommendation of, at least two-thirds of the directors who were
directors at the beginning of such period (either actually or by prior operation
of this Section 9(b) (iii)); or
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<PAGE>
(iv) The occurrence of a transaction requiring stockholder
approval for the acquisition of the Company by an entity other than the Company
through purchase of assets, or by merger, or otherwise.
(c) Definition of Potential Change in Control. For purposes of
Section 9(a), a "Potential Change in Control" means the happening of any one of
the following:
(i) The entering into an agreement by the Company, the
consummation of which would result in a Change in Control of the Company as
defined in Section 9(b); or
(ii) The acquisition of beneficial ownership, directly or
indirectly, by any entity, person or group other than the Company or any Company
employee benefit plan (including any trustee of such plan acting as such
trustee) of securities of the Company representing five percent or more of the
combined voting power of the Company's outstanding securities and the adoption
by the Board of Directors of a resolution to the effect that a Potential Change
in Control of the Company has occurred for the purposes of this Plan.
(d) Change in Control Price. For purposes of this Section 9, "Change in
Control Price" means, as of any given date, the highest sales price per share
paid in any transaction reported by the NASDAQ National Market (consolidated
trading), or paid or offered in any bona fide transaction related to a potential
or actual change in control of the Company at any time during the preceding
sixty day period as determined by the Committee except that, in the case of
Incentive Stock Options and Stock Appreciation Rights relating to Incentive
Stock Options, such price shall be based only on transactions reported for the
date on which the Committee decides to cash out such options or SARs.
(e) Compliance with Section 280G. No payment shall be made under this
Section 9 which, when aggregated with other payments made to the employee,
would, as determined by such person(s) as the Committee shall irrevocably
designate at or prior to a Change in Control or Potential Change in Control,
result in an excess parachute payment for which the Company, would not receive a
Federal income tax deduction by reason of Section 280G of the Code.
SECTION 10. Amendments and Termination
The Board may amend, alter, or discontinue the Plan at any time and from
time to time, but no amendment, alteration, or discontinuation shall be made
which would impair the rights of an optionee or participant with respect to a
Stock Option, Stock Appreciation Right, Restricted Stock or Long Term
Performance Award which has been granted under the Plan, without the optionee's
or participant's consent, or which, without the approval of the Company's
stockholders, would:
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(a) except as expressly provided in this Plan, increase the total
number of shares reserved for the purpose of the Plan;
(b) decrease the option price of (i) any Stock Option to less than 100%
of the Fair Market Value on the date of grant, or (ii) change the pricing terms
of Section 9(a); or
(c) change the employees or class of employees eligible to
participate in the Plan,
(d) materially increase the benefits accruing to participants under
the Plan; or
(e) extend the maximum option period under Section 5(b) of the Plan.
The Committee may amend the terms of any Stock Option or other award
theretofore granted, prospectively or retroactively, but, subject to Section 3
above, no such amendment shall impair the rights of any holder without the
holder's consent. The Committee may also substitute new Stock Options for
previously granted Stock Options, including previously granted Stock Options
having higher option prices.
Subject to the above provisions, the Board shall have broad authority to
amend the Plan to take into account changes in applicable tax laws and
accounting rules, as well as other developments.
SECTION 11. Unfunded Status of Plan
The Plan is intended to constitute an "unfunded" plan for incentive and
deferred compensation. With respect to any payments not yet made to a
participant or optionee by the Company, nothing contained herein shall give any
such participant or optionee any rights that are greater than those of a general
creditor of the Company. In its sole discretion, the Committee may authorize the
creation of trusts or other arrangements to meet the obligations created under
the Plan to deliver Stock or payments in lieu of or with respect to awards
hereunder, provided, however, that, unless the Committee otherwise determines
with the consent of the affected participant, the existence of such trusts or
other arrangements is consistent with the "unfunded" status of the Plan.
SECTION 12. General Provisions
(a) The Committee may require each person purchasing shares pursuant to
a Stock Option under the Plan to represent to and agree with the Company in
writing that the optionee or participant is acquiring the shares without a view
to distribution thereof. The certificates for such shares may include any legend
which the Committee deems appropriate to reflect any restrictions on transfer.
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<PAGE>
All certificates for shares of Stock or other securities delivered under
the Plan shall be subject to such stock transfer orders and other restrictions
as the Committee may deem advisable under the rules, regulations, and other
requirements of the Exchange Act, any stock exchange upon which Stock is then
listed, and any applicable Federal or state securities law, and the Committee
may cause a legend or legends to be put on any such certificates to make
appropriate reference to such restrictions.
(b) Nothing contained in this Plan shall prevent the Board of Directors
from adopting other or additional compensation arrangements, subject to
stockholder approval if such approval is required; and such arrangements may be
either generally applicable or applicable only in specific cases.
(c) The adoption of the Plan shall not confer upon any employee of the
Company any right to continued employment with the Company, as the case may be,
nor shall it interfere in any way with the right of the Company to terminate the
employment of any of its employees at any time.
(d) No later than the date as of which an amount first becomes
includable in the gross income of the participant for Federal income tax
purposes with respect to any award under the Plan, the participant shall pay to
the Company, or make arrangements satisfactory to the Committee regarding the
payment of, any Federal, state, or local taxes of any kind required by law to be
withheld with respect to such amount. Unless otherwise determined by the
Committee, the minimum required withholding obligations may be settled with
Stock, including Stock that is part of the award that gives rise to the
withholding requirement. The obligations of the Company under the Plan shall be
conditional on such payment or arrangements and the Company shall, to the extent
permitted by law, have the right to deduct any such taxes from any payment of
any kind otherwise due to the participant.
(e) At the time of grant, the Committee may provide in connection with
any grant made under this Plan that the shares of Stock received as a result of
such grant shall be subject to a right of first refusal, pursuant to which the
participant shall be required to offer to the Company any shares that the
participant wishes to sell, with the price being the then Fair Market Value of
the Stock, subject to such other terms and conditions as the Committee specifies
at the time of grant.
(f) The reinvestment of dividends in additional Restricted Stock (or in
other types of Plan awards) at the time of any dividend payment shall only be
permissible if sufficient shares of Stock are available under Section 3 for such
reinvestment (taking into account then outstanding Stock Options and other Plan
awards).
(g) The Committee shall establish such procedures as it deems
appropriate for a participant to designate a beneficiary to whom any amounts
payable in the event of the participant's death are to be paid.
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<PAGE>
(h) The Plan and all awards made and actions taken thereunder shall be
governed by and construed in accordance with the laws of the Commonwealth of
Virginia.
(i) It is the intent of the Company that transactions involving equity
securities under the Plan by persons subject to Section 16 of the Securities
Exchange Act of 1934 (the "Exchange Act") be exempt under Rule 16b-3 under the
Exchange Act, and that cash-only Plan interests held by such persons that might
otherwise be deemed to be "derivative securities," as defined under Rule
16a-1(c) under the Exchange Act, be excluded under Rule 16a-l(c)(3)(i) by virtue
of the Plan's compliance with Rule 16b-3. Accordingly, if any provision of the
Plan or any option, rights or award agreement does not comply with the
requirements of Rule 16b-3 as then applicable to such a transaction or cash-only
Plan interest held by any such person, such provision shall be construed or
deemed amended to the extent necessary to conform to such requirements with
respect to such transaction or cash-only Plan interest held by such person.
SECTION 13. Effective Date of Plan
The Plan shall be effective on the date it is approved by a vote of the
holders of a majority of the total outstanding Stock.
SECTION 14. Term of Plan
No Stock Option, Stock Appreciation Right, Restricted Stock or Long Term
Performance Award shall be granted pursuant to the Plan on or after the tenth
anniversary of the date of stockholder approval, but awards granted prior to
such tenth anniversary may extend beyond that date.
SECTION 15. Special Resale Restriction
In connection with an underwritten public offering, upon the request of
the Company or the principal underwriter managing such public offering, resales
of securities issued pursuant to this Plan to the Company's officers, directors
and key employees may not be sold without the prior written consent of the
Company or such underwriters, as the case may be, for at least ninety (90) days
or such other period of time as may be specified by the holders of a majority of
the Company's Series A Convertible Preferred Stock (the "Preferred
Shareholders") in accordance with the Purchase Agreement dated August 19, 1993
of which the Company and the Preferred Shareholders are a party. For the
purposes of this Section 15 only, "key employees" shall mean the "executive
officers" of the Company, as such persons are identified from time to time by
the Company's board of directors and as identified in the Company's securities
filings with the Securities and Exchange Commission.
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<PAGE>
JACKSON HEWITT INC.
Virginia Beach, Virginia
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR ANNUAL MEETING OF SHAREHOLDERS TO BE HELD
OCTOBER 7, 1996
The undersigned acknowledges receipt of the Annual Report to
Shareholders and the accompanying Notice of Annual Meeting and Proxy Statement
dated September ___, 1996 and revoking all prior proxies, hereby appoints John
T. Hewitt and Keith E. Alessi (each with power to act alone) as proxies, with
full power of substitution, and hereby authorizes them to represent and vote, as
directed below, all the stock of Jackson Hewitt Inc. held of record by the
undersigned on August 9, 1996, at the Annual Meeting of Shareholders to be held
on October 7, 1996, and at any adjournment thereof.
(1) To approve an amendment to the Company's Articles of
Incorporation to create a classified Board of Directors.
|_| FOR |_| AGAINST |_| ABSTAIN
(2) Election of Directors.
2.1 For election as Class A Directors to hold office until the
1997 annual meeting and until their successors are elected
and qualified:
|_| FOR |_| WITHHELD
Susan E. Ventresca
William P. Veillette
2.2 For election as Class B Directors to hold office until the
1998 annual meeting and until their successors are elected
and qualified:
|_| FOR |_| WITHHELD
Keith E. Alessi
John T. Hewitt
AUTHORITY TO VOTE FOR ONE OR MORE NOMINEES MAY
BE WITHHELD BY STRIKING THROUGH THE NOMINEE'S
NAME LISTED ABOVE.
<PAGE>
(3) To approve an amendment to the 1994 Long-Term Incentive Plan.
|_| FOR |_| AGAINST |_| ABSTAIN
(4) To ratify the appointment of KPMG Peat Marwick LLP as independent
auditors for the Company for the fiscal year ending April 30,
1997.
|_| FOR |_| AGAINST |_| ABSTAIN
(5) To act upon a shareholder proposal regarding future amendments to
the Company's Bylaws.
|_| FOR |_| AGAINST |_| ABSTAIN
(6) IN THEIR DISCRETION, on such other matters as may properly come
before the Annual Meeting, or, if any nominee listed in Proposal
2 above is unable to serve for any reason, to vote or refrain
from voting for a substitute nominee or nominees.
This proxy is revocable at any time prior to its exercise. This proxy,
when properly executed, will be voted as directed. Where no direction is given,
this proxy will be voted for Proposals 1, 2.1, 2.2, 3 and 4, and against
Proposal 5.
Please sign your name(s) exactly as
they appear hereon. If signer is a
corporation, please sign the full
corporate name by a duly authorized
officer. If an attorney, guardian,
administrator, executor, or trustee,
please give full title as such. If a
partnership, sign in partnership
name by authorized person.
Date: _____________________, 1996.
________________________________
________________________________
Please complete, date, sign and
return this proxy promptly in the
accompanying envelope.
2
