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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(D)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
JACKSON HEWITT INC.
(Name of Subject Company)
JACKSON HEWITT INC.
(Name of Person(s) Filing Statement)
COMMON STOCK, $0.02 PAR VALUE
(Title of Class of Securities)
468201 10 8
(CUSIP Number of Class of Securities)
KEITH E. ALESSI
CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER
JACKSON HEWITT INC.
4575 BONNEY ROAD
VIRGINIA BEACH, VA 23462
(757) 473-3300
(Name, address and telephone number of person
authorized to receive notice and communications
on behalf of the person(s) filing statement)
With Copy To:
JOHN M. PARIS, JR., ESQ.
KAUFMAN & CANOLES
ONE COMMERCIAL PLACE, SUITE 2000
NORFOLK, VIRGINIA 23510
(757) 624-3000
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ITEM 1. SECURITY AND SUBJECT COMPANY
The name of the subject company is Jackson Hewitt Inc., a Virginia
corporation (the "Company"). The address of the principal executive offices of
the Company is 4575 Bonney Road, Virginia Beach, Virginia 23462. The title of
the class of equity securities to which this Statement relates is the common
stock, par value $0.02 per share of the Company (the "Shares").
ITEM 2. OFFER OF THE BIDDER
This Statement relates to the tender offer by HJ Acquisition Corp., a
Virginia corporation (the "Purchaser") and a wholly-owned subsidiary of HFS
Incorporated, a Delaware corporation ("Parent"), disclosed in a Tender Offer
Statement on Schedule 14D-1 dated November 25, 1997 (the "Schedule 14D-1"), to
purchase all outstanding Shares at a price of $68.00 per Share (the "Offer
Price"), net to the seller in cash, without interest thereon, upon the terms and
subject to the conditions set forth in the Purchaser's Offer to Purchase, dated
November 25, 1997 (the "Offer to Purchase"), and the related Letter of
Transmittal (which together constitute the "Offer"). Capitalized terms used
herein without definition have the same meanings specified in the Offer to
Purchase. The principal executive offices of Parent and the Purchaser are
located at 6 Sylvan Way, Parsippany, New Jersey 07054.
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
November 19, 1997 (the "Merger Agreement"), by and among Parent, the Purchaser
and the Company. A copy of the Merger Agreement is filed as Exhibit (c)(1) to
this Schedule 14D-9, and is hereby incorporated herein by reference. The Merger
Agreement provides, among other things, that as promptly as practicable after
the consummation of the Offer and satisfaction or waiver of all other conditions
to the Merger (a) the Purchaser will be merged with and into the Company (the
"Merger") and the separate corporate existence of the Purchaser will thereupon
cease, (b) each outstanding Share (other than Shares held in the treasury of the
Company and Shares owned by Parent, the Purchaser or any other wholly owned
subsidiary of Parent) will be converted into the right to receive the Offer
Price, without interest (referred to herein as the "Merger Consideration"), (c)
the Company will be the successor or surviving corporation in the Merger
(sometimes hereinafter referred to as the "Surviving Corporation") and will
continue to be governed by the laws of the Commonwealth of Virginia, and (d) the
separate corporate existence of the Company with all its rights, privileges,
immunities, powers and franchises will continue unaffected.
Parent and CUC International ("CUC") have entered into an Agreement and Plan
of Merger, dated as of May 27, 1997, pursuant to which, among other things,
Parent will be merged with and into CUC, with CUC continuing as the surviving
corporation in the merger (the "Parent Merger") and changing its name to Cendant
Corporation ("Cendant"). Following the Parent Merger, Cendant, as successor to
Parent, will succeed to Parent's rights and obligations under the Merger
Agreement and the Offer and the Purchaser will become a wholly owned subsidiary
of Cendant. All references to Parent in this Schedule 14D-9 shall be deemed to
include Cendant following the Parent Merger.
ITEM 3. IDENTITY AND BACKGROUND
(a) The name and business address of the Company, which is the person filing
this Statement, is set forth in Item 1 above.
(b) Each material contract, agreement, arrangement and understanding, and
actual or potential conflict of interest, between the Company or its affiliates
and (i) its executive officers, directors or affiliates and (ii) Parent or the
Purchaser and their respective executive officers, directors or affiliates is
described in the attached Schedule 1 or set forth below.
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THE MERGER AGREEMENT
The summary of the Merger Agreement contained in the Offer to Purchase which
has been filed with the Securities and Exchange Commission (the "Commission"), a
copy of which is enclosed with this Schedule 14D-9, is incorporated herein by
reference. Such summary should be read in its entirety for a more complete
description of the terms and provisions of the Merger Agreement. This summary is
qualified in its entirety by reference to the Merger Agreement which is
incorporated herein by reference and a copy of which has been filed with the
Commission as an Exhibit (c)(l) to this Schedule 14D-9. The Merger Agreement may
be examined and copies may be obtained at the Commission's office at 450 Fifth
Street, N.W., Washington, D.C. 20549, and also should be available for
inspection and copying at the regional offices of the Commission located at
Seven World Trade Center, New York, New York 10048 and Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
this material may also be obtained by mail, upon payment of the Commission's
customary fees, from the Commission's principal office at 450 Fifth Street,
N.W., Washington, D.C. 20549. The Commission also maintains an internet web site
at http://www.sec.gov that contains reports, proxy statements and other
information. Copies should also be available at the offices of the NASD, 1735 K
Street, N.W. Washington, D.C. 20006. The following summarizes certain portions
of the Merger Agreement which relate to arrangements among the Company, Parent,
Purchaser and the Company's executive officers and directors.
THE COMPANY'S BOARD OF DIRECTORS. The Merger Agreement provides that
promptly after the purchase by Parent of more than two-thirds of the outstanding
Shares (on a fully diluted basis), Parent will be entitled to designate such
number of directors, rounded up to the next whole number on the Company's Board
of Directors as is equal to the product of the total number of directors on the
Board of Directors multiplied by the percentage that the number of Shares so
accepted for payment bears to the total number of Shares then outstanding. The
Merger Agreement also provides that the Company will, upon request of the
Purchaser, use its best efforts promptly to secure the resignations of such
number of its incumbent directors as is necessary to enable Parent's designees
to be elected to the Board of Directors. The Company's obligation to appoint
Parent's designees to the Board of Directors is subject to compliance with
Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder, which
require mailing the Information Statement, a copy of which is attached as
Schedule I hereto, to the Company's shareholders.
COMPANY OPTIONS. Pursuant to the Merger Agreement, except with respect to
any Roll-Over Option (as defined below), the Company will cause all Company
Options outstanding immediately prior to the Effective Time under the Option
Plans to become fully exercisable and vested. Each such Company Option will be
cancelled, and, in consideration thereof and in full satisfaction of all rights
of the holder of such Company Options, at the Effective Time Parent will pay, or
cause the Purchaser to pay, to the holder thereof an amount in cash equal to the
product of (A) the excess of the Merger Consideration over the exercise price
per Share of such Company Option, multiplied by (B) the number of Shares subject
to such Company Option (net of applicable withholding taxes).
With respect to each Company Option as to which the holder, no later than
five days prior to the Effective Time, shall have delivered to Parent his or her
written election to have such Company Options treated as described in this
paragraph (a "Roll-Over Option"), Parent and the Company will cause each
outstanding Roll-Over Option to be assumed by Parent and converted into a fully
vested option (or a new substitute option shall be granted) (a "Parent Option"),
exercisable throughout the period specified in the original option award
agreement, to purchase shares of common stock, par value $.01 per share, of
Parent ("Parent Common Stock") issued under Parent's 1993 Amended and Restated
Stock Option Plan (or such surviving plan as may result from the Parent Merger),
or any other similar stock option plan of Parent adopted specifically for
employees of the Company (the "Parent Option Plan"). Pursuant to the Merger
Agreement (i) the number of shares of Parent Common Stock subject to such Parent
Option will be determined by multiplying the number of Shares subject to the
Roll-Over Option to be cancelled by the Option Exchange Ratio (as defined
below), rounding any fractional share down to the nearest whole share, and (ii)
the exercise price per share of such Parent Option will be determined by
dividing the exercise price
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per share under the Roll-Over Option in effect immediately prior to the
Effective Time by the Option Exchange Ratio, and rounding the exercise price
thus determined up to the nearest whole cent, subject to appropriate adjustments
for stock splits and other similar events. Except as provided above, the
converted or substituted Parent Options will be subject to the same terms and
conditions (including, without limitation, expiration date, vesting and exercise
provisions) as were applicable to the Roll-Over Options immediately prior to the
Effective Time. For purposes of the Merger Agreement, the "Option Exchange
Ratio" is (x) the Offer Price divided by (y) the average of the closing prices
of Parent Common Stock on the New York Stock Exchange during the five trading
days preceding the fifth trading day prior to the closing date of the Merger.
In addition, except as may be otherwise agreed to by Parent or the Purchaser
and the Company, the Option Plans will terminate as of the Effective Time and
the provisions in any other plan, program or arrangement providing for the
issuance or grant of any other interest in respect of the capital stock of the
Company or any of its Subsidiaries will be deleted as of the Effective Time.
NO SOLICITATION. In the Merger Agreement, the Company has agreed that
neither the Company nor any of its subsidiaries or affiliates will (and the
Company will cause its officers, directors, employees, representatives and
agents, including, but not limited to, investment bankers, attorneys and
accountants, not to), directly or indirectly, encourage, solicit, participate in
or initiate discussions or negotiations with, or provide any information to, any
corporation, partnership, person or other entity or group (other than Parent,
any of its affiliates or representatives) concerning any merger, tender offer,
exchange offer, sale of assets, sale of shares of capital stock or debt
securities or similar transactions involving the Company or any Subsidiary (an
"Acquisition Proposal"). The Company also agreed to immediately cease any
existing activities, discussions or negotiations with any parties conducted
prior to the date of the Merger Agreement with respect to any of the foregoing.
The Merger Agreement provides that the Company may furnish information
concerning its business, properties or assets to any corporation, partnership,
person or other entity or group pursuant to appropriate confidentiality
agreements, and may negotiate and participate in discussions and negotiations
with such entity or group concerning an Acquisition Proposal if (x) such entity
or group has on an unsolicited basis submitted a bona fide written proposal to
the Company Board relating to any such transaction which the Company Board
determines in good faith, represents a superior transaction to the Offer and the
Merger and which is not subject to the receipt of any necessary financing and
(y) in the opinion of the Company Board, only after receipt of (i) a written
opinion from the Company's investment banking firm that the Acquisition Proposal
is superior, from a financial point of view, to the Offer and the Merger, and
(ii) advice from independent legal counsel to the Company to the effect that the
failure to provide such information or access or to engage in such discussions
or negotiations would be likely to cause the Company Board to violate its
fiduciary duties to the Company's shareholders under applicable law (an
Acquisition Proposal which satisfies clauses (x) and (y) being referred to in
the Merger Agreement as a "Superior Proposal"). The Merger Agreement also
provides that the Company will promptly communicate to Parent the terms of any
proposal, discussion, negotiation or inquiry (and will disclose any written
materials received by the Company in connection with such proposal, discussion
negotiation, or inquiry) and the identity of the party making such proposal or
inquiry which it may receive in respect of any such transaction.
Except as provided below, pursuant to the terms of the Merger Agreement,
neither the Company Board nor any committee thereof is permitted to (i) withdraw
or modify, or propose to withdraw or modify, in a manner adverse to Parent or
the Purchaser, the approval or recommendation by such Company Board or any such
committee of the Offer, the Merger Agreement or the Merger, (ii) approve or
recommend, or propose to approve or recommend, any Acquisition Proposal or (iii)
enter into any agreement with respect to any Acquisition Proposal.
Notwithstanding the foregoing, prior to the time of acceptance for payment of
Shares in the Offer, the Company Board may (subject to the terms of this and the
following sentence) withdraw or modify its approval or recommendation of the
Offer, the Merger Agreement or the Merger, approve or recommend a Superior
Proposal, or enter into an agreement with respect to a Superior Proposal,
PROVIDED, that the Company will promptly advise Parent orally and in
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writing of any Superior Proposal or any inquiry which could lead to a Superior
Proposal, will specify the material terms and conditions of such Superior
Proposal and identify the person making such Superior Proposal; PROVIDED,
FURTHER, that the Company will not enter into an agreement with respect to a
Superior Proposal unless the Company shall have furnished Parent with written
notice not later than 12:00 noon two days in advance of any date that it intends
to enter into such agreement. In addition, if the Company enters into an
agreement with respect to any Acquisition Proposal, it will concurrently with
entering into such agreement pay, or cause to be paid, to Parent the Termination
Fee described below under "Termination Fee".
INDEMNIFICATION AND INSURANCE. Pursuant to the Merger Agreement, for five
years after the Effective Time, the Surviving Corporation (or any successor to
the Surviving Corporation) will indemnify, defend and hold harmless the present
and former officers and directors of the Company and its subsidiaries (each an
"Indemnified Party") against all losses, claims, damages, liabilities, fees and
expenses (including reasonable fees and disbursements of counsel and judgments,
fines, losses, claims, liabilities and amounts paid in settlement (provided that
any such settlement is effected with the written consent of the Parent or the
Surviving Corporation)) arising out of actions or omissions occurring at or
prior to the Effective Time to the full extent permitted under Virginia law
(provided that such actions or omissions were in compliance with the standards
set forth under Virginia law, the Company's Articles of Incorporation or the
Company's Bylaws), subject to the terms of the Company's Articles of
Incorporation and the Company's Bylaws, all as in effect at the date of the
Merger Agreement; provided that, in the event any claim or claims are asserted
or made within such five year period, all rights to indemnification in respect
of any such claim or claims shall continue until disposition of any and all such
claims; provided, further, that nothing in the Merger Agreement will impair any
rights or obligations of any present or former directors or officers of the
Company.
The Merger Agreement also provides that Parent or the Surviving Corporation
will maintain the Company's existing officers' and directors' liability
insurance ("D&O Insurance") for a period of not less than five years after the
Effective Date; PROVIDED, that the Parent may substitute therefor policies of
substantially similar coverage and amounts containing terms no less favorable to
such former directors or officers; provided, further, that in no event will the
Company be required to pay aggregate premiums for insurance under the Merger
Agreement in excess of 200% of the aggregate premiums paid by the Company in
1997 on an annualized basis for such purpose.
TERMINATION FEE. The Merger Agreement may be terminated and the Merger
abandoned at any time prior to the Effective Time, whether before or after
shareholder approval thereof: (a) by the mutual written consent of the Board of
Directors of Parent or the Purchaser and the Company Board, (b) by either of the
Company Board or the Board of Directors of Parent or the Purchaser: (i) if the
Offer shall have expired without any Shares being purchased therein; provided,
that such right to terminate the Merger Agreement will not be available to any
party whose failure to fulfill any obligation under the Merger Agreement has
been the cause of, or resulted in, the failure of Parent or the Purchaser, as
the case may be, to purchase the Shares pursuant to the Offer on or prior to
such date; or (ii) if any Governmental Entity shall have issued an order, decree
or ruling or taken any other action (which order, decree, ruling or other action
the parties hereto shall use their best efforts to lift), which permanently
restrains, enjoins or otherwise prohibits the acceptance for payment of, or
payment for, Shares pursuant to the Offer or the Merger and such order, decree,
ruling or other action shall have become final and non-appealable; (c) by the
Company Board: (i) if Parent, the Purchaser or any of their affiliates shall
have failed to commence the Offer on or prior to five business days following
the date of the initial public announcement of the Offer; provided, that the
Company may not terminate the Merger Agreement pursuant to this clause (i) if
the Company is in material breach of its obligations under this Agreement; (ii)
in connection with entering into a definitive agreement with respect to an
Acquisition Proposal, provided it has complied with all provisions thereof,
including the notice provisions described above under "No Solicitation", and
that it makes simultaneous payment of the Termination Fee (as defined below); or
(iii) if Parent or the Purchaser shall have breached in any material respect any
of their respective representations, warranties, covenants
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or other agreements contained in the Merger Agreement, which breach cannot be or
has not been cured within 30 days after the giving of written notice to Parent
or the Purchaser, as applicable, except, in any case, for such breaches which
are not, in Parent's opinion, reasonably likely to affect adversely Parent's or
the Purchaser's ability to complete the Offer or the Merger, (d) by the Board of
Directors of Parent or the Purchaser: (i) if, due to an occurrence that if
occurring after the commencement of the Offer would result in a failure to
satisfy any of the conditions described in Section 14 of the Offer to Purchase,
Parent, the Purchaser, or any of their affiliates shall have failed to commence
the Offer on or prior to five business days following the date of the initial
public announcement of the Offer; (ii) if prior to the purchase of Shares
pursuant to the Offer, the Company shall have breached any representation,
warranty, covenant or other agreement contained in this Agreement which (A)
would give rise to the failure of a condition set forth in paragraph (f) or (g)
of Section 14 of the Offer to Purchase and (B) cannot be or has not been cured
within 30 days after the giving of written notice to the Company; or (iii) if
either Parent or the Purchaser is entitled to terminate the Offer as a result of
the occurrence of any event set forth in paragraph (e) of Section 14 of the
Offer to Purchase.
In accordance with the Merger Agreement, if (x) the Board of Directors of
the Company terminates the Merger Agreement pursuant to clause (c)(ii) of the
immediately preceding paragraph, (y) the Board of Directors of Parent or the
Purchaser terminates the Merger Agreement pursuant to clause (d)(iii) of the
immediately preceding paragraph, or (z) prior to the termination of the Merger
Agreement (other than by the Company Board pursuant to clauses (c)(i) or
(c)(iii) of the immediately preceding paragraph), an Acquisition Proposal shall
have been made and within 12 months of such termination, the same or another
Acquisition Proposal from the same or another party shall be accepted and the
related transaction consummated pursuant to a definitive agreement or otherwise,
the Company will pay to Parent (concurrently with such termination, in the case
of clauses (x) or (y) above, and not later than two business days after the
Company takes any such action with respect to an Acquisition Proposal, in the
case of clause (z) above) an amount equal to $13,650,000 plus an amount equal to
the fees and expenses incurred by Parent and the Purchaser in connection with
the Offer, the Merger, the Merger Agreement and the consummation of the
transactions contemplated thereby (the portion of such fees and expenses payable
hereunder not to exceed $750,000) (the "Termination Fee").
STOCK OPTION AGREEMENT
The following is a summary of the material terms of the Stock Option
Agreement. This summary is qualified in its entirety by reference to the Stock
Option Agreement which is incorporated herein by reference and a copy of which
has been filed with the Commission as an exhibit to this Schedule 14D-9. The
Stock Option Agreement may be examined and a copy may be obtained at the place
and in the manner set forth above.
STOCK OPTION. Pursuant to the Stock Option Agreement, the Company has
granted the Purchaser the Stock Option to purchase for $68.00 per Share (the
"Exercise Price") up to an aggregate of 1,326,331 Shares (the "Option Shares");
provided, however, that in no event will the number of Option Shares exceed
19.9% of the Company's issued and outstanding Shares (without giving effect to
any Shares subject to or issued pursuant to the Stock Option). The number of
Option Shares that may be received upon the exercise of the Stock Option and the
Exercise Price are subject to adjustment as set forth in the Stock Option
Agreement.
The Stock Option Agreement also provides that, in the event that any
additional Shares are either (i) issued or otherwise become outstanding after
the date of the Stock Option Agreement (other than pursuant to the Stock Option
Agreement) or (ii) redeemed, repurchased, retired or otherwise cease to be
outstanding after the date of the Stock Option Agreement, the number of Option
Shares shall be increased or decreased, as appropriate, so that, after such
issuance, such number equals 19.9% of the number of Shares then issued and
outstanding without giving effect to any Shares subject to issuance pursuant to
the Option. The Option may be exercised by the Purchaser at any time or from
time to time following the
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occurrence of a Triggering Event (as hereinafter defined), in whole or in part,
until the expiration of six months following the termination of the Merger
Agreement in accordance with its terms. The Company's obligation to issue Option
Shares upon exercise of the Stock Option is subject to the conditions that (i)
all waiting periods under the HSR Act required for the purchase of the Option
Shares upon such exercise shall have expired or been waived and (ii) there shall
not be in effect any preliminary injunction or other order issued by any
Governmental Entity prohibiting the exercise of the Stock Option pursuant to the
Stock Option Agreement.
Pursuant to the Stock Option Agreement, the term "Triggering Event" means
the occurrence of any of the following events (a) a person, entity or group (as
such terms are defined in the Exchange Act and the rules and regulations
thereunder), other than Parent and its subsidiaries or affiliates (each such
person, entity or group being a "Third Party"), shall publicly propose (x) any
merger, tender offer, exchange offer, sale of assets, sale of shares of capital
stock or debt securities or similar transactions involving the Company or any
subsidiary, (y) that any change be made in the composition of a majority of the
Company Board and such Third Party shall file proxy materials or other documents
with the Commission in respect of such proposal or (z) the purchase of 20
percent or more of the total voting power of the Company, including by tender or
exchange offer, (b) the Purchaser shall have accepted Shares for payment
pursuant to the Offer constituting a majority of the Shares outstanding on a
fully diluted basis (excluding Shares issuable pursuant to this Agreement), (c)
the Company shall have breached the covenants contained in the Merger Agreement
which are described above under "The Merger Agreement--No Solicitation", (d) one
or more of the events set forth in paragraph (e) of Section 14 of the Offer to
Purchase shall have occurred, or (e) an event as a result of which Parent is,
or, as a result of an Acquisition Proposal having been made, may be, entitled to
receive the Termination Fee pursuant to the Merger Agreement. The Company will
notify the Purchaser promptly in writing of the occurrence of any Triggering
Event of which it has knowledge, it being understood that the giving of such
notice by the Company shall not be a condition to the right of the Purchaser to
exercise the Option.
Pursuant to the Stock Option Agreement, if, at any time during the period
commencing on the occurrence of an event as a result of which Parent is, or, as
a result of an Acquisition Proposal having been made, may be, entitled to
receive the Termination Fee pursuant to the Merger Agreement and ending on the
termination of the Option in accordance with its terms (a) the Purchaser sends
to the Company an exercise notice indicating the Purchaser's election to
exercise its right pursuant to the Stock Option Agreement, then the Company will
pay to the Purchaser, in exchange for the cancellation of the Stock Option with
respect to such number of Option Shares as the Purchaser specifies in the
exercise notice, an amount in cash equal to such number of Option Shares
multiplied by the difference between (a) the Market/Offer Price (as defined
below) and (ii) the Exercise Price, or (b) the owner of Option Shares from time
to time (the "Owner") sends to the Company an exercise notice indicating the
Owner's election to exercise its right pursuant to the Stock Option Agreement,
then the Company shall pay to the Owner, in exchange for the Option Shares as
specified in the notice, an amount in cash equal to such number of Option Shares
multiplied by the Market/Offer Price.
Pursuant to the Stock Option Agreement, the term "Market/Offer Price" means
the highest of (i) the price per Share at which a tender offer or exchange offer
therefor has been made, (ii) the price per Share to be paid by any third party
pursuant to an agreement with the Company, (iii) the highest closing price for
the Shares within the six-month period immediately preceding the date the
Purchaser gives notice of the required repurchase of the Stock Option or the
Owner gives notice of the required repurchase of Option Shares, as the case may
be, or (iv) in the event of a sale of all or a substantial portion of the
Company's assets, the sum of the price paid in such sale for such assets and the
current market value of the remaining assets of the Company as determined by a
nationally recognized investment banking firm mutually selected by the Purchaser
or the Owner, as the case may be, on the one hand, and the Company, on the other
hand, divided by the number of Shares outstanding at the time of such sale. In
determining the Market/Offer Price, the value of consideration other than cash
shall be determined by a nationally recognized investment
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banking firm mutually selected by the Purchaser or the Owner, as the case may
be, on the one hand, and the Company, on the other hand. Notwithstanding the
termination of the Stock Option, the Purchaser or the Owner, as the case may be,
will be entitled to exercise its rights under the Stock Option Agreement if it
has exercised such rights in accordance with the terms hereof prior to the
termination of the Stock Option.
SHAREHOLDERS AGREEMENTS
The following is a summary of the material terms of the Shareholders
Agreements. This summary is qualified in its entirety by reference to the
Shareholders Agreements which are incorporated herein by reference and a copy of
each of which has been filed with the Commission as an exhibit to this Schedule
14D-9. The Shareholders Agreements may be examined and a copy of each of them
may be obtained at the place and in the manner set forth above.
TENDER OF SHARES. In connection with the execution of the Merger Agreement,
Parent and the Purchaser entered into a separate Shareholders Agreement with
each of the directors and executive officers who owns shares and a Company
shareholder (collectively, the "Selling Shareholders"). Upon the terms and
subject to the conditions of each of such agreements, each of the Selling
Shareholders has agreed to validly tender (and not withdraw) pursuant to and in
accordance with the terms of the Offer, not later than the fifteenth business
day after commencement of the Offer, the number of Shares owned beneficially by
such Selling Shareholder. The Selling Shareholders beneficially own an aggregate
of 501,519 Shares directly and hold stock options to purchase an aggregate of
316,074 Shares (which Shares represent approximately 7% and 4%, respectively, of
the Company's outstanding Shares on a fully diluted basis).
PROVISIONS CONCERNING THE SHARES. The Selling Shareholders have agreed that
during the period commencing on the date of each of the Shareholders Agreements
and continuing until the first to occur of the Effective Time or the termination
of the Merger Agreement in accordance with its terms, at any meeting of the
Company's shareholders or in connection with any written consent of the
Company's shareholders, the Selling Shareholders will vote (or cause to be
voted) the Shares held of record or beneficially owned by each of such Selling
Shareholders: (i) in favor of the Merger, the execution and delivery by the
Company of the Merger Agreement and the approval of the terms thereof and each
of the other actions contemplated by the Merger Agreement, the Stock Option
Agreement and each of the Shareholders Agreements and any actions required in
furtherance thereof; and (ii) against any Acquisition Proposal and against any
action or agreement that would impede, frustrate, prevent or nullify each of the
Shareholders Agreements or result in a breach in any respect of any covenant,
representation or warranty or any other obligation or agreement of the Company
under the Merger Agreement or which would result in any of the conditions to the
Offer or to the Merger not being fulfilled. In addition, each of the Selling
Shareholders has appointed representatives of Parent as proxies to vote such
Selling Shareholder's Shares or grant a consent or approval in respect of such
Shares in favor of the various transactions contemplated by the Merger Agreement
and against any Acquisition Proposal. Each of the Selling Shareholders also
agreed not to transfer such Selling Shareholder's Shares and not to, directly or
indirectly, encourage, solicit, participate in or initiate discussions or
negotiations with, or provide any information to, any corporation, partnership,
person or other entity or group (other than Parent, any of its affiliates or
representatives) concerning any Acquisition Proposal.
OTHER COVENANTS, REPRESENTATIONS, WARRANTIES. In connection with each of
the Shareholders Agreements, each of the Selling Shareholders made certain
customary representations and warranties, including with respect to (i)
ownership of the Shares, (ii) the Selling Shareholder's authority to enter into
and perform its or his obligations under the Shareholders Agreement, (iii) the
absence of conflicts and requisite governmental consents and approvals, and (iv)
the absence of encumbrances on and in respect of the Selling Shareholder's
Shares. Parent and the Purchaser have made certain representations and
warranties with respect to Parent and the Purchaser's authority to enter into
the Shareholders Agreements and the absence of conflicts and requisite
governmental consents and approvals.
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CONFIDENTIALITY AGREEMENT
Pursuant to the Confidentiality Agreement entered into on September 22, 1997
by Parent and the Company (the "Confidentiality Agreement") the Company and
Parent agreed to provide, among other things, for the confidential treatment of
their discussions regarding the Offer and the Merger and the exchange of certain
confidential information concerning the Company. The Confidentiality Agreement
is incorporated herein by reference and a copy of it has been filed with the
Commission as an exhibit to this Schedule 14D-9. The Confidentiality Agreement
may be examined and copies may be obtained at the places and in the manner set
forth above.
EMPLOYMENT AGREEMENTS
In connection with the Merger, the Company entered into an Employment
Agreement, dated November 19, 1997, with Keith E. Alessi (the "Employment
Agreement") under which Mr. Alessi will continue to serve as the Company's
President and Chief Executive Officer. The Employment Agreement is incorporated
herein by reference and a copy of it has been filed with the Commission as an
exhibit to this Schedule 14D-9. The Employment Agreement may be examined and
copies may be obtained at the places and in the manner set forth above. The term
of the Employment Agreement commences at the Effective Time of the Merger and
expires on the first anniversary thereof. Pursuant to the Employment Agreement,
Mr. Alessi will be paid an annual salary of $300,000 per year, and will be
eligible to receive a bonus of up to $300,000 per year if certain performance
objectives of the Company and of Cendant are met. The Employment Agreement
includes a covenant not to compete or to solicit customers of the Company for a
period of two years following termination of Mr. Alessi's employment for any
reason, and imposes certain non-disclosure obligations on Mr. Alessi with
respect to the Company's confidential and proprietary information. The Company
may terminate the Employment Agreement at any time without cause by notice to
Mr. Alessi, provided that, upon termination without cause, the Company will be
obligated to pay to Mr. Alessi the equivalent of one year's annual salary plus a
stipulated bonus.
In addition, to attract Mr. Alessi as the Company's President and Chief
Executive Officer, Mr. Alessi will receive a non-qualified option to acquire
124,838 shares of common stock of Parent (or, if the Parent Merger occurs prior
to the Effective Time, 300,000 shares of common stock of Cendant), in either
case with a per share exercise price equal to the fair market value of the
respective shares under option.
In connection with the Merger, the Company entered into an employment
agreement, dated as of November 24, 1997, with Harry W. Buckley (the "Buckley
Agreement") under which Mr. Buckley will continue to serve as a consultant to
the Company's Chairman, President and Chief Executive Officer up to two days per
week. The term of the Buckley Agreement commences at the Effective Time of the
Merger and expires on the first anniversary thereof. Pursuant to the Buckley
Agreement, Mr. Buckley will be paid an annual salary of $90,000 per year. The
Buckley Agreement includes a covenant not to solicit customers of the Company
for a period of two years following termination of Mr. Buckley's employment for
any reason, and imposes certain non-disclosure obligations on Mr. Buckley with
respect to the Company's confidential and proprietary information. The Company
may terminate the Buckley Agreement at any time without cause by notice to Mr.
Buckley, provided that, upon termination without cause, the Company will be
obligated to pay to Mr. Buckley the amount of his annual salary for the
remainder of the term.
In addition, to attract Mr. Buckley as a consultant to the Company, Mr.
Buckley will receive a non-qualified option to acquire 31,209 shares of common
stock of Parent (or, if the Parent Merger occurs prior to the Effective Time,
75,000 shares of common stock of Cendant), in either case with a per share
exercise price equal to the fair market value of the respective shares under
option.
FINDERS' FEES
The Company has been advised by Parent that Parent has agreed to pay
$250,000 to each of Matthew Edelman, who identified the Company to Parent as a
possible strategic transaction candidate and who is
8
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the son of a member of Parent's Board of Directors, and Michael Karsch, an
Associate with Chiefton Capital Management, Inc. ("Chiefton"), who discussed the
Company with Matthew Edelman, in consideration for their assistance in
connection with the transaction. Chiefton is the record owner of an aggregate of
143,550 Shares, all of which are beneficially owned by Chiefton's principals,
employees or clients, including 10,675 Shares beneficially owned by Mr. Karsch.
ITEM 4. THE SOLICITATION OR RECOMMENDATION
(a) Recommendation of the Board of Directors.
The Board of Directors has unanimously approved the Merger Agreement and the
transactions contemplated thereby and unanimously recommends that all holders of
Shares tender such Shares pursuant to the Offer.
(b) Background: Reasons for the Recommendation.
Since Keith E. Alessi, the Company's President, Chief Executive Officer and
Chairman of the Board, became the Company's President in June 1996, the
Company's Board of Directors has actively studied the current and future state
of the income tax preparation business, the Company's strategic position, near
and long-term prospects, and the possibility that the Company should conduct a
systematic review of its strategic alternatives, including the public offering
conducted in July 1997, and other alternatives to proceeding as an independent
company, in order to increase shareholder value.
On September 2, 1997, Mr. Alessi received an unsolicited telephone call from
Samuel L. Katz, Parent's Senior Vice President--Acquisitions. In this call, Mr.
Katz expressed interest in discussing a strategic transaction with the Company.
Mr. Alessi mentioned that he was open-minded about any discussions that could
lead to an increase in shareholder value. Mr. Alessi said he would notify the
Board about Parent's interest in the Company in a telephonic meeting of the
Company's Board of Directors, which was scheduled for later that day.
During the September 2, 1997 telephonic Board meeting, Mr. Alessi notified
the Board of this discussion. At that time, the Board indicated that, absent a
preemptive bid, it preferred to operate the Company independently for at least
the next tax season. Nonetheless, given the reputation and background of Parent,
the Board suggested that Mr. Alessi should be open to any discussions
representatives of Parent may want to conduct with the Company.
On September 9, 1997, Mr. Alessi, who was in New York on other Company
business, visited Parent's executive office and met Henry R. Silverman, Parent's
Chairman and Chief Executive Officer, and Mr. Katz for the first time. During
this meeting, Messrs. Alessi, Silverman, and Katz briefly discussed their
respective businesses, although no serious discussions occurred regarding any
potential transaction.
On September 22, 1997, Parent and the Company entered into the
Confidentiality Agreement preceding Parent's review of certain information
concerning the Company. Following the execution of this agreement, Mr. Alessi
kept the directors and outside legal counsel informed on an almost daily basis
regarding his discussions with Parent's representatives.
On October 1, 1997, representatives of Parent met with Mr. Alessi at the
Company's executive offices in Virginia Beach, Virginia. On October 9, 1997, Mr.
Alessi, Harry W. Buckley and Harry S. Gruner, Company directors, met with
representatives of Parent. During these meetings, the parties engaged in
discussions regarding, among other things, the Company's business and, the terms
of, and conditions to, any possible transaction between Parent and the Company.
On October 10, 1997, Mr. Alessi received a nonbinding letter from Parent
indicating that it was prepared to discuss an acquisition with the Company
valued at approximately $59 per Share, payable equally in cash and Parent stock,
subject to completion of due diligence and the negotiation of definitive
9
<PAGE>
agreements. Following receipt of this letter, Mr. Alessi contacted the Company's
outside legal counsel and the decision was made to convene the Board of
Directors to discuss the terms of this letter.
On October 13, 1997, the Board of Directors held a telephonic meeting. Mr.
Alessi reviewed the terms of Parent's letter, including the price offered,
provisions regarding the rollover of stock options and Parent's intention to
close the transaction by January of 1998. Mr. Alessi noted that Parent wished to
immediately conduct due diligence. During this meeting, the Company's outside
legal counsel made a detailed presentation to the Board concerning the Board's
fiduciary duties under these circumstances. After discussion, the Board
authorized Mr. Alessi to inform Parent that it desired to obtain financial
advice prior to responding to Parent's letter. The Board of Directors then
considered possible financial advisors to be engaged to assist the Company.
After considerable discussion, the Board authorized Mr. Alessi to engage Janney
Montgomery Scott Inc.("Janney"), as the Company's financial advisor, given the
firm's familiarity with the Company's business and prospects.
On October 17, 1997, the Company's Board of Directors held an informational
conference call with representatives of Janney and outside legal counsel. During
that call, Mr. Alessi and the Janney representatives reviewed Parent's informal
bid. Janney also presented its views regarding other potential bidders for the
Company. Following discussion of these matters at length, and after receiving
advice of outside legal counsel, the Board of Directors authorized Mr. Alessi,
with the assistance of Janney, to proceed with its discussions with Parent on an
informal basis, subject to the Board's fiduciary responsibilities.
From time to time during the course of the next month, representatives of
Parent and representatives of the Company discussed valuation parameters of the
Company and continued to discuss generally the terms and conditions of a
possible transaction.
On October 24, 1997, the Company's Board of Directors held a telephonic
meeting during which Mr. Alessi updated the Board on the status of negotiations
with Parent and indicated that he and his management team were focusing on the
tax season.
On October 30, 1997, the Company's Board of Directors, representatives of
Janney and outside legal counsel convened in the Company's executive offices in
Virginia Beach, Virginia, to review the possibility of entering into a
transaction with Parent within a valuation range close to the Offer Price. At
this meeting, the Board and its financial advisor further discussed the identity
of any other potential bidders. After considerable discussion, the Board of
Directors authorized Mr. Alessi to continue discussions with Parent.
Following this meeting, representatives of Parent and the Company continued
to discuss valuation parameters of the Company and the terms of a possible
transaction.
On Thursday, November 6, 1997, the Company's Board of Directors held another
informational conference call with the representatives of Janney and outside
legal counsel. During this call, Mr. Alessi, Janney and outside legal counsel
reviewed the status of negotiations with Parent, including the alternative
transaction structures available and Parent's proposed purchase price for the
Company. Following discussion of these matters at length, the Board of Directors
confirmed its preference for an all cash transaction. The Board authorized Mr.
Alessi to call Parent and to inform it that it would be entitled to conduct due
diligence on a confidential basis at the Company's outside legal counsel's and
accountant's offices the following week.
Between November 10 and 12, 1997, representatives of Parent, together with
Parent's legal counsel and outside auditors, conducted a due diligence review at
the offices of the Company's outside legal counsel and at the offices of the
Company's outside auditors and toured the Company's facilities in the Virginia
Beach area. During the same period, Parent's legal counsel and the Company's
outside legal counsel discussed structural issues regarding the proposed
acquisition, including Parent's requirement that there be agreements along the
lines of the Shareholders Agreements and the Stock Option Agreement, and that
there be certain other provisions in the event of a termination of the Merger
Agreement by the Company in connection with a competing transaction.
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On November 12, 1997, Parent delivered to the Company's outside legal
counsel a draft of a definitive agreement providing for Parent's acquisition of
the Company for cash.
On Friday, November 14, 1997, the Company's Board of Directors held another
telephonic Board meeting with representatives of Janney and outside legal
counsel. During this call, Mr. Alessi, Janney and outside legal counsel reviewed
the status of negotiations with Parent, including Parent's proposed purchase
price for the Shares and the results of the due diligence sessions held earlier
in the week. Mr. Alessi then asked outside legal counsel to review the first
drafts of the definitive documents that had been provided by Parent's legal
counsel. The Company's outside legal counsel then advised the Board of Directors
with respect to certain legal matters, including its fiduciary obligations in
connection with the sale of the Company and reviewed the principle aspects of
the Merger Agreement, the Stock Option Agreement and the Shareholders
Agreements. The Board of Directors then analyzed and discussed the proposed
purchase price and these documents. The Board authorized Mr. Alessi to conduct
further discussions with Parent and outside legal counsel to continue
negotiating the terms of the Merger Agreement, Shareholders Agreements and Stock
Option Agreement.
Following further negotiations, on November 18, 1997, representatives of
Parent agreed to recommend to its Board of Directors that Parent pay a price of
$68 per Share in cash to acquire the Company. Parent's willingness to agree to
that price was conditioned upon members of the Company's Board of Directors' and
executive officers' willingness to sign the Shareholders Agreements providing
for these individuals to tender their Shares to the Purchaser at the Offer Price
and the grant of a 19.9% stock option to the Purchaser pursuant to the Stock
Option Agreement. Negotiations between the Company and Parent continued through
the day.
That evening, the Company's Board of Directors convened by telephone to
consider the terms of the proposed transaction. Janney made a presentation to
the Board of Directors and delivered its oral opinion as to the fairness of the
$68 cash consideration be paid in the Offer and the Merger to the holders of the
outstanding Shares.
The Company's outside legal counsel reviewed the current status and the
principle aspects of the Merger Agreement, the Shareholders Agreements and the
Stock Option Agreement, and the outstanding issues. Mr. Alessi then presented
his favorable views on the proposed transaction, subject to obtaining final
agreement on the outstanding issues. Mr. Alessi agreed that he and outside legal
counsel would discuss these issues with Parent and its representatives and that
the Board would hold another meeting the following morning at 9:00 a.m. to
discuss results of these discussions.
Mr. Alessi and outside legal counsel held separate discussions with Parent
and its legal counsel following that meeting. These discussions culminated in
tentative agreement on these outstanding issues.
On Wednesday, November 19, 1997, the Company's Board of Directors convened
by telephone to consider the terms of the proposed transaction and to review the
previous night's negotiations. Mr. Alessi informed the Board as to the status of
the discussions. The Board of Directors then analyzed and discussed the Offer,
the Merger Agreement, the Stock Option Agreement and the Shareholders
Agreements. The members of the Board then unanimously approved the Merger
Agreement, the Stock Option Agreement, the Shareholders Agreements and the other
transactions contemplated thereby, and unanimously resolved to recommend
acceptance of the Offer, and approval and adoption of the Merger and the Merger
Agreement by the Company's shareholders (if such approval is required by
applicable law).
Thereafter, the Board of Directors of Parent unanimously approved the
proposed transaction as well.
A copy of the press release announcing the execution of the Merger Agreement
is attached hereto as Exhibit (a)(2) and incorporated herein by reference. A
copy of a letter to shareholders from the Company, which will accompany this
Statement, is attached hereto as Exhibit (a)(5) and is incorporated herein by
reference.
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In approving the Merger Agreement and the transaction contemplated thereby
and recommending that all holders of Shares tender such Shares pursuant to the
Offer, the Board of Directors considered a number of factors, including:
(i) the terms of the Merger Agreement and the fact that the Company will
continue as an independent division of Parent following the Merger;
(ii) presentations by the Chairman, President and Chief Executive
Officer of the Company and the Company's financial advisor regarding the
financial condition, results of operation, business and prospects of the
Company, including the prospects of the Company if it were to remain
independent;
(iii) the results of research undertaken to identify third parties with
respect to a purchase of the Company;
(iv) that the $68 per Share Offer Price represents a premium of
approximately 32% over the closing price for the Shares on the Nasdaq
National Market on November 18, 1997, the last trading day prior to the
public announcement of the execution of the Merger Agreement, and a premium
of approximately 320% over the price at which the Company sold Shares in its
July 1997 Public Offering;
(v) the terms of the Shareholders Agreements, which provide that the
Selling Shareholders would receive the same consideration per Share as would
all other holders of Shares, thereby insuring that the public shareholders
would participate in any control premium realized in connection with the
Offer and the Merger;
(vi) the terms of the Stock Option Agreement, which provide that the
Company grant the Purchaser the right to purchase, for $68.00 per Share, up
to 19.9% of the Company's issued and outstanding Shares (without giving
effect to any Shares subject to or issued pursuant to such option), the
execution of which Stock Option Agreement was a condition precedent to the
Purchaser's Offer;
(vii) the opinion of Janney to the effect that, as of the date of such
opinion, the $68 per Share cash consideration to be offered to the holders
of Shares in the Offer and the Merger is fair to such holders, from a
financial point of view. A copy of the opinion of Janney is attached hereto
as Attachment I and incorporated herein by reference. Shareholders are urged
to read the opinion of Janney carefully in its entirety;
(viii) that the Merger Agreement permits the Company to furnish nonpublic
information to and participate in discussions and negotiations with any
third party that has submitted a takeover proposal to the Company, if in the
opinion of the Board of Directors, after consultation with its financial and
legal advisors, the failure to take such actions would likely result in a
violation of the Board of Directors' fiduciary duties to the Company's
shareholders under applicable law;
(ix) the termination provisions of the Merger Agreement, which were a
condition to Parent's proposal, providing that the Parent would be entitled
to a fee of $13.65 million and reimbursement of expenses of up to $750,000
upon the termination of the Merger Agreement under certain circumstances,
including the modification or withdrawal of the Board of Directors'
recommendation with respect to the Offer and the Merger in connection with
another takeover proposal; and
(x) the ability of the Purchaser to consummate the Offer and the Merger
without conditioning the Offer on obtaining any specific financing
commitments.
The Board of Directors did not assign relative weights to the foregoing
factors or determine that any factor was of particular importance. Rather, the
Board of Directors reviewed its position and recommendations as being based on
the totality of the information presented to and considered by it.
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<PAGE>
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED
Janney has been retained by the Company to act as independent financial
advisor to the Company with respect to the Offer, the Merger and matters arising
in connection therewith. Pursuant to a letter agreement, dated November 17,
1997, between the Company and Janney, if the Offer and the Merger are
consummated, the Company has agreed to pay Janney an aggregate fee of
approximately $750,000 for acting as financial advisor in connection with the
transaction, including rendering its opinion. Janney was paid $250,000 of this
fee upon delivery of its written opinion, which amount will be credited against
the aggregate fee to be paid to Janney by the Company pursuant to the letter
agreement. The Company has also agreed to reimburse Janney for all reasonable
out-of-pocket expenses, including reasonable fees and expenses of its counsel,
and to indemnify Janney for certain liabilities, arising out of the rendering of
its opinion, including liabilities arising under the federal securities laws.
Janney has provided certain investment banking services to the Company from
time to time for which it has received customary compensation. In the ordinary
course of its business, Janney may actively trade the debt and equity securities
of the Company and Parent for its own account and for the accounts of customers
and, accordingly, may at any time hold a long or short position in such
securities.
Except as disclosed herein, neither the Company nor any person acting on its
behalf currently intends to employ, retain or compensate any other person to
make solicitations or recommendations to security holders on its behalf
concerning the Offer or the Merger.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES
(a) Except as set forth in Schedule II hereto, no transactions in the Shares
have been effected during the past 60 days by the Company or, to the best of the
Company's knowledge, by any executive officer, director, affiliate or subsidiary
of the Company.
(b) To the best of the Company's knowledge, to the extent permitted by
applicable securities laws, rules or regulations, except for gifts of Shares to
family members, universities or other charitable organizations, each executive
officer, director and affiliate of the Company currently intends to tender all
Shares over which he or she has sole dispositive power to the Purchaser.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY
(a) Except as set forth in this Statement, the Company is not engaged in any
negotiation in response to the Offer which relates to or would result in: (i) an
extraordinary transaction, such as a merger or reorganization involving the
Company or any subsidiary of the Company; (ii) a purchase, sale or transfer of a
material amount of assets by the Company or any subsidiary of the Company; (iii)
any tender offer for or other acquisition of securities by or of the Company; or
(iv) any material change in the present capitalization or dividend policy of the
Company.
(b) Except as set forth herein, there are no transactions, Board of
Directors' resolutions, agreements in principle or signed contracts in response
to the Offer that relate to or would result in one or more of the events
referred to in Item 7(a) above.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED
The Information Statement attached as Schedule I hereto is being furnished
in connection with the possible designation by the Parent, pursuant to the
Merger Agreement, of certain persons to be appointed to the Board of Directors
of the Company other than at a meeting of the Company's shareholders.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
<TABLE>
<S> <C>
(a)(1) Purchaser's Offer to Purchase, dated November 25, 1997.
</TABLE>
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<TABLE>
<S> <C>
(a)(2) Text of Press Release, dated November 19, 1997.
(a)(3) Text of Press Release, dated November 25, 1997.
(a)(4) Opinion of Janney Montgomery Scott Inc., dated November 19, 1997, included as
Attachment I.
(a)(5) Letter to Shareholders of the Company.
(c)(1) Agreement and Plan of Merger, dated as of November 19, 1997, by and among Parent,
the Purchaser and the Company (incorporated by reference to Exhibit (c)(1) of the
Schedule 14D-1 of HJ Acquisition Corp. and HFS Incorporated filed with the
Securities and Exchange Commission on November 25, 1997 (the "Schedule 14D-1")).
(c)(2) Shareholders Agreement, dated as of November 19, 1997, by and among Parent, the
Purchaser and Keith E. Alessi (incorporated by reference to Exhibit (c)(2) of the
Schedule 14D-1).
(c)(3) Shareholders Agreement, dated as of November 19, 1997, by and among Parent, the
Purchaser and Harry W. Buckley (incorporated by reference to Exhibit (c)(3) of the
Schedule 14D-1).
(c)(4) Shareholders Agreement, dated as of November 19, 1997, by and among Parent, the
Purchaser and Christopher Drake (incorporated by reference to Exhibit (c)(4) of the
Schedule 14D-1).
(c)(5) Shareholders Agreement, dated as of November 19, 1997, by and among Parent, the
Purchaser and Harry S. Gruner (incorporated by reference to Exhibit (c)(5) of the
Schedule 14D-1).
(c)(6) Shareholders Agreement, dated as of November 19, 1997, by and among Parent, the
Purchaser and JMI Equity Fund, L.P. (incorporated by reference to Exhibit (c)(6) of
the Schedule 14D-1).
(c)(7) Shareholders Agreement, dated as of November 19, 1997, by and among Parent, the
Purchaser and William P. Veillette (incorporated by reference to Exhibit (c)(7) of
the Schedule 14D-1).
(c)(8) Shareholders Agreement, dated as of November 19, 1997, by and among Parent, the
Purchaser and Ann Santomas (incorporated by reference to Exhibit (c)(8) of the
Schedule 14D-1).
(c)(9) Shareholders Agreement, dated as of November 19, 1997, by and among Parent, the
Purchaser and Leslie Ann Wood (incorporated by reference to Exhibit (c)(9) of the
Schedule 14D-1).
(c)(10) Shareholders Agreement, dated as of November 19, 1997, by and among Parent, the
Purchaser and Michael E. Julian, Jr. (incorporated by reference to Exhibit (c)(10)
of the Schedule 14D-1).
(c)(11) Shareholders Agreement, dated as of November 19, 1997, by and among Parent, the
Purchaser and Martin B. Mazer (incorporated by reference to Exhibit (c)(11) of the
Schedule 14D-1).
(c)(12) Confidentiality and Nondisclosure Agreement, dated September 22, 1997, by and
between Parent and the Company (incorporated by reference to Exhibit (c)(12) of the
Schedule 14D-1).
(c)(13) Stock Option Agreement, dated as of November 19, 1997, by and among the Parent, the
Purchaser and the Company (incorporated by reference to Exhibit (c)(13) of the
Schedule 14D-1).
(c)(14) Employment Agreement, dated November 19, 1997, between the Company and Keith E.
Alessi (incorporated by reference to Exhibit (c)(14) of the Schedule 14D-1).
(c)(15) Employment Agreement, dated November 24, 1997, between the Company and Harry W.
Buckley (incorporated by reference to Exhibit (c)(15) of the Schedule 14D-1).
</TABLE>
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<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
accurate.
JACKSON HEWITT INC.
By: /s/ KEITH E. ALESSI
------------------------------------------
Keith E. Alessi
CHAIRMAN OF THE BOARD,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Date: November 25, 1997
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<PAGE>
SCHEDULE I
JACKSON HEWITT INC.
4575 BONNEY ROAD
VIRGINIA BEACH, VA 23462
INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 14F-1 THEREUNDER
This Information Statement is being mailed on or about November 25, 1997 as
a part of the Solicitation/Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9") of Jackson Hewitt Inc. (the "Company") to the holders of
record of shares of Common Stock, par value $.02 per share, of the Company (the
"Shares") at the close of business on or about November 25, 1997. You are
receiving this Information Statement in connection with the possible election of
persons designated by the Parent (as defined below) to at least two-thirds of
the seats on the Board of Directors of the Company.
On November 19, 1997, the Company, HFS Incorporated, a Delaware corporation
("Parent"), and HJ Acquisition Corp., a Virginia corporation and a wholly-owned
subsidiary of Parent (the "Purchaser"), entered into an Agreement and Plan of
Merger (the "Merger Agreement") in accordance with the terms and subject to the
conditions of which (i) the Purchaser, on behalf of Parent, will commence a
tender offer (the "Offer") to purchase all outstanding Shares at a price of
$68.00 per Share, net to the seller in cash (the "Offer Price"), without
interest thereon, and (ii) the Purchaser will be merged with and into the
Company (the "Merger"). In addition, on November 19, 1997, certain shareholders
of the Company entered into Shareholders Agreements among Parent, the Purchaser
and the shareholders named therein (the "Shareholders Agreements") providing,
among other things, that each such shareholder will tender its Shares pursuant
to the Offer, will vote in favor of the Merger, and will grant a proxy to the
Parent for that purpose. As a result of the Offer and the Merger, the Company
will become a wholly-owned subsidiary of Parent.
Parent and CUC International ("CUC") have entered into an Agreement and Plan
of Merger, dated as of May 27, 1997, pursuant to which, among other things,
Parent will be merged with and into CUC, with CUC continuing as the surviving
corporation in the merger (the "Parent Merger") and changing its name to Cendant
Corporation ("Cendant"). Following the Parent Merger, Cendant, as successor to
Parent, will succeed to Parent's rights and obligations under the Merger
Agreement and the Offer and the Purchaser will become a wholly owned subsidiary
of Cendant. All references to Parent in this Information Statement shall be
deemed to include Cendant following the Parent Merger.
The Merger Agreement requires the Company to use all reasonable efforts to
cause Parent's designees to be elected to the Board of Directors under the
circumstances described in the Merger Agreement. This Information Statement is
required by Section 14(f) of the Securities Exchange Act of 1934 and Rule 14f-1
thereunder. See "Board of Directors and Executive Officers -- Right to Designate
Directors; the Parent Designees."
You are urged to read this Information Statement carefully. You are not,
however, required to take any action. Capitalized terms used herein and not
otherwise defined herein shall have the meaning set forth in the Schedule 14D-9.
Pursuant to the Merger Agreement, the Purchaser commenced the Offer on
November 25, 1997. The Offer is scheduled to expire at 5:00 p.m., New York City
time, on January 5, 1998, unless the Offer is extended.
The information contained in this Information Statement concerning the
Purchaser and Parent has been furnished to the Company by the Purchaser and
Parent, and the Company assumes no responsibility for the accuracy or
completeness of such information.
<PAGE>
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
GENERAL
The Shares are the only class of voting securities of the Company
outstanding. Each Share has one vote. As of November 19, 1997, there were
6,664,982 Shares outstanding. The Board of Directors currently consists of five
members. At each annual meeting of shareholders, directors are elected to serve
for one year terms.
RIGHT TO DESIGNATE DIRECTORS; THE PARENT DESIGNEES
Pursuant to the Merger Agreement, promptly upon the purchase by Parent or
the Purchaser of any Shares pursuant to the Offer which represents more than
two-thirds of the outstanding Shares (on a fully diluted basis), Parent shall be
entitled to designate such number of directors (the "Parent Designees"), rounded
up to the next whole number, to serve on the Board of Directors of the Company
as is equal to the product of the total number of directors on the Board of
Directors multiplied by the percentage that the number of Shares so purchased
bears to the total number of Shares then outstanding, and the Company and its
Board of Directors shall take all action needed to cause the Parent Designees to
be appointed to the Company's Board of Directors.
Parent has informed the Company that it will choose the Parent Designees
from the directors and executive officers listed in Schedule I to the Offer to
Purchase, a copy of which is being mailed to the Company's shareholders together
with the Schedule 14D-9 of which this Information Statement is a part. Parent
has informed the Company that each of the directors and executive officers
listed in Schedule I to the Offer to Purchase has consented to act as a
director, if so designated. The information on such Schedule I is incorporated
herein by reference.
None of the Parent Designees (i) is currently a director of, or holds any
position with, the Company, (ii) has a familial relationship with any of the
directors or executive officers of the Company or (iii) to the best knowledge of
the Company, beneficially owns any securities (or rights to acquire any
securities) of the Company. The Company has been advised by Parent that, to the
best of Parent's knowledge, none of the Parent Designees has been involved in
any transactions with the Company or any of its directors, executive officers or
affiliates which are required to be disclosed pursuant to the rules and
regulations of the Securities and Exchange Commission (the "Commission"), except
as may be disclosed herein or in the Schedule 14D-9.
It is expected that the Parent Designees may assume office at any time
following the purchase by the Purchaser of Shares pursuant to the Offer, which
purchase cannot be earlier than January 5, 1998, and that, upon assuming office,
the Parent Designees will thereafter constitute at least two-thirds of the Board
of Directors.
Biographical information concerning each of the Company's current directors
and executive officers is presented on the following pages.
<TABLE>
<CAPTION>
YEAR
FIRST
ELECTED OR
APPOINTED
NAME AGE DIRECTOR PRINCIPAL OCCUPATION
- ------------------------ --- ----------- ----------------------------------------------------------------------
<S> <C> <C> <C>
Keith E. Alessi 43 1996 Mr. Alessi is President and Chief Executive Officer of the Company, a
position he has held since June 1996. Mr. Alessi was elected Chairman
of the Board in September 1996. Prior to that time, Mr. Alessi, a
certified public accountant, served Farm Fresh, Inc. ("Farm Fresh") as
its Vice Chairman, Secretary, Treasurer and Chief Financial Officer
from 1994 to
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
YEAR
FIRST
ELECTED OR
APPOINTED
NAME AGE DIRECTOR PRINCIPAL OCCUPATION
- ------------------------ --- ----------- ----------------------------------------------------------------------
1996. 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
and Chief Operating Officer at the time he left Farm Fresh. Mr. Alessi
is also a director of Cort Business Services, Inc., Town Sports
International, Inc., and Shoppers Food Warehouse Corp.
<S> <C> <C> <C>
Harry W. Buckley 52 1997 Mr. Buckley was President and Chief Executive Officer of H&R Block Tax
Service, Inc., a subsidiary of H&R Block, Inc. ("H&R Block"), from
1988 until 1995, at which time he resigned. Mr. Buckley is a member of
the Audit Committee and the Compensation Committee.
Harry S. Gruner 37 1995 Mr. Gruner 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 employed by Alex. Brown & Sons
Incorporated and was a principal at the time of his departure. 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, V-One Corporation, a security
software company, Optika Imaging, Inc., an imaging software company,
and numerous privately held companies. Mr. Gruner is a member of the
Audit Committee and the Compensation Committee.
Michael E. Julian, Jr. 46 1997 Mr. Julian is the President and Chief Executive Officer of
Jitney-Jungle Stores of America, Inc. ("Jitney Jungle"), a regional
supermarket chain in Mississippi, a position he has held since March
1997. Prior to that time, Mr. Julian was employed by Farm Fresh and FF
Holdings Corporation, Farm Fresh's parent company, serving as
Executive Vice President and Chief Operating Officer in 1987, as Chief
Executive Officer from 1988 until 1997, and as President from 1992
until 1997. Mr. Julian has served as a director of Jitney Jungle since
March 1996. Mr. Julian is a member of the Audit Committee and the
Compensation Committee.
William P. Veillette 36 1993 Mr. Veillette is a District Manager for Otis Elevator Company, a
position he has held 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 is a member of the Audit Committee and the Compensation
Committee.
</TABLE>
3
<PAGE>
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 12 meetings during the
Company's fiscal year ended April 30, 1997 ("1997 Fiscal Year"). In accordance
with the rules of the Nasdaq National Market System, Messrs. Buckley, Gruner,
Julian and Veillette are independent directors. During the 1997 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 receive
$12,000 a year in director fees and are also eligible to participate in the 1996
Non-Employee Director Stock Option Plan (the "Director Plan").
The Board of Directors has established Audit and Compensation Committees.
The members of these committees are noted in the director biographies set forth
above. 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 one meeting
in the 1997 Fiscal Year. The Compensation Committee makes recommendations to the
Board of Directors as to, among other things, the compensation of the Chief
Executive Officer and designated other members of senior management, as well as
new compensation and stock plans. The Compensation Committee met two times in
the 1997 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.
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 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 Shares. 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.
4
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Shares as of November 19, 1997, of (i) each of the
Company's directors and executive officers who own Shares; (ii) each person (or
group of affiliated persons) who is known by the Company to own beneficially
more than 5% of the Shares; (iii) certain former executive officers of the
Company; and (iv) all of the Company's directors and current executive officers
as a group. The number of Shares beneficially owned by each person shown in the
table below is determined under the rules of the Commission and such information
is not necessarily indicative of beneficial ownership for any other purpose.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP(1)
NAME OF ------------------------
BENEFICIAL OWNER(2) NUMBER PERCENT
- ----------------------------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
Keith E. Alessi.......................................................................... 105,301 1.6
Harry W. Buckley......................................................................... 2,400(3) *
Harry S. Gruner(4)....................................................................... 245,735(5) 3.7
Michael E. Julian, Jr.................................................................... 12,400(3) *
William P. Veillette..................................................................... 139,362(6) 2.1
Paul Grunberg(7)......................................................................... 355,882(8) 5.3
Geocapital Partners(9)................................................................... 455,370 10) 6.8
Martin B. Mazer.......................................................................... 2,621 11) *
John T. Hewitt(12)....................................................................... 174,434 2.6
Thomas P. Czaplicki(13).................................................................. 31,118 14) *
All directors and executive officers as agroup (9 persons)............................... 511,984 7.7
</TABLE>
- ------------------------
* Indicates ownership of less than one percent.
(1) Unless otherwise noted, sole voting and dispositive power is possessed with
respect to all Shares shown.
(2) Unless otherwise noted, the address of each of the foregoing is c/o the
Company at 4575 Bonney Road, Virginia Beach, Virginia 23462.
(3) Includes options to purchase 400 Shares that were granted pursuant to the
Company's Director Plan.
(4) Mr. Gruner's address is 1119 St. Paul's Street, Baltimore, Maryland 21202.
(5) Includes 233,235 Shares owned by JMI Equity Fund, L.P. ("JMI Equity"). Mr.
Gruner is a general partner of JMI Equity, and he has shared voting and
investment power with respect to such Shares. Also, includes options to
purchase 2,000 Shares granted pursuant to the Director Plan.
(6) 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 powers; and (v) 265 Shares owned jointly by Mr.
William Veillette and his son, Peter J. Veillette. Also includes options to
purchase 5,200 Shares granted pursuant to the Director Plan. Does not
include (i) 3,487 Shares owned individually by Mr. Veillette's wife, Tracy
Veillette, or (ii) 5,000 Shares owned jointly by Tracy Veillette and Susan
Veillette.
(7) Mr. Grunberg's address is Route #2, Box 171, Valatie, New York 12184.
(8) Does not include 105,273 Shares owned individually by Mr. Grunberg's wife.
Mr. Grunberg disclaims beneficial ownership of these Shares.
(9) Geocapital Partners' address is 2115 Linwood Street, Fort Lee, New Jersey
07024.
(10) Consists of 222,134 Shares held of record by Geocapital II, L.P. and
233,236 Shares 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.
(11) Includes options to purchase 1,600 Shares that were granted pursuant to the
Company's 1994 Long-Term Incentive Plan (the "Incentive Plan").
(12) The number of Shares reflected in this chart is based upon information
received by the Company as of September 14, 1997, the record date for the
Company's 1997 Annual Meeting. The Company is not aware of any transactions
by Mr. Hewitt subsequent to that date. Mr. Hewitt's address is 2532 San
Marco Court, Virginia Beach, Virginia 23456.
(13) The number of Shares reflected in this chart is based upon information
received by the Company as of September 14, 1997, the record date for the
Company's 1997 Annual Meeting. The Company is not aware of any transactions
by Mr. Czaplicki subsequent to that date. Mr. Czaplicki's address is 4907
Rambling Rose Place, Tampa, Florida 33624.
(14) Includes options to purchase 1,300 Shares granted pursuant to the Incentive
Plan.
5
<PAGE>
EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION TABLES
The following table sets forth certain information with respect to the
compensation paid by the Company for services rendered during the years ended
April 30, 1997, 1996 and 1995, to its current Chairman, President and Chief
Executive Officer, its former President and Chief Executive Officer, and other
current and former executive officers of the Company whose combined salary and
bonus exceeded $100,000 in 1997 (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
NUMBER OF
SECURITIES
ANNUAL COMPENSATION(1) UNDERLYING
--------------------------------- OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) (#)(2) COMPENSATION ($)
- ---------------------------------------------------------- --------- ---------- ---------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Keith E. Alessi........................................... 1997 $ 153,461 $ 130,000 268,065(4) $ --
Chairman, President, and Chief 1996 10,000(5) 3,500(6)
Executive Officer(3)
Martin B. Mazer........................................... 1997 73,425 41,250 4,000 650(7)
Vice President of Franchise 1996 71,134 3,912 2,000
Development and Corporate Offices 1995 67,191 1,000
John T. Hewitt............................................ 1997 75,932 -- -- 227,514(9)
Former President and 1996 107,858 115,000 20,000 --
Chief Executive Officer(8) 1995 100,199 -- 13,000 --
Thomas P. Czaplicki....................................... 1997 66,501 41,250 6,500 1,565(7)
Former Vice President 1996 39,316 15,000 -- --
of Corporate Development(10)
</TABLE>
- ------------------------
(1) Does not include perquisites and other personal benefits that do not exceed
the lesser of $50,000 or 10% of the total annual salary and bonus reported
for the Named Executive Officers.
(2) Granted pursuant to the Incentive Plan unless otherwise indicated.
(3) Mr. Alessi became President and Chief Executive Officer in June 1996. He was
appointed to the Board of Directors in January 1996.
(4) Mr. Alessi exercised 46,226 of these options in June 1997 at an exercise
price of $4.81 per Share. See "--Employment Agreement."
(5) Granted pursuant to the Director Plan when Mr. Alessi was a non-employee
director.
(6) Represents director fees paid prior to Mr. Alessi's employment with the
Company.
(7) Represents matching contributions made by the Company pursuant to its 401(k)
Plan.
(8) Mr. Hewitt resigned as President and Chief Executive Officer of the Company
in September 1996.
(9) Represents cancellation of indebtedness to the Company in the amount of
$115,827 and non-competition payments in the amount of $111,687 in
connection with Mr. Hewitt's resignation from the Company. See "Certain
Relationships and Related Transactions."
(10) Mr. Czaplicki joined the Company in June 1995 and resigned in March 1997.
The following table provides a summary of compensation related stock options
granted to the Named Executive Officers during the year ended April 30, 1997.
The acquisition of Shares pursuant to the Offer will constitute a change of
control under the Incentive Plan and Director Plan, pursuant to which plans the
following options were granted. See Item 3 of the Schedule 14D-9.
6
<PAGE>
STOCK OPTION GRANTS IN THE LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS GRANTED TO EXERCISE OR
OPTIONS EMPLOYEES IN FISCAL BASE PRICE GRANT DATE
NAME GRANTED YEAR ($/SH) EXPIRATION DATE VALUE(1)
- ----------------------------------- ----------- --------------------- ------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Keith E. Alessi.................... 268,065 69.0% $ 4.81 June 17, 2006 (2) $ 1,065,140
Martin B. Mazer.................... 4,000 1.0 5.75 May 1, 2006 (3) 15,217
Thomas P. Czaplicki................ 6,500 1.7 5.75 May 1, 2006 (3) 24,728
</TABLE>
- ------------------------
(1) Value determined using the Black Scholes Option-Pricing Model with the
following weighted average assumptions: no dividend yield, expected
volatility of 73%, risk free interest rate of 6.69%, and expected life of 10
years in the case of Mr. Alessi's options and six years in the case of
Messrs. Mazer's and Czaplicki's options. The actual value, if any, that may
be realized on the options will depend on the excess of the stock price over
the exercise price on the date the option is exercised. Accordingly, there
can be no assurance that the value realized on the options will be at or
near the value estimated by the Black-Scholes Model.
(2) The options vest in four equal, annual increments commencing June 18, 1997
and ending June 18, 2000. Each increment expires June 17, 2006.
(3) The options vest in five equal, annual increments commencing May 1, 1997 and
ending May 1, 2001. Each increment expires five years after vesting.
The following table sets forth information for the Named Executive Officers
concerning stock option exercises during the year ended April 30, 1997 and
unexercised options held as of April 30, 1997.
OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN THE
OPTIONS AT MONEY OPTIONS
SHARES FISCAL YEAR-END AT FISCAL YEAR-END($)(1)
ACQUIRED VALUE ------------------------------ ----------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------ ------------- ------------- --------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Keith E. Alessi..................... 4,000 $ 5,560(2) 0 274,065 0 $ 1,468,355(3)
Martin B. Mazer..................... -- -- 400 5,600 2,650(4) 28,100(5)
Thomas P. Czaplicki................. -- -- 0 6,500(6) 0 29,439(7)
</TABLE>
- ------------------------
(1) The closing sale price of the Company's Shares on the Nasdaq National Market
on April 30, 1997 was $10.125 per share.
(2) Represents difference between exercise price of $2.86 per Share and closing
sale price of the Shares on the Nasdaq National Market on date of exercise.
(3) Represents 6,000 options exercisable at $2.86 per share and 268,065 options
exercisable at $4.81 per Share.
(4) Exercisable at $3.50 per Share.
(5) Represents 1,600 options exercisable at $3.50 per Share and 4,000 options
exercisable at $5.75 per Share.
(6) Pursuant to Mr. Czaplicki's severance arrangement with the Company, all
stock options previously granted to Mr. Czaplicki will continue to vest in
annual increments after the termination of his employment.
(7) All 6,500 options are exercisable at $5.75 per Share.
7
<PAGE>
EMPLOYMENT AGREEMENT
Mr. Alessi currently is employed as the Company's President and Chief
Executive Officer under an employment agreement dated May 29, 1997 ("Alessi
Employment Agreement"). The Alessi Employment Agreement expires on June 18,
1999. Mr. Alessi is paid an annual salary of $250,000 and is eligible to receive
a bonus of up to $137,500 per year if certain performance objectives established
by the Board of Directors are met. The Alessi Employment Agreement includes a
covenant not to compete with the Company throughout the United States or solicit
customers, franchisees, and employees of the Company for a period of two years
following termination of such agreement, and imposes certain non-disclosure
obligations on Mr. Alessi with respect to the Company's confidential and
proprietary information. The Company may terminate the Alessi Employment
Agreement at any time, without cause, upon 30 days notice to Mr. Alessi. Upon
such termination, the Company is required to pay Mr. Alessi $250,000 over a
one-year period. In addition, in the event of Mr. Alessi's termination without
cause, any unvested increment of Mr. Alessi's option shares that would have
vested on the succeeding June 18 will be deemed to have vested and be available
for exercise, along with all other then vested options in accordance with the
post-termination provisions of the Company's Incentive Plan.
In addition, upon being named Chairman, President and Chief Executive
Officer, Mr. Alessi received an option to purchase 268,065 Shares, which on the
grant date represented 5% of the fully diluted Common Stock of the Company
("Alessi Option"). The exercise price for the Alessi Option is $4.81 per Share
which was the average closing sale price of the Shares over 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 increments commencing June 18, 1997.
In connection with the Merger, Mr. Alessi has entered into a new employment
agreement with the Company. The terms of this employment agreement, the
effectiveness of which is conditioned upon the closing of the Merger, are
described in Item 3 of the Schedule 14D-9.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of Mr. Buckley, Mr. Gruner, Mr. Julian
and Mr. Veillette, none of whom are current or former officers or employees of
the Company or any of its subsidiaries. There are no compensation committee
interlocks.
COMPENSATION COMMITTEE REPORT CONCERNING 1997 COMPENSATION OF CERTAIN EXECUTIVE
OFFICERS
This report describes the Company's executive officer compensation strategy,
the components of the compensation program, and the manner in which the 1997
compensation determinations were made for the Company's senior management team,
including Keith E. Alessi, the Chairman, President and Chief Executive Officer,
Martin B. Mazer, the Company's Vice President of Franchise Development and
Corporate Offices, and two former executive officers (collectively referred to
as the "Executive Officers") whose 1997 compensation is disclosed in the Summary
Compensation table set forth above.
COMPENSATION PHILOSOPHY
The Company's compensation packages are designed to attract, retain,
motivate and reward qualified, dedicated executives, and to directly link
compensation with (i) previous and anticipated performance, (ii) the
contributions and responsibilities of the Executive Officer to the Company and
(iii) the Company's profitability. Historically, the principal components of
executive compensation have been (i) a base salary at a stated annual rate,
together with certain other benefits as may be provided for from time to time,
(ii) bonuses keyed to the Company's ability to meet or exceed its budgeted goals
for the fiscal year; and (iii) awards under the Incentive Plan.
8
<PAGE>
CEO COMPENSATION
Mr. Alessi is employed as the Company's President and Chief Executive
Officer under the Alessi Employment Agreement, which expires on June 18, 1999.
Mr. Alessi is paid an annual salary of $250,000 and is eligible to receive a
bonus of up to $137,500 per year if certain performance objectives established
by the Board of Directors are met. The Alessi Employment Agreement includes a
covenant not to compete with the Company throughout the United States or solicit
customers, franchisees, and employees of the Company for a period of two years
following termination of such agreement, and imposes certain non-disclosure
obligations on Mr. Alessi with respect to the Company's confidential and
proprietary information. The Company may terminate the Alessi Employment
Agreement at any time, without cause, upon 30 days notice to Mr. Alessi. Upon
such termination, the Company is required to pay Mr. Alessi $250,000 over a
one-year period. In addition, in the event of Mr. Alessi's termination without
cause, any unvested increment of Mr. Alessi's option shares that would have
vested on the succeeding June 18 will be deemed to have vested and be available
for exercise, along with all other then vested options in accordance with the
post-termination provisions of the Incentive Plan.
In addition, to attract Mr. Alessi as the Company's President and Chief
Executive Officer, Mr. Alessi received an option to purchase 268,065 Shares,
which on the grant date represented 5% of the fully diluted Shares ("Alessi
Option"). The exercise price for the Alessi Option is $4.81, which was the
average closing sale price of the Shares over 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 increments commencing June 18, 1997.
In connection with the Merger, Mr. Alessi has entered into a new employment
agreement with the Company. The terms of this employment agreement the
effectiveness of which is conditioned upon the closing of the Merger, are
described in Item 3 of the Schedule 14D-9.
SEVERANCE AGREEMENTS
In 1997, the Company's senior management was materially restructured.
Severance Agreements were negotiated with John Hewitt and Thomas Czaplicki. The
Company's Consolidated Financial Statements reflect a $1.3 million stock
subscription receivable which was due from the Company's former Chairman of the
Board of Directors, John T. Hewitt. On September 9, 1996, Mr. Hewitt resigned
his position with the Company effective immediately. Mr. Hewitt resigned from
the Company's Board of Directors in December 1996. On December 12, 1996, Mr.
Hewitt executed a $1.3 million promissory note, which represented all amounts
then due the Company, including accrued interest, other than the $99,000
obligation referred to below. This recourse note bore interest at 6.9% per year
and required Mr. Hewitt to make monthly interest payments and to repay the
principal amount in one lump sum on April 30, 1999. To secure this note, Mr.
Hewitt pledged 145,050 Shares to the Company, and granted the Company a proxy to
vote these Shares until his obligation is repaid in full. On July 14, 1997, Mr.
Hewitt prepaid this obligation in full by delivering 82,327 of the pledged
Shares to the Company. The closing sale price of the Shares on July 14, 1997,
was $15.50 per Share. The Company released the remaining 62,723 pledged Shares
to Mr. Hewitt and cancelled the 82,327 Shares used by Mr. Hewitt to repay his
obligation. In return for 29 monthly payments of $22,337 each by the Company to
Mr. Hewitt, Mr. Hewitt also executed a covenant not to compete with the Company
in the United States through April 30, 1999, and agreed not to solicit Company
employees, conduct a solicitation of proxies, or disparage the Company or its
officers and directors during the same period. In addition, the Company forgave
a $99,000 (plus accrued interest) obligation of Mr. Hewitt to the Company, which
would have been due and payable on April 30, 1997. Mr. Czaplicki and the Company
also entered into a severance agreement in which he agreed not to solicit
Company employees, compete with the Company or disparage the Company and its
officers and directors for two years.
9
<PAGE>
STOCK OPTION PLANS
In 1994, the Board of Directors of the Company adopted, and shareholders
approved, the Incentive Plan pursuant to which officers and other key employees
of the Company are eligible to receive options to purchase Shares and other
awards as described below. The maximum number of Shares that may be issued
pursuant to awards under the Incentive Plan is 698,000 (subject to anti-dilution
adjustments).
The Incentive Plan is administered by the Compensation Committee. The
Compensation Committee has the discretion to select the individuals to receive
awards and to grant such awards and has a wide degree of flexibility in
determining the terms and conditions of awards. Subject to limitations imposed
by applicable law, the Board of Directors of the Company may amend or terminate
the Incentive Plan at any time and in any manner. However, no such amendment or
termination may affect a participant's rights under an award previously granted
under the Incentive Plan without his or her consent.
Awards under the Incentive Plan may be in the form of stock options (both
nonqualified stock options and incentive stock options), stock appreciation
rights, performance shares, and restricted stock, either separately or in such
combination as the Compensation Committee may in its discretion deem
appropriate. Under the terms of the Incentive Plan, subject to certain
conditions, all outstanding awards vest and become exercisable immediately prior
to a "change of control" of the Company. A change of control is defined to
encompass different types of significant corporate transactions, including
reorganizations and mergers, acquisitions of 20% of the Shares, or a change in
the composition of at least two-thirds of the membership of the Company's Board
of Directors over a two year period, other than by reason of death, or the
acquisition of at least 5% of the Shares if such acquisition is not approved by
the Board of Directors. The Incentive Plan remains in effect until all awards
under the Incentive Plan have been satisfied by the issuance of Shares or the
payment of cash. As of November 19, 1997, options to purchase up to 388,684
Shares were outstanding under the Incentive Plan.
In 1996, the Board of Directors of the Company adopted, and shareholders
approved, the Director Plan pursuant to which non-employee directors of the
Company are eligible to receive non-qualified stock options pursuant to a
formula that grants any new directors options to purchase 10,000 Shares and
existing directors 2,000 Shares upon their re-election each year. Each of these
awards vests in increments over five years. Option awards granted pursuant to
the Director Plan vest automatically in the event of death, permanent and total
disability, or retirement (as defined in the Director Plan) of the director or a
change in control or potential change in control of the Company, as defined in
such plan. The terms change in control and potential change in control have the
meaning similar to those discussed above with respect to the Incentive Plan. As
of November 19, 1997, options to purchase up to 52,000 Shares were outstanding
under the Director Plan.
The acquisition of Shares pursuant to the Offer will constitute a change of
control under the Incentive Plan and Director Plan. See Item 3 of the Schedule
14D-9.
Pursuant to Section 16(b) of the Exchange Act, directors, executive
officers, and 10% shareholders of the Company are generally liable to the
Company for repayment of any profits realized from any non-exempt purchase and
sale of Common Stock occurring within a six-month period. Rule 16b-3 promulgated
under the Exchange Act provides an exemption from Section 16(b) liability for
certain transactions by officers or directors that comply with such rule.
LIMITATION ON DEDUCTIBILITY OF CERTAIN COMPENSATION FOR FEDERAL INCOME TAX
PURPOSES
Section 162(m) of the Internal Revenue Code ("162(m)") precludes the Company
from taking a deduction for compensation in excess of $1,000,000 for the Chief
Executive Officer or any of its four other highest paid officers. Certain
performance-based compensation, however, is specifically exempt from the
deduction limit. In adopting the Incentive Plan, the Compensation Committee
believes that the Incentive
10
<PAGE>
Plan will both qualify as performance-based compensation under the regulations
issued under Section 162(m).
-- Michael E. Julian
-- Harry W. Buckley
-- Harry S. Gruner
-- William P. Viellette
THE PRECEDING "COMPENSATION COMMITTEE REPORT CONCERNING THE 1997
COMPENSATION OF CERTAIN EXECUTIVE OFFICERS" SHALL NOT BE DEEMED TO BE SOLICITING
MATERIAL OR TO BE FILLED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED, OR INCORPORATED BY REFERENCE IN ANY DOCMENTS SO FILED.
SHARE PRICE PERFORMANCE
The following graph shows a comparison of cumulative total shareholder
returns for the Company, the Standard & Poor's 500 Stock Index and two separate
industry peer groups constructed by the Company from January 1994 through April
30, 1997. The industry peer groups are described in detail below. The total
shareholder return assumes $100 invested in the beginning of the period in the
Shares, the Standard & Poor's 500 Stock Index and in each peer group index. In
developing each industry peer group index, the returns of the companies were
weighted according to stock market capitalization at the beginning of each
period for which a return is indicated.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG THE COMPANY, S&P 500 INDEX AND PEER GROUP INDEX
<S> <C>
1992 100
1993 100
1994 85.94
1995 31.25
1996 21.09
1997 63.28
Assumes initial investment of $100
*Total return assumes reinvestment of dividends
NOTE: Total returns based on market capitalization
<CAPTION>
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG THE COMPANY, S&P 500 INDEX AND PEER GROUP INDEX
<S> <C>
1992 100
1993 100
1994 97.44
1995 114.46
1996 149.46
1997 186.33
Assumes initial investment of $100
*Total return assumes reinvestment of dividends
NOTE: Total returns based on market capitalization
<CAPTION>
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG THE COMPANY, S&P 500 INDEX AND PEER GROUP INDEX
1992 100
1993 100
1994 102.98
1995 107.67
1996 130.55
1997 132.16
Assumes initial investment of $100
*Total return assumes reinvestment of dividends
NOTE: Total returns based on market capitalization
</TABLE>
11
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On July 11, 1994, the Company sold certain assets related to its operation
of a Company-owned territory in Chesapeake, Virginia to Chestax Company, 50% of
which is owned by Christopher Drake, the Company's Secretary, Treasurer, 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, was paid for by Mr. Drake's delivery of an 11%, five-year
promissory recourse note to the Company, and was calculated on terms comparable
to those of similar transactions with non-affiliates. The Company's gain on the
sale of these assets was $89,490. As of April 30, 1997, the unpaid balance of
the promissory note was $109,106. The Company believes that the foregoing
transaction was consummated on terms consistent with those that would apply to
transactions with non-affiliates in similar circumstances.
The Company's Consolidated Financial Statements included with the 1997
Annual Report to Shareholders reflect a $1.3 million stock subscription
receivable which was due from the Company's former Chairman of the Board of
Directors, John T. Hewitt. On September 9, 1996, Mr. Hewitt resigned his
position with the Company effective immediately. Mr. Hewitt resigned from the
Company's Board of Directors in December 1996. On December 12, 1996, Mr. Hewitt
executed a $1.3 million promissory note, which represented all amounts then due
the Company, including accrued interest, other than the $99,000 obligation
referred to below. This recourse note bore interest at 6.9% per year and
required Mr. Hewitt to make monthly interest payments and to repay the principal
amount in one lump sum on April 30, 1999. To secure this note, Mr. Hewitt
pledged 145,050 Shares to the Company, and granted the Company a proxy to vote
these Shares until his obligation is repaid in full. On July 14, 1997, Mr.
Hewitt prepaid this obligation in full by delivering 82,327 of the pledged
Shares to the Company. The closing sale price of the Shares on July 14, 1997,
was $15.50 per Share. The Company released the remaining 62,723 pledged Shares
to Mr. Hewitt and cancelled the 82,327 Shares used by Mr. Hewitt to repay his
obligation. In return for 29 monthly payments of $22,337 each by the Company to
Mr. Hewitt, Mr. Hewitt also executed a covenant not to compete with the Company
in the United States through April 30, 1999, and agreed not to solicit Company
employees, conduct a solicitation of proxies, or disparage the Company or its
officers and directors during the same period. In addition, the Company forgave
a $99,000 (plus accrued interest) obligation of Mr. Hewitt to the Company, which
would have been due and payable on April 30, 1997.
In December 1996, the Company entered into a binding letter of intent with
Susan Ventresca, a former franchisee and director of the Company, to purchase
her franchised territories and all related assets (the "Territories") at the end
of the 1997 tax season. Ms. Ventresca resigned from the Board of Directors in
December 1996 and the transaction closed in June 1997. The terms of the
agreement allowed the Company to audit Ms. Ventresca's franchise operations for
the one-year period ended April 30, 1997, to determine the purchase price of the
Territories. The purchase price was determined based on a formula equal to the
lesser of (i) six times the cash flow (defined as earnings before interest,
taxes, depreciation and amortization) of the Territories or (ii) 120% of the
gross revenues of the Territories, plus $40,000 (which represents the value of
two additional territories held by Ms. Ventresca) minus all outstanding debt to
the Company. All payments on Ms. Ventresca's outstanding notes receivable due to
the Company on February 28, 1997 were deferred until the closing of the
transaction. This formula resulted in a net payment to Ms. Ventresca of
$241,289. The Company believes that the foregoing transactions with Ms.
Ventresca were consummated on terms consistent with those that would apply to
transactions with non-affiliates in similar circumstances.
On July 3, 1997, the Company completed a tax-free recapitalization
transaction with its former preferred shareholders ("Preferred Shareholders")
pursuant to which the Company exchanged 699,707 shares of Common Stock for the
504,950 then outstanding shares of the Company's Series A Convertible Preferred
Stock. The Preferred Shareholders include Geocapital II, L.P. and Geocapital
III, L.P., two affiliated partnerships which collectively own in excess of 5% of
the Company's issued and outstanding stock, and JMI Equity Fund, L.P., of which
Harry Gruner, a director of the Company, is a general partner.
12
<PAGE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act 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 Commission and Nasdaq. Such
persons are also required under the rules and regulations promulgated by the
Commission to furnish the Company with copies of all Section 16(a) forms they
file.
Based solely on a review of the copies of such forms furnished to the
Company, the Company believes that all directors, officers and greater than 10%
beneficial owners have complied with the Commission interpretations regarding
applicable Section 16(a) filing requirements.
13
<PAGE>
SCHEDULE II
CERTAIN TRANSACTIONS IN SHARES OF COMMON STOCK OF
JACKSON HEWITT INC. EFFECTED DURING THE PAST 60 DAYS
The following Shares were purchased by executive officers or directors of
the Company:
<TABLE>
<CAPTION>
PARTY EFFECTING PURCHASE DATE OF PURCHASE NUMBER OF SHARES PURCHASED
- ------------------------------------------------------------------- ---------------- -----------------------------
<S> <C> <C>
Christopher Drake.................................................. 10/6/97 800(1)
10/20/97 1,300(1)
Harry W. Buckley................................................... 11/3/97 2,000(2)
</TABLE>
- ------------------------
(1) Exercise of options granted under the Incentive Plan.
(2) Exercise of options granted under the Director Plan.
<PAGE>
Attachment I
JANNEY MONTGOMERY SCOTT
I N V E S T M E N T B A N K I N G
ESTABLISHED 1832
November 19, 1997
Board of Directors
Jackson Hewitt Inc.
4575 Bonney Road
Virginia Beach, VA 23462
Dear Members of the Board:
You have requested our opinion with respect to the fairness, from a financial
point of view, to the shareholders of Jackson Hewitt, Inc. (the "Company") of
the consideration to be received by such shareholders under the Agreement and
Plan of Merger (the "Agreement") dated November 19, 1997 by and among HFS Inc.,
JH Acquisition Corp. (together, "HFS"), and the Company.
Under the terms of the Agreement, HFS will commence a tender offer to purchase
all of the issued and outstanding common stock of the Company for $68.00 per
share, net to the seller in cash (the "Tender Offer"), and after acceptance for
payment of all shares tendered and not withdrawn in the Tender Offer, the
Company would be merged with and into JH Acquisition Corp. (the "Merger" and,
together with the Tender Offer, the "Transaction") and the holders of all issued
and outstanding shares of common stock not purchased pursuant to the Tender
Offer, other than HFS or its affiliates, would be entitled to receive in the
Merger $68.00 per share, net in cash. The terms and conditions of the Merger are
more fully set forth in the Agreement.
In arriving at our opinion, we undertook the following activities:
1. Analyzed and reviewed the terms and conditions of the Agreement;
2. Investigated the business, financial condition, results of operations and
prospects of the Company;
3. Investigated the financial terms of similar mergers, acquisitions and
business combinations;
4. Reviewed selected financial and stock market data for certain other publicly
traded companies comparable to the Company.
In addition, we held discussions with the management of the Company regarding
the Company's business, operating results, financial condition and prospects,
and undertook other analyses, studies and investigations as we considered
appropriate.
In connection with our review, we have relied upon the accuracy and completeness
of all information provided to us by the Company and its representatives, and we
have not attempted to independently verify any such information. We have also
relied upon the assessment of the management of the Company regarding the
Company's business and prospects, and also assumed that the budgets and
financial projections of the Company were reasonably prepared by management on
bases reflecting the best currently available estimates and good faith judgments
of the future financial performance of the Company. We have not made an
independent evaluation or appraisal of the Company's assets and liabilities. Our
opinion is necessarily based on financial, market, economic and other conditions
as they exit and can be evaluated as of the date of this letter.
<PAGE>
JANNEY MONTGOMERY SCOTT
I N V E S T M E N T B A N K I N G
Board of Directors
November 19, 1997
Page 2
Janney Montgomery Scott Inc. ("Janney") is acting as the financial advisor to
the Company in connection with the Merger and will receive customary fees upon
the completion of the Merger. In addition, the Company has agreed to indemnify
Janney against certain liabilities arising out of the rendering of this opinion.
Janney is a nationally recognized investment banking firm and, as part of its
investment banking activities, is regularly engaged in the valuation of
businesses and securities in connection with mergers and acquisitions,
negotiated underwritings, secondary distributions of securities, private
placements and valuation for corporate and other purposes. Janney co-managed the
Company's secondary stock offering in July 1977 and, in the ordinary course of
its trading and brokerage activities, Janney makes a market in the stock of the
Company.
It is understood that this letter is for the information of the Board of
Directors of the Company in evaluating the Transaction and does not constitute a
recommendation to any shareholder of the Company as to whether such shareholder
should tender their shares in the Tender Offer or as to how such shareholder
should vote their shares in the Merger. This opinion may not be used for any
other purpose, and may not be quoted or referred to, in whole or in part,
without our prior written consent, except that this opinion may be included in
its entirety in any filing with the Securities and Exchange Commission in
connection with the Transaction.
We are of the opinion, as of the date hereof and subject to the foregoing, that
the consideration to be paid to the shareholders of the Company under the
Agreement is fair to the shareholders of the Company from a financial point of
view.
Very truly yours,
JANNEY MONTGOMERY SCOTT INC.
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<S> <C>
(a)(1) Purchaser's Offer to Purchase, dated November 25, 1997.
(a)(2) Text of Press Release, dated November 19, 1997.
(a)(3) Text of Press Release, dated November 25, 1997.
(a)(4) Opinion of Janney Montgomery & Scott Inc., dated November 19, 1997, included as
Attachment I.
(a)(5) Letter to Shareholders of the Company.
(c)(1) Agreement and Plan of Merger, dated as of November 19, 1997, by and among Parent,
the Purchaser and the Company (incorporated by reference to Exhibit (c)(1) of the
Schedule 14D-1 of HJ Acquisition Corp. and HFS Incorporated filed with the
Securities and Exchange Commission on November 25, 1997 (the "Schedule 14D-1")).
(c)(2) Shareholders Agreement, dated as of November 19, 1997, by and among Parent, the
Purchaser and Keith E. Alessi (incorporated by reference to Exhibit (c)(2) of the
Schedule 14D-1).
(c)(3) Shareholders Agreement, dated as of November 19, 1997, by and among Parent, the
Purchaser and Harry W. Buckley (incorporated by reference to Exhibit (c)(3) of the
Schedule 14D-1).
(c)(4) Shareholders Agreement, dated as of November 19, 1997, by and among Parent, the
Purchaser and Christopher Drake (incorporated by reference to Exhibit (c)(4) of the
Schedule 14D-1).
(c)(5) Shareholders Agreement, dated as of November 19, 1997, by and among Parent, the
Purchaser and Harry S. Gruner (incorporated by reference to Exhibit (c)(5) of the
Schedule 14D-1).
(c)(6) Shareholders Agreement, dated as of November 19, 1997, by and among Parent, the
Purchaser and JMI Equity Fund, L.P. (incorporated by reference to Exhibit (c)(6) of
the Schedule 14D-1).
(c)(7) Shareholders Agreement, dated as of November 19, 1997, by and among Parent, the
Purchaser and William P. Veillette (incorporated by reference to Exhibit (c)(7) of
the Schedule 14D-1).
(c)(8) Shareholders Agreement, dated as of November 19, 1997, by and among Parent, the
Purchaser and Ann Santomas (incorporated by reference to Exhibit (c)(8) of the
Schedule 14D-1).
(c)(9) Shareholders Agreement, dated as of November 19, 1997, by and among Parent, the
Purchaser and Leslie Ann Wood (incorporated by reference to Exhibit (c)(9) of the
Schedule 14D-1).
(c)(10) Shareholders Agreement, dated as of November 19, 1997, by and among Parent, the
Purchaser and Michael E. Julian, Jr. (incorporated by reference to Exhibit (c)(10)
of the Schedule 14D-1).
(c)(11) Shareholders Agreement, dated as of November 19, 1997, by and among Parent, the
Purchaser and Martin B. Mazer (incorporated by reference to Exhibit (c)(11) of the
Schedule 14D-1).
(c)(12) Confidentiality and Nondisclosure Agreement, dated September 22, 1997, by and
between Parent and the Company (incorporated by reference to Exhibit (c)(12) of the
Schedule 14D-1).
(c)(13) Stock Option Agreement, dated as of November 19, 1997, by and among the Parent, the
Purchaser and the Company (incorporated by reference to Exhibit (c)(13) of the
Schedule 14D-1).
(c)(14) Employment Agreement, dated November 19, 1997, between the Company and Keith E.
Alessi (incorporated by reference to Exhibit (c)(14) of the Schedule 14D-1).
(c)(15) Employment Agreement, dated November 24, 1997, between the Company and Harry W.
Buckley (incorporated by reference to Exhibit (c)(15) of the Schedule 14D-1).
</TABLE>
<PAGE>
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
OF
JACKSON HEWITT INC.
AT
$68.00 NET PER SHARE
BY
HJ ACQUISITION CORP.
A WHOLLY OWNED SUBSIDIARY OF
HFS INCORPORATED
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
MONDAY, JANUARY 5, 1998, UNLESS THE OFFER IS EXTENDED.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER THAT NUMBER OF
SHARES (AS DEFINED HEREIN) WHICH CONSTITUTES MORE THAN TWO-THIRDS OF THE SHARES
OUTSTANDING ON A FULLY DILUTED BASIS, WITHOUT GIVING EFFECT TO ANY SHARES
ISSUABLE PURSUANT TO THE STOCK OPTION AGREEMENT (AS DEFINED HEREIN). THE OFFER
IS ALSO SUBJECT TO OTHER TERMS AND CONDITIONS. SEE SECTION 14.
------------------------
THE BOARD OF DIRECTORS OF JACKSON HEWITT INC. (THE "COMPANY") HAS
UNANIMOUSLY APPROVED THE OFFER AND THE MERGER (AS DEFINED HEREIN), HAS
DETERMINED THAT THE TERMS OF THE OFFER AND THE MERGER ARE FAIR TO AND IN THE
BEST INTERESTS OF THE SHAREHOLDERS OF THE COMPANY AND RECOMMENDS THAT
SHAREHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER.
IMPORTANT
Any shareholder desiring to tender all or any portion of his shares of
Common Stock, par value $.02 per share, of the Company (the "Shares"), should
either (a) complete and sign the Letter of Transmittal (or a facsimile thereof)
in accordance with the instructions in the Letter of Transmittal and mail or
deliver it together with the certificate(s) evidencing tendered Shares, and any
other required documents, to the Depositary or tender such Shares pursuant to
the procedures for book-entry transfer set forth in Section 3 or (b) request
such shareholder's broker, dealer, commercial bank, trust company or other
nominee to effect the transaction for such shareholder. A shareholder whose
Shares are registered in the name of a broker, dealer, commercial bank, trust
company or other nominee must contact such broker, dealer, commercial bank,
trust company or other nominee if such shareholder desires to tender such
Shares.
Any shareholder who desires to tender Shares and whose certificates
evidencing such Shares are not immediately available or who cannot comply with
the procedures for book-entry transfer described in this Offer to Purchase on a
timely basis may tender such Shares by following the procedures for guaranteed
delivery set forth in Section 3.
Questions and requests for assistance may be directed to the Information
Agent or the Dealer Managers at their respective addresses and telephone numbers
set forth on the back cover of this Offer to Purchase. Requests for additional
copies of this Offer to Purchase, the Letter of Transmittal, the Notice of
Guaranteed Delivery and other tender offer materials may be directed to the
Information Agent. A shareholder may also contact brokers, dealers, commercial
banks and trust companies for assistance concerning this Offer.
The Dealer Managers for the Offer are:
MERRILL LYNCH & CO. SMITH BARNEY INC.
NOVEMBER 25, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Introduction.............................................................................................. 3
1. Terms of the Offer..................................................................................... 5
2. Acceptance for Payment and Payment for Shares.......................................................... 6
3. Procedures for Tendering Shares........................................................................ 7
4. Withdrawal Rights...................................................................................... 10
5. Certain Federal Income Tax Consequences................................................................ 10
6. Price Range of Shares; Dividends....................................................................... 11
7. Effect of the Offer on the Market for the Shares; Nasdaq Quotation and Exchange Act Registration....... 11
8. Certain Information Concerning the Company............................................................. 12
9. Certain Information Concerning the Purchaser and Parent................................................ 14
10. Source and Amount of Funds............................................................................ 15
11. Background of the Offer; Contacts with the Company.................................................... 16
12. Purpose of the Offer, Merger, Merger Agreement and the Other Transaction Agreements................... 17
13. Dividends and Distributions........................................................................... 28
14. Conditions to the Offer............................................................................... 28
15. Certain Legal Matters................................................................................. 30
16. Fees and Expenses..................................................................................... 32
17. Miscellaneous......................................................................................... 32
Schedule I--Information Concerning Directors and Executive Officers of Parent and the Purchaser........... S-1
</TABLE>
2
<PAGE>
To the Holders of Common Stock of
JACKSON HEWITT INC.:
INTRODUCTION
HJ Acquisition Corporation, a Virginia corporation (the "Purchaser") and a
wholly owned subsidiary of HFS Incorporated, a Delaware corporation ("Parent"),
hereby offers to purchase all outstanding shares of common stock, par value $.02
per share (the "Shares"), of Jackson Hewitt Inc., a Virginia corporation (the
"Company"), at $68.00 per Share (the "Offer Price"), net to the seller in cash,
without interest, upon the terms and subject to the conditions set forth in this
Offer to Purchase and in the related Letter of Transmittal (which, as amended or
supplemented from time to time, together constitute the "Offer").
Tendering shareholders will not be obligated to pay brokerage fees or
commissions or, except as set forth in Instruction 6 of the Letter of
Transmittal, stock transfer taxes on the purchase of Shares by the Purchaser
pursuant to the Offer. The Purchaser will pay all fees and expenses of Merrill
Lynch, Pierce, Fenner & Smith Incorporated and Smith Barney Inc., who are acting
as the Dealer Managers (the "Dealer Managers"), ChaseMellon Shareholder
Services, L.L.C., which is acting as the Depositary (the "Depositary"), and
MacKenzie Partners, Inc., which is acting as the Information Agent (the
"Information Agent"), incurred in connection with the Offer. See Section 16.
The Offer is conditioned upon, among other things, there having been validly
tendered and not withdrawn prior to the expiration of the Offer a number of
Shares which constitutes more than two-thirds of the Shares outstanding on a
fully diluted basis, without giving effect to any Shares issuable pursuant to
the Stock Option Agreement (as defined herein) (the "Minimum Condition"). See
Section 14.
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of November 19, 1997 (the "Merger Agreement"), by and among Parent, the
Purchaser and the Company. The Merger Agreement provides that, among other
things, following the consummation of the Offer and the satisfaction or waiver
of the other conditions set forth in the Merger Agreement, the Purchaser will be
merged with and into the Company (the "Merger"). At the effective time of the
Merger (the "Effective Time"), each outstanding Share (other than Shares held in
the treasury of the Company and Shares owned by Parent, the Purchaser or any
other wholly owned subsidiary of Parent) will be converted into the right to
receive the per Share price paid in the Offer, without interest (referred to
herein as the "Merger Consideration"). See Section 12.
THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY APPROVED THE OFFER AND
THE MERGER, HAS DETERMINED THAT THE TERMS OF THE OFFER AND THE MERGER ARE FAIR
TO AND IN THE BEST INTERESTS OF THE SHAREHOLDERS OF THE COMPANY AND RECOMMENDS
THAT SHAREHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE
OFFER.
Janney Montgomery Scott Inc., the Company's financial advisor ("Janney"),
has delivered to the Board of Directors of the Company (the "Company Board") its
written opinion to the effect that, as of the date of such opinion, the Offer
Price is fair to the shareholders of the Company from a financial point of view.
Such opinion is set forth in full as an exhibit to the Company's
Solicitation/Recommendation Statement on Schedule 14D-9, which is being mailed
to shareholders of the Company herewith.
The Merger Agreement provides that promptly upon the purchase by Parent or
any of its subsidiaries of Shares pursuant to the Offer that represent more than
two-thirds of the outstanding Shares on a fully diluted basis, Parent shall be
entitled to designate up to such number of directors, rounded up to the next
whole number, on the Company Board as will give Parent representation on the
Company Board equal to the product of the total number of directors on the
Company Board multiplied by the percentage that the number of Shares so accepted
for payment bears to the total number of Shares then outstanding. In the Merger
Agreement, the Company has agreed to use its best efforts promptly to cause
Parent's designees to be elected as directors of the Company, including securing
the resignations of incumbent directors.
3
<PAGE>
The consummation of the Merger is subject to the satisfaction or waiver of
certain conditions, including, if required by law, the approval and adoption of
the Merger Agreement by the requisite vote of the shareholders of the Company.
See Section 12. Under the Company's Articles of Incorporation and Virginia law,
except as otherwise described below, the affirmative vote of the holders of more
than two-thirds of the outstanding Shares is required to approve and adopt the
Merger Agreement and the Merger. Consequently, if the Purchaser acquires
(pursuant to the Offer or otherwise) more than two-thirds of the then
outstanding Shares, the Purchaser will have sufficient voting power to approve
and adopt the Merger Agreement and the Merger without the vote of any other
shareholder.
Under Virginia law, if the Purchaser acquires, pursuant to the Offer or
otherwise, at least 90% of the then outstanding Shares, the Purchaser will be
able to approve and adopt the Merger Agreement and the transactions contemplated
thereby, including the Merger, without a vote of the Company's shareholders. In
such event, Parent, the Purchaser and the Company have agreed to take, at the
request of Parent, all necessary and appropriate action to cause the Merger to
become effective as soon as practicable after such acquisition, without a
meeting of the Company's shareholders. If, however, the Purchaser does not
acquire at least 90% of the then outstanding Shares pursuant to the Offer or
otherwise, and a vote of the Company's shareholders is required under Virginia
law, a significantly longer period of time will be required to effect the
Merger. See Section 12.
The Merger Agreement provides that, following the satisfaction or waiver of
the conditions to the Offer, the Purchaser will accept for payment, in
accordance with the terms of the Offer, all Shares validly tendered pursuant to
the Offer as soon as it is permitted to do so pursuant to applicable law, but
not prior to 5:00 p.m., New York City time, on Monday, January 5, 1998. The
Merger Agreement provides that the Purchaser may under certain circumstances,
from time to time, extend the expiration date of the Offer beyond the time it
would otherwise be required to accept validly tendered Shares for payment. The
Offer will not remain open following the Expiration Date.
In connection with the execution of the Merger Agreement, Parent, the
Purchaser and the Company have entered into a Stock Option Agreement, dated as
of November 19, 1997 (the "Stock Option Agreement"), pursuant to which the
Company has granted to the Purchaser an option to purchase from the Company up
to 1,326,331 authorized but unissued Shares (approximately 19.9% of the
Company's currently outstanding Shares) for a price per Share of $68.00 (the
"Stock Option"). Under certain circumstances set forth in the Stock Option
Agreement, the Purchaser has the right to require the Company to repurchase the
Stock Option. See Section 12.
In addition, in connection with the execution of the Merger Agreement,
Parent and the Purchaser entered into separate Shareholders Agreements, dated as
of November 19, 1997 (collectively, the "Shareholders Agreements"), with each of
the Company's directors and executive officers and with a shareholder of the
Company, (collectively, the "Selling Shareholders"). The Selling Shareholders
beneficially own an aggregate of 501,519 Shares directly and hold stock options
to purchase an aggregate of 316,074 Shares (which Shares represent approximately
7% and 4%, respectively, of the Company's outstanding Shares on a fully diluted
basis). Pursuant to the Shareholders Agreements, the Selling Shareholders have
agreed to validly tender pursuant to the Offer and not withdraw all Shares which
are beneficially owned by the Selling Shareholders prior to the Expiration Date
(as hereinafter defined). The Shareholders Agreements are more fully described
in Section 12.
According to the Company, as of November 19, 1997 there were 6,664,982
Shares outstanding, 440,684 Shares reserved for issuance upon the exercise of
Company options (the "Company Options") under the Company's 1994 Long Term
Incentive Plan and the Non-Employee Director Stock Option Plan (together, the
"Option Plans") and 10,000 Shares issuable upon the exercise of warrants granted
pursuant to the Warrant Purchase Agreement, dated as of June 7, 1996 between the
Company and NationsBank, N.A. (the "Warrants"). For purposes of the Offer,
"fully diluted basis" assumes that the Company Options and the Warrants are
exercised for Shares and that no Shares are issued upon exercise of the Stock
Option. Based upon the foregoing information, the Minimum Condition would be
satisfied if 4,743,778 Shares
4
<PAGE>
were validly tendered. Assuming the valid tender into the Offer of the 501,519
Shares beneficially owned directly by the Selling Shareholders, the Purchaser
will need to purchase an additional 4,242,259 Shares to satisfy the Minimum
Condition.
Parent and CUC International ("CUC") have entered into an Agreement and Plan
of Merger, dated as of May 27, 1997, pursuant to which, among other things,
Parent will be merged with and into CUC, with CUC continuing as the surviving
corporation in the merger (the "Parent Merger") and changing its name to Cendant
Corporation ("Cendant"). Following the Parent Merger, Cendant, as successor to
Parent, will succeed to Parent's rights and obligations under the Merger
Agreement and the Offer and the Purchaser will become a wholly owned subsidiary
of Cendant. All references to Parent in this Offer to Purchase shall be deemed
to include Cendant following the Parent Merger.
THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE
WITH RESPECT TO THE OFFER.
1. TERMS OF THE OFFER
Upon the terms and subject to the conditions of the Offer (including, if the
Offer is extended or amended, the terms and conditions of any extension or
amendment), the Purchaser will accept for payment and pay for all Shares which
are validly tendered prior to the Expiration Date of the Offer and not withdrawn
in accordance with Section 4. The term "Expiration Date" means 5:00 p.m., New
York City time, on Monday, January 5, 1998, unless and until the Purchaser, in
its sole discretion (but subject to the terms of the Merger Agreement), shall
have extended the period of time during which the Offer is open, in which event
the term "Expiration Date" shall mean to the latest time and date at which the
Offer, as so extended by the Purchaser, shall expire.
The Offer is conditioned upon, among other things, satisfaction of the
Minimum Condition. See Section 14, which sets forth in full the conditions to
the Offer. If the Minimum Condition is not satisfied or any or all of the other
events set forth in Section 14 shall have occurred or shall be determined by the
Purchaser to have occurred prior to the Expiration Date, the Purchaser reserves
the right (but shall not be obligated) to (i) decline to purchase any of the
Shares tendered in the Offer and terminate the Offer and return all tendered
Shares to the tendering shareholders, (ii) waive any or all conditions to the
Offer, to the extent permitted by applicable law and the provisions of the
Merger Agreement, and, subject to complying with applicable rules and
regulations of the Securities and Exchange Commission (the "Commission"),
purchase all Shares validly tendered, (iii) extend the Offer and, subject to the
right of shareholders to withdraw Shares until the Expiration Date, retain the
Shares which have been tendered during the period or periods for which the Offer
is extended or (iv) subject to the terms of the Merger Agreement, amend the
Offer. The Merger Agreement provides that the Purchaser will not, without the
written consent of the Company, decrease the Offer Price, decrease the numbers
of Shares sought in the Offer, or amend any other condition of the Offer in any
manner adverse to the holders of Shares, except that if on the initial scheduled
expiration date all conditions to the Offer shall not have been satisfied or
waived, the Offer may be extended from time to time for one or more periods not
to exceed an aggregate of 40 business days. The Merger Agreement provides that
if, immediately prior to the Expiration Date, the Shares tendered and not
withdrawn pursuant to the Offer equal less than 90% of the outstanding Shares,
the Purchaser may extend the Offer for one or more periods not to exceed an
aggregate of 30 business days.
The Purchaser expressly reserves the right, in its sole discretion, at any
time or from time to time, subject to the terms of the Merger Agreement and
regardless of whether or not any of the events set forth in Section 14 shall
have occurred or shall have been determined by the Purchaser to have occurred,
(i) to extend the period of time during which the Offer is open and thereby
delay acceptance for payment of, and the payment for, any Shares, by giving oral
or written notice of such extension to the Depositary and (ii) to amend the
Offer in any respect by giving oral or written notice of such amendment to the
Depositary. The rights reserved by the Purchaser in this paragraph are in
addition to the Purchaser's rights to terminate the
5
<PAGE>
Offer pursuant to Section 14. Any extension, amendment or termination will be
followed as promptly as practicable by public announcement thereof, the
announcement in the case of an extension to be issued no later than 9:00 a.m.,
New York City time, on the next business day after the previously scheduled
Expiration Date in accordance with Rules 14d-4(c), 14d-6(d) and 14e-1(d) under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Without
limiting the obligation of the Purchaser under such rules or the manner in which
the Purchaser may choose to make any public announcement, the Purchaser
currently intends to make announcements by issuing a release to the Dow Jones
News Service.
If the Purchaser extends the Offer, or if the Purchaser (whether before or
after its acceptance for payment of Shares) is delayed in its purchase of or
payment for Shares or is unable to pay for Shares pursuant to the Offer for any
reason, then, without prejudice to the Purchaser's rights under the Offer, the
Depositary may retain tendered shares on behalf of the Purchaser, and such
Shares may not be withdrawn except to the extent tendering shareholders are
entitled to withdrawal rights as described in Section 4. However, the ability of
the Purchaser to delay the payment for Shares which the Purchaser has accepted
for payment is limited by Rule 14e-1(c) under the Exchange Act, which requires
that a bidder pay the consideration offered or return the securities deposited
by or on behalf of holders of securities promptly after the termination or
withdrawal of the Offer.
If the Purchaser makes a material change in the terms of the Offer or the
information concerning the Offer or waives a material condition of the Offer
(including the Minimum Condition, subject to the Merger Agreement), the
Purchaser will disseminate additional tender offer materials and extend the
Offer to the extent required by Rules 14d-4(c) and 14d-6(d) under the Exchange
Act. The minimum period during which the Offer must remain open following
material changes in the terms of the Offer or information concerning the Offer,
other than a change in price or a change in percentage of securities sought,
will depend upon the facts and circumstances, including the relative materiality
of the terms or information. With respect to a change in price or a change in
percentage of securities sought, a minimum ten business day period is required
to allow for adequate dissemination to shareholders and investor response. If,
prior to the Expiration Date, the Purchaser should decide to increase the price
per Share being offered in the Offer, such increase will be applicable to all
shareholders whose Shares are accepted for payment pursuant to the Offer. The
Merger Agreement provides that, without the Company's written consent, the
Purchaser will not decrease the price or the number of Shares sought in the
Offer. As used in this Offer to Purchase, "business day" has the meaning set
forth in Rule 14d-1 under the Exchange Act.
The Company has provided to the Purchaser its list of shareholders and
security position listings for the purpose of disseminating the Offer to holders
of Shares. This Offer to Purchase and the related Letter of Transmittal and
other relevant materials will be mailed to record holders of Shares and
furnished to brokers, dealers, commercial banks, trust companies and similar
persons whose names, or the names of whose nominees, appear on the shareholder
list or, if applicable, who are listed as participants in a clearing agency's
security position listing, for subsequent transmittal to beneficial owners of
Shares.
2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES
Upon the terms and subject to the conditions of the Offer (including, if the
Offer is extended or amended, the terms and conditions of any extension or
amendment), the Purchaser will purchase, by accepting for payment, and will pay
for, all Shares validly tendered prior to the Expiration Date (and not properly
withdrawn in accordance with Section 4) promptly after the later to occur of (i)
the Expiration Date and (ii) the satisfaction or waiver of the conditions set
forth in Section 14. Subject to the applicable rules of the Commission and the
terms of the Merger Agreement, the Purchaser expressly reserves the right to
delay acceptance for payment of, or payment for, Shares pending termination of
the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"). See Sections 14 and 15. The Purchaser
understands that, in accordance with the applicable rules of the Commission, any
delay in accepting Shares regardless of cause may not exceed an "unreasonable
length of time." Accordingly, if it appears at the time that the Offer is
scheduled to expire that the applicable waiting
6
<PAGE>
period under the HSR Act is not likely to terminate within a reasonable length
of time thereafter, the Purchaser will either (i) extend the Offer or (ii)
terminate the Offer.
In all cases, payment for Shares purchased pursuant to the Offer will be
made only after timely receipt by the Depositary of (i) certificates evidencing
such Shares ("Stock Certificates") or timely confirmation of a book-entry
transfer (a "Book-Entry Confirmation") of such Shares into the Depositary's
account at The Depository Trust Company or the Philadelphia Depository Trust
Company (each, a "Book-Entry Transfer Facility") pursuant to the procedures set
forth in Section 3, (ii) a properly completed and duly executed Letter of
Transmittal (or facsimile thereof) or, in the case of a book-entry transfer, an
Agent's Message (as defined below) and (iii) any other documents required by the
Letter of Transmittal.
The term "Agent's Message" means a message, transmitted by a Book-Entry
Transfer Facility to, and received by, the Depositary and forming a part of a
Book-Entry Confirmation, which states that such Book-Entry Transfer Facility has
received an express acknowledgment from the participant in such Book-Entry
Transfer Facility tendering the Shares that such participant has received and
agrees to be bound by the terms of the Letter of Transmittal and that the
Purchaser may enforce such agreement against the participant.
For purposes of the Offer, the Purchaser will be deemed to have accepted for
payment, and thereby purchased, tendered Shares if, as and when the Purchaser
gives oral or written notice to the Depositary of the Purchaser's acceptance of
such Shares for payment. Payment for Shares accepted pursuant to the Offer will
be made by deposit of the purchase price with the Depositary, which will act as
agent for tendering shareholders for the purpose of receiving payments from the
Purchaser and transmitting payments to such tendering shareholders. Under no
circumstances will interest on the purchase price for Shares be paid by the
Purchaser, regardless of any delay in making such payment.
Upon the deposit of funds with the Depositary for the purpose of making
payments to tendering shareholders, the Purchaser's obligation to make such
payment shall be satisfied and tendering shareholders must thereafter look
solely to the Depositary for payment of amounts owed to them by reason of the
acceptance for payment of Shares pursuant to the Offer.
If any tendered Shares are not accepted pursuant to the Offer for any
reason, or if Stock Certificates are submitted evidencing more Shares than are
tendered, Stock Certificates evidencing Shares not purchased or tendered will be
returned, without expense to the tendering shareholder (or in the case of Shares
tendered by book-entry transfer into the Depositary's account at a Book-Entry
Transfer Facility pursuant to the procedures set forth in Section 3, such Shares
will be credited to an account maintained at such Book-Entry Transfer Facility),
as promptly as practicable after the expiration, termination or withdrawal of
the Offer.
The Purchaser reserves the right to transfer or assign, in whole at any time
or in part from time to time, to Parent or to one or more of its affiliates, the
right to purchase all or a portion of the Shares tendered pursuant to the Offer,
but any such transfer or assignment will not relieve the Purchaser of its
obligations under the Offer and will in no way prejudice the rights of tendering
shareholders to receive payment for Shares validly tendered and accepted for
payment pursuant to the Offer.
3. PROCEDURES FOR TENDERING SHARES
VALID TENDER. For Shares to be validly tendered pursuant to the Offer, a
properly completed and duly executed Letter of Transmittal (or facsimile
thereof), with any required signature guarantees, or an Agent's Message (in the
case of any book-entry transfer), and any other required documents, must be
received by the Depositary at its address set forth on the back cover of this
Offer to Purchase prior to the Expiration Date. In addition, either (i) the
Stock Certificates evidencing Shares must be received by the Depositary along
with the Letter of Transmittal or Shares must be tendered pursuant to the
procedures for book-entry transfer described below and a Book-Entry Confirmation
must be received by the Depositary, in each case prior to the Expiration Date or
(ii) the tendering shareholder must comply with the guaranteed delivery
procedures described below.
7
<PAGE>
BOOK-ENTRY TRANSFER. The Depositary will establish an account with respect
to the Shares at each Book-Entry Transfer Facility for purposes of the Offer
within two business days after the date of this Offer to Purchase, and any
financial institution that is a participant in any of the Book-Entry Transfer
Facilities' systems may make book-entry delivery of Shares by causing a
Book-Entry Transfer Facility to transfer such Shares into the Depositary's
account at a Book-Entry Transfer Facility in accordance with such Book-Entry
Transfer Facility's procedures for transfer. However, although delivery of
Shares may be effected through book-entry transfer at a Book-Entry Transfer
Facility, the Letter of Transmittal (or facsimile thereof), with any required
signature guarantees, or an Agent's Message in connection with a book-entry
delivery of Shares, and any other required documents, must, in any case, be
transmitted to and received by the Depositary at its address set forth on the
back cover of this Offer to Purchase prior to the Expiration Date or the
tendering shareholder must comply with the guaranteed delivery procedures
described below. DELIVERY OF DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY IN
ACCORDANCE WITH THE BOOK-ENTRY TRANSFER FACILITY'S PROCEDURES DOES NOT
CONSTITUTE DELIVERY TO THE DEPOSITARY.
SIGNATURE GUARANTEES. Signatures on all Letters of Transmittal must be
guaranteed by a participant in the Security Transfer Agents Medallion Program
(each, an "Eligible Institution"), unless the Shares tendered thereby are
tendered (i) by a registered holder of Shares who has not completed either the
box entitled "Special Delivery Instructions" or the box entitled "Special
Payment Instructions" on the Letter of Transmittal, or (ii) for the account of
an Eligible Institution. See Instruction 1 of the Letter of Transmittal.
If a Stock Certificate is registered in the name of a person other than the
signer of the Letter of Transmittal, or if payment is to be made, or a Stock
Certificate not accepted for payment or not tendered is to be returned, to a
person other than the registered holder(s), then the Stock Certificate must be
endorsed or accompanied by appropriate stock powers, in either case signed
exactly as the name(s) of the registered holder(s) appear on the Stock
Certificate, with the signature(s) on such Stock Certificate or stock powers
guaranteed as described above. See Instructions 1 and 5 of the Letter of
Transmittal.
THE METHOD OF DELIVERY OF STOCK CERTIFICATES, THE LETTER OF TRANSMITTAL AND
ANY OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH ANY BOOK-ENTRY TRANSFER
FACILITY, IS AT THE OPTION AND RISK OF THE TENDERING SHAREHOLDER AND THE
DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF
DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY
INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
ENSURE TIMELY DELIVERY.
GUARANTEED DELIVERY. If a shareholder desires to tender Shares pursuant to
the Offer and such shareholder's Stock Certificates are not immediately
available or time will not permit all required documents to reach the Depositary
prior to the Expiration Date, or the procedures for book-entry transfer cannot
be completed on a timely basis, such Shares may nevertheless be tendered if all
the following conditions are satisfied:
(i) the tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed Delivery,
substantially in the form provided by the Purchaser herewith, is received by the
Depositary prior to the Expiration Date as provided below; and
(iii) the Stock Certificates for all tendered Shares, in proper form for
transfer (or a Book-Entry Confirmation), together with a properly completed and
duly executed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees (or, in the case of a book-entry transfer, an Agent's
Message) and any other documents required by the Letter of Transmittal, are
received by the Depositary within three Nasdaq National Market System trading
days after the date of execution of the Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted by
telegram, facsimile transmission or mail to the Depositary and must include a
guarantee by an Eligible Institution in the form set forth in the Notice of
Guaranteed Delivery.
8
<PAGE>
Notwithstanding any other provision hereof, payment for Shares purchased
pursuant to the Offer will in all cases be made only after timely receipt by the
Depositary of (i) Stock Certificates evidencing such Shares or a Book-Entry
Confirmation of the delivery of such Shares, (ii) a Letter of Transmittal (or
facsimile thereof), properly completed and duly executed, with any required
signature guarantees (or, in the case of a book-entry transfer, an Agent's
Message) and (iii) any other documents required by the Letter of Transmittal.
BACK-UP FEDERAL INCOME TAX WITHHOLDING. TO PREVENT BACKUP FEDERAL INCOME
TAX WITHHOLDING WITH RESPECT TO PAYMENT OF THE PURCHASE PRICE FOR SHARES
PURCHASED PURSUANT TO THE OFFER, EACH TENDERING SHAREHOLDER MUST PROVIDE THE
DEPOSITARY WITH SUCH SHAREHOLDER'S CORRECT TAXPAYER IDENTIFICATION NUMBER AND
CERTIFY THAT SUCH SHAREHOLDER IS NOT SUBJECT TO BACKUP FEDERAL INCOME TAX
WITHHOLDING BY COMPLETING THE SUBSTITUTE FORM W-9 INCLUDED IN THE LETTER OF
TRANSMITTAL. IF BACKUP WITHHOLDING APPLIES WITH RESPECT TO A SHAREHOLDER, THE
DEPOSITARY IS REQUIRED TO WITHHOLD 31% OF ANY PAYMENTS MADE TO SUCH SHAREHOLDER.
SEE INSTRUCTION 9 OF THE LETTER OF TRANSMITTAL.
DETERMINATION OF VALIDITY. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance for payment of any
tendered Shares pursuant to any of the procedures described above will be
determined by the Purchaser, in its sole discretion, whose determination will be
final and binding on all parties. The Purchaser reserves the absolute right to
reject any or all tenders of any Shares determined by it not to be in proper
form or if the acceptance for payment of, or payment for, such Shares may, in
the opinion of the Purchaser's counsel, be unlawful. The Purchaser also reserves
the absolute right, in its sole discretion, subject to the Merger Agreement, to
waive any of the conditions of the Offer or any defect or irregularity in any
tender with respect to Shares of any particular shareholder, and the Purchaser's
interpretation of the terms and conditions of the Offer (including the Letter of
Transmittal and the Instructions thereto) will be final and binding. None of the
Purchaser, Parent, the Dealer Managers, the Depositary, the Information Agent or
any other person will be under any duty to give notification of any defects or
irregularities in tenders or will incur any liability for failure to give any
such notification.
OTHER REQUIREMENTS. By executing a Letter of Transmittal as set forth
above, a tendering shareholder irrevocably appoints designees of the Purchaser
as the shareholder's attorneys-in-fact and proxies, in the manner set forth in
the Letter of Transmittal, each with full power of substitution, to the full
extent of the shareholder's rights with respect to the Shares tendered by the
shareholder and accepted for payment by the Purchaser (and any and all other
Shares or other securities issued or issuable in respect of such Shares on or
after the date of the Merger Agreement). All such proxies shall be considered
coupled with an interest in the tendered Shares. This appointment will be
effective when, and only to the extent that, the Purchaser accepts Shares for
payment. Upon acceptance for payment, all prior proxies given by the shareholder
with respect to the Shares or other securities will, without further action, be
revoked, and no subsequent proxies may be given nor any subsequent written
consent executed by such shareholder (and if given or executed, will not be
deemed to be effective) with respect thereto. The designees of the Purchaser
will, with respect to the Shares and other securities, be empowered to exercise
all voting and other rights of such shareholder as they in their sole discretion
may deem proper at any annual, special or adjourned meeting of the Company's
shareholders, by written consent or otherwise. The Purchaser reserves the right
to require that, in order for Shares to be deemed validly tendered, immediately
upon the Purchaser's acceptance for payment of such Shares, the Purchaser must
be able to exercise full voting and other rights of a record and beneficial
holder, including rights in respect of acting by written consent, with respect
to such Shares.
A tender of Shares pursuant to any one of the procedures described above
will constitute the tendering shareholder's acceptance of the terms and
conditions of the Offer. The Purchaser's acceptance for payment of Shares
tendered pursuant to the Offer will constitute a binding agreement between the
tendering shareholder and the Purchaser upon the terms and subject to the
conditions of the Offer.
9
<PAGE>
4. WITHDRAWAL RIGHTS
Except as otherwise provided in this Section 4, tenders of Shares made
pursuant to the Offer are irrevocable, provided that Shares tendered pursuant to
the Offer may be withdrawn at any time prior to the Expiration Date and, unless
theretofore accepted for payment by the Purchaser pursuant to the Offer, may
also be withdrawn at any time after January 23, 1998, or at such later time as
may apply if the Offer is extended.
For a withdrawal to be effective, a written, telegraphic or facsimile
transmission notice of withdrawal must be timely received by the Depositary at
its address set forth on the back cover of this Offer to Purchase. Any such
notice of withdrawal must specify the name of the person who tendered the Shares
to be withdrawn, the number of Shares to be withdrawn and the name of the
registered holder, if different from that of the person who tendered such
Shares. If Stock Certificates evidencing Shares to be withdrawn have been
delivered or otherwise identified to the Depositary, then, prior to the physical
release of such Stock Certificates, the serial numbers of the particular Stock
Certificates and a signed notice of withdrawal with signatures guaranteed by an
Eligible Institution, except in the case of Shares tendered for the account of
an Eligible Institution, must also be furnished to the Depositary as described
above. If Shares have been tendered pursuant to the procedures for book-entry
transfer as set forth in Section 3, any notice of withdrawal must also specify
the name and number of the account at the appropriate Book-Entry Transfer
Facility to be credited with the withdrawn Shares.
All questions as to the form and validity (including time of receipt) of
notices of withdrawal will be determined by the Purchaser, in its sole
discretion, whose determination will be final and binding. None of the
Purchaser, Parent, the Dealer Managers, the Depositary, the Information Agent or
any other person will be under any duty to give notification of any defects or
irregularities in any notice of withdrawal or incur any liability for failure to
give any such notification.
ANY SHARES PROPERLY WITHDRAWN WILL BE DEEMED TO NOT HAVE BEEN VALIDLY
TENDERED FOR PURPOSES OF THE OFFER. However, withdrawn Shares may be re-tendered
by following one of the procedures described in Section 3 at any time prior to
the Expiration Date.
5. CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The receipt of cash for Shares pursuant to the Offer (or the Merger) will be
a taxable transaction for federal income tax purposes and may also be a taxable
transaction under applicable state, local or foreign tax laws. The tax
consequences of such receipt pursuant to the Offer (or the Merger) may vary
depending upon, among other things, the particular circumstances of the
shareholder. In general, a shareholder who receives cash for Shares pursuant to
the Offer (or the Merger) will recognize gain or loss for federal income tax
purposes equal to the difference between the amount of cash received in exchange
for the Shares sold and such shareholder's adjusted tax basis in such Shares.
Provided that the Shares constitute capital assets in the hands of the
shareholder, such gain or loss will be capital gain or loss. Pursuant to
recently enacted legislation, in the case of shareholders who are individuals,
any such capital gain will be subject to a maximum federal income tax rate of
(i) 20% if the shareholder's holding period for the Shares was more than 18
months at the time of such sale and (ii) 28% if the shareholder's holding period
for the Shares was more than 12 months but not more than 18 months at such time.
10
<PAGE>
6. PRICE RANGE OF SHARES; DIVIDENDS
The Shares trade on the Nasdaq National Market System under the symbol
"JTAX." The following table sets forth, for the fiscal quarters indicated, the
high and low sales price per Share on the Nasdaq National Market System. All
prices set forth below are as reported in published financial sources:
<TABLE>
<CAPTION>
MARKET PRICE
--------------------
<S> <C> <C>
HIGH LOW
--------- ---------
Fiscal 1996:
First Quarter................................................................................ $ 5.25 $ 2.75
Second Quarter............................................................................... 4.00 2.75
Third Quarter................................................................................ 3.75 2.25
Fourth Quarter............................................................................... 3.75 2.75
Fiscal 1997:
First Quarter................................................................................ $ 6.50 $ 3.25
Second Quarter............................................................................... 5.50 3.50
Third Quarter................................................................................ 7.75 3.75
Fourth Quarter............................................................................... 11.25 6.50
Fiscal 1998:
First Quarter................................................................................ $ 24.00 $ 9.50
Second Quarter............................................................................... 52.75 22.25
Third Quarter
(through November 24, 1997)................................................................ 67.25 50.50
</TABLE>
On November 18, 1997 the last full trading day prior to the announcement of
the terms of the Merger Agreement, the reported closing sales price per Share on
the Nasdaq National Market System was $51.50. On November 24, 1997, the last
full trading day prior to the commencement of the Offer, the reported closing
sales price per Share on the Nasdaq National Market System was $66.94.
SHAREHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR THE SHARES.
Since the Company became a public company on January 24, 1994 it has not
paid any dividends on its common stock.
7. EFFECT OF THE OFFER ON THE MARKET FOR THE SHARES; NASDAQ QUOTATION AND
EXCHANGE ACT REGISTRATION
The purchase of Shares pursuant to the Offer will reduce the number of
Shares that might otherwise trade publicly and the number of holders of Shares
and could adversely affect the liquidity and market value of the remaining
Shares held by the public.
Depending upon the aggregate market value and per share price of any Shares
not purchased pursuant to the Offer, the Shares may no longer meet the standards
for continued inclusion in the Nasdaq National Market System, which require that
an issuer have at least 200,000 publicly held shares with a market value of $1
million held by at least 400 shareholders or 300 shareholders holding round
lots. If these standards were not met, quotations might continue to be published
in the over-the-counter "additional list" or in one of the "local lists," but if
the number of holders of Shares falls below 300, or if the number of publicly
held Shares falls below 100,000, or there are not at least two market makers for
the Shares, the National Association of Securities Dealers ("NASD") rules
provide that the securities would no longer be "authorized" for Nasdaq reporting
and Nasdaq would cease to provide any quotations. Shares held directly or
indirectly by an officer or director of the Company, or by any beneficial owner
of more than 10 percent of the Shares, ordinarily will not be considered as
being publicly held for this purpose. In the event the Shares were no longer
eligible for Nasdaq quotation, quotations might still be available from other
sources. The extent of the public market for the Shares and availability of such
quotations would, however, depend upon the number of holders of Shares remaining
at such time, the interest in maintaining
11
<PAGE>
a market in the Shares on the part of securities firms, the possible termination
of registration under the Exchange Act, as described below, and other factors.
The Shares are currently "margin securities" under the regulations of the
Board of Governors of the Federal Reserve System (the "Federal Reserve Board"),
which has the effect, among other things, of allowing brokers to extend credit
on the collateral of the Shares. Depending upon factors similar to those
described above regarding listing and market quotations, following the Offer it
is possible that the Shares would no longer constitute "margin securities" for
the purposes of the margin regulations of the Federal Reserve Board and
therefore could no longer be used as collateral for loans made by brokers.
The Shares are currently registered under the Exchange Act. Registration of
the Shares under the Exchange Act may be terminated upon application of the
Company to the Commission if the Shares are not listed on a national securities
exchange or Nasdaq and there are fewer than 300 record holders of the Shares.
Termination of registration of the Shares under the Exchange Act would reduce
substantially the information required to be furnished by the Company to its
shareholders and to the Commission and would make certain provisions of the
Exchange Act, such as the short-swing profit recovery provisions of Section
16(b), the requirement of furnishing a proxy statement in connection with
shareholders' meetings pursuant to Section 14(a) and the requirements of Rule
13e-3 under the Exchange Act with respect to "going private" transactions no
longer applicable to the Company. Furthermore, if the Purchaser acquires a
substantial number of Shares or the registration of the Shares under the
Exchange Act were to be terminated, the ability of "affiliates" of the Company
and persons holding "restricted securities" of the Company to dispose of such
securities pursuant to Rule 144 under the Securities Act of 1933 may be impaired
or eliminated. If registration of the Shares under the Exchange Act were
terminated prior to the consummation of the Merger, the Shares would no longer
be "margin securities" or be eligible for Nasdaq reporting. It is the present
intention of the Purchaser to seek to cause the Company to make an application
for termination of registration of the Shares as soon as possible following the
Offer if the requirements for termination of registration are met.
8. CERTAIN INFORMATION CONCERNING THE COMPANY
The information concerning the Company contained in this Offer to Purchase,
including financial information (other than forecasts of the Company's results
of operations provided below), has been taken from or based upon publicly
available documents and records on file with the Commission and other public
sources. Neither Parent nor the Purchaser assumes any responsibility for the
accuracy or completeness of the information concerning the Company contained in
such documents and records or for any failure by the Company to disclose events
which may have occurred or may affect the significance or accuracy of any such
information but which are unknown to Parent or the Purchaser.
The Company is a Virginia corporation with its principal executive offices
located at 4575 Bonney Road, Virginia Beach, Virginia 23462. The telephone
number of the Company at such offices is (757) 473-3300. The Company is engaged
in the business of computerized preparation of tax returns.
Set forth below is a summary of certain consolidated financial information
with respect to the Company, excerpted or derived from the information contained
in the Company's Annual Report on Form 10-K/A for the fiscal year ended April
30, 1997, as well as the Company's Quarterly Report on Form 10-Q for the three
months ended July 31, 1997. More comprehensive financial information is included
in such reports and other documents filed by the Company with the Commission,
and the following summary is qualified in its entirety by reference to such
reports and other documents and all of the financial information (including any
related notes) contained therein. Such reports and other documents may be
inspected and copies may be obtained from the offices of the Commission in the
manner set forth below.
12
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JACKSON HEWITT INC.
SELECTED CONSOLIDATED FINANCIAL DATA
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JULY 31, YEAR ENDED APRIL 30,
-------------------- -------------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1997 1996 1995
--------- --------- --------- --------- ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................................. $ 2,162 $ 980 $ 31,432 $ 25,016 $ 18,215
Income (loss) from operations............................. (1,309) (2,076) 11,768 5,278 (1,078)
Income (loss) before extraordinary item................... (423) (1,322) 6,232 2,402 840
Net (loss) income......................................... (423) (2,570) 4,984 2,402 840
Net (loss) income per share
Primary................................................. (0.46) (0.59) 0.95 0.40 0.11
Fully Diluted........................................... (0.46) (0.59) 0.91 0.40 0.11
Weighted average Shares outstanding....................... 4,833 4,408 4,520 4,354 4,252
</TABLE>
<TABLE>
<CAPTION>
AT JULY 31, 1996 YEAR ENDED APRIL 30,
--------------------- -------------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1997 1996 1995
--------- ---------- --------- --------- ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash & Cash equivalent.................................. $ 5,409 $ 229 $ 6,324 $ 3,558 $ 1,416
Working capital (deficit)............................... 5,524 (1,092) 5,983 4,719 2,682
Total assets............................................ 24,424 24,646 28,160 25,956 24,892
Long-term debt.......................................... 283 3,008 1,262 2,843 4,882
Redeemable Convertible
Preferred Stock....................................... -- 3,381 3,236 3,278 2,876
Shareholders' equity.................................... 17,871 7,644 14,740 9,829 7,534
</TABLE>
RECENT OPERATING RESULTS. On November 11, 1997, the Company announced that
its revenues for the quarter ended October 31, 1997 were $3.391 million. This
compares with revenues of $1.216 million for the quarter ended October 31, 1996.
Net income for the second quarter was $0.129 million, or $.02 per Share. The
Company had a net loss of $1.008 million, or $(.24) per Share, for the quarter
ended October 31, 1996.
The Company is subject to the information filing requirements of the
Exchange Act and is required to file reports and other information with the
Commission relating to its business, financial condition and other matters.
Information, as of particular dates, concerning the Company's directors and
officers, their remuneration, options granted to them, the principal holders of
the Company's securities and any material interest of such persons in
transactions with the Company is required to be described in proxy statements
distributed to the Company's shareholders and filed with the Commission. These
reports, proxy statements and other information should be available for
inspection and copying at the Commission's office at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and also should be available for inspection and copying
at the regional offices of the Commission located at Seven World Trade Center,
New York, New York 10048 and Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of this material may also be
obtained by mail, upon payment of the Commission's customary fees, from the
Commission's principal office at 450 Fifth Street, N.W., Washington, D.C. 20549.
The Commission also maintains an internet web site at http://www.sec.gov that
contains reports, proxy statements and other information. Copies should also be
available at the offices of the NASD, 1735 K Street, N.W. Washington, D.C.
20006.
During the course of the discussions between Parent and the Company that led
to the execution of the Merger Agreement, the Company provided Parent with
certain information about the Company and its
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<PAGE>
financial performance which is not publicly available. The information provided
included the Company's fiscal 1998 adjusted budget as an independent company
(i.e., without regard to the impact to the Company of a transaction with Parent)
based upon results through September 1997 (the Company's fiscal year ends on
April 30), which included the following information: total revenues, $47.689
million; income from operations, $21.462 million; and net income (before
extraordinary item), $15.671 million. The foregoing budget information was
prepared by the Company solely for internal use and not for publication or with
a view to complying with the published guidelines of the Commission regarding
projections or with the guidelines established by the American Institute of
Certified Public Accountants and are included in this Offer to Purchase only
because they were furnished to Parent. The budget is "forward-looking" and
inherently subject to significant uncertainties and contingencies, many of which
are beyond the control of the Company, including industry performance, general
business and economic conditions, changing competition, adverse changes in the
applicable laws, regulations or rules governing tax or accounting matters and
other matters. One cannot predict whether the assumptions made in preparing the
budget will be accurate, and actual results may be materially higher or lower
than those contained in the budget. The inclusion of this information should not
be regarded as an indication that Parent, the Purchaser, the Company or anyone
who received this information considered it a reliable predictor of future
events, and this information should be relied on as such. None of Parent, the
Purchaser or the Company assumes any responsibility for the validity,
reasonableness, accuracy or completeness of the budget and the Company has made
no representation to Parent or the Purchaser regarding the budget described
above.
9. CERTAIN INFORMATION CONCERNING THE PURCHASER AND PARENT
The Purchaser is a newly incorporated Virginia corporation and a wholly
owned subsidiary of Parent. To date the Purchaser has not conducted any business
other than in connection with the Offer and the Merger. The principal executive
offices of the Purchaser are located at 6 Sylvan Way, Parsippany, New Jersey
07054.
The name, citizenship, business address, present principal occupation or
employment and five-year employment history of each of the directors and
executive officers of the Purchaser and Parent are set forth in Schedule I
hereto.
Parent is a Delaware corporation with its principal office located at 6
Sylvan Way, Parsippany, New Jersey 07054. Parent's principal line of business is
providing services to consumers through intermediaries in the travel and real
estate industries as a franchisor of hotels, residential real estate brokerage
offices and car rental operations.
Until immediately prior to the time the Purchaser purchases Shares pursuant
to the Offer, it is not anticipated that the Purchaser will have any significant
assets or liabilities or engage in activities other than those incident to its
formation and capitalization and the transactions contemplated by the Offer and
the Merger. Because the Purchaser is a newly formed corporation and has minimal
assets and capitalization, no meaningful financial information regarding the
Purchaser is available.
Financial information with respect to Parent and its subsidiaries is
included in Parent's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, which is incorporated herein by reference, and other
documents filed by Parent with the Commission. Such reports and other documents
should be available for inspection and copies thereof should be obtainable in
the manner set forth below under "Available Information."
AVAILABLE INFORMATION. Parent is subject to the informational filing
requirements of the Exchange Act and is required to file reports and other
information with the Commission relating to its business, financial condition
and other matters. Information, as of particular dates, concerning Parent's
directors and officers, their remuneration, options granted to them, the
principal holders of Parent's securities and any material interest of such
persons in transactions with Parent is required to be described in proxy
statements distributed to Parent's shareholders and filed with the Commission.
Such reports, proxy statements and other information may be inspected and copies
may be obtained from the offices of the Commission in the same manner as set
forth with respect to information concerning the Company in Section 8. Such
material
14
<PAGE>
should also be available at the offices of the New York Stock Exchange, 20 Broad
Street, New York, New York 10009.
Except as set forth in this Offer to Purchase, neither the Purchaser or
Parent (collectively, the "Purchaser Entities"), nor, to the best knowledge of
either of the Purchaser Entities, any of the persons listed on Schedule I, has
any contract, arrangement, understanding or relationship with any other person
with respect to any securities of the Company, including, but not limited to,
any contract, arrangement, understanding or relationship concerning the transfer
or the voting of any securities of the Company, joint ventures, loan or option
arrangement, puts or calls, guarantees of loans, guarantees against loss or the
giving or withholding of proxies. Except as set forth in this Offer to Purchase,
neither of the Purchaser Entities, nor, to the best knowledge of either of the
Purchaser Entities, any of the persons listed on Schedule I, has had any
business relationships or transactions with the Company or any of its executive
officers, directors or affiliates that would require reporting under the rules
of the Commission. Except as set forth in this Offer to Purchase, there have
been no contacts, negotiations or transactions between the Purchaser Entities,
or their respective subsidiaries or, to the best knowledge of either of the
Purchaser Entities, any of the persons listed on Schedule I, and the Company or
its affiliates, concerning a merger, consolidation or acquisition, tender offer
or other acquisition of securities, election of directors or a sale or other
transfer of a material amount of assets. Except as set forth in this Offer to
Purchase, neither of the Purchaser Entities nor, to the best knowledge of either
of the Purchaser Entities, any of the persons listed on Schedule I, beneficially
owns any Shares or has effected any transactions in the Shares in the past 60
days.
10. SOURCE AND AMOUNT OF FUNDS
The total amount of funds required by the Purchaser to purchase all of the
Shares pursuant to the Offer and to pay related fees and expenses is
approximately $486 million. The Purchaser plans to obtain all funds needed for
the Offer and the Merger through a capital contribution from Parent. Parent
plans to obtain such funds from cash accounts or under available lines of
credit.
Parent's revolving credit facilities consist of (i) a $750 million Five Year
Competitive Advance and Revolving Credit Agreement dated as of October 2, 1996,
as amended, among Parent, the lenders referred to therein (the "Lenders") and
The Chase Manhattan Bank ("Chase"), as Administrative Agent (the "Five Year
Revolving Credit Facility"), (ii) a $750 million 364-Day Competitive Advance and
Revolving Credit Agreement, dated as of October 2, 1996, as amended, among
Parent, the Lenders and Chase, as Administrative Agent (the "364-Day Revolving
Credit Facility"), and (iii) a $500 million Amended and Restated Credit
Agreement dated as of November 19, 1997, by and between Parent and Chase (the
"Standby Credit Facility," and together with the 364-Day Revolving Credit
Facility and the Five Year Revolving Credit Facility, the "Revolving Credit
Facilities"). Upon consummation of the Parent Merger, the commitment under the
364-Day Revolving Credit Facility will increase from $750 million to $1.25
billion. At November 24, 1997, Parent had approximately $900 million of
available borrowings under its Revolving Credit Facilities.
The 364-Day Revolving Credit Facility will mature on September 30, 1998,
provided that Parent is entitled to annually request a 364 day extension of such
maturity date. The Five Year Revolving Credit Facility will mature on October 1,
2001 and the Standby Credit Facility will mature upon the earliest to occur of
(i) January 31, 1998 or (ii) the consummation of the Parent Merger. Parent
intends to, and currently believes that it will be able to, extend the maturity
date of the Standby Credit Facility.
The 364-Day Revolving Credit Facility and the Five Year Revolving Credit
Facility provide for revolving loans which bear interest, at the option of
Parent, at rates based on competitive bids of Lenders participating in such
facilities, at a prime rate or at LIBOR plus a margin approximating 22.5 basis
points. The Standby Credit Facility provides for loans bearing interest at a
floating base rate based on Chase's base rate for domestic commercial loans, or
at a rate per annum other than the base rate if Parent and Chase agree in
writing.
15
<PAGE>
The Revolving Credit Facilities contain certain financial covenants as well
as certain restrictions on, among other things, (i) indebtedness of
subsidiaries, (ii) liens, (iii) mergers, consolidations, liquidations,
dissolutions and sales of substantially all assets, (iv) sale and leasebacks,
(v) changes in fiscal year and accounting treatment and (vi) changes in the
character of business. The financial covenants require Parent to maintain
specified (i) maximum leverage ratios and (ii) minimum interest coverage ratios.
In connection with the Revolving Credit Facilities, Parent has agreed to pay
the Lenders and Chase certain fees and to reimburse Chase and the Lenders for
certain expenses and to provide certain indemnities, as is customary for
commitments of the type described herein.
It is anticipated that any indebtedness incurred by Parent under the
Revolving Credit Facilities will be repaid from funds generated internally by
Parent and its subsidiaries, through additional borrowings, or through a
combination of such sources. No final decisions have been made concerning the
method Parent will employ to repay such indebtedness. Such decisions when made
will be based on Parent's review from time to time of the advisability of
particular actions, as well as on prevailing interest rates and financial and
other economic conditions.
THE FOREGOING DESCRIPTION OF THE REVOLVING CREDIT FACILITIES IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH REVOLVING CREDIT FACILITIES,
COPIES OF WHICH HAVE BEEN FILED WITH THE COMMISSION AND ARE INCORPORATED BY
REFERENCE AS EXHIBITS TO PARENT'S AND THE PURCHASER'S TENDER OFFER STATEMENT ON
SCHEDULE 14D-1 (THE "SCHEDULE 14D-1").
11. BACKGROUND OF THE OFFER; CONTACTS WITH THE COMPANY
Parent regularly explores and conducts discussions with regard to
acquisitions and other strategic corporate transactions. In early September
1997, the Company was identified to Parent as a potential strategic transaction
candidate and Parent decided to approach the Company regarding a possible
strategic transaction.
On September 2, 1997, a representative of Parent contacted Keith E. Alessi,
the Company's President, Chief Executive Officer and Chairman, to arrange a
meeting to discuss a potential strategic transaction between the companies. On
September 9, 1997, Henry R. Silverman, Parent's Chairman and Chief Executive
Officer, and Samuel L. Katz, Senior Vice President - Acquisitions of Parent, met
with Mr. Alessi in New York and discussed the benefits of a closer relationship
between the two companies.
On September 22, 1997, Parent and the Company entered into a confidentiality
agreement preceding Parent's review of certain information concerning the
Company.
On October 1, 1997, representatives of Parent met with Mr. Alessi at the
Company's executive offices to discuss the Company's business.
On October 9, 1997, representatives of Parent met with Mr. Alessi and two
members of the Company Board to further discuss the Company's business and,
among other things, the terms of, and conditions to, any possible transaction
between Parent and the Company.
From time to time during the course of the next month, representatives of
Parent and representatives of the Company discussed valuation parameters of the
Company and continued to discuss generally the terms and conditions of a
possible transaction.
Between November 10 and November 12, 1997, representatives of Parent,
together with Parent's legal counsel and outside auditors, conducted a due
diligence review at the offices of the Company's legal counsel and at the
offices of the Company's outside auditors and toured the Company's facilities in
the Virginia Beach area. During the same period, Parent's legal counsel and the
Company's outside legal counsel discussed structural issues regarding the
proposed acquisition, including Parent's requirement that there be agreements
along the lines of the Shareholders Agreements and the Stock Option Agreement,
and that there be certain other provisions in the event of a termination of the
Merger Agreement by the Company in connection with a competing transaction.
16
<PAGE>
On November 12, 1997, Parent delivered a draft merger agreement to the
Company's legal counsel, and on November 14, 1997, Parent delivered drafts of
the shareholders agreements and the stock option agreement to the Company's
legal counsel.
On November 16, 1997, the parties began negotiating the terms of a
definitive merger agreement, definitive shareholders agreements and a definitive
stock option agreement.
Negotiations between Parent and the Company continued through November 19,
1997, culminating in Parent and the Company agreeing upon a form of Merger
Agreement, Shareholders Agreement and Stock Option Agreement which were
presented to and approved by the Company Board at a meeting held on November 19,
1997 and by Parent's Board of Directors at a telephonic meeting also held
November 19, 1997. Following these approvals, the Merger Agreement, Shareholders
Agreements and Stock Option Agreement were executed and delivered and the
transaction was publicly announced on November 19, 1997.
12. THE OFFER, MERGER, MERGER AGREEMENT, AND THE OTHER TRANSACTION AGREEMENTS
The purpose of the Offer, the Merger, the Merger Agreement, the Stock Option
Agreement and the Shareholders Agreements is to enable Parent to acquire control
of, and the entire equity interest in, the Company. Upon consummation of the
Merger, the Company will become a subsidiary of Parent. The Offer, the Stock
Option Agreement and the Shareholders Agreements are intended to increase the
likelihood that the Merger will be effected.
MERGER AGREEMENT
The following is a summary of certain provisions of the Merger Agreement.
The summary is qualified in its entirety by reference to the Merger Agreement
which is incorporated herein by reference and a copy of which has been filed
with the Commission as an exhibit to the Schedule 14D-1. The Merger Agreement
may be examined and copies may be obtained at the places and in the manner set
forth in Section 8 of this Offer to Purchase.
THE OFFER. The Merger Agreement provides that the Purchaser will commence
the Offer and that, upon the terms and subject to prior satisfaction or waiver
of the conditions of the Offer, the Purchaser will purchase all Shares validly
tendered pursuant to the Offer. The Merger Agreement provides that, without the
written consent of the Company, the Purchaser will not decrease the Offer Price,
decrease the number of Shares sought in the Offer, accelerate the initial
scheduled expiration date of the Offer, or amend any other condition of the
Offer in a manner adverse to the holders of Shares (other than with respect to
insignificant changes or amendments and subject to certain conditions in the
Merger Agreement), except that if on the initial scheduled expiration date of
the Offer, which is January 5, 1998, all conditions to the Offer shall not have
been satisfied or waived, the Purchaser may extend the expiration date for one
or more periods not to exceed an aggregate of 40 business days. The Merger
Agreement provides that if, immediately prior to the initial expiration date of
the Offer, as it may be extended, the Shares tendered and not withdrawn pursuant
to the Offer equal less than 90% of the Shares outstanding, the Purchaser may
extend the Offer for one or more periods not to exceed an aggregate of 30
business days.
THE MERGER. Following the consummation of the Offer, the Merger Agreement
provides that, subject to the terms and conditions thereof, and in accordance
with Virginia law, at the Effective Time, the Purchaser will be merged with and
into the Company. As a result of the Merger, the separate corporate existence of
the Purchaser will cease and the Company will continue as the surviving
corporation (the "Surviving Corporation").
The respective obligations of Parent and the Purchaser, on the one hand, and
the Company, on the other hand, to effect the Merger are subject to the
satisfaction on or prior to the Closing Date (as defined in the Merger
Agreement) of each of the following conditions, any and all of which may be
waived in whole or in part, to the extent permitted by applicable law: (i) the
Merger Agreement shall have been approved and adopted by the requisite vote of
the holders of Shares, if required by applicable law, in order to consummate the
Merger; (ii) no law, statute, rule, order, decree or regulation shall have been
enacted or
17
<PAGE>
promulgated by any Governmental Entity (as defined in the Merger Agreement) of
competent jurisdiction which declares the Merger Agreement invalid or
unenforceable in any material respect or which prohibits the consummation of the
Merger, and all governmental consents, orders and approvals required for the
consummation of the Merger and the transactions contemplated by the Merger
Agreement shall have been obtained and shall be in effect at the Effective Time;
(iii) Parent, the Purchaser or their affiliates shall have purchased Shares
pursuant to the Offer; and (iv) the applicable waiting period under the HSR Act
shall have expired or been terminated.
At the Effective Time of the Merger (i) each issued and outstanding Share
(other than Shares that are owned by the Company as treasury stock and Shares
owned by Parent), the Purchaser or any other wholly owned subsidiary of Parent,
will be converted into the right to receive the Merger Consideration and (ii)
each issued and outstanding share of the Purchaser will be converted into one
share of common stock of the Surviving Corporation.
THE COMPANY'S BOARD OF DIRECTORS. The Merger Agreement provides that
promptly after the purchase by Parent of at least two thirds of the outstanding
Shares (on a fully diluted basis), Parent will be entitled to designate such
number of directors, rounded up to the next whole number, on the Company Board
as is equal to the product of the total number of directors on the Company Board
multiplied by the percentage that the number of Shares so accepted for payment
bears to the total number of Shares then outstanding. The Company will, upon
request of the Purchaser, use its best efforts promptly to secure the
resignations of such number of its incumbent directors as is necessary to enable
Parent's designees to be elected to the Company Board. The Company's obligation
to appoint the Purchaser's designees to the Board of Directors is subject to
compliance with Section 14(f) of the Exchange Act and Rule 14f-1 promulgated
thereunder.
SHAREHOLDERS MEETING. Pursuant to the Merger Agreement, the Company will,
if required by applicable law in order to consummate the Merger, duly call, give
notice of, convene and hold a special meeting of its shareholders (the "Special
Meeting") as soon as practicable following the acceptance for payment and
purchase of Shares by the Purchaser pursuant to the Offer for the purpose of
considering and taking action upon the Merger Agreement. The Merger Agreement
provides that the Company will, if required by applicable law in order to
consummate the Merger, prepare and file with the Commission a preliminary proxy
or information statement (the "Proxy Statement") relating to the Merger and the
Merger Agreement and use its best efforts (i) to obtain and furnish the
information required to be included by the Commission in the Proxy Statement
and, after consultation with Parent, to respond promptly to any comments made by
the Commission with respect to the preliminary Proxy Statement and cause a
definitive Proxy Statement to be mailed to its shareholders and (ii) to obtain
the necessary approvals of the Merger and the Merger Agreement by its
shareholders. If the Purchaser acquires more than two-thirds of the outstanding
Shares, the Purchaser will have sufficient voting power to approve the Merger,
even if no other shareholder votes in favor of the Merger. The Company has
agreed, subject to the provisions described below under "No Solicitation," to
include in the Proxy Statement the recommendation of the Company Board that
shareholders of the Company vote in favor of the approval of the Merger and the
adoption of the Merger Agreement. Parent has agreed that it will vote, or cause
to be voted, all of the Shares then owned by it, the Purchaser or any of its
other subsidiaries and affiliates in favor of the approval of the Merger and the
adoption of the Merger Agreement.
The Merger Agreement provides that in the event that Parent, the Purchaser
or any other subsidiary of Parent acquires at least 90% of the outstanding
Shares, pursuant to the Offer or otherwise, Parent, the Purchaser and the
Company will, at the request of Parent and subject to the terms of the Merger
Agreement, take all necessary and appropriate action to cause the Merger to
become effective as soon as practicable after such acquisition, without a
meeting of shareholders of the Company, in accordance with Virginia law.
COMPANY OPTIONS. Pursuant to the Merger Agreement, except with respect to
any Roll-Over Option (as defined below), the Company will cause all Company
Options outstanding immediately prior to the Effective Time under the Option
Plans to become fully exercisable and vested. Each such Company Option
18
<PAGE>
will be cancelled, and, in consideration thereof and in full satisfaction of all
rights of the holder of such Company Options, at the Effective Time Parent will
pay, or cause the Purchaser to pay, to the holder thereof an amount in cash
equal to the product of (A) the excess of the Merger Consideration over the
exercise price per Share of such Company Option, multiplied by (B) the number of
Shares subject to such Company Option (net of applicable withholding taxes).
With respect to each Company Option as to which the holder, no later than
five days prior to the Effective Time, shall have delivered to Parent his or her
written election to have such Company Options treated as described in this
paragraph (a "Roll-Over Option"), Parent and the Company will cause each
outstanding Roll-Over Option to be assumed by Parent and converted into a fully
vested option (or a new substitute option shall be granted) (a "Parent Option"),
exercisable throughout the period specified in the original option award
agreement, to purchase shares of common stock, par value $.01 per share, of
Parent ("Parent Common Stock") issued under Parent's 1993 Amended and Restated
Stock Option Plan (or such surviving plan as may result from the Parent Merger),
or any other similar stock option plan of Parent adopted specifically for
employees of the Company (the "Parent Option Plan"). Pursuant to the Merger
Agreement (i) the number of shares of Parent Common Stock subject to such Parent
Option will be determined by multiplying the number of Shares subject to the
Roll-Over Option to be cancelled by the Option Exchange Ratio (as defined
below), rounding any fractional share down to the nearest whole share, and (ii)
the exercise price per share of such Parent Option will be determined by
dividing the exercise price per share under the Roll-Over Option in effect
immediately prior to the Effective Time by the Option Exchange Ratio, and
rounding the exercise price thus determined up to the nearest whole cent,
subject to appropriate adjustments for stock splits and other similar events.
Except as provided above, the converted or substituted Parent Options will be
subject to the same terms and conditions (including, without limitation,
expiration date, vesting and exercise provisions) as were applicable to the
Roll-Over Options immediately prior to the Effective Time. For purposes of the
Merger Agreement, the "Option Exchange Ratio" is (x) the Offer Price divided by
(y) the average of the closing prices of Parent Common Stock on the New York
Stock Exchange during the five trading days preceding the fifth trading day
prior to the closing date of the Merger.
In addition, except as may be otherwise agreed to by Parent or the Purchaser
and the Company, the Option Plans will terminate as of the Effective Time and
the provisions in any other plan, program or arrangement providing for the
issuance or grant of any other interest in respect of the capital stock of the
Company or any of its Subsidiaries will be deleted as of the Effective Time.
INTERIM OPERATIONS. Pursuant to the Merger Agreement, the Company has
agreed that, except as expressly contemplated by the Merger Agreement or
consented to in writing by Parent, such consent not to be unreasonably withheld
or delayed, during the period from the date of the Merger Agreement to the
Effective Time, and prior to the time the directors of the Purchaser constitute
two-thirds of the Company Board: (a) the business of the Company and its
subsidiaries will be conducted only in the usual, regular and ordinary course in
substantially the same manner as conducted prior to the date of the Merger
Agreement, and each of the Company and its subsidiaries will use its best
efforts to preserve its business organization intact, keep available the
services of its current officers and employees and maintain its existing
relations with franchisees, customers, suppliers, creditors, business partners
and others having business dealings with it, to the end that its goodwill and
ongoing business will be unimpaired at the Effective Time of the Merger in any
material respect; (b) the Company will not, directly or indirectly, (i) sell,
transfer or pledge or agree to sell, transfer or pledge any of the shares,
preferred stock or capital stock of any of its subsidiaries beneficially owned
by it, (ii) amend its Articles of Incorporation or Bylaws or similar
organizational documents; or (iii) split, combine or reclassify the outstanding
Shares or shares of preferred stock or any outstanding capital stock of any of
the subsidiaries of the Company; (c) neither the Company nor any of its
subsidiaries will: (i) declare, set aside or pay any dividend or other
distribution payable in cash, stock or property with respect to its capital
stock; (ii) except pursuant to the Stock Option Agreement, issue, sell, pledge,
dispose of or encumber any shares of, or securities convertible into or
exchangeable for, or options, warrants, calls, commitments or rights of any kind
to acquire, any shares of capital stock of any class of the
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Company or its subsidiaries, other than Shares reserved for issuance on the date
of the Merger Agreement pursuant to the exercise of Company Options outstanding
on the date of the Merger Agreement; (iii) transfer, lease, license, sell,
mortgage, pledge, dispose of, or encumber any material assets other than in the
ordinary and usual course of business and consistent with past practice, or
incur or modify any material indebtedness or other liability, other than in the
ordinary and usual course of business and consistent with past practice; or (iv)
redeem, purchase or otherwise acquire directly or indirectly any of its capital
stock; (d) neither the Company nor any of its subsidiaries will: (i) grant any
increase in the compensation payable or to become payable by the Company or any
of its subsidiaries to any of its executive officers or key employees or (ii)(A)
adopt any new, or (B) amend or otherwise increase, or accelerate the payment or
vesting of the amounts payable or to become payable under any existing, bonus,
incentive compensation, deferred compensation, severance, profit sharing, stock
option, stock purchase, insurance, pension, retirement or other employee benefit
plan agreement or arrangement; or (iii) enter into any employment or severance
agreement with or, except in accordance with the existing written policies of
the Company, grant any severance or termination pay to any officer, director or
employee of the Company or any of its subsidiaries; (e) neither the Company nor
any of its subsidiaries will modify, amend or terminate any of its material
contracts or waive, release or assign any material rights or claims, except in
the ordinary course of business and consistent with past practice; (f) neither
the Company nor any of its subsidiaries will permit any material insurance
policy naming it as a beneficiary or a loss payable payee to be cancelled or
terminated without notice to Parent, except in the ordinary course of business
and consistent with past practice; (g) neither the Company nor any of its
subsidiaries will: (i) incur or assume any long-term debt, or except in the
ordinary course of business, incur or assume any short-term indebtedness in
amounts not consistent with past practice; (ii) assume, guarantee, endorse or
otherwise become liable or responsible (whether directly, contingently or
otherwise) for the obligations of any other person, except in the ordinary
course of business and consistent with past practice; (iii) make any loans,
advances or capital contributions to, or investments in, any other person (other
than to wholly owned subsidiaries of the Company); or (iv) enter into any
material commitment or transaction (including, but not limited to, any
borrowing, capital expenditure or purchase, sale or lease of assets or real
estate); (h) neither the Company nor any of its subsidiaries will change any of
the accounting methods used by it unless required by generally accepted
accounting principles; (i) neither the Company nor any of its subsidiaries will
pay, discharge or satisfy any claims, liabilities or obligations (absolute,
accrued, asserted or unasserted, contingent or otherwise), other than the
payment, discharge or satisfaction in the ordinary course of business and
consistent with past practice, of claims, liabilities or obligations reflected
or reserved against in, or contemplated by, the consolidated financial
statements (or the notes thereto) of the Company and its consolidated
subsidiaries; (j) neither the Company nor any of its subsidiaries will adopt a
plan of complete or partial liquidation, dissolution, merger, consolidation,
restructuring, recapitalization or other reorganization of the Company or any of
its subsidiaries (other than the Merger); (k) neither the Company nor any of its
subsidiaries will take, or agree to commit to take, any action that would or is
reasonably likely to result in any of the conditions to the Merger not being
satisfied, or that would make any representation or warranty of the Company
contained in the Merger Agreement inaccurate in any respect at, or as of any
time prior to, the Effective Time, or that would impair the ability of the
Company to consummate the Merger in accordance with the terms hereof or delay
such consummation; and (l) neither the Company nor any of its subsidiaries will
enter into an agreement, contract, commitment or arrangement to do any of the
foregoing, or to authorize, recommend, propose or announce an intention to do
any of the foregoing.
NO SOLICITATION. In the Merger Agreement, the Company has agreed that
neither the Company nor any of its subsidiaries or affiliates will (and the
Company will cause its officers, directors, employees, representatives and
agents, including, but not limited to, investment bankers, attorneys and
accountants, not to), directly or indirectly, encourage, solicit, participate in
or initiate discussions or negotiations with, or provide any information to, any
corporation, partnership, person or other entity or group (other than Parent,
any of its affiliates or representatives) concerning any merger, tender offer,
exchange offer, sale of assets, sale of shares of capital stock or debt
securities or similar transactions involving the Company or
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any Subsidiary (an "Acquisition Proposal"). The Company also agreed to
immediately cease any existing activities, discussions or negotiations with any
parties conducted prior to the date of the Merger Agreement with respect to any
of the foregoing. The Merger Agreement provides that the Company may furnish
information concerning its business, properties or assets to any corporation,
partnership, person or other entity or group pursuant to appropriate
confidentiality agreements, and may negotiate and participate in discussions and
negotiations with such entity or group concerning an Acquisition Proposal if (x)
such entity or group has on an unsolicited basis submitted a bona fide written
proposal to the Company Board relating to any such transaction which the Company
Board determines in good faith, represents a superior transaction to the Offer
and the Merger and which is not subject to the receipt of any necessary
financing and (y) in the opinion of the Company Board, only after receipt of (i)
a written opinion from the Company's investment banking firm that the
Acquisition Proposal is superior, from a financial point of view, to the Offer
and the Merger, and (ii) advice from independent legal counsel to the Company to
the effect that the failure to provide such information or access or to engage
in such discussions or negotiations would be likely to cause the Company Board
to violate its fiduciary duties to the Company's shareholders under applicable
law (an Acquisition Proposal which satisfies clauses (x) and (y) being referred
to in the Merger Agreement as a "Superior Proposal"). The Merger Agreement also
provides that the Company will promptly communicate to Parent the terms of any
proposal, discussion, negotiation or inquiry (and will disclose any written
materials received by the Company in connection with such proposal, discussion
negotiation, or inquiry) and the identity of the party making such proposal or
inquiry which it may receive in respect of any such transaction.
Except as provided below, pursuant to the terms of the Merger Agreement,
neither the Company Board nor any committee thereof is permitted to (i) withdraw
or modify, or propose to withdraw or modify, in a manner adverse to Parent or
the Purchaser, the approval or recommendation by such Company Board or any such
committee of the Offer, the Merger Agreement or the Merger, (ii) approve or
recommend, or propose to approve or recommend, any Acquisition Proposal or (iii)
enter into any agreement with respect to any Acquisition Proposal.
Notwithstanding the foregoing, prior to the time of acceptance for payment of
Shares in the Offer, the Company Board may (subject to the terms of this and the
following sentence) withdraw or modify its approval or recommendation of the
Offer, the Merger Agreement or the Merger, approve or recommend a Superior
Proposal, or enter into an agreement with respect to a Superior Proposal,
PROVIDED, that the Company will promptly advise Parent orally and in writing of
any Superior Proposal or any inquiry which could lead to a Superior Proposal,
will specify the material terms and conditions of such Superior Proposal and
identify the person making such Superior Proposal; PROVIDED, FURTHER, that the
Company will not enter into an agreement with respect to a Superior Proposal
unless the Company shall have furnished Parent with written notice not later
than 12:00 noon two days in advance of any date that it intends to enter into
such agreement. In addition, if the Company enters into an agreement with
respect to any Acquisition Proposal, it will concurrently with entering into
such agreement pay, or cause to be paid, to Parent the Termination Fee described
below under "Termination Fee."
INDEMNIFICATION AND INSURANCE. Pursuant to the Merger Agreement, for five
years after the Effective Time, the Surviving Corporation (or any successor to
the Surviving Corporation) will indemnify, defend and hold harmless the present
and former officers and directors of the Company and its subsidiaries (each an
"Indemnified Party") against all losses, claims, damages, liabilities, fees and
expenses (including reasonable fees and disbursements of counsel and judgments,
fines, losses, claims, liabilities and amounts paid in settlement (provided that
any such settlement is effected with the written consent of the Parent or the
Surviving Corporation)) arising out of actions or omissions occurring at or
prior to the Effective Time to the full extent permitted under Virginia law
(provided that such actions or omissions were in compliance with the standards
set forth under Virginia law, the Company's Articles of Incorporation or the
Company's Bylaws), subject to the terms of the Company's Articles of
Incorporation and the Company's Bylaws, all as in effect at the date of the
Merger Agreement; PROVIDED that, in the event any claim or claims are asserted
or made within such five year period, all rights to indemnification in respect
of any such claim or claims shall continue until disposition of any and all such
claims; PROVIDED, FURTHER, that nothing in the Merger
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Agreement will impair any rights or obligations of any present or former
directors or officers of the Company.
The Merger Agreement also provides that Parent or the Surviving Corporation
will maintain the Company's existing officers' and directors' liability
insurance ("D&O Insurance") for a period of not less than five years after the
Effective Date; PROVIDED, that the Parent may substitute therefor policies of
substantially similar coverage and amounts containing terms no less favorable to
such former directors or officers; PROVIDED, FURTHER, that in no event will the
Company be required to pay aggregate premiums for insurance under the Merger
Agreement in excess of 200% of the aggregate premiums paid by the Company in
1997 on an annualized basis for such purpose.
REPRESENTATIONS AND WARRANTIES. In the Merger Agreement, the Company has
made customary representations and warranties to Parent and the Purchaser with
respect to, among other things, its organization, capitalization, authorization
and validity of the Merger Agreement, consents and approvals, public filings and
financial statements, conduct of business, undisclosed liabilities, litigation,
employee benefit plans, tax matters, title and condition of properties,
intellectual property, compliance with laws, contracts, relationships with
franchisees, potential conflicts of interest, information in the Proxy
Statement, opinion of financial advisor and brokers and finders.
TERMINATION; FEES. The Merger Agreement may be terminated and the Merger
abandoned at any time prior to the Effective Time, whether before or after
shareholder approval thereof: (a) by the mutual written consent of the Board of
Directors of Parent or the Purchaser and the Company Board, (b) by either of the
Company Board or the Board of Directors of Parent or the Purchaser: (i) if the
Offer shall have expired without any Shares being purchased therein; provided,
that such right to terminate the Merger Agreement will not be available to any
party whose failure to fulfill any obligation under the Merger Agreement has
been the cause of, or resulted in, the failure of Parent or the Purchaser, as
the case may be, to purchase the Shares pursuant to the Offer on or prior to
such date; or (ii) if any Governmental Entity shall have issued an order, decree
or ruling or taken any other action (which order, decree, ruling or other action
the parties hereto shall use their best efforts to lift), which permanently
restrains, enjoins or otherwise prohibits the acceptance for payment of, or
payment for, Shares pursuant to the Offer or the Merger and such order, decree,
ruling or other action shall have become final and non-appealable; (c) by the
Company Board: (i) if Parent, the Purchaser or any of their affiliates shall
have failed to commence the Offer on or prior to five business days following
the date of the initial public announcement of the Offer; provided, that the
Company may not terminate the Merger Agreement pursuant to this clause (i) if
the Company is in material breach of its obligations under this Agreement; (ii)
in connection with entering into a definitive agreement with respect to an
Acquisition Proposal, provided it has complied with all provisions thereof,
including the notice provisions described above under "No Solicitation", and
that it makes simultaneous payment of the Termination Fee (as defined below); or
(iii) if Parent or the Purchaser shall have breached in any material respect any
of their respective representations, warranties, covenants or other agreements
contained in the Merger Agreement, which breach cannot be or has not been cured
within 30 days after the giving of written notice to Parent or the Purchaser, as
applicable, except, in any case, for such breaches which are not, in Parent's
opinion, reasonably likely to affect adversely Parent's or the Purchaser's
ability to complete the Offer or the Merger, (d) by the Board of Directors of
Parent or the Purchaser: (i) if, due to an occurrence that if occurring after
the commencement of the Offer would result in a failure to satisfy any of the
conditions described in Section 14 hereof, Parent, the Purchaser, or any of
their affiliates shall have failed to commence the Offer on or prior to five
business days following the date of the initial public announcement of the
Offer; (ii) if prior to the purchase of Shares pursuant to the Offer, the
Company shall have breached any representation, warranty, covenant or other
agreement contained in this Agreement which (A) would give rise to the failure
of a condition set forth in paragraph (f) or (g) of Section 14 hereof and (B)
cannot be or has not been cured within 30 days after the giving of written
notice to the Company; or (iii) if either Parent or the Purchaser is entitled to
terminate the Offer as a result of the occurrence of any event set forth in
paragraph (e) of Section 14 hereof.
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In accordance with the Merger Agreement, if (x) the Board of Directors of
the Company terminates the Merger Agreement pursuant to clause (c)(ii) of the
immediately preceding paragraph, (y) the Board of Directors of Parent or the
Purchaser terminates the Merger Agreement pursuant to clause (d)(iii) of the
immediately preceding paragraph, or (z) prior to the termination of the Merger
Agreement (other than by the Company Board pursuant to clauses (c)(i) or
(c)(iii) of the immediately preceding paragraph), an Acquisition Proposal shall
have been made and within 12 months of such termination, the same or another
Acquisition Proposal from the same or another party shall be accepted and the
related transaction consummated pursuant to a definitive agreement or otherwise,
the Company will pay to Parent (concurrently with such termination, in the case
of clauses (x) or (y) above, and not later than two business days after the
Company takes any such action with respect to an Acquisition Proposal, in the
case of clause (z) above) an amount equal to $13,650,000 plus an amount equal to
the fees and expenses incurred by Parent and the Purchaser in connection with
the Offer, the Merger, the Merger Agreement and the consummation of the
transactions contemplated thereby (the portion of such fees and expenses payable
hereunder not to exceed $750,000) (the "Termination Fee").
STOCK OPTION AGREEMENT
The following is a summary of the material terms of the Stock Option
Agreement. This summary is qualified in its entirety by reference to the Stock
Option Agreement which is incorporated herein by reference and a copy of which
has been filed with the Commission as an exhibit to Schedule 14D-1. The Stock
Option Agreement may be examined and a copy may be obtained at the place and in
the manner set forth in Section 8.
STOCK OPTION. Pursuant to the Stock Option Agreement, the Company has
granted the Purchaser the Stock Option to purchase for $68.00 per Share (the
"Exercise Price") up to an aggregate of 1,326,331 Shares; provided, however,
that in no event will the number of Option Shares exceed 19.9% of the Company's
issued and outstanding Shares (without giving effect to any Shares subject to or
issued pursuant to the Stock Option). The number of Option Shares that may be
received upon the exercise of the Stock Option and the Exercise Price are
subject to adjustment as set forth in the Stock Option Agreement.
The Stock Option Agreement also provides that, in the event that any
additional Shares are either (i) issued or otherwise become outstanding after
the date of the Stock Option Agreement (other than pursuant to the Stock Option
Agreement) or (ii) redeemed, repurchased, retired or otherwise cease to be
outstanding after the date of the Stock Option Agreement, the number of Option
Shares shall be increased or decreased, as appropriate, so that, after such
issuance, such number equals 19.9% of the number of Shares then issued and
outstanding without giving effect to any Shares subject to issuance pursuant to
the Option. The Option may be exercised by the Purchaser at any time or from
time to time following the occurrence of a Triggering Event (as hereinafter
defined), in whole or in part, until the expiration of six months following the
termination of the Merger Agreement in accordance with its terms. The Company's
obligation to issue Option Shares upon exercise of the Stock Option is subject
to the conditions that (i) all waiting periods under the HSR Act required for
the purchase of the Option Shares upon such exercise shall have expired or been
waived and (ii) there shall not be in effect any preliminary injunction or other
order issued by any Governmental Entity prohibiting the exercise of the Stock
Option pursuant to the Stock Option Agreement.
Pursuant to the Stock Option Agreement, the term "Triggering Event" means
the occurrence of any of the following events (a) a person, entity or group (as
such terms are defined in the Exchange Act and the rules and regulations
thereunder), other than Parent and its subsidiaries or affiliates (each such
person, entity or group being a "Third Party"), shall publicly propose (x) any
merger, tender offer, exchange offer, sale of assets, sale of shares of capital
stock or debt securities or similar transactions involving the Company or any
subsidiary, (y) that any change be made in the composition of a majority of the
Company Board and such Third Party shall file proxy materials or other documents
with the Commission in respect of such proposal or (z) the purchase of 20
percent or more of the total voting power of the Company,
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including by tender or exchange offer, (b) the Purchaser shall have accepted
Shares for payment pursuant to the Offer constituting a majority of the Shares
outstanding on a fully diluted basis (excluding Shares issuable pursuant to this
Agreement), (c) the Company shall have breached the covenants contained in the
Merger Agreement which are described above under "The Merger Agreement--No
Solicitation", (d) one or more of the events set forth in paragraph (e) of
Section 14 hereof shall have occurred, or (e) an event as a result of which
Parent is, or, as a result of an Acquisition Proposal having been made, may be,
entitled to receive the Termination Fee pursuant to the Merger Agreement. The
Company will notify the Purchaser promptly in writing of the occurrence of any
Triggering Event of which it has knowledge, it being understood that the giving
of such notice by the Company shall not be a condition to the right of the
Purchaser to exercise the Option.
Pursuant to the Stock Option Agreement, if, at any time during the period
commencing on the occurrence of an event as a result of which Parent is, or, as
a result of an Acquisition Proposal having been made, may be, entitled to
receive the Termination Fee pursuant to the Merger Agreement and ending on the
termination of the Option in accordance with its terms (a) the Purchaser sends
to the Company an exercise notice indicating the Purchaser's election to
exercise its right pursuant to the Stock Option Agreement, then the Company will
pay to the Purchaser, in exchange for the cancellation of the Stock Option with
respect to such number of Option Shares as the Purchaser specifies in the
exercise notice, an amount in cash equal to such number of Option Shares
multiplied by the difference between (a) the Market/Offer Price (as defined
below) and (ii) the Exercise Price, or (b) the owner of Option Shares from time
to time (the "Owner") sends to the Company an exercise notice indicating the
Owner's election to exercise its right pursuant to the Stock Option Agreement,
then the Company shall pay to the Owner, in exchange for the Option Shares as
specified in the notice, an amount in cash equal to such number of Option Shares
multiplied by the Market/Offer Price.
Pursuant to the Stock Option Agreement, the term "Market/Offer Price" means
the highest of (i) the price per Share at which a tender offer or exchange offer
therefor has been made, (ii) the price per Share to be paid by any third party
pursuant to an agreement with the Company, (iii) the highest closing price for
the Shares within the six-month period immediately preceding the date the
Purchaser gives notice of the required repurchase of the Stock Option or the
Owner gives notice of the required repurchase of Option Shares, as the case may
be, or (iv) in the event of a sale of all or a substantial portion of the
Company's assets, the sum of the price paid in such sale for such assets and the
current market value of the remaining assets of the Company as determined by a
nationally recognized investment banking firm mutually selected by the Purchaser
or the Owner, as the case may be, on the one hand, and the Company, on the other
hand, divided by the number of Shares outstanding at the time of such sale. In
determining the Market/Offer Price, the value of consideration other than cash
shall be determined by a nationally recognized investment banking firm mutually
selected by the Purchaser or the Owner, as the case may be, on the one hand, and
the Company, on the other hand. Notwithstanding the termination of the Stock
Option, the Purchaser or the Owner, as the case may be, will be entitled to
exercise its rights under the Stock Option Agreement if it has exercised such
rights in accordance with the terms hereof prior to the termination of the Stock
Option.
SHAREHOLDERS AGREEMENTS
The following is a summary of the material terms of the Shareholders
Agreements. This summary is qualified in its entirety by reference to the
Shareholder Agreements which are incorporated herein by reference and a copy of
each of which has been filed with the Commission as an exhibit to the Schedule
14D-1. The Shareholders Agreements may be examined and a copy of each of them
may be obtained at the place and in the manner set forth in Section 8.
TENDER OF SHARES. In connection with the execution of the Merger Agreement,
Parent and the Purchaser entered into a separate Shareholders Agreement with
each of the Selling Shareholders. Upon the terms and subject to the conditions
of each of such agreements, each of the Selling Shareholders has agreed to
validly tender (and not withdraw) pursuant to and in accordance with the terms
of the Offer, not
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later than the fifteenth business day after commencement of the Offer, the
number of Shares owned beneficially by such Selling Shareholder. The Selling
Shareholders beneficially own an aggregate of 501,519 Shares directly and hold
stock options to purchase an aggregate of 316,074 Shares (which Shares represent
approximately 7% and 4%, respectively, of the Company's outstanding Shares on a
fully diluted basis).
PROVISIONS CONCERNING THE SHARES. The Selling Shareholders have agreed that
during the period commencing on the date of each of the Shareholders Agreements
and continuing until the first to occur of the Effective Time or the termination
of the Merger Agreement in accordance with its terms, at any meeting of the
Company's shareholders or in connection with any written consent of the
Company's shareholders, the Selling Shareholders will vote (or cause to be
voted) the Shares held of record or beneficially owned by each of such Selling
Shareholders: (i) in favor of the Merger, the execution and delivery by the
Company of the Merger Agreement and the approval of the terms thereof and each
of the other actions contemplated by the Merger Agreement, the Stock Option
Agreement and each of the Shareholders Agreements and any actions required in
furtherance thereof; and (ii) against any Acquisition Proposal and against any
action or agreement that would impede, frustrate, prevent or nullify each of the
Shareholders Agreements or result in a breach in any respect of any covenant,
representation or warranty or any other obligation or agreement of the Company
under the Merger Agreement or which would result in any of the conditions to the
Offer or to the Merger not being fulfilled. In addition, each of the Selling
Shareholders has appointed representatives of Parent as proxies to vote such
Selling Shareholder's Shares or grant a consent or approval in respect of such
Shares in favor of the various transactions contemplated by the Merger Agreement
and against any Acquisition Proposal. Each of the Selling Shareholders also
agreed not to transfer such Selling Shareholder's Shares and not to, directly or
indirectly, encourage, solicit, participate in or initiate discussions or
negotiations with, or provide any information to, any corporation, partnership,
person or other entity or group (other than Parent, any of its affiliates or
representatives) concerning any Acquisition Proposal.
OTHER COVENANTS, REPRESENTATIONS, WARRANTIES. In connection with each of
the Shareholders Agreements, each of the Selling Shareholders made certain
customary representations and warranties, including with respect to (i)
ownership of the Shares, (ii) the Selling Shareholder's authority to enter into
and perform its or his obligations under the Shareholders Agreement, (iii) the
absence of conflicts and requisite governmental consents and approvals, and (iv)
the absence of encumbrances on and in respect of the Selling Shareholder's
Shares. Parent and the Purchaser have made certain representations and
warranties with respect to Parent and the Purchaser's authority to enter into
the Shareholders Agreements and the absence of conflicts and requisite
governmental consents and approvals.
CONFIDENTIALITY AGREEMENT
Pursuant to the Confidentiality Agreement entered into on September 22, 1997
by Parent and the Company (the "Confidentiality Agreement"), the Company and
Parent agreed to provide, among other things, for the confidential treatment of
their discussions regarding the Offer and the Merger and the exchange of certain
confidential information concerning the Company. The Confidentiality Agreement
is incorporated herein by reference and a copy of it has been filed with the
Commission as an exhibit to the Schedule 14D-1. The Confidentiality Agreement
may be examined and copies may be obtained at the places and in the manner set
forth in Section 8 of this Offer to Purchase.
EMPLOYMENT AGREEMENTS
In connection with the Merger, the Company entered into an employment
agreement, dated as of November 19, 1997, with Keith E. Alessi (the "Employment
Agreement") under which Mr. Alessi will continue to serve as the Company's
President and Chief Executive Officer following the consummation of the Merger.
The term of the Employment Agreement commences at the Effective Time of the
Merger and expires on the first anniversary thereof. Pursuant to the Employment
Agreement, Mr. Alessi will be paid an annual salary of $300,000 per year, and
will be eligible to receive a bonus of up to $300,000 per year if
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certain performance objectives of the Company and of Cendant are met. The
Employment Agreement includes a covenant not to compete or to solicit customers
of the Company for a period of two years following termination of Mr. Alessi's
employment for any reason, and imposes certain non-disclosure obligations on Mr.
Alessi with respect to the Company's confidential and proprietary information.
The Company may terminate the Employment Agreement at any time without cause by
notice to Mr. Alessi, provided that, upon termination without cause, the Company
will be obligated to pay to Mr. Alessi the equivalent of one year's annual
salary plus a stipulated bonus.
In addition, to attract Mr. Alessi as the Company's President and Chief
Executive Officer, Mr. Alessi will receive a non-qualified option to acquire
124,838 shares of common stock of Parent (or, if the Parent Merger occurs prior
to the Effective Time, 300,000 shares of common stock of Cendant), in either
case with a per share exercise price equal to the fair market value of the
respective shares under option.
In connection with the Merger, the Company entered into an employment
agreement, dated as of November 24, 1997, with Harry W. Buckley (the "Buckley
Agreement") under which Mr. Buckley will continue to serve as a consultant to
the Company's Chairman, President and Chief Executive Officer up to two days per
week. The term of the Buckley Agreement commences at the Effective Time of the
Merger and expires on the first anniversary thereof. Pursuant to the Buckley
Agreement, Mr. Buckley will be paid an annual salary of $90,000 per year. The
Buckley Agreement includes a covenant not to solicit customers of the Company
for a period of two years following termination of Mr. Buckley's employment for
any reason, and imposes certain non-disclosure obligations on Mr. Buckley with
respect to the Company's confidential and proprietary information. The Company
may terminate the Buckley Agreement at any time without cause by notice to Mr.
Buckley, provided that, upon termination without cause, the Company will be
obligated to pay to Mr. Buckley the amount of his annual salary for the
remainder of the term.
In addition, to attract Mr. Buckley as a consultant to the Company, Mr.
Buckley will receive a non-qualified option to acquire 31,209 shares of common
stock of Parent (or, if the Parent Merger occurs prior to the Effective Time,
75,000 shares of common stock of Cendant), in either case with a per share
exercise price equal to the fair market value of the respective shares under
option.
OTHER MATTERS
MERGER VOTE. Under Virginia law, the affirmative vote of holders of more
than two-thirds of the outstanding Shares entitled to vote, including any Shares
owned by the Purchaser, would be required to adopt the Merger. If the Purchaser
acquires, through the Offer or otherwise, voting power with respect to more than
two-thirds of the outstanding Shares, which would be the case if the Minimum
Condition were satisfied, it would have sufficient voting power to effect the
Merger without the vote of any other shareholder of the Company. Virginia law
also provides that if a parent company owns at least 90% of each class of stock
of a subsidiary, the parent company can effect a merger with the subsidiary
without the authorization of the other shareholders of the subsidiary.
Accordingly, if, as a result of the Offer, the Stock Option Agreement, the
Shareholders Agreements or otherwise, the Purchaser acquires at least 90% of the
outstanding Shares, the Purchaser could, and intends to, effect the Merger
without approval of any other shareholder of the Company.
VIRGINIA AFFILIATED TRANSACTIONS STATUTE. The Company is also subject to
Article 14 (the "Affiliated Transactions Statute") of the Virginia Stock
Corporation Act (the "VSCA"). The Affiliated Transactions Statute generally
prohibits a publicly held Virginia corporation from engaging in an "affiliated
transaction" with an "interested shareholder" for a period of three years after
the date of the transaction in which the person became an interested
shareholder, unless (i) a majority of disinterested directors approved in
advance the transaction in which the interested shareholder became an interested
shareholder or (ii) the affiliated transaction is approved by the affirmative
vote of a majority of the disinterested directors and the holders of two-thirds
of the voting shares other than the shares beneficially owned by the interested
shareholder. A corporation may engage in an affiliated transaction with an
interested shareholder
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beginning three years after the date of the transaction in which the person
became an interested shareholder, if the transaction is approved by a majority
of the disinterested directors or by two-thirds of the disinterested
shareholders or if it complies with certain statutory fair price provisions.
Subject to certain exceptions, under the VSCA an "interested shareholder" is
a person who, together with affiliates and associates, beneficially owns 10% or
more of the corporation's outstanding voting securities. "Affiliated
transaction" includes: (i) any merger or share exchange with an interested
shareholder; (ii) the transfer to any interested shareholder of corporate assets
with a fair market value greater than 5% of the corporation's consolidated net
worth; (iii) the issuance to any interested shareholder of voting shares with a
fair market value greater than 5% of the fair market value of all outstanding
voting shares of the corporation; (iv) any reclassification of securities or
corporate reorganization that will have the effect of increasing by 5% or more
the percentage of the corporation's outstanding voting shares held by any
interested shareholder and (v) any plan or proposal for dissolution of the
corporation proposed by or on behalf of any interested shareholder.
Because the Company Board has approved the Merger Agreement, the Stock
Option Agreement and the Shareholders Agreements and the transactions
contemplated thereby, the provisions of the Affiliated Transactions Statute are
not applicable to the Offer, the Merger, the Stock Option and the other
transactions contemplated by the Merger Agreement, the Stock Option Agreement
and the Shareholders Agreements.
CONTROL SHARE ACQUISITION STATUTE. The Company is also subject to Article
14.1 of the VSCA (the "Control Share Acquisition Statute"). The Control Share
Acquisition Statute provides that shares of a publicly held Virginia corporation
that are acquired in a "control share acquisition" generally will have no voting
rights unless such rights are conferred on those shares by the vote of a
majority of all the outstanding shares other than interested shares. A control
share acquisition is defined, with certain exceptions, as the acquisition of the
beneficial ownership of voting shares which would cause the acquirer to have
voting power within the following ranges or to move upward from one range into
another: (i) 20% to 33 1/3%; (ii) 33 1/3% to 50%; or (iii) more than 50%, of
such votes.
The Control Share Acquisition Statute does not apply to an acquisition of
shares of a publicly held Virginia corporation (i) pursuant to a merger or share
exchange effected in compliance with the VSCA if the issuing public company is a
party to the merger or share exchange agreement, or (ii) directly from the
issuing public corporation.
Because the Control Share Acquisition Statute specifically exempts a merger
effected in compliance with the VSCA if the publicly held Virginia corporation
is a party to the merger agreement, the provisions of the Control Share
Acquisition Statute are not applicable to the Offer or the Merger. In addition,
because the Control Share Acquisition Statute specifically exempts an
acquisition of shares of an issuing public corporation directly from the issuing
public corporation, the provisions of the Control Share Acquisition Statute are
not applicable to the Stock Option.
EXCHANGE ACT. The Commission has adopted Rule 13e-3 under the Exchange Act
which is applicable to certain "going private" transactions and which may under
certain circumstances be applicable to the Merger or another business
combination following the purchase of Shares pursuant to the Offer in which the
Purchaser seeks to acquire the remaining Shares not held by it. The Purchaser
believes, however, that Rule 13e-3 will not be applicable to the Merger because
it is anticipated that the Merger will be effected within one year following
consummation of the Offer. Rule 13e-3 requires, among other things, that certain
financial information concerning the Company and certain information relating to
the fairness of the proposed transaction and the consideration offered to
minority shareholders in such transaction, be filed with the Commission and
disclosed to shareholders prior to consummation of the transaction.
GENERAL. The Purchaser or an affiliate of the Purchaser may, following the
consummation or termination of the Offer, seek to acquire additional Shares
through open market purchases, privately
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negotiated transactions, a tender offer or exchange offer or otherwise, upon
such terms and at such prices as it shall determine, which may be more or less
than the price to be paid pursuant to the Offer. The Purchaser and its
affiliates also reserve the right to dispose of any or all Shares acquired by
them.
Upon the completion of the Offer, Parent intends to conduct a detailed
review of the Company and its assets, corporate structure, dividend policy,
capitalization, operations, properties, policies, management and personnel and
consider what, if any, changes would be desirable in light of the circumstances
which then exist. Such changes could include changes in the Company's business,
corporate structure, charter, by-laws, capitalization, Board of Directors,
management or dividend policy, although Parent has no current plans with respect
to any of such matters.
Except as noted in this Offer to Purchase, neither Parent nor the Purchaser
has any present plans or proposals that would result in an extraordinary
corporate transaction, such as a merger, reorganization, liquidation, relocation
of operations, or sale or transfer of assets, involving the Company or any of
its subsidiaries, or any material changes in the Company's corporate structure,
business or composition of its management or personnel.
13. DIVIDENDS AND DISTRIBUTIONS
As described above, the Merger Agreement provides that, prior to the
Effective Time, the Company will not, (i) declare, set aside or pay any dividend
or other distribution payable in cash, stock or property with respect to its
capital stock, (ii) except pursuant to the Stock Option Agreement, issue, sell,
pledge, dispose of or encumber any shares of, or securities convertible into or
exchangeable for, or options, warrants, calls, commitments or rights of any kind
to acquire, any shares of capital stock of any class of the Company or its
subsidiaries, other than Shares reserved for issuance on the date of the Merger
Agreement pursuant to the exercise of Company Options outstanding on the date of
the Merger Agreement, as permitted by the Merger Agreement, or (iii) redeem,
purchase or otherwise acquire directly or indirectly any of its capital stock.
14. CONDITIONS TO THE OFFER
Notwithstanding any other provisions of the Offer, and in addition to (and
not in limitation of) the Purchaser's rights to extend and amend the Offer at
any time in its sole discretion (subject to the provisions of the Merger
Agreement), the Purchaser shall not be required to accept for payment or,
subject to any applicable rules and regulations of the Commission, including
Rule 14e-1(c) under the Exchange Act (relating to the Purchaser's obligation to
pay for or return tendered Shares promptly after termination or withdrawal of
the Offer), pay for, and may delay the acceptance for payment of or, subject to
the restriction referred to above, the payment for, any tendered Shares, and may
terminate or amend the Offer as to any Shares not then paid for, if (i) any
applicable waiting period under the HSR Act has not expired or terminated, (ii)
the Minimum Condition has not been satisfied, or (ii) at any time on or after
the date of the Merger Agreement and before the Expiration Date, any of the
following events shall occur or shall be determined by the Purchaser to have
occurred:
(a) there shall be threatened or pending any suit, action or proceeding by
any Governmental Entity (i) seeking to prohibit or impose any material
limitations on Parent's or the Purchaser's ownership or operation (or that of
any of their respective subsidiaries or affiliates) of all or a material portion
of their or the Company's businesses or assets, or to compel Parent or the
Purchaser or their respective subsidiaries and affiliates to dispose of or hold
separate any material portion of the business or assets of the Company or Parent
and their respective subsidiaries, in each case taken as a whole, (ii)
challenging the acquisition by Parent or the purchaser of any Shares under the
Offer or pursuant to the Stock Option Agreement or the Shareholders Agreements,
seeking to restrain or prohibit the making or consummation of the Offer or the
Merger or the performance of any of the other transactions contemplated by this
Agreement, the Stock Option Agreement or the Shareholders Agreements, or seeking
to obtain from the Company, Parent or
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the Purchaser any damages that are material in relation to the Company and its
subsidiaries taken as a whole, (iii) seeking to impose material limitations on
the ability of the Purchaser, or rendering the Purchaser unable, to accept for
payment, pay for or purchase some or all of the Shares pursuant to the Offer and
the Merger, (iv) seeking to impose material limitations on the ability of the
Purchaser or Parent effectively to exercise full rights of ownership of the
Shares, including, without limitation, the right to vote the Shares purchased by
it on all matters properly presented to the Company's shareholders, or (v) which
otherwise is reasonably likely to have a material adverse affect on the
consolidated financial condition, businesses or results of operations of the
Company and its subsidiaries, taken as a whole;
(b) there shall be any statute, rule, regulation, judgment, order or
injunction enacted, entered, enforced, promulgated or deemed applicable to the
Offer or the Merger, or any other action shall be taken by any Governmental
Entity, other than the application to the Offer or the Merger of applicable
waiting periods under the HSR Act, that is reasonably likely to result, directly
or indirectly, in any of the consequences referred to in clauses (i) through (v)
of paragraph (a) above;
(c) there shall have occurred (i) any general suspension of trading in, or
limitation on prices for, securities on the New York Stock Exchange or in the
Nasdaq National Market System, for a period in excess of two days (excluding
suspensions or limitations resulting solely from physical damage or interference
with such exchanges not related to market conditions), (ii) a declaration of a
banking moratorium or any suspension of payments in respect of banks in the
United States (whether or not mandatory), (iii) a commencement of a war, armed
hostilities or other international or national calamity directly or indirectly
involving the United States, (iv) any limitation (whether or not mandatory) by
any United States or foreign governmental authority on the extension of credit
by banks or other financial institutions, (v) any decline in either the Dow
Jones Industrial Average or the Standard & Poor's Index of 500 Industrial
Companies by an amount in excess of 20% measured from the close of business on
the date of the Merger Agreement for a period of at least five consecutive
trading days; PROVIDED, HOWEVER, in the event that there shall have occurred a
decline in either the Dow Jones Industrial Average or the Standard & Poor's
Index of 500 Industrial Companies by an amount in excess of 20% measured from
the close of business on the date of the Merger Agreement and which remains in
effect on the scheduled expiration date of the Offer but which decline shall not
have existed for a period of at least five consecutive trading days, the
Purchaser shall extend the Offer for up to five business days in order to enable
the Purchaser to determine whether such decline continues for a period of at
least five consecutive trading days; PROVIDED, FURTHER, that the Purchaser shall
be required to notify the Company of its determination to terminate the Offer as
a result of the occurrence of a decline contemplated in this paragraph (c)(v)
within three days following the occurrence thereof, unless the scheduled
expiration date of the Offer (as it may be extended pursuant to the Merger
Agreement or the immediately preceding proviso) is to occur within such three
day period, in which event the Purchaser shall be required to notify the Company
of such determination by 9:00 a.m., New York City time, on the next business day
after the previously scheduled expiration date, or (vi) a change in general
financial bank or capital market conditions which materially or adversely
affects the ability of financial institutions in the United States to extend
credit or syndicate loans;
(d) there shall have occurred any material adverse change (or any
development that, insofar as reasonably can be foreseen, is reasonably likely to
result in any material adverse change) in the consolidated financial condition,
businesses, results of operations or prospects of the Company and its
subsidiaries, taken as a whole;
(e) the Board of Directors of the Company or any committee thereof shall
have withdrawn or modified in a manner adverse to Parent or the Purchaser its
approval or recommendation of the Offer, the Merger or the Merger Agreement, or
approved or recommended any Acquisition Proposal or the Company shall have
entered into any agreement with respect to any Superior Proposal in accordance
with this Agreement;
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(f) any of the representations and warranties of the Company set forth in
the Merger Agreement that are qualified as to materiality shall not be true and
correct and any such representations and warranties that are not so qualified
shall not be true and correct in any material respect, in each case as of the
date of the Merger Agreement and as of the scheduled expiration of the Offer;
(g) the Company shall have failed to perform in any material respect any
material obligation or to comply in any material respect with any material
agreement or covenant of the Company to be performed or complied with by it
under the Merger Agreement;
(h) the Merger Agreement shall have been terminated in accordance with its
terms;
(i) all of the Warrants shall have been exercised in full and the Shares
issuable upon the exercise thereof shall have been issued; or
(j) the Company shall have received written resignations, conditioned upon
and to be effective only upon the purchase of and payment for by Parent or any
of its subsidiaries of Shares which represent at least a majority of the
outstanding Shares (on a fully diluted basis), of that number of directors of
the Company as Parent is entitled to designate pursuant to the Merger Agreement,
such that Parent may exercise such rights; which in the reasonable judgment of
Parent or the Purchaser, in any such case, and regardless of the circumstances
(including any action or inaction by Parent or the Purchaser) giving rise to
such condition makes it inadvisable to proceed with the Offer and/or with such
acceptance for payment of or payment for Shares.
The foregoing conditions are for the sole benefit of Parent and the
Purchaser, may be waived by Parent or the Purchaser, in whole or in part, at any
time and from time to time in the sole discretion of Parent or the Purchaser.
The failure by Parent or the Purchaser at any time to exercise any of the
foregoing rights shall not be deemed a waiver of any such right and each such
right shall be deemed an ongoing right which may be asserted at any time and
from time to time.
15. CERTAIN LEGAL MATTERS
Except as described in this Section 15, based on a review of publicly
available filings by the Company with the Commission and other publicly
available information concerning the Company, the Purchaser is not aware of any
regulatory license or permit that appears to be material to the business of the
Company and its subsidiaries, taken as a whole, that might be adversely affected
by the acquisition of Shares by the Purchaser pursuant to the Offer or, except
as set forth below, of any approval or other action by any governmental,
administrative or regulatory agency or authority, domestic or foreign, that
would be required prior to the acquisition of Shares by the Purchaser pursuant
to the Offer. Should any such approval or other action be required, the
Purchaser currently contemplates that it will be sought. While the Purchaser
does not currently intend to delay the acceptance for payment of Shares tendered
pursuant to the Offer pending the outcome of any such matter, there can be no
assurance that any such approval or other action, if needed, would be obtained
or would be obtained without substantial conditions or that adverse consequences
might not result to the Company's business or that certain parts of the
Company's business might not have to be disposed of in the event that such
approvals were not obtained or any other actions were not taken. The Purchaser's
obligation under the Offer to accept for payment and pay for Shares is subject
to certain conditions, including conditions relating to the legal matters
discussed in this Section 15. See Section 14.
STATE TAKEOVER STATUTES. A number of states have adopted "takeover"
statutes that purport to apply to attempts to acquire corporations that are
incorporated in such states, or whose business operations have substantial
economic effects in such states, or which have substantial assets, security
holders, employees, principal executive offices or principal places of business
in such states.
The Company, directly or through subsidiaries, conducts business in a number
of states throughout the United States, some of which have enacted "takeover"
statutes. The Purchaser does not know whether
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any of these statutes will, by their terms, apply to the Offer, and has not
complied with any such statutes. To the extent that certain provisions of these
statutes purport to apply to the Offer, the Purchaser believes that there are
reasonable bases for contesting such statutes. The Company Board has approved
the acquisition of Shares pursuant to the Offer, the Merger and the Stock Option
Agreement for purposes of the Affiliated Transactions Statute and the Contol
Share Acquisition Statute. See Section 12. If any person should seek to apply
any state takeover statute, the Purchaser would take such action as then appears
desirable, which action may include challenging the validity or applicability of
any such statute in appropriate court proceedings. If it is asserted that one or
more takeover statutes apply to the Offer, and it is not determined by an
appropriate court that such statute or statutes do not apply or are invalid as
applied to the Offer, the Purchaser might be required to file certain
information with, or receive approvals from, the relevant state authorities, and
the Purchaser might be unable to purchase or pay for Shares tendered pursuant to
the Offer, or be delayed in continuing or consummating the Offer. In such case,
the Purchaser may not be obligated to accept for payment or pay for Shares
tendered. See Section 14.
UNITED STATES ANTITRUST. The Offer, the Merger and the acquisition of
Shares pursuant to the Stock Option Agreement are subject to the HSR Act, which
provides that certain acquisition transactions may not be consummated unless
certain information has been furnished to the Antitrust Division of the
Department of Justice (the "Antitrust Division") and the Federal Trade
Commission ("FTC") and certain waiting period requirements have been satisfied.
As soon as practicable after the date hereof, Parent will file a Notification
and Report Form with respect to the Offer, the Merger and the purchase of Shares
pursuant to the Stock Option Agreement. Due to the pendency of the Parent
Merger, CUC is making a concurrent filing under the HSR Act in order to comply
with the requirements thereof in the event the Parent Merger is consummated
prior to the purchase of Shares in the Offer or pursuant to the Stock Option.
Under the provisions of the HSR Act applicable to the Offer, the purchase of
Shares under the Offer may not be consummated until the expiration of a
15-calendar day waiting period following the filing by Parent, unless the
Antitrust Division and the FTC terminate the waiting period prior thereto. If,
within such 15-day period, either the Antitrust Division or the FTC requests
additional information or material from Parent concerning the Offer, the waiting
period will be extended and would expire at 11:59 p.m., New York City time, on
the tenth calendar day after the date of substantial compliance by Parent with
such request. Only one extension of the waiting period pursuant to a request for
additional information is authorized by the HSR Act. Thereafter, such waiting
period may be extended only by court order or with the consent of Parent. The
Purchaser will not accept for payment Shares tendered pursuant to the Offer
unless and until the waiting period requirements imposed by the HSR Act with
respect to the Offer have been satisfied. See Section 14.
The Merger would not require an additional filing under the HSR Act if the
Purchaser owns 50% or more of the outstanding Shares at the time of the Merger
or if the Merger occurs within one year after the HSR Act waiting period
applicable to the Offer expires or is terminated.
The FTC and the Antitrust Division frequently scrutinize the legality under
the antitrust laws of transactions such as the Purchaser's acquisition of Shares
pursuant to the Offer, the Merger and the Stock Option Agreement. At any time
before or after the Purchaser's acquisition of Shares, the Antitrust Division or
the FTC could take such action under the antitrust laws as it deems necessary or
desirable in the public interest, including seeking to enjoin the acquisition of
Shares pursuant to the Offer or otherwise or seeking divestiture of Shares
acquired by the Purchaser or divestiture of substantial assets of Parent or its
subsidiaries. Private parties and state attorneys general may also bring legal
action under the antitrust laws under certain circumstances. Based upon an
examination of publicly available information relating to the businesses in
which Parent and the Company are engaged, Parent and the Purchaser believe that
the acquisition of Shares by the Purchaser will not violate the antitrust laws.
Nevertheless, there can be no assurance that a challenge to the Offer or other
acquisition of Shares by the Purchaser on antitrust grounds
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will not be made or, if such a challenge is made, of the result. See Section 14
for certain conditions to the Offer, including conditions with respect to
litigation and certain governmental actions.
16. FEES AND EXPENSES
The Purchaser has retained Merrill Lynch and Smith Barney, Inc. to act as
Dealer Managers and to provide certain financial advisory services, MacKenzie
Partners, Inc. to act as the Information Agent and The Chase Manhattan Bank to
act as the Depositary in connection with the Offer. The Dealer Managers and the
Information Agent may contact holders of Shares by mail, telephone, telex,
telegraph and personal interview and may request brokers, dealers, commercial
banks, trust companies and other nominees to forward the Offer material to
beneficial owners. The Dealer Managers, the Information Agent and the Depositary
each will receive reasonable and customary compensation for their services, will
be reimbursed for certain reasonable out-of-pocket expenses and will be
indemnified against certain liabilities and expenses in connection therewith,
including certain liabilities under the federal securities laws. Parent has
agreed to pay $250,000 to each of Matthew Edelman, who identified the Company to
Parent as a possible strategic transaction candidate and who is the son of a
member of Parent's Board of Directors, and Michael Karsch, an Associate with
Chiefton Capital Management, Inc. ("Chiefton") who discussed the Company with
Matthew Edelman, in consideration for their assistance in connection with the
transaction. Chiefton is the record owner of an aggregate of 143,550 Shares, all
of which are beneficially owned by Chiefton's principals, employees or clients,
including 10,675 Shares beneficially owned by Mr. Karsch.
None of the Dealer Managers, the Information Agent or the Depositary has
been retained to make solicitations or recommendations in connection with the
Offer. Neither Parent nor the Purchaser will pay any fees or commissions to any
broker or dealer or other person (other than the Dealer Managers and the
Information Agent) for soliciting tenders of Shares pursuant to the Offer.
Brokers, dealers, commercial banks and trust companies will be reimbursed by the
Purchaser for reasonable expenses incurred by them in forwarding material to
their customers.
17. MISCELLANEOUS
The Purchaser is not aware of any jurisdiction in which the making of the
Offer is not in compliance with applicable law. If the Purchaser becomes aware
of any jurisdiction in which the making of the Offer would not be in compliance
with applicable law, the Purchaser will make a good faith effort to comply with
any such law. If, after such good faith effort, the Purchaser cannot comply with
any such law, the Offer will not be made to (nor will tenders be accepted from
or on behalf of) the holders of Shares residing in such jurisdiction. In those
jurisdictions whose securities or blue sky laws require the Offer to be made by
a licensed broker or dealer, the Offer is being made on behalf of the Purchaser
by the Dealer Managers or one or more registered brokers or dealers which are
licensed under the laws of such jurisdiction.
No person has been authorized to give any information or make any
representation on behalf of the Purchaser or Parent not contained in this Offer
to Purchase or in the Letter of Transmittal and, if given or made, such
information or representation must not be relied upon as having been authorized.
The Purchaser has filed with the Commission the Schedule 14D-1 pursuant to
Rule 14d-3 under the Exchange Act, furnishing certain additional information
with respect to the Offer, and may file amendments thereto. The Schedule 14D-1
and any amendments thereto, including exhibits, may be inspected and copies may
be obtained at the same places and in the same manner as set forth in Section 8
(except that they will not be available at the regional offices of the
Commission).
HJ ACQUISITION CORP.
November 25, 1997
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SCHEDULE I
DIRECTORS AND EXECUTIVE
OFFICERS OF PARENT AND THE PURCHASER
1. DIRECTORS AND EXECUTIVE OFFICERS OF PARENT. The following table sets
forth the name and present principal occupation or employment, and material
occupations, positions, offices or employments for the past five years of each
director and executive officer of Parent. Except as noted, each such person is a
citizen of the United States of America. The business address of each such
person is c/o HFS Incorporated, 6 Sylvan Way, Parsippany, New Jersey 07054.
DIRECTORS
The following individuals serve as directors of the Company as of November
25, 1997:
Henry R. Silverman, Chairman
James E. Buckman
Leonard Coleman
Christel DeHaan
Martin L. Edelman
Stephen P. Holmes
Robert D. Kunisch
Michael P. Monaco
The Rt. Hon. Brian Mulroney
Robert E. Nederlander
Robert W. Pittman
E. John Rosenwald, Jr.
Leonard Schutzman
Robert F. Smith
John D. Snodgrass
HENRY R. SILVERMAN, age 57, Director, Chairman of the Board, Chairman of the
Executive Committee and Chief Executive Officer of Parent since May 1990. From
November 1994 until February 1996, Mr. Silverman also served as Chairman of the
Board and Chief Executive Officer of Chartwell Leisure Inc. ("Chartwell"),
formerly known as National Gaming Corp. and National Lodging Corp., an
independent publicly traded company and former wholly owned subsidiary of
Parent.
JAMES E. BUCKMAN, age 53, has been Senior Executive Vice President, General
Counsel and Assistant Secretary of Parent since May 1997 and Executive Vice
President, General Counsel and Assistant Secretary of Parent since February 1992
and a Director of Parent since June 1994. Mr. Buckman also serves as a director
and officer of several subsidiaries of Parent. From November 1994 to February
1996, Mr. Buckman served as the Executive Vice President, General Counsel and
Secretary of Chartwell and until August 1996 he served as a Director of
Chartwell.
LEONARD COLEMAN, age 48, has been a Director of Parent since April 1997. Mr.
Coleman has served as President of The National League of Professional Baseball
Clubs since 1994, having previously served since 1992 as Executive Director,
Market Development of Major League Baseball. Mr. Coleman is a director of
Beneficial Corporation, Owens Corning, the Omnicom Group, New Jersey Resources
and Avis Rent A Car, Inc.
CHRISTEL DEHAAN, age 54, was elected a Director of Parent effective in November
1996. Ms. DeHaan founded Resort Condominiums International, Inc. ("RCI") in
1974, until November 1996 served as its Chairman and Chief Executive Officer and
currently serves as the Chairman of the Board of Directors of RCI. Ms. DeHaan
also currently serves as President and Chief Executive Officer of CD
Enterprises, Inc.
MARTIN L. EDELMAN, age 56, has been a Director of Parent since November 1993.
Mr. Edelman also serves as President and a Director of Chartwell. He has been a
partner with Battle Fowler, a New York City law firm, from 1972 through 1993 and
as of January 1, 1994 is Of Counsel to that firm. Battle Fowler has represented
Parent in a number of transactions during the past fiscal year. Mr. Edelman is
also a partner of Chartwell Hotels Associates, Chartwell Leisure Associates
L.P., Chartwell Leisure Associates L.P. II, and of certain of their respective
affiliates. Mr. Edelman also serves as a Director of Capital Trust and Avis Rent
A Car, Inc.
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STEPHEN P. HOLMES, age 40, has been a Vice Chairman of Parent since September
1996 and has served as a Director of Parent since June 1994. From July 1990
through September 1996 Mr. Holmes served as Executive Vice President, Treasurer
and Chief Financial Officer of Parent. Mr. Holmes also serves as a director and
officer of several subsidiaries of Parent. Mr. Holmes also serves as a Director
and, from November 1994 to February 1996 was the Executive Vice President and
Chief Financial Officer, of Chartwell. Mr. Holmes also serves as a director of
Avis Europe Ltd. and Avis Rent A Car, Inc.
ROBERT D. KUNISCH, age 55, has been a Director of Parent since April 1997. Mr.
Kunisch has served as Vice Chairman of Parent since April 1997, having
previously been Chairman of the Board (since 1989), Chief Executive Officer
(since 1988) and President (since 1984) of PHH Corporation. He is a member of
the board of directors of CSX Corporation, Mercantile Bankshares Corporation and
GenCorp, Inc.
MICHAEL P. MONACO, age 49, was appointed Vice Chairman and Chief Financial
Officer of Parent in October 1996 and was elected to the Board of Directors
effective January 27, 1997. Mr. Monaco also serves as a director and officer of
several subsidiaries of Parent. Mr. Monaco served as Executive Vice President
and Chief Financial Officer of the American Express Company from September 1990
to June 1996. Mr. Monaco also serves as a director of Avis Rent-A-Car, Inc.
THE RT. HON. BRIAN MULRONEY, P.C., L.L.D., age 58, has been a Director of Parent
since April 1997. Mr. Mulroney served as Prime Minister of Canada from 1984 to
1993 and is currently senior partner in the Montreal-based law firm, Oglivy
Renault. He is a member of several corporate boards of directors, including
Archer Daniels Midland Company Inc., Barrick Gold Corporation and Petrofina,
S.A. Mr. Mulroney is a Canadian citizen.
ROBERT E. NEDERLANDER, age 64, has been a Director of Parent since July 1995.
Mr. Nederlander has been President and Director since November 1981 of the
Nederlander Organization, Inc., owner and operator of one of the world's largest
chains of legitimate theaters. Mr. Nederlander has been Chairman of the Board of
Riddell Sports Inc. ("Ridell") since April 1988 and was the Chief Executive
Officer of such corporation from 1988 through April 1, 1993. From February until
June 1992, Mr. Nederlander was also Ridell's interim President and Chief
Operating Officer. He served as the Managing General Partner of the New York
Yankees from August 1990 until December 1991, and has been a limited partner
since 1973. Mr. Nederlander has been President since October 1985 of the
Nederlander Television and Film Productions, Inc.; Chairman of the Board since
January 1988 of Mego Financial Corp. ("Mego"); Mr. Nederlander also served as
Vice Chairman of the Board since February 1988 to early 1993 of Vacation Spa
Resorts, Inc., an affiliate of Mego; and Chairman of the Board of Allis-Chalmers
Corp. from May 1989 to 1993 and as Vice Chairman from 1993 through October 1996.
In October 1996, Mr. Nederlander became a director of News Communications, Inc.,
a publisher of community oriented free circulation newspapers.
ROBERT W. PITTMAN, page 43, has been a Director of Parent since July 1994. Since
October 1996 Mr. Pittman has been President and Chief Executive Officer of AOL
Networks, a unit of America Online, Inc. From September 1995 through October
1996, Mr. Pittman served as the Chief Executive Officer and Managing Partner of
the Parent's wholly owned subsidiary, Century 21 Real Estate Corporation. From
1990 until September 1995, Mr. Pittman served as President and Chief Executive
Officer of Time Warner Enterprises, a business development unit of Time Warner
Inc. and, from 1991 to September 1995, additionally, as Chairman and Chief
Executive Officer of Six Flags Entertainment Corporation, the parent of Six
Flags Theme Parks Inc. Mr. Pittman serves as a director of America Online, Inc.
MR. ROSENWALD, age 67, was elected a director of Parent effective in September
1996. Mr. Rosenwald has been, since 1988, Vice Chairman of The Bear Stearns
Companies, Inc. Mr. Rosenwald also serves as a Director of The Bear Stearns
Companies, Inc., Hasbro, Inc. and Frequency Electronics, Inc.
LEONARD SCHUTZMAN, age 50, has been a Director of Parent since August 1993. Mr.
Schutzman is currently Chairman of the Board and Chief Executive Officer of
Triad Capital Corporation of New York, a small business investment company, and
is a professor at the William E. Simon Graduate School of Business at the
S-2
<PAGE>
University of Rochester in Rochester, New York. Mr. Schutzman was Senior Vice
President of PepsiCo Inc. from February 1987 to April 1995. Mr. Schutzman also
serves as a Director of RCSB Finance, Inc., the bank holding company for
Rochester Community Savings Bank.
ROBERT F. SMITH, age 64, has been a Director of Parent since February 1993. From
November 1994 until August 1996, Mr. Smith also served as a Director of
Chartwell. Mr. Smith is the retired Chairman and Chief Executive Officer of
American Express Bank, Ltd. ("AEBL"). He joined AEBL's parent company, the
American Express Company in 1981 as Corporate Treasurer before moving to AEBL
and serving as Vice Chairman and Co-Chief Operating Officer and then President
prior to becoming CEO. Mr. Smith is currently a Partner in Car Component
Technologies, Inc., an automobile parts remanufacturer, located in Bedford, New
Hampshire.
JOHN D. SNODGRASS, age 40, has been a Director, President and Chief Operating
Officer of Parent since February 1992 and was appointed Vice Chairman in
September 1996. Mr. Snodgrass also serves as a Director, Chairman of the Board
and Chief Executive Officer of several subsidiaries of Parent. From November
1994 through January 1996, Mr. Snodgrass served as Vice Chairman of the Board of
Chartwell.
EXECUTIVE OFFICERS
The following table sets forth certain information regarding the executive
officers of Parent:
<TABLE>
<CAPTION>
NAME OFFICE OR POSITIONS HELD
- ---------------------------- ------------------------------------------------------------------------------------
<S> <C>
Henry R. Silverman.......... Chairman of the Board and Chief Executive Officer
John D. Snodgrass........... Vice Chairman, President, Chief Operating Officer
Stephen P. Holmes........... Vice Chairman
Michael P. Monaco........... Vice Chairman and Chief Financial Officer
James E. Buckman............ Executive Vice President, General Counsel and Assistant Secretary
John W. Chidsey............. Executive Vice President, Business Development
David P. McNicholas......... Executive Vice President and Chief Information Officer
John M. Osborne............. Executive Vice President of Franchise Sales
Douglas L. Patterson........ Executive Vice President, Call Center Operations
John J. Russell, Jr......... President, Hospitality Division
Richard A. Smith............ President, Real Estate Division
</TABLE>
For biographical information concerning Messrs. Silverman, Snodgrass,
Holmes, Monaco and Buckman see "Directors" above.
JOHN W. CHIDSEY, age 35, has been an Executive Vice President, Business
Development of Parent since May 1997. From January 1996 through May 1997, Mr.
Chidsey served as Senior Vice President, Preferred Alliance Programs for Parent.
From 1994 through 1995, Mr. Chidsey served as Chief Financial Officer,
Pepsi-Cola International, Eastern Europe and from 1992 through 1994, he served
as Chief Financial Officer of PepsiCo World Trading Co.
DAVID P. MCNICHOLAS, age 56, was appointed Executive Vice President and
Chief Information Officer of Parent in November 1996. Mr. McNicholas also has
been, since May 1994, President and, since May 1987, a Director of WizCom
International, Ltd., a subsidiary of Parent. Prior to November 1996, Mr.
McNicholas served as Corporate Vice President of Information Systems of Avis,
Inc. Mr. McNicholas currently serves as a Director of Avis Europe Ltd.
JOHN M.OSBORNE, age 46, has been Executive Vice President of Franchise Sales
for Parent's Hospitality Division since July 1993. In August 1996, Mr. Osborne
also assumed responsibility for Parent's Franchise Sales for the Real Estate
Division. Mr. Osborne was General Manager for the Central Region of Wang
Laboratories Inc. from July 1991 to June 1993. Prior to such time he spent
approximately 12 years at Unisys Corporation in various senior management
positions.
S-3
<PAGE>
DOUGLAS L. PATTERSON, age 41, has been an Executive Vice President, Call
Center Operations of Parent since June 1997. From August 1992 through June 1997,
Mr. Patterson served as Senior Vice President, Reservations of Parent.
JOHN J. RUSSELL, JR., age 50, has been President of the Hospitality Division
of Parent since April 1996. Prior to such time, Mr. Russell served as Executive
Vice President of Franchise Sales for the Real Estate Division of Parent from
October 1995 through March 1996 and President of Days Inns of America, Inc. from
August 1992 to October 1995.
MR. SMITH, age 43, has been President of Parent's Real Estate Division since
October 1996. Prior to such time, Mr. Smith served as Executive Vice President
of Operations of Parent since February 1992.
2. DIRECTORS AND EXECUTIVE OFFICERS OF THE PURCHASER. The following table
sets forth the name and present principal occupation or employment, and material
occupations, positions, offices or employments for the past five years of each
director and executive officer of the Purchaser. Each such person is a citizen
of the United States of America and the business address of each such person is
c/o HFS Incorporated, 6 Sylvan Way, Parsippany, NJ 07059.
DIRECTORS
<TABLE>
<S> <C>
Michael P. Monaco
James E. Buckman
Stephen P. Holmes
</TABLE>
EXECUTIVE OFFICERS
<TABLE>
<S> <C>
Michael P. Monaco............................ President
James E. Buckman............................. Vice President and Secretary
Stephen P. Holmes............................ Vice President
</TABLE>
For biographical information concerning Messrs. Monaco, Buckman and Holmes
see Section 1 above.
S-4
<PAGE>
Facsimile copies of the Letter of Transmittal, properly completed and duly
executed, will be accepted. The Letter of Transmittal, certificates for Shares
and any other required documents should be sent or delivered by each stockholder
of the Company or such stockholder's broker, dealer, commercial bank or other
nominee to the Depositary at one of its addresses set forth below.
THE DEPOSITARY FOR THE OFFER IS:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
<TABLE>
<S> <C> <C>
BY HAND: BY MAIL: BY OVERNIGHT CARRIER:
ChaseMellon Shareholder ChaseMellon Shareholder ChaseMellon Shareholder
Services, L.L.C. Services, L.L.C. Services, L.L.C.
120 Broadway-13th Floor Post Office Box 3305 85 Challenger Road
New York, NY 10271 South Hackensack, NJ 07606 Mail Drop Reorg. Dept.
Attn: Reorganization Attn: Reorganization Ridgefield Park, NJ 07660
Department Department
</TABLE>
FACSIMILE FOR ELIGIBLE INSTITUTIONS:
201-329-8936
TO CONFIRM FAX ONLY:
201-296-4860
Any questions or requests for assistance may be directed to the Dealer
Managers or the Information Agent at their respective telephone numbers and
locations listed below. Additional copies of this Offer to Purchase, the Letter
of Transmittal and the Notice of Guaranteed Delivery may be obtained from the
Information Agent at its address and telephone numbers set forth below. You may
also contact your broker, dealer, commercial bank or trust company or nominee
for assistance concerning the Offer.
THE INFORMATION AGENT FOR THE OFFER IS:
LOGO
156 Fifth Avenue
New York, New York 10010
(212) 929-5500 (Call Collect) or
CALL TOLL-FREE (800) 322-2885
THE DEALER MANAGERS FOR THE OFFER ARE:
<TABLE>
<S> <C>
MERRILL LYNCH & CO. SMITH BARNEY INC.
World Financial Center 388 Greenwich Street
North Tower New York, New York 10013
New York, New York (212) 816-7970 (Call
10281-1305 Collect)
(212) 449-8971 (Call
Collect)
</TABLE>
November 25, 1997
<PAGE>
Exhibit (a)(2)
FOR IMMEDIATE RELEASE Contact: HFS Incorporated
Elliot Bloom
973-496-8414
Jackson Hewitt Inc.
Keith E. Alessi
757-473-3300
HFS INCORPORATED AGREES TO ACQUIRE JACKSON HEWITT INC.
FOR $68 PER SHARE, TOTAL PURCHASE PRICE OF $480 MILLION
EXTENDS FRANCHISE SERVICE REACH INTO TAX PREPARATION SERVICES
PARSIPPANY, NJ, NOVEMBER 19, 1997 - HFS Incorporated (NYSE: HFS) announced
today it has executed a definitive agreement to acquire Jackson Hewitt Inc.
(NASDAQ: JTAX), for approximately $480 million in cash, or $68 per common share
of JTAX. HFS will shortly commence a tender offer for all outstanding shares of
JTAX which is expected to be completed on January 5, 1998. Following the tender
offer, HFS will purchase any JTAX shares not tendered in a merger in which each
JTAX common stock will receive $68 in cash. The JTAX Board of Directors and its
management have unanimously agreed to support the proposed transaction. This
transaction is subject to customary conditions, including regulatory approval.
In conjunction with this anticipated transaction, the JTAX Board of
Directors has rescinded the 2-1 stock split that was to have been effective
December 3, 1997.
Formed in 1982 and based in Virginia Beach, VA, JTAX is the second largest
tax preparation service system in the United States with locations in 41 states.
It expects to have approximately 1,900 offices, 92 percent franchised and the
remainder company owned, open and operating for the current tax preparation
season. For the fiscal year ended April 30, 1997, JTAX reported revenues of
$31.4 million and income from operations of $11.8 million compared to revenues
and income from operations for fiscal 1996 of $25.0 million and $5.3 million,
respectively. The JTAX system prepared approximately 875,000 tax returns in its
fiscal 1997 year, a 21 percent increase from the 722,000 returns prepared in
fiscal 1996.
<PAGE>
Jackson Hewitt's franchised and company owned offices offer consumers tax
preparation services as well as bank products such as refund anticipation loans.
The company's tax preparation product is based on its proprietary software,
"Hewtax", which enables JTAX franchises to provide consistent, high quality tax
preparation services at competitive prices. There are over 114 million tax
returns filed annually in the United States with approximately 50 percent
prepared by a paid service. The JTAX system currently has a 1 percent share of
total tax returns. H&R Block is the country's largest tax preparation service
with a 12 percent market share.
Keith Alessi, chairman, president and chief executive officer of JTAX,
said, "We have built a very profitable and simple business model based on
meeting the tax preparation needs of middle income taxpayers. HFS is the
world's largest franchisor; its core competency is acquiring franchise
operations and dramatically growing the franchise network and its profitability.
We believe HFS can accelerate our unit and earnings growth."
Keith Alessi will manage this newest HFS business unit, reporting to
Michael P. Monaco, HFS Vice Chairman and Chief Financial Officer. In addition,
it is expected that John D. Snodgrass, HFS Vice Chairman, will serve as chairman
of Jackson Hewitt and assist in the ongoing management and franchise growth of
JTAX.
Mr. Monaco stated, "JTAX is a well run company with excellent growth
prospects and is a terrific strategic fit with our company. We will leverage
our franchising and marketing skills to further accelerate unit growth, which
should translate into meaningful earnings growth for Jackson Hewitt. In
conjunction with our pending merger with CUC International (NYSE: CU), we
believe there are numerous opportunities to create further revenue streams
through cross marketing tax preparation services to our millions of annual
consumer contacts, as well as CUC services to the JTAX consumer base."
Monaco concluded, "This acquisition further extends our vision of offering
financial services to consumers, in order to capture a greater percentage of the
consumer spending dollar."
2
<PAGE>
Jackson Hewitt Inc. franchises a system of offices that specialize in
computerized preparation of federal and state individual income tax returns. At
the customer's request, the company will file the return electronically and also
process refund anticipation loans.
HFS Incorporated is a global provider of real estate and travel services.
The Company is the world's largest franchisor of residential real estate
brokerage offices, provides mortgage services to consumers and is the global
leader in corporate employee relocation. Within the travel sector of the
economy, HFS is the largest franchisor of hotels and rental car agencies, a
leading provider of vacation timeshare exchanges and is the second largest
vehicle management company worldwide. In May, the Company announced that it
would merge with CUC International (NYSE: CU). The merger is expected to close
in December.
3
<PAGE>
Exhibit (a)(3)
For Immediate Release
Contact: HFS Incorporated
Elliot Bloom
973-496-8414
HFS INCORPORATED SUBSIDIARY BEGINS CASH TENDER FOR ALL OUTSTANDING SHARES OF
JACKSON HEWITT INC. COMMON STOCK
PARSIPPANY, NJ--November 25, 1997--HFS Incorporated (NYSE: HFS) announced
today that HJ Acquisition Corp., its wholly owned subsidiary, has commenced
its cash tender offer for all outstanding shares of common stock of Jackson
Hewitt Inc. (NASDAQ: JTAX) at $68.00 per share.
The offer is being made pursuant to the previously announced merger
agreement between HFS Incorporated and Jackson Hewitt Inc. The offer is
conditioned upon, among other things, the tender of more than two-thirds of the
shares outstanding on a fully diluted basis. The offer and withdrawal right are
scheduled to expire at 5:00 P.M. on Monday, January 5, 1998. Merrill Lynch &
Co. and Smith Barney Inc. are acting as the Dealer Managers in connection with
the offer and MacKenzie Partners Inc. is acting as the Information Agent in
connection with the offer.
Jackson Hewitt Inc. franchises a system of offices that specialize in
computerized preparation of federal and state individual income tax returns.
At the customers's request, the company will file the return electronically
and also process refund anticipation loans.
HFS Incorporated is a global provider of real estate and travel services.
HFS is the world's largest franchisor of residential real estate
brokerage offices, provides mortgage services to consumers and is the global
leader in corporate employee relocation. Within the travel sector of the
economy, HFS is the largest franchisor of hotels and rental car agencies and a
leading provider of vacation timeshare exchanges. HFS is also the second largest
vehicle management company worldwide. Recently, the Company announced it will
merge with CUC International Inc. to form the world's leading consumer and
business services company. The transaction is expected to close in the fall
of 1997.
<PAGE>
[LOGO]
November 25, 1997
To Our Shareholders:
On behalf of the Board of Directors of Jackson Hewitt Inc. (the "Company"),
we wish to inform you that the Company has entered into an Agreement and Plan of
Merger dated as of November 19, 1997 (the "Merger Agreement"), with HFS
Incorporated and HJ Acquisition Corp., its wholly owned subsidiary
("Purchaser"), pursuant to which Purchaser has today commenced a cash tender
offer (the "Offer") to purchase all of the outstanding shares of Common Stock of
the Company (the "Shares") at a price of $68.00 per Share. Under the Merger
Agreement, the Offer will be followed by a merger (the "Merger") in which any
remaining Shares will be converted into the right to receive $68.00 per Share.
Consummation of the Offer and the Merger is subject to certain conditions, as
more fully described in the enclosed materials.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE OFFER AND THE
MERGER ARE FAIR AND IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS,
AND HAS APPROVED THE OFFER AND THE MERGER. THE BOARD OF DIRECTORS RECOMMENDS
THAT THE SHAREHOLDERS OF THE COMPANY ACCEPT THE OFFER AND TENDER THEIR SHARES
PURSUANT TO THE OFFER.
In arriving at its recommendation, the Board of Directors gave careful
consideration to the factors described in the enclosed Schedule 14D-9 that is
being filed today with the Securities and Exchange Commission, including, among
other things, the opinion of Janney Montgomery Scott Inc., the Company's
financial advisor, that the consideration to be received by the holders of
Shares in the Offer and the Merger is fair to such holders from a financial
point of view. The Schedule 14D-9 contains other important information relating
to the Offer, and you are encouraged to read the Schedule 14D-9 carefully.
In addition to the enclosed Schedule 14D-9, also enclosed is the Purchaser's
Offer to Purchase dated November 25, 1997, together with related materials,
including a Letter of Transmittal, to be used for tendering your Shares in the
Offer. These documents state the terms and conditions of the Offer and provide
instructions as to how to tender your Shares. We urge you to read these
documents carefully in making your decision with respect to tendering your
Shares pursuant to the Offer.
On behalf of the Board of Directors,
[LOGO]
Keith E. Alessi
Chairman, President and Chief Executive
Officer
