On February 7, 2011, the Company entered into a Sixth Amendment to the Credit Agreement, which amended the requirement to apply cash on hand toward the reduction of certain outstanding loan amounts. It allowed for such cash, subject to a modified level of maximum expenditures, to be deposited in a cash collateral account that would be the property of Jackson Hewitt. The Company will be able to draw on the cash collateral account to meet its operational needs following the tax season subject to limitations set out under the agreement, as permitted under a budget to be agreed by the Company and its Lenders, and provided that the Company is not otherwise in default under the agreement. The Lenders and the Company also agreed to use good faith efforts to agree upon a mutually satisfactory plan for the restructuring of the Company’s balance sheet and go-forward funding needs, which may include a “pre-packaged bankruptcy,” and to execute definitive documentation relating thereto, on or prior to April 29, 2011. No assurance can be given with respect to the value, if any, that would be available for stockholders in any such restructuring. Failure to execute such definitive documentation by April 29, 2011 would permit the Lenders to trigger an event of default under the Credit Agreement and to cease further funding.
If a default were declared and the amended credit facility were terminated, or matured without renewal, there can be no assurance that any debt or equity financing alternatives will be available to the Company when needed or, if available at all, on terms which are acceptable to the Company. As such, there can be no assurance that the Company will have sufficient funding to meet its obligations on an ongoing basis. In this event, the Company will be required to consider restructuring alternatives including, but not limited to, seeking protection from creditors under bankruptcy laws. Given the conditions outlined in Note 16—“Credit Facility”, specifically the lenders’ ability to accelerate borrowings outstanding in the event of default, uncertainty arises that the Company will be able to continue as a going concern and, therefore, may be unable to realize its assets and settle its liabilities and commitments in the normal course of business. The Company’s financial statements for the nine months ended January 31, 2011 were prepared assuming the Company will continue as a going concern and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that could result should the Company be unable to continue as a going concern.
