Document:

Exhibit 4.1

 

PREFERRED STOCK
 PURCHASE AGREEMENT

 

THIS AGREEMENT is made as of the 27th day of April, 1999 by and between JTH TAX, INC., a Delaware corporation (“Company”) and EDISON VENTURE FUND IV, L.P., a Delaware limited partnership (“Investor”).

 

BACKGROUND

 

Company and Investor desire for Investor to purchase an equity interest in Company, and the parties desires to enter into certain agreements, on the terms and conditions hereinafter set forth.

 

NOW THEREFORE, in consideration of the premises and the agreements set forth herein, the parties, intending to be legally bound hereby, agree as follows:

 

1.                                       Agreement to Sell and Purchase Shares.

 

(a)                                       At the Closing (as defined in Section 1(c)), upon the terms and conditions hereinafter set forth, Investor shall purchase One Hundred Sixty Thousand (160,000) shares of Class A Convertible Preferred Stock of Company (the “Shares”), representing on a fully-diluted basis a 17.8% equity interest in Company, free and clear of all liens, claims, charges, restrictions and encumbrances. The rights, powers and preferences of Company’s Class A Convertible Preferred Stock are set forth in the Certificate of Designations (the “Certificate of Designations”) attached as Exhibit A, which will be filed by Company contemporaneously with the execution of this Agreement.

 

(b)                                      In consideration for the Shares, Investor is delivering to Company at Closing, in cash or other immediately available funds, an aggregate purchase price of Two Million Dollars ($2,000,000), representing $12.50 per Share.

 

(c)                                       The closing (the “Closing”) with respect to the transactions contemplated hereby is taking place simultaneously with the execution and delivery of this Agreement.

 

2.                                       Other Agreements.

 

(a)                                       Company agrees that Investor, voting as a separate class, will be entitled to elect two representatives of Investor as directors of Company. This obligation will expire on the earlier of (i) upon the Company’s consummation of an initial public offering registered under the Securities Act of 1933, or (ii) at the first election of directors by the shareholders of Company immediately following the date on which Investor ceases to hold at least 40,000 Shares that have not been converted into Class A Common Stock. One director will be a general partner of Investor and the second director will be an experienced operating executive selected by Investor and reasonable acceptable to Company’s Chief Executive Officer. Company will grant to each non-employee director, on an annual basis, a stock option to purchase at least 2,500 shares of Class A Common Stock, with an exercise price equal to the current fair market value (as

 

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determined by Company’s Board of Directors in its reasonable discretion) of such shares as of the date of the grant.

 

(b)                                 For so long as Investor continues to hold 40,000 Shares that have not been converted into Class A Common Stock, Company will:

 

(i)                                Prepare and submit to the Board of Directors for approval no later than May 15 of each year Company budgets for the fiscal year of Company that began on the immediately preceding May 1.

 

(ii)                             Maintain a Compensation Committee of the Board comprised of non-employee directors.

 

(iii)                          Provide Investor with monthly financial statements and such other business information and access to its records and facilities as reasonably requested by Investor.

 

(iv)                         Conduct its business in a reasonably prudent matter including maintaining adequate insurance and payment of indebtedness and taxes in the ordinary course.

 

(v)                            Maintain a minimum of $1,000,000 of key man life insurance on John T. Hewitt.

 

(vi)                         Provide Investor proportionate piggyback registration rights on the basis described on Exhibit B.

 

(vii)                      Provide Investor with demand registration rights on the basis described on Exhibit B.

 

(viii)                   Provide Investor with preemptive rights to participate in any offering or sale of Company securities, permitting Investor to participate on the same basis as if each of the Shares had been converted into Class A Common Stock.

 

(c)                                       For so long as Investor continues to hold 40,000 Shares that have not been converted into Class A Common Stock, Company will not, without the prior written consent of Investor:

 

(i)                                Amend Company’s Articles of Incorporation or Bylaws except as contemplated by a transaction otherwise permitted by this Agreement.

 

(ii)                             Make any material change in the nature of or discontinue Company’s business.

 

(iii)                          Acquire substantial assets or sell substantial assets of Company, with “substantial” meaning a purchase or sale price in a single transaction or series of related transactions greater than 50% of Company’s tangible assets (whether in cash, assets and/or securities), or enter into any merger, consolidation or sale of the equity securities of Company, other than (A) in the ordinary course of Company’s business (which the parties acknowledge and

 

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agree includes the acquisition from time to time of tax preparation businesses and other businesses related to the business of Company) to the extent that only Class A Common Stock is issued and the aggregate number of any shares of Company’s Class A Common Stock so issued in the ordinary cause of business does not exceed 1,000,000 shares (provided that such limit will be subject to adjustment on the same basis as the Shares are subject to adjustment pursuant to Section 5(d) of the Certificate of Designations), or (B) the sale prior to November 1, 1999 of up to 160,000 shares of preferred stock (of a different series than the Preferred Stock) at at least the same price and on other terms and conditions substantially similar to those provided for by this Agreement.

 

(iv)                         Provide total compensation to any employee in excess of $150,000, or grant incentive stock awards, except as approved by Company’s Compensation Committee.

 

(v)                            Issue any equity interests, securities or options to acquire securities of Company, other than the grant of stock options to directors and employees, as approved by Company’s Compensation Committee, other than (A) in transactions in the ordinary course of Company’s business (which the parties acknowledge and agree includes the acquisition from time to time of tax preparation businesses and other businesses related to the business of Company), to the extent that only Class A Common Stock is issued and the aggregate number of shares of Company’s Class A Common Stock so issued in the ordinary cause of business does not exceed 1,000,000 shares (provided that such limit will be subject to adjustment on the same basis as the Shares are subject to adjustment pursuant to Section 5(d) of the Certificate of Designations), or (B) the sale of up to 160,000 shares of preferred stock (of a different series than the Preferred Stock) on terms and conditions substantially similar to those provided for by this Agreement.

 

(vi)                         Redeem any shares, make any dividends or distributions, grant any registration rights, or register any of its securities, unless Investor is included on a pro rata basis.

 

(vii)                      Engage in any related party transaction except on an arm’s-length basis on terms and conditions substantially similar to those that would have been available to parties that were not related parties. It is specifically contemplated that Company may in the future sell franchises to related parties on this basis.

 

3.                                            Representations and Warranties of Company. Company hereby makes the representations and warranties set forth in Exhibit C.

 

4.                                            Representations and Warranties of Investor. Investor hereby represents and warrants to Company that the statements contained in this Section 4 are correct and complete as of the Closing.

 

(a)                                  Organization of Investor. Investor is a limited partnership duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization and has all requisite power and authority to own, lease and operate its properties, to carry on its business as presently conducted and as proposed to be conducted.

 

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(b)                                 Authorization. Investor has full power and authority to execute and deliver this Agreement and to perform its obligations hereunder. This Agreement constitutes the valid and legally binding obligation of Investor, enforceable in accordance with its terms and conditions. Investor need not give any notice to, make any filing with, or obtain any authorization, consent, or approval of any government or governmental agency in order to consummate the transactions contemplated by this Agreement.

 

(c)                                  Noncontravention. Neither the execution and the delivery of this Agreement nor the consummation of the transactions contemplated hereby will (A) violate any constitution, statute, regulation, rule, injunction, order, decree, ruling, charge, or other restriction of any government, governmental agency, or court to which Investor is subject or any provision of its partnership agreement or (B) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, lease, license, instrument, or other arrangement to which Investor is a party or by which it is bound or to which any of its assets is subject.

 

(d)                                 Brokers Fees. Investor has no liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement.

 

(e)                                  Investment Representations. Investor is not acquiring the Shares with a view to or for sale in connection with any distribution thereof within the meaning of any federal or state securities law or regulation.

 

5.                                            Conditions Precedent to Closing. The obligation of Investor to purchase the Shares at the Closing is subject to the condition precedent that Company shall have filed the Certificate of Designations creating the Class A Convertible Preferred Stock as provided in Exhibit A, and shall have delivered to Investor reasonable evidence thereof.

 

6.                                            Fees. Each party will pay all of its respective costs and other expenses incurred in connection with its performance of the transactions herein provided.

 

7.                                            Survival of Representations and Warranties. All representations and warranties hereunder shall survive the Closing for a period of two years unless otherwise expressly stated to continue for a longer or shorter period, except for any representations or warranties concerning taxes or third party claims which shall survive until the expiration of the applicable statute of limitations for such taxes or third party claims.

 

8.                                       Shareholder Agreements. To induce Investor to enter into this Agreement,

 

(a)                                       Company and John T. Hewitt (“CEO”) agree that notwithstanding any provision to the contrary of Company’s Certificate of Incorporation, as amended, if CEO’s total Company equity ownership falls below 10% while Investor continues to hold at least 40,000 Shares that have not been converted into Class A Common Stock, CEO’s Class B Common Stock shall be deemed to have been automatically converted into Class A Common Stock.

 

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(b)                                      CEO, and Scott Lake Holdings Ltd. each agree that he/it will not sell or register for sale any of his/its Company securities, except for sales by each aggregating no more than 10,000 shares of Common Stock, and bona fide gifts and estate planning transfers in any calendar year, unless Investor is given the opportunity to participate in such sale or registration on a pro rata basis.

 

9.                                       Miscellaneous.

 

(a)                                       Notices. All notices shall be contained in a written instrument delivered in person or sent by first class registered or certified mail, return receipt requested, postage prepaid, or by reputable overnight carrier addressed to such party at the address set forth below or such other address as may hereafter be designated in writing by the addressee to the addressor:

 

	
(i)
    	
If to Company, to:
    	
(ii)
    	
If to Investor, to:
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
JTH Tax, Inc.
    	
 
    	
Edison Venture Fund IV, L.P.
    
	
 
    	
Potters Road
    	
 
    	
1009 Lenox Drive #4 
    
	
 
    	
Virginia Beach, VA 23452
    	
 
    	
Lawrenceville, NJ 08648 
    
	
 
    	
Attn: John T. Hewitt
    	
 
    	
Attn: John H. Martinson
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
With copies to:
    	
 
    	
With copies to:
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
James J. Wheaton, Esquire 
    	
 
    	
Alan I. Goldberg, Esquire 
    
	
 
    	
Willcox & Savage, P.C. 
    	
 
    	
2828 Charter Road, Suite 101
    
	
 
    	
1800 NationsBank Center
    	
 
    	
Philadelphia, PA 19154
    
	
 
    	
Norfolk, VA 23510
    	
 
    	
 
    

 

(b)                                      Entire Agreement. This Agreement, the attached Schedules and Exhibits and the other documents referred to or delivered pursuant hereto contain the entire agreement among the parties with respect to the subject matter hereof and supersede all prior and contemporaneous arrangement or understanding with respect thereto. The terms and provisions of this Agreement may not be modified or amended, or any of the provisions hereof waived, temporarily or permanently, except pursuant to the written consent of the parties. No failure or delay in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power.

 

(c)                                       Interpretation. This Agreement may be executed in any number of counterparts, and each such counterpart hereof shall be deemed to be an original instrument, but all such counterparts together shall constitute but one agreement. The headings of the sections of this Agreement have been inserted for convenience of reference only and shall not be deemed to be a part of this Agreement. Whenever the context may require, any pronouns used herein shall include the corresponding masculine, feminine or neuter forms, and the singular form of names and pronouns shall include the plural and vice-versa.

 

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(d)                                      Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Virginia and the parties consent to the exclusive jurisdiction of the federal and state courts located in Virginia. In such proceeding, the prevailing party shall be entitled to recover from the non-prevailing party all of its proceedings costs, including without limitation, court costs, attorney fees and out-of-pocket expenses incidental to such proceedings. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. This Agreement shall bind and inure to the benefit of the parties and their respective heirs, personal representatives, successors and assigns.

 

(e)                                       Further Assurances. Each party agrees that at any time and from time to time after the Closing, such party will upon request, do, execute, acknowledge and deliver all such further acts, documents and assurances as may be reasonably required to complete the transactions herein provided.

 

	
 
    	
 
    	
 
    	
JTH TAX INC.
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Attest:
    	
/s/ Donna Halligan
    	
 
    	
By:
    	
/s/ John T. Hewitt
    
	
 
    	
 
    	
 
    	
 
    	
Name:
    	
John T. Hewitt
    
	
 
    	
 
    	
 
    	
 
    	
Title:
    	
President
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
EDISON VENTURE FUND IV, L.P.
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
By: 
    	
EDISON PARTNERS IV, L.P., Its General Partner
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Attest:
    	
 
    	
 
    	
 
    	
By:
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
Name:
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
Title:
    	
 
    
								

 

The undersigned intending to be legally bound hereby and in consideration of Company and Investor entering into this Agreement, agrees to the provisions of Paragraph 8.

 

 

	
Witness:
    	
/s/ Donna Halligan
    	
 
    	
/s/   John T. Hewitt
    
	
 
    	
 
    	
 
    	
John   T. Hewitt
    

 

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Scott Lake Holdings Ltd.
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
By:
    	
/s/ J. Gary Ibbotson
    	
 
    
	
 
    	
Name:
    	
J. Gary Ibbotson
    	
 
    
	
 
    	
Title:
    	
President
    	
 
    
	
 
    	
 
    	
 
    
	
Attest:
    	
 
    	
 
    
					

 

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EXHIBIT A

 

Corrected
 Certificate of Designations
 of Class A Convertible Preferred Stock

 

The undersigned DOES HEREBY CERTIFY that the following resolution was duly adopted by the Board of Directors (the “Board of Directors”) of JTH Tax, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware (the “Corporation”), by action of the Board of Directors effective April 20, 1999, in accordance with the provisions of Section 103 thereof, and pursuant to Section 151 thereof; and that Section 4(b) hereof as original filed was inaccurate and as set forth herein is correct:

 

“RESOLVED that pursuant to the authority expressly granted to and vested in this Board of Directors by the General Corporation Law of the State of Delaware, the Board of Directors hereby authorizes the creation of a series of Class A Convertible Preferred Stock, $1.00 par value per share, of the Corporation upon the terms and conditions set forth herein and hereby fixes the designation and number of shares thereof and fixes the other powers, preferences and relative, participating, optional or other special rights, and the qualifications, limitations and restrictions thereof (in addition to those set forth in the Certificate which may be applicable to the Class A Convertible Preferred Stock) as follows:

 

1.                                            Designation and Amount; Fractional Shares. There shall be a series of preferred stock of the Company designated as “Class A Convertible Preferred Stock” and the number of shares constituting such series shall be 160,000. Such series is referred to herein as the “Preferred.” The Preferred is issuable solely in whole shares.

 

2.                                            Dividends. The holder of each share of Preferred shall be entitled to receive, when and as declared by the Board of Directors of the Corporation for the Common Stock, out of funds legally available for that purpose, dividends in cash, stock or otherwise, in connection with which each share of Preferred shall be treated as if it has been converted into shares of Common Stock as provided in Section 5 hereof.

 

3.                                            Rights Upon Liquidation, Dissolution or Winding Up.

 

(a)                                  In the event of: (i) any voluntary or involuntary liquidation, dissolution, liquidation or winding up of the Corporation; (ii) any voluntary or involuntary bankruptcy properly commenced by or against the Corporation, which if involuntary is not dismissed or stayed within 90 days after such commencement; (iii) any business combination of the Corporation; or (iv) any foreclosure by creditors of the Corporation on substantially all assets of, or equity interests in, the Corporation, which foreclosure is not dismissed or stayed within 90

 

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days after such foreclosure, any assets of the Corporation available for distribution to its stockholders shall be distributed in the following order of priority:

 

(i)                                     The holders of Preferred shall be entitled to receive for each share of Preferred, prior and in preference to any distribution to the holders of all other equity securities of the Corporation, an amount equal to the Original Issuance Price (as defined in Section 6) per share for each share of Preferred then outstanding, plus an amount equal to the Original Issuance Price multiplied by 10% per annum from the Original Issuance Date, compounded annually, until the date of such distribution.

 

(ii)                                  If the assets and funds of the Corporation available for distribution to the holders of Preferred shall be insufficient to permit the payment of the full preferential amounts set forth in this Article, then all of the assets of the Corporation available for distribution to the Preferred shall be distributed to the holders of Preferred pro rata so that each share receives the same percentage of its respective liquidation value.

 

(b)                                 A consolidation or merger of the Corporation with or into any other corporation or corporations in a transaction in which the shareholders of the Corporation receive cash, securities or other consideration in exchange for the shares of capital stock of the Corporation then held by them, or a similar business combination in which event the Corporation is not the surviving entity, any sale of 50% or more of the shares of the Corporation (other than in connection with an offering by the Corporation of newly issued securities), or any sale of all or substantially all of the assets of the Corporation shall, at the option of the holders representing at least 75% of the Preferred then outstanding exercised in writing within ten (10) business days after the Corporation shall have given notice of its intention to enter into any of the foregoing transactions, be deemed to be a liquidation, dissolution or winding up of the Corporation for the purposes of Section 3(a) above, and any assets of the Corporation available for distribution (and, in the case of certain reorganizations, mergers or consolidations subject to this Section, the securities received by the Corporation or its stockholders in such reorganization, merger or consolidation), shall be distributed pursuant to the order of preference set forth in Section 3(a) above, subject however to the right of the holders of the Preferred to convert the Preferred into Class A Common Stock as provided in Section 5.

 

4.                                            Voting.

 

(a)                                  In addition to the rights specified in the Certificate of Incorporation, any other rights provided in any agreement between the Corporation and holders of Preferred, or in the Corporation’s Bylaws or by law, holders of Preferred shall be entitled to receive notice of all meetings of shareholders and shall vote as one class with the holders of Common Stock (except as provided in Paragraph 4(b) below), based upon the number of shares of Common Stock into which such shares of Preferred may be converted as provided in Section 5 hereof.

 

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(b)                                 The holders of the Preferred, voting as a separate class, shall be entitled to elect, re-elect, remove and replace from time to time two directors of the Corporation. Such directors shall be designated as provided in the Purchase Agreement (as defined in Section 6), and this right of the holders of the Preferred shall expire as provided in the Purchase Agreement.

 

5.                                            Conversion.

 

(a)                                  The holder of any shares of Preferred shall have the right, at such holder’s option, at any time or from time to time to convert any of such shares of Preferred into shares of Class A Common Stock (in this Paragraph hereafter referred to as “Common Stock”) at the rate of one share of Common Stock for each share of Preferred (the “Conversion Rate”). A holder of Preferred may elect to convert by surrender of the certificates representing the shares of Preferred so to be converted in the manner provided in subsection (c) hereof. The Conversion Rate shall be subject to adjustment as set forth in subsection (d) hereof.

 

(b)                                 Upon the occurrence of an Event of Conversion (as defined in Section 6 hereof), all shares of Preferred then outstanding shall, by virtue of, and simultaneously with, the occurrence of the Event of Conversion and without any action on the part of the holder thereof, be deemed automatically converted into shares of Common Stock at the Conversion Rate as last adjusted and then in effect for the shares of Preferred being converted.

 

(c)                                  The holder of any shares of Preferred may exercise the conversion right pursuant to subsection (a) hereof as to any part thereof by delivering to the Corporation during regular business hours, at the office of any transfer agent of the Corporation for the Preferred or at such other place as may be designated by the Corporation, the certificate or certificates for the shares to be converted, duly endorsed or assigned in blank or to the Corporation (if required by it), accompanied by written notice stating that the holder elects to convert such shares.

 

(d)                                 The Conversion Rate shall be subject to adjustment from time to time as follows:

 

(i)                                If at any time after the Original Issuance Date the number of shares of Common Stock outstanding is increased by a stock dividend payable in shares of Common Stock or by a subdivision or stock split of shares of Common Stock, then following the record date fixed for the determination of holders of Common Stock entitled to receive such stock dividend, subdivision or stock split, the Conversion Rate shall be appropriately increased so that the number of shares of Common Stock issuable on conversion of each share of Preferred shall be increased in proportion to such increase in outstanding shares.

 

(ii)                             If at any time after the Original Issuance Date the number of shares of Common Stock outstanding is decreased by a combination of the outstanding shares of Common Stock, then, following the record date for such combination, the Conversion Rate shall be appropriately decreased so that the number of shares of Common Stock issuable on

 

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conversion of each share of Preferred shall be decreased in proportion to such decrease in outstanding shares.

 

(iii)                          If, at any time after the Original Issuance Date, there is any capital reorganization, or any reclassification of the stock of the Corporation (other than a change in par value or from par value to no par value or from no par value to par value or as a result of a stock dividend or subdivision, split-up or combination of shares), or the consolidation or merger of the Corporation with or into another person (other than a consolidation or merger in which the Corporation is the continuing corporation and which does not result in any change in the Common Stock) or of the sale or other disposition of all or substantially all the properties and assets of the Corporation as an entirety to any other person, each share of Preferred shall after such reorganization, reclassification, consolidation, merger, sale or other disposition be (unless, in the case of a consolidation, merger, sale or other disposition, payment shall have been made to the holders of all shares of Preferred of the full amount to which they shall have been entitled pursuant to Section 3 hereto) convertible into the kind and number of shares of stock or other securities or property of the Corporation or of the corporation resulting from such consolidation or surviving such merger or to which such properties and assets shall have been sold or otherwise disposed to which the holder of the number of shares of Common Stock deliverable (immediately prior to the time of such reorganization, reclassification, consolidation, merger, sale or other disposition) upon conversion of such share would have been entitled upon such reorganization, reclassification, consolidation, merger, sale or other disposition. The provisions of this subsection shall similarly apply to successive reorganizations, reclassifications, consolidations, mergers, sales or other dispositions.

 

(iv)                         In the event of the occurrence of any event or transaction after the Original Issuance Date not contemplated by this subsection (d) that would require an adjustment to the Conversion Rate to remain consistent with the intent and purpose of this subsection (d), then the Board of Directors of the Corporation shall make such adjustment to the Conversion Rate as they shall deem reasonable and consistent with the intentions and purposes of this subsection (d) and general principles of equity.

 

(e)                                  Whenever the Conversion Rate shall be adjusted as provided in subsection (d), the Corporation shall forthwith file, at the office of the transfer agent for the Preferred or at such other place as may be designated by the Corporation, a statement, approved by its Board of Directors, showing in detail the facts requiring such adjustment and the Conversion Rate that shall be in effect after such adjustment. The Corporation shall also cause a copy of such statement to be sent by first class certified mail, return receipt requested and postage prepaid, to each holder of shares of Preferred at its address appearing on the Corporation’s records. Where appropriate, such copy may be given in advance and may be included as part of a notice required to be mailed under the provisions of subsection (f).

 

(f)                                    In the event the Corporation shall propose to take any action of the types described in clauses (i), (ii), (iii) or (iv) of subsection (d), the Corporation shall use reasonable

 

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efforts to give 30 days prior notice to each holder of shares of Preferred, in the manner set forth in subsection (e), which notice shall specify the record date, if any, with respect to any such action, the date on which such action is to take place and such facts with respect thereto as shall be reasonably necessary to indicate the effect of such action.

 

(g)                                 The Corporation shall reserve, and at all times from and after the Original Issuance Date keep reserved, free from preemptive rights, out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of Preferred, sufficient shares to provide for the conversion of all outstanding shares of Preferred.

 

(h)                                 All shares of Common Stock which may be issued in connection with the conversion provisions set forth herein will, upon issuance by the Corporation, be validly issued, fully paid and nonassessable.

 

(i)                                     If at any time after the Original Issuance Date stock of any class of the Corporation other than Common Stock is delivered as a stock dividend on outstanding Common Stock, then in addition to any shares receivable upon conversion of Preferred, the holder shall upon such conversion be entitled to receive the same number of the shares of dividend stock plus any shares, securities or property issued upon any subsequent exchange, replacement, subdivision, or combination thereof, to which the holder would have been entitled had the Preferred been converted immediately prior to such stock dividend.

 

6.                                            Definitions.

 

(a)                                  The term “Event of Conversion” shall mean the consummation of a public offering of shares of Common Stock of the Corporation pursuant to the Securities Act of 1933, as amended, generating net proceeds to the Corporation of at least $15 million and reflecting a per share price of at least $37.50 per share of Common Stock as constituted on the Original Issuance Date.

 

(b)                                 The term “Original Issuance Date” shall mean the date of original issuance by the Corporation of each share of Preferred.

 

(c)                                  The term “Original Issuance Price” shall mean $12.50.

 

(d)                                 The term “Purchase Agreement” shall mean a certain Preferred Stock Purchase Agreement between the Corporation and an investor dated as of April 27, 1999.

 

7.                                            Purchase Rights. If at any time the Corporation grants, issues or sells any options, convertible securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of Common Stock (the “Purchase Rights”), then each holder of Preferred will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such holder could have acquired if such holder had held the number of shares of

 

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Common Stock acquirable upon conversion of such holder’s Preferred immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights; or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issuance or sale of such Purchase Rights.

 

8.                                            Amendments. No additional Preferred may be authorized, nor any provision of these terms of the Preferred may be amended, modified or waived without the written consent or affirmative vote of the holders of at least 66% of the then outstanding shares of Preferred, voting together as one class.

 

IN WITNESS WHEREOF, the Corporation has caused this Certificate to be made under the seal of the Corporation and signed by John T. Hewitt, its President and Chief Executive Officer, and attested by Donna Halligan, its Secretary, as of the 29th day of April, 1999.

 

	
 
    	
 
    	
JTH TAX, INC.
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
 
    
	
 
    	
 
    	
 
    	
John T. Hewitt, President and
    
	
 
    	
 
    	
 
    	
Chief Executive Officer
    
	
 
    	
 
    	
 
    
	
Attest:
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
Donna Halligan, Secretary
    	
 
    	
 
    

 

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EXHIBIT B

Registration Rights

 

For the purposes of this Exhibit, the following terms shall have the following meanings. All capitalized terms used in this Exhibit and not otherwise defined in this Exhibit shall have the meanings given them in the Preferred Stock Purchase Agreement.

 

“1933 Act” shall mean the Securities Act of 1933, as amended prior to or after the date of this Agreement, or any federal statute or statutes which shall be enacted to take the place of such act, together with all rules and regulations promulgated thereunder.

 

“Common Stock” shall mean the common stock of Company.

 

“Employee Benefit Plan”. shall mean an employee stock option, bonus or other compensation or employee benefit plan.

 

“Exempt Registration” shall mean the Registration of Common Stock to be offered and sold by Company pursuant to (a) an Employee Benefit Plan, (b) a dividend or interest reinvestment plan, (c) other similar plans, (d) reclassifications of securities, mergers, consolidations or acquisitions of assets, or (e) an IPO.

 

“Holders” shall mean Investor and any donee, executor, administrator, personal representative, testate or intestate successor or other lawful assignee of Investor, that from time to time owns Registrable Securities.

 

“IPO” shall mean an initial Public Offering of Common Stock by Company pursuant to a Registration.

 

“Person” shall mean any individual, corporation, partnership, limited liability company, joint venture, trust, unincorporated organization, association, or other entity, or a government or any agency, authority or political subdivision thereof.

 

“Piggyback Notice” shall have the meaning given in Section 2(a).

 

“Piggyback Shares” shall have the meaning given in Section 2(a).

 

“Prospectus” shall mean any prospectus that is a part of a Registration Statement, together with all amendments or supplements thereto.

 

“Public Offering” shall mean any public offering of Common Stock by means of a Registration Statement that has become effective, including an IPO.

 

“Registrable Securities” shall mean at any time, the then outstanding Shares owned by the Holders.

 

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“Registration” shall mean (a) a registration effected by preparing and filing a Registration Statement, and the declaration or ordering of the effectiveness of such Registration Statement, and (b) any contemporaneous registration or qualification of Registrable Securities under any state securities or blue sky laws.

 

“Registration Statement” shall mean any registration statement filed with the SEC in accordance with the 1933 Act, together with all amendments or supplements thereto.

 

“SEC” shall mean the United States Securities and Exchange Commission or any successor to the functions of such agency.

 

“Shares” shall mean shares of Common Stock issuable by Company upon the conversion of Class A Convertible Preferred Stock of Company.

 

1.                                            Demand Registration.

 

(a)                                  At any time after six (6) months following the closing of the IPO, the Holders of at least two-thirds of the Registrable Securities may request in writing that the Company effect a Registration of all or part of the Registrable Securities held by them.

 

(b)                                 Within twenty-one (21) days after receipt of any such request, the Company shall give written notice of such request to the other Holders and shall include in such Registration all Registrable Securities held by all such Holders who wish to participate in such demand Registration and provide the Company with written requests for inclusion therein within fourteen (14) days after the receipt of the Company’s notice. Thereupon, the Company shall effect the Registration of all Registrable Securities as to which it has received requests for Registration.

 

(c)                                  Notwithstanding the foregoing, if the Company shall furnish to the Holders requesting a registration statement pursuant to this Section 1 a certificate signed by the Chairman of the Board of Directors of the Company stating that in the good faith judgment of the Board of Directors, it would be seriously detrimental to the Company and its shareholders for such Registration to be effected and it is therefore essential to defer such Registration, the Company shall have the right to defer the filing of a Registration Statement for a period of not more than one hundred twenty (120) days after receipt of the request of the Holders.

 

(d)                                 The Company shall not be required to effect more than two (2) Registrations under this Section 1; however, the Company may be required to effect up to six (6) S-3 Registrations (not more than one within every six month period), or the equivalent, if the Company is then eligible to use that form.

 

(e)                                  If at least two-thirds (2/3) of the Holders of the Registrable Securities determine for any reason not to proceed with such Registration at any time before a Registration Statement has been declared effective by the SEC, then such Holders shall promptly give written

 

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notice to Company of their decision, and such Registration Statement, if theretofore filed with the SEC, shall be withdrawn with respect to the Registrable Securities covered thereby.

 

2.                                            Incidental Registration.

 

(a)                                  If Company proposes to or is required to register the Common Stock under the 1933 Act, other than in an Exempt Registration, on a registration form that permits inclusion of the Registrable Securities, Company will each such time give written notice (a “Piggyback Notice”) to all Holders of Registrable Securities. The Piggyback Notice shall describe in detail the proposed Registration and distribution. Upon the written request of any such Holder given within twenty (20) days after the date of the Piggyback Notice, Company will use its reasonable best efforts to cause all Registrable Securities that such Holders have requested be registered (“Piggyback Shares”) to be registered under the 1933 Act and any applicable state securities or blue sky laws. No registrations of Registrable Securities under this Section 2 shall relieve Company of its obligation to effect a Registration under Section 1.

 

(b)                                 Company shall have the right to select the investment banker or bankers who shall serve as the manager and/or co-managers for all Registrations of offerings of Common Stock under this Section 2.

 

(c)                                  Nothing in this Section 2 shall be deemed to require Company to proceed with any Registration of Common Stock after giving a Piggyback Notice.

 

3.                                            Registration Procedures. Whenever Company is required by the provisions of this Agreement to use its best efforts to effect the Registration of any Registrable Securities under the 1933 Act, Company will:

 

(a)                                  prepare and file with the SEC a Registration Statement under the 1933 Act with respect to the Registrable Securities required to be registered, and use its best efforts to cause such Registration Statement to become effective, provided that before filing a Registration Statement or Prospectus or any amendments or supplements thereto, Company will furnish to the Holders and their counsel copies of all such documents proposed to be filed and give such Holders and their counsel an opportunity to review and comment upon such documents;

 

(b)                                 prepare and file with the SEC such amendments and supplements to such Registration Statement and the Prospectus used in connection therewith as may be necessary to keep such Registration Statement effective and to comply with the provisions of the 1933 Act with respect to the sale or other disposition of all Registrable Securities included in such Registration Statement; provided, however, that Company shall have no obligation to file any amendment or supplement following the expiration of the period that ends nine (9) months after the effective date of such Registration Statement;

 

(c)                                  furnish to each Holder such number of copies of such Registration Statement, each amendment and supplement thereto, the Prospectus included in the Registration Statement (including each preliminary Prospectus), and such other documents, as such Holder

 

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may reasonably request in order to enable such Holder to consummate the public sale or other disposition of the Registrable Securities owned by such Holder included in such Registration Statement;

 

(d)                                 use its best efforts to register or qualify all of the Registrable Securities under such other securities or blue sky laws of such jurisdictions as each Holder shall reasonably request, and do any and all other acts and things that may be necessary under such securities or blue sky laws to enable such Holder to consummate the public sale or other disposition in such jurisdiction of the Registrable Securities owned by such Holder; provided, however, that Company shall not be required to (i) qualify to do business as a foreign corporation in any jurisdiction wherein it would not otherwise be required to qualify but for this subparagraph, (ii) subject itself to taxation in any such jurisdiction, (iii) consent to general service of process in any such jurisdiction (provided that Company shall, if required by any such jurisdiction, consent to service of process with respect to matters arising out of the offering of Registrable Securities then being made) or (iv) qualify as a dealer in securities in any such jurisdiction;

 

(e)                                  notify each Holder at any time when a Prospectus relating to the Registrable Securities owned by such Holder is required to be delivered under the 1933 Act, of the happening of any event known to Company as a result of which the Prospectus included in such Registration Statement contains an untrue statement of a material fact or omits any fact necessary to make the statements therein not misleading, and at the request of any such Holder and subject to subsection (b) above, prepare a supplement or amendment to such Prospectus so that, as thereafter delivered to the purchasers of the Registrable Securities, such Prospectus will not contain an untrue statement of a material fact or omit to state any fact necessary to make the statements therein not misleading;

 

(f)                                    cause all the Registrable Securities to be listed on each securities exchange or national market or quotation system on which the Common Stock is then listed, if any;

 

(g)                                 provide a transfer agent and registrar for the Registrable Securities not later than the effective date of such Registration Statement;

 

(h)                                 enter into such customary agreements (including an underwriting agreement in customary form) and take all such other actions as the Holders of at least a majority of the Registrable Securities or underwriters, if any, reasonably request in order to expedite or facilitate the disposition of the Registrable Securities;

 

(i)                                     make available for inspection by any Holder, any underwriter participating in any disposition pursuant to such Registration Statement, and any attorney, accountant or other agent retained by any such Holder of at least 5% of the Registrable Securities, all financial and other records, pertinent corporate documents and properties of Company, and cause Company’s officers, directors and employees to supply all information reasonably requested by any such Holder, underwriter, attorney, accountant or agent and reasonably necessary for the purposes of such Registration Statement;

 

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(j)                                     as of (i) the effective date of the Registration Statement and (ii) the date the Registrable Securities are delivered to the underwriters, if any, for sale pursuant to such Registration Statement, obtain a cold comfort letter from Company’s independent public accountants in customary form and covering such matters of the type customarily covered by cold comfort letters as the Holders of at least a majority of the Registrable Securities reasonably request; and

 

(k)                                  furnish, at the request of any Holder of Registrable Securities requested to be registered on the date the Registrable Securities are delivered to the underwriters for sale pursuant to the Registration Statement or, if the Registrable Securities are not being sold through underwriters, on the date the Registration Statement with respect to the Registrable Securities becomes effective, an opinion, dated such date, of counsel representing Company for the purposes of such Registration, addressed to the underwriters, if any, and to the Holder making such request, covering such legal matters with respect to the Registration in respect of which such opinion is being given as the Holders of such securities may reasonably request and are customarily included in such opinions.

 

4.                                            Expenses. To the fullest extent allowable under applicable state securities and blue sky laws, all expenses incurred in effecting the first Registration provided for in Section 1, and in effecting all of the Registrations provided for in Section 2, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel for Company and one counsel for the Holders, underwriting expenses other than discounts or commissions with respect to the Registrable Securities, expenses of any audits incident to or required by any such Registration and expenses of complying with the securities or blue sky laws of any jurisdictions pursuant to Section 3(d) shall be borne and paid by Company. The Holders will bear the expenses of any Registrations provided for in Section 1 subsequent to the first such Registration.

 

5.                                            Indemnification.

 

(a)                                  In the event of any Registration of the Registrable Securities under the 1933 Act pursuant to this Agreement, Company, to the extent permitted by law, shall indemnify and hold harmless each Holder, each underwriter (as defined in the 1933 Act), each other Person who participates in the offering of such Registrable Securities, and each other Person, if any, who controls (within the meaning of the 1933 Act) each such Holder, underwriter or participating Person, against any losses, claims, damages or liabilities, joint or several, to which each such Person may become subject under the 1933 Act or any other statute or at common law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon (i) any untrue statement, or alleged untrue statement, of any material fact contained, on the effective date thereof, in any Registration Statement under which the Registrable Securities were registered under the 1933 Act, any preliminary Prospectus or final Prospectus contained therein, or any summary Prospectus issued in connection with any Registrable Securities being registered, or any amendment or supplement thereto, or (ii) any omission or alleged omission to state in any such document a material fact required to be stated therein or necessary to make the statements therein not misleading, and shall reimburse each such Holder, or any such

 

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underwriter, participating Person or controlling Person for any legal or other expenses reasonably incurred by such Person in connection with investigating or defending any such loss, damage, liability or action; provided, however, that Company shall not be liable to any Holder, or any such underwriter, participating Person, or controlling Person in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon any untrue statement or omission (x) that was made in such Registration Statement, preliminary Prospectus, summary Prospectus, Prospectus, or amendment or supplement thereto in reliance upon and in conformity with information furnished in writing to Company by such Person specifically for use therein, or (y) that was corrected in an amendment or supplement to the Registration Statement or any preliminary Prospectus, summary Prospectus or Prospectus that Company made available to the Holders prior to the date of the transaction giving rise to a claim of liability and that the Holder seeking indemnification failed to deliver to the person asserting the claim prior to the consummation of the transaction, and shall reimburse such Person for any legal or other expenses reasonably incurred by such Person in connection with investigating or defending any such loss, claim, damage or liability.

 

(b)                                 Each Holder shall indemnify and hold harmless each other Holder, Company, their directors and officers, each underwriter (as defined in the 1933 Act), and each other Person, if any, who controls (within the meaning of the 1933 Act) each such Holder, Company, or any underwriter, against any losses, claims, damages or liabilities, joint or several, to which any such other Holder, Company, any such director or officer, any such underwriter, or any such Person may become subject under the 1933 Act or any other statute or at common law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained, on the effective date thereof, in any Registration Statement under which Registrable Securities were registered under the 1933 Act at the request of the Holders, any preliminary Prospectus or final Prospectus contained therein, or any summary Prospectus issued in connection with the Registrable Securities, or any amendment or supplement thereto, or (ii) any omission or alleged omission to state in any such document a material fact required to be stated therein or necessary to make the statements therein not misleading, in either case to the extent, and only to the extent, that such untrue statement or omission (x) was made in such Registration Statement, preliminary Prospectus, final Prospectus, summary Prospectus, amendment or supplement in reliance upon and in conformity with information furnished in writing by such Holder specifically for use therein, or (y) such untrue statement or omission was corrected in an amendment or supplement to the Registration Statement or any preliminary Prospectus, summary Prospectus or Prospectus that Company made available to the Holders prior to the date of the transaction giving rise to a claim of liability and that the Holder selling Registrable Securities in such transaction failed to deliver to the person asserting the claim prior to the consummation of the transaction, and shall reimburse such Person for any legal or other expenses reasonably incurred by such Person in connection with investigating or defending any such loss, claim, damage or liability.

 

(c)                                  Indemnification similar to that specified in subsections (a) and (b) of this Section 5 (with such modifications as shall be appropriate) shall be given by Company or the

 

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Holder, as the case may be, under any federal or state securities or blue sky law or regulation other than the 1933 Act.

 

(d)                                 Any Person that proposes to assert the right to be indemnified under subsections (a), (b) or (c) of this Section 5 shall, promptly after receipt of notice of commencement of any action, suit or proceeding against such Person in respect of which a claim is to be made against an indemnifying Person under such subsections (a), (b) or (c), notify each such indemnifying Person of the commencement of such action, suit or proceeding, enclosing a copy of all papers served. The indemnifying Person shall have the right to investigate and defend any such loss, claim, damage, liability or action and to employ separate counsel in any such action and to control the defense thereof. The Person seeking indemnification shall have the right to employ separate counsel in any such action and to control the defense thereof, but the fees and expenses of such counsel shall not be at the expense of the Person against whom indemnification is sought; provided, however, that notwithstanding the foregoing, in any case when indemnification is sought from a Person and (i) the Person seeking indemnification has been advised by counsel that representation of such Person and the indemnifying Person by the same counsel would be inappropriate under applicable standards of professional conduct, or (ii) the indemnifying Person has not proceeded in a timely manner to effect such defense, then the reasonable fees and expenses of counsel for such Person shall be paid by the Indemnifying Person and the Person seeking indemnification shall have the right to control the defense of such action, suit or proceeding. In no event shall a Person against whom indemnification is sought be obligated to indemnify any Person for any settlement of any claim or action effected without the indemnifying Person’s consent. No indemnifying Person will consent to the entry of any judgment or enter into any settlement (without the consent of the indemnified Person) that does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified Person of a release from all liability in respect of the applicable claim or litigation.

 

(e)                                  The indemnification provided for under this Section 5 will remain in full force and effect regardless of any investigation made by or on behalf of the Person seeking indemnification or any officer, director or controlling Person of such Person seeking indemnification and will survive the transfer of Registrable Securities.

 

(f)                                    If the indemnification provided for in this Section 5 is unavailable or insufficient to hold harmless an indemnified Person in respect of any losses, claims, damages or liabilities in respect thereof referred to herein, then each indemnifying Person shall, in lieu of indemnifying such indemnified Person, contribute to the amount paid or payable by such indemnified Person as a result of such losses, claims, damages or liabilities, in such proportion as is appropriate to reflect the relative fault of Company, on the one hand, and the Holders, on the other, in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations, including the failure to give the notice required hereunder. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact relates to information supplied by Company, on the one hand, or the Holders, on the other hand, and the Persons’ relevant intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. Company and the Holders agree that it would not be just and

 

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equitable if contribution pursuant to this Section 5 were determined by pro rata allocation or by any other method of allocation that did not take account of the equitable considerations referred to above. The amount paid or payable by an indemnified Person as a result of the losses, claims, damages or liabilities in respect thereof referred to above shall be deemed to include any legal or other expenses reasonably incurred by such indemnified Person in connection with investigation or defending any such action or claim. Notwithstanding the contribution provisions of this Section 5, in no event shall the amount contributed by any Holder of Registrable Securities exceed the aggregate gross offering proceeds received by such Holder from the sale of Registrable Securities to which such contribution claim relates. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any Person who is not guilty of such fraudulent misrepresentation.

 

6.                                            Participation in Underwritten Registration. No Holder may participate in any underwritten Registration hereunder unless (i) such Holder agrees to sell such Holder’s Registrable Securities on the basis provided in any underwriting arrangements approved by Company, if pursuant to Section 2, (ii) such Holder completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements, and (iii) the Holders of a majority of the Registrable Securities shall have designated a single agent to act for them in connection with the Registration.

 

7.                                            Marketing Restrictions. If:

 

(a)                                  any Registrable Securities are to be registered pursuant to Section 1 or Section 2 hereof, and

 

(b)                                 the offering proposed to be made is to be an underwritten Public Offering, and

 

(c)                                  the manager or co-managers of such Public Offering furnish a written opinion that the total amount of Registrable Securities to be included in such offering would exceed the maximum amount of securities of Company (as specified in such opinion) that can be marketed at a price reasonably related to the then current market value of such Registrable Securities and without materially and adversely affecting such offering,

 

then the relative rights to participate in such offering of Company and the Holders of Registrable Securities having the right to include such Registrable Securities in such Registration shall be in the following order of priority:

 

First: If such Registration shall have been initiated by Company, Company shall be entitled to include the Common Stock in such Registration; and then

 

Second: The Holders of Registrable Securities having the right to include such Registrable Securities in such Registration shall be entitled to participate pro rata among

 

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themselves in accordance with the number of shares of Registrable Securities that each such Holder shall have requested be registered;

 

and no Registrable Securities (issued or unissued) other than those registered and included in the underwritten offering shall be offered for sale or other disposition by any Holder in a transaction that would require registration under the 1933 Act until the expiration of one hundred eighty (180) days after the effective date of the Registration Statement in which Registrable Securities were included pursuant to Section 3 hereof, or such earlier time consented to by the manager or co-managers, provided that this restriction is applied uniformly to similarly sized shareholders other than the Holders. Notwithstanding the foregoing, if any Holder of Registrable Securities is not permitted to include in a Registration all of the Registrable Securities that such Holder shall have requested be registered, then any reduction in the number of securities to be registered shall be applied uniformly to similarly sized shareholders other than the Holders.

 

8.                                            Assignability of Registration Rights. The registration rights set forth in this Agreement shall accrue to each subsequent Holder of Registrable Securities that consents in writing to be bound by the terms and conditions of this Agreement.

 

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EXHIBIT C

Company’s Representations and Warranties

 

For the purpose of this Exhibit C, the term “Company” shall be deemed, as appropriate, to refer both to JTH Tax, Inc. and its wholly-owned subsidiary JKS Holding Corp.

 

3.1                                 Organization. Company is a corporation duly organized and validly existing under the laws of Delaware and has all requisite corporate power and authority to own, lease and operate its properties, and to carry on its business. To the best of Company’s knowledge, Company is qualified and in good standing in all such other jurisdictions, if any, in which the conduct of its business or its ownership, leasing or operation of property requires such qualification and the failure so to qualify would have a material adverse effect on the business, properties, assets, prospects or conditions (financial or otherwise) of Company. Company has provided Investor with true, correct and complete copies of its Certificate of Incorporation and its Bylaws, (the “Certificate of Incorporation” and the “Bylaws”, respectively).

 

3.2                                 Capitalization.  The authorized capital stock of Company consists of 2,220,000 shares of Common Stock, $1.00 par value and 320,000 shares of Preferred Stock, $1.00 par value, of which 650,736 shares of Class A Common Stock and 90,000 shares of Class B Common Stock have been validly issued and are outstanding, fully paid and nonassessable, with no personal liability attaching to the ownership thereof. No shares of Preferred Stock have been issued. There are no preemptive or similar rights to purchase, nor any outstanding warrants, options, agreements, convertible securities or other commitments pursuant to which Company is or may become obligated to issue any shares of capital stock or other securities of Company. Except as provided in Section 3.17, there is no agreement, restriction or encumbrance (such as a right of first refusal, right of first offer, proxy, voting agreement, etc.) with respect to the sale or voting of any shares of capital stock of Company. To the best of Company’s knowledge, Company has not violated applicable securities or corporate laws in connection with the issuance of any securities of Company prior to the Closing.

 

3.3                                 Encumbrances. Company owns all of its property and assets, real, personal or mixed, tangible or intangible, subject to no mortgages, liens, security interests, pledges, charges or other encumbrances of any kind except as set forth in the Financial Statements (as defined in Section 3.15). Company owns or has a valid leasehold interest in, or valid license for, all assets necessary for the conduct of its business as presently conducted or as proposed to be conducted.

 

3.4                                 Burdensome Restrictions. Company is not obligated under any contract or agreement or subject to any charter or other corporate restriction which individually or in the aggregate presently has a material adverse effect on, or in the future may reasonably be expected to have a material adverse effect on its business, properties, assets, prospects or condition (financial or otherwise).

 

3.5                                 Intellectual Property.  Company owns and possesses all intellectual property rights necessary or required for the conduct of its business. To the best of Company’s

 

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knowledge, no product or service manufactured, marketed or sold by Company infringes any intellectual property rights or assumed name of another. To the best of Company’s knowledge, all inventions, discoveries and developments of employees, consultants and agents of Company which are used in Company’s business are owned by Company. To the best of Company’s knowledge, Company has secured and maintained full protection and exclusive ownership for all of its proprietary rights the absence of which would have a material adverse effect on the business, properties, assets, prospects or conditions (financial or otherwise) of Company, both within the United States and in foreign countries where its products and services are offered. Company has not granted or transferred any rights in its intellectual property rights to any third party, and is not aware of any infringement, misappropriation or misuse of its intellectual property rights by any third party. To the best of Company’s knowledge, all rights to the names used by Company are owned exclusively by Company.

 

3.6                                 Litigation. There is no action, suit, customer claim, proceeding or investigation nor any judgment, decree, injunction or order at law or in equity or by or before any court, arbitrator, governmental instrumentality or other agency now existing, pending or threatened against or affecting Company individually involving an amount in dispute greater than $50,000 or which in the aggregate, if determined adversely to Company, would have a material adverse effect on the business, properties, assets, prospects or conditions (financial or otherwise) of Company, nor, to the best of Company’s knowledge, does there exist any basis for any of the foregoing. No professional liability claims are existing, pending or, to the best of Company’s knowledge, threatened against or affecting Company.

 

3.7                                 No Defaults. Company is not in default (a) under its Certificate of Incorporation or Bylaws, or to the best of Company’s knowledge, any indenture, mortgage, lease, purchase or sales order, or any other contract, agreement or instrument to which Company is a party or by which it or any of its property is bound or affected, or (b) with respect to any order, writ, injunction or decree of any court or any Federal, state, municipal or other domestic or foreign governmental department, commission, board, bureau, agency or instrumentality. To the best of Company’s knowledge, there exists no condition, event or act which constitutes, or which after notice, lapse of time or both, would constitute, a default under any of the foregoing.

 

3.8                                 Employment of Officers, Employees and Consultants. To the best of Company’s knowledge, no third party may assert any valid claim against Company or any of the Designated Persons (as hereinafter defined) with respect to (a) the continued employment by, or association with, Company, of any of Company’s present officers, employee, consultants, sales agents or representatives (collectively, the “Designated Persons”) or (b) the use, in connection with any business presently conducted or proposed to be conducted by Company, by any of the Designated Persons of any information which Company or any of the Designated Persons would be prohibited from using under any prior agreements or arrangements or any legal considerations applicable to unfair competition, trade secrets or proprietary information.

 

3.9                                 Taxes. Company has filed all required federal, state, local and foreign estimated and actual tax returns and paid all taxes due thereunder including all interest and penalties. Each of such returns was prepared in conformity in all material respects with accurate

 

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books and records of Company. Company has paid all estimated and actual taxes pursuant to any assessments received by it or which it is obligated to withhold from amounts owing to any employee, creditor or third party. Any disputed taxes have been adequately reserved for on the Balance Sheet (as defined in Section 3.15).

 

3.10                           Compliance. To the best of Company’s knowledge, Company (a) has complied, and in carrying out its contemplated business will be in compliance, with all federal, state, local and foreign laws, ordinances, regulations and orders applicable to it, its business, the ownership of its assets, and the environment which, if not complied with by Company, would have a material adverse effect on the business, properties, assets, prospects or conditions (financial or otherwise) of Company, and (b) has all federal, state, local and foreign governmental licenses and permits, which, if not possessed by Company, would have a material adverse effect on the business, properties, assets, prospects or condition (financial or otherwise) of Company; such licenses and permits are in full force and effect, no material violations have been recorded in respect of any such licenses or permits, and no proceeding is pending or to the best of Company’s knowledge, threatened to revoke or limit any thereof.

 

3.11                           Insurance. To the best of Company’s knowledge, all the insurable properties, assets and operations of Company are insured for its benefit in amounts deemed adequate by Company against all risks usually insured against by persons operating similar properties in the localities where such properties are located, under policies in effect and issued by insurers of recognized responsibility. All premiums currently due under such policies have been paid. No claims currently exist under such policies, and no action or notice has been taken or received regarding termination of such policies.

 

3.12                           Authorization. This Agreement has been duly executed and delivered by Company and constitutes the valid and binding obligation of Company, enforceable in accordance with its terms. The execution, delivery and performance of this Agreement and consummation of the transactions contemplated hereby will not (a) violate any provision of law, statute, rule or regulation, or any ruling, writ, injunction, order, judgment or decree of any court, administrative agency or other governmental body applicable to Company or any of its properties or assets, (b) conflict with or result in any breach of any of the terms, conditions or provisions of, or constitute (with due notice or lapse of time, or both) a default (or give rise to any right of termination, cancellation or acceleration) under, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of Company or create or activate any right or claims against Company under, the certificate of Incorporation or Bylaws of Company, or any material note, indenture, mortgage, lease agreement or other contract, agreement or instrument to which Company is a party or by which it or any of its property is bound or affected, or (c) impair any business relationship which Company has with any dealer, distributor, salesperson, contractor, employee, supplier or customer.

 

3.13                           Shares. At Closing Company will transfer good and marketable title to the Shares to Investor, free and clear of all liens, claims, charges, restrictions and encumbrances. All of Company’s outstanding shares are validly issued and outstanding, fully paid and nonassessable

 

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with no personal liability attaching to the ownership thereof, and not subject to preemptive or any other similar rights of the shareholders of Company or others.

 

3.14                           Related Transactions. To the best of Company’s knowledge, no current or former shareholder, director, officer or employee of Company nor any associate of any such person, is presently, or since the inception of Company has been, directly or indirectly through his or its affiliation with any other person or entity, a party to any transaction with Company providing for the furnishing of services by or to, or rental of real or personal property from or to, or otherwise requiring cash payments to or by any such person (a “Related Transaction”) other than in such person’s capacity as an officer or employee of Company, except as disclosed in Company’s Confidential Private Placement Memorandum dated October 26, 1998.

 

3.15                           Financial Information. Company has delivered to Investor the unaudited balance sheet of Company as of March 31, 1999 (the “Balance Sheet”), related statements of income, stockholders’ equity and changes in financial position for the fiscal periods then ended, and the financial statements included in the Confidential Private Placement Memorandum dated October 26, 1998 (collectively, the “Financial Statements”). Subject only to routine year-end adjustments and to matters not included in interim financial information, the Financial Statements in all material respects (i) are in accordance with the books and records of Company, (ii) fairly present the financial condition of Company as of the dates indicated and the results of operations, stockholders’ equity and changes in financial position of Company for the periods indicated and (iii) have been prepared in accordance with generally accepted accounting principles consistently applied. All accounts receivable of Company as of the dates of the Financial Statements have arisen in the ordinary course of business, are valid, enforceable and to the best of Company’s knowledge, collectible, except to the extent of any reserve for doubtful accounts expressly noted on the Balance Sheet. To the best of Company’s knowledge, Company had no liability of any nature (matured or unmatured, fixed or contingent) which was not provided for or disclosed on the Balance Sheet, and all liability reserves established by Company and set forth on the Balance Sheet were adequate for the purposes indicated therein.

 

3.16                           Absence of Changes.  Since the date of the Balance Sheet, there has not been any material adverse development or event which may reasonably be expected to have a material adverse effect on Company’s business, properties, assets, prospects or condition (financial or otherwise).

 

3.17                           Registration Rights. Except for Steve Newlin, no person has any contractual or other right to cause Company to effect the registration of any shares of Common Stock or other securities of Company.

 

3.18                           Disclosure. Neither this Agreement nor any other document, certificate, instrument or statement furnished or made to Investor by or on behalf of Company in connection with the transactions contemplated hereby contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein and therein not misleading. As of its date, the Confidential Private Placement Memorandum (the “Memorandum”) did not contain any untrue statement of a material fact or omit to state a

 

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material fact necessary in order to make the statements contained therein not misleading. As of the date hereof, the Memorandum, when taken together with the Supplemental Disclosure Memorandum dated April 1999, did not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained therein not misleading

 

Whenever a reference is made in this Exhibit C to the “best of Company’s knowledge,” such knowledge shall be deemed to be the current actual knowledge of the directors and executive officers of Company as of the date of this Agreement.

 

C-5Exhibit 4.2

 

INVESTOR RIGHTS AGREEMENT

 

between

 

JTH TAX, INC.

 

ENVEST VENTURES I, LLC

 

and

 

CERTAIN STOCKHOLDERS OF JTH TAX, INC.

 

JULY 30, 2001

 

 

TABLE OF CONTENTS

 

	
1. DEFINITIONS
    	
1
    
	
 
    	
 
    
	
2. REGISTRATION RIGHTS
    	
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2.1 DEMAND REGISTRATION
    	
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2.2 PIGGYBACK REGISTRATION
    	
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2.3 OBLIGATIONS OF THE COMPANY
    	
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2.4 CONDITIONS TO PARTICIPATION
    	
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2.5 EXPENSES OF REGISTRATION
    	
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2.6 INDEMNIFICATION
    	
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2.7 REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934
    	
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2.8 ASSIGNMENT/TRANSFER OF REGISTRATION RIGHTS
    	
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2.9 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS
    	
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2.10 TERMINATION OF REGISTRATION RIGHTS
    	
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2.11 TERMINATION OF PRIOR RIGHTS
    	
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3. RIGHT OF CO-SALE
    	
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3.1 CO-SALE NOTICE
    	
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3.2 RIGHT TO PARTICIPATE
    	
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3.3 EXTENT OF CO-SALE RIGHT
    	
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3.4 DELIVERY OF SHARES BY INVESTOR
    	
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3.5 FUTURE EXERCISES OF CO-SALE RIGHT
    	
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3.6 EXTENT OF CO-SALE RIGHT
    	
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4. PREEMPTIVE RIGHTS
    	
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4.1 PREEMPTIVE RIGHTS
    	
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4.2 PREEMPTIVE RIGHTS NOTICE
    	
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4.3 TERMINATION
    	
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5. PUT RIGHT
    	
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5.1 EXERCISE OF PUT
    	
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5.2 PUT EVENT
    	
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6. COVENANTS
    	
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6.1 FINANCIAL STATEMENTS AND REPORTS
    	
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6.2 MAINTENANCE OF BOOKS AND RECORDS, INSPECTION
    	
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6.3 INSURANCE
    	
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6.4 TAXES AND ASSESSMENTS
    	
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6.5 COMPANY EXISTENCE; FRANCHISES
    	
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6.6 COMPLIANCE WITH LAW AND AGREEMENTS
    	
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6.7 ACCESS TO COMPANY REPRESENTATIVES
    	
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6.8 NOTICE OF LITIGATION
    	
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6.9 ERISA PLANS
    	
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6.10 MERGER OF THE COMPANY
    	
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6.11 AFFILIATED TRANSACTIONS
    	
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7. DISTRIBUTION RESTRICTIONS
    	
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8. MISCELLANEOUS
    	
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8.1 SUCCESSORS AND ASSIGNS
    	
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8.2 GOVERNING LAW
    	
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8.3 HEADINGS AND CAPTIONS
    	
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8.4 NOTICES
    	
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8.5 AMENDMENTS AND WAIVERS
    	
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8.6 SEVERABILITY
    	
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8.7 ENTIRE AGREEMENT
    	
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8.8 COUNTERPARTS
    	
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8.9 TERMINATION
    	
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INVESTOR RIGHTS AGREEMENT

 

THIS INVESTOR RIGHTS AGREEMENT (the “Agreement”) is made as of July 30, 2001, by and between JTH TAX, INC., a Delaware corporation (the “Company”), ENVEST VENTURES I, LLC (the “Investor”), and, for the purpose of Section 3 of this Agreement, JOHN T. HEWITT (“Hewitt”), and for the purposes of Sections 2 and 4 of this Agreement, EDISON VENTURE FUND I, LLC, a Virginia limited liability company (“Edison”) and SCOTT LAKE HOLDING LTD. (“Scott Lake”).

 

RECITALS

 

A.                                   The Company and the Investor are parties to a Loan and Security Agreement of even date herewith (the “Loan Agreement”) pursuant to which the Investor has loaned $2,000,000 to the Company (the “Loan”).

 

B.                                     The Company has issued to the Investor a Stock Purchase Warrant of even date herewith (the “Warrant”) granting the Investor the right to purchase 46,340 (subject to adjustment) shares of the Class A Common Stock of the Company (the “ Investor Shares”).

 

C.                                     The Company has previously issued to the Investor 25,000 shares of its Class B Preferred Stock (the “Investor Preferred Shares”).

 

D.                                    The Company has previously issued to Edison and Scott Lake 160,000 shares and 30,000 shares, respectively, of its Class A Convertible Preferred Stock (the “Class A Preferred Shares”).

 

E.                                      In order to induce the Company to enter into the Loan Agreement and to issue the Warrant and to induce the Investor to make the Loan and to acquire the Warrant, the Company, the Investor and each of Hewitt, Edison and Scott Lake hereby agree that this Agreement shall govern the rights of the Investor, Edison and Scott Lake, to cause the Company to register certain shares held by Investor, Edison and Scott Lake and certain other matters as set forth herein.

 

AGREEMENT

 

1.  Definitions.

 

For the purposes of this Agreement:

 

1.1                                 “1933 Act” means the Securities Act of 1933, as amended.

 

1.2                                 “1934 Act” means the Securities Exchange Act of 1934, as amended.

 

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1.3                                 “Affiliate” means, with respect to any Person, any other Person that directly or indirectly controls, is controlled by or is under common control with such Person.  For the purpose of this definition, the term “control” means the power to direct the management of an entity, directly or indirectly, whether through ownership of voting securities, by contract or otherwise; and the term “controlled” has the meaning correlative to the foregoing.

 

1.4                                 “Approved Affiliates” shall have the meaning given in Section 3.6.3(a). .

 

1.5                                 “Class A Preferred Holders” shall mean Holders of the Company’s Class A Convertible Preferred Stock.

 

1.6                                 “Corporate Equity Value” shall have the meaning given in Section 5.1.

 

1.7                                 “Corporate Value” shall have the meaning given in Section 5.1.

 

1.8                                 “Co-Sale Notice” shall have the meaning given in Section 3.1.

 

1.9                                 “Co-Sale Right” shall have the meaning given in Section 3.2.

 

1.10                           “EBITDA” shall have the meaning given in Section 5.1.

 

1.11                           “ERISA” shall have the meaning given in Section 6.9.

 

1.12                           “Excluded Shares” means (a) shares of Class A Common Stock issued or issuable to officers of the Company and to consultants and other providers of services to the Company pursuant to (x) the Company’s existing stock option plan, and (y) to future stock option plans of the Company, provided that the number of shares subject to grants made during any fiscal year of the Company shall not exceed two percent (2%) of the then outstanding Shares, calculated on a fully-diluted basis; (b) shares of Class A Common Stock issued or issuable to non-employee directors of the Company pursuant to the Company’s stock plans or options therefor, provided that any such director receives no more than 2,500 shares subject to options in any 12-month period; (c) shares of Class A Common Stock issued upon the conversion of Class A or Class B Convertible Preferred Stock of the Company; (d) shares of Class A Common Stock issued or issuable upon the conversion of the Class B Common Stock of the Company; (e) shares of capital stock issued in a Qualified Public Offering; or any public offering subsequent to a Qualified Public Offering; (f) shares issued solely in consideration for the acquisition (whether by merger or otherwise) by the Company or any of its subsidiaries of all or substantially all of the stock or assets of any other Person; (g) with respect to Envest (but not the Class A Preferred Holders) (i) up to 260,000 shares of Common Stock issued or issuable to Scott Lake and Data Tax, Inc. or their designees, or (ii) shares of Common Stock issued or issuable to Edison in connection with its exercise of preemptive rights with respect to the shares issued pursuant to subsection (i) above; and (h) shares of Class A Common Stock issued or issuable upon the exercise of the Warrant.

 

1.13                           “Form S-3” means such form under the Act as in effect on the date hereof or any registration form under the Act subsequently adopted by the SEC which permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC.

 

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1.14                           “GAAP” shall have the meaning given in Section 6.1.

 

1.15                           “Holder” means any person owning or having the right to acquire Registrable Securities or any assignee thereof.

 

1.16                           “Initiating Holders” shall have the meaning given in Section 2.1.2.

 

1.17                           “Permitted Transfer” shall have the meaning given in Section 3.6.3(a).

 

1.18                           “Permitted Transferee” shall have the meaning given in Section 3.6.3(a).

 

1.19                           “Person” means any individual, corporation, partnership, joint venture, limited liability company, association, joint-stock company, trust, unincorporated organization or governmental body.

 

1.20                           “Piggyback Notice” shall have the meaning given in Section 2.2.

 

1.21                           “Plan” shall have the meaning given in Section 6.9.

 

1.22                           “Preemptive Rights Notice” shall have the meaning given in Section 4.2.

 

1.23                           “Prospectus” means any prospectus that is part of a Registration Statement, together with all amendments or supplements thereto.

 

1.24                           “Put Date” shall have the meaning given in Section 5.1.

 

1.25                           “Put Event” shall have the meaning given in Section 5.2.1.

 

1.26                           “Qualified Public Offering” means an underwritten public offering of the Company’s Class A Common Stock with net proceeds to the Company of Fifteen Million Dollars ($15,000,000) or more and a price to the public sufficient to cause the aggregate market value of the Company’s outstanding Class A Common Stock (including all securities convertible into or exercisable for Class A Common Stock) to exceed Thirty Million Dollars ($30,000,000).

 

1.27                           “Redemption Price” shall have the meaning given in Section 5.1.

 

1.28                           “Register”, “registered,” and “registration” refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the 1933 Act, and the declaration or ordering of effectiveness of such registration statement or document.

 

1.29                           “Registration Request” shall have the meaning given in Section 2.1.1.

 

1.30                           “Registrable Securities” means (i) shares of Class A Common Stock issued and issuable upon exercise of the Warrant (the “Warrant Shares”), and (ii) shares of Class A Common Stock issued and issuable upon the conversion of Class A Convertible Preferred Stock or Class B Convertible Preferred Stock of the Company.  As of the date of this Agreement, the Registrable Securities consist of the following:

 

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Holder
    	
 
    	
Number & Class of Shares Convertible into
   Registrable Securities
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
Investor
    	
 
    	
46,340   shares under the Warrant
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
Investor
    	
 
    	
25,000   shares Class B Convertible Preferred Stock
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
Edison
    	
 
    	
160,000   shares Class A Convertible Preferred Stock
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
Scott   Lake
    	
 
    	
30,000   shares Class A Convertible Preferred Stock
    	
 
    

 

1.31                           “Registration Statement” means any registration statement filed with the SEC in accordance with the 1933 Act, together with all amendments or supplements thereto.

 

1.32                           “Request Notice” shall have the meaning given in Section 2.1.1.1.

 

1.33                           “SEC” means the Securities and Exchange Commission.

 

1.34                           “Shares” means shares of any class of securities of the Company, as the context requires.

 

1.35                           “Violation” shall have the meaning given in Section 2.6.

 

2.  REGISTRATION RIGHTS

 

2.1  Demand Registration.

 

2.1.1.                     If the Company shall receive, at any time that is at least four (4) months after the effective date of a registration statement relating to an initial public offering of securities of the Company (other than a registration statement relating to a sale of securities to employees of the Company pursuant to a stock option, stock purchase or similar plan), a written request from the Holders of at least 50% of the Registrable Securities then outstanding (provided that Envest shall be entitled to make one (1) such request without regard to whether the request is joined in by any other Holder) that the Company file a registration statement under the Act covering the registration of all or any portion of the Registrable Securities (a “Registration Request”), then the Company shall:

 

2.1.1.1.                                                            within twenty (20) days of the receipt of a Registration Request, give written notice of such request to all Holders (a “Request Notice”); and

 

2.1.1.2.                                                            as soon as practicable, effect the registration under the Act of all Registrable Securities held by all Holders that wish to participate in the registration and provide the Company with written requests for inclusion therein within fourteen (14) days after the receipt of

 

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the Request Notice, subject to the limitations of subsection 2.1.2 below.

 

2.1.2.                     If the Holders initiating a Registration Request hereunder (the “Initiating Holders”) desire to distribute the Registrable Securities covered by such Registration Request by means of an underwriting, they shall so advise the Company as a part of the Registration Request, and the Company shall include such information in the Request Notice. The underwriter will be selected by the Company and shall be reasonably acceptable to a majority in interest of the Initiating Holders.  All Holders proposing to distribute their securities through such underwriting shall (together with the Company as provided in subsection 2.3.4) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting. Notwithstanding any other provision of this Section 2.1, if the underwriter advises the Initiating Holders in writing that marketing factors require a limitation of the number of shares to be underwritten, then the number of shares of Registrable Securities that may be included in the underwriting shall be allocated among all Holders thereof, including the Initiating Holders, on a pro rata basis based on the total number of Registrable Securities then held by each Holder; provided, however, that the number of Shares of Registrable Securities to be included in such underwriting shall not be reduced unless all other securities are first entirely excluded from the underwriting.  For any Holder that is a partnership, corporation or limited liability company, the partners, members and stockholders, retired partners and members and stockholders of such Holder, or the estates and family members of any such partners, members and stockholders and retired partners and members and any trusts for the benefit of any of the foregoing persons shall be deemed to be a single “Holder,” and any pro rata reduction with respect to such “Holder” shall be based upon the aggregate number of shares carrying registration rights owned by all entities and individuals included in the definition of “Holder.”

 

2.1.3.                     Notwithstanding the foregoing, if the Company shall furnish to the Initiating Holders a certificate signed by the Chairman of the Board of Directors of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its stockholders for such registration statement to be filed and it is therefore essential to defer the filing of such registration statement, the Company shall have the right to defer taking action with respect to such filing for a period of not more than 120 days after receipt of the request of the Initiating Holders.

 

2.1.4.                     In addition, the Company shall not be obligated to effect, or to take any action to effect, any registration pursuant to this Section 2.1 after it has effected three (3) registrations pursuant hereto, provided that (i) in any event, and notwithstanding the 50% requirement specified in Section 2.1.1, each of Investor and Edison shall be entitled to be an Initiating Holder with respect to at least one (1) additional registration if they were not an Initiating Holder for any other registration, (ii) any registration in which Edison is not an Initiating Holder and that is made pursuant to a request by Envest permitted by Section 2.1.1. shall not act to reduce the number of registrations that may be initiated by Edison, and (iii) the Company may be required to effect up to six (6) registrations on Form S-3 (but not more than one during any six month period), or the equivalent, if the Company is then eligible to use that form; provided that the Company shall not be obligated to effect any such registration if the Holders, together with the holders of any other securities of the Company entitled to inclusion in

 

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the registration, propose to sell Registrable Securities and such other securities (if any) at a gross aggregate price to the public of less than $500,000.

 

2.2  Piggyback Registration.

 

2.2.1.                     The Company shall provide written notice (a “Piggyback Notice”) to all Holders of Registrable Securities at least thirty (30) days prior to filing any registration statement under the Act for purposes of effecting a public offering of securities of the Company, including, but not limited to, registration statements relating to secondary offerings of securities of the Company, but specifically excluding registration statements relating to: (i) the Company’s initial public offering of securities of the Company; (ii) any registration under Section 2.1 of this Agreement; (iii) any registration pursuant to a reclassification of securities, merger, consolidation or acquisition of assets; or (iv) any employee benefit, dividend or interest reinvestment or other similar plan, and the Company shall afford each Holder an opportunity to include in such registration statement all or any part of the Registrable Securities then held by such Holder. Each Holder desiring to include in any such registration statement all or any part of the Registrable Securities held by such Holder shall, within twenty (20) days after receipt of the above-described notice from the Company, so notify the Company in writing, and in such notice shall inform the Company of the number of shares of Registrable Securities such Holder wishes to include in the registration statement. If a Holder decides not to include all of its Registrable Securities in any registration statement filed by the Company, the Holder shall nevertheless continue to have the right thereafter to include any Registrable Securities in any subsequent registration statement or registration statements that may be filed by the Company with respect to offerings of its securities, all upon the terms and conditions set forth herein.

 

2.2.2.                     If a registration statement under which the Company is required to give notice under this Section 2.2 is for an underwritten offering, then the Company shall so advise the Holders of Registrable Securities.  Notwithstanding any other provision of this Agreement, if the underwriter advises the Holders that marketing factors require a limitation of the number of shares to be underwritten, then the underwriter may exclude the Registrable Securities from the registration and the underwriting, and the number of Shares that may be included in the registration and the underwriting shall be allocated, first, to the Company, and second, to each of the Holders requesting inclusion of their Registrable Securities in the registration statement on a pro rata basis based on the total number of Registrable Securities then held by each such Holder.  If any Holder disapproves of the terms of any such underwriting, such Holder may elect to withdraw therefrom by written notice to the Company and the underwriter, delivered at least ten (10) business days prior to the effective date of the registration statement, and such Holders shall be excluded from the registration. For any Holder that is a partnership, corporation or limited liability company, the partners, members and stockholders, retired partners and members and stockholders of such Holder, or the estates and family members of any such partners, members and stockholders and retired partners and members and any trusts for the benefit of any of the foregoing persons shall be deemed to be a single “Holder,” and any pro rata reduction with respect to such “Holder” shall be based upon the aggregate number of shares carrying registration rights owned by all entities and individuals included in the definition of “Holder.”

 

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2.3  Obligations of the Company.

 

Whenever required under this Section 2 to effect the registration of any Registrable Securities, the Company shall:

 

2.3.1.                     Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective, and, upon the request of the Holders of at least fifty percent (50%)  of the Registrable Securities registered thereunder, keep such registration statement effective for a period of up to one hundred twenty (120) days or until the distribution contemplated in the registration statement has been completed; provided, however, that (i) such 120-day period shall be extended for a period of time equal to the period the Holder refrains from selling any securities included in such registration at the request of an underwriter; and (ii) in the case of any registration of Registrable Securities on Form S-3 that are intended to be offered on a continuous or delayed basis, such 120-day period shall be extended, if necessary, to keep the registration statement effective until all such Registrable Securities are sold, provided that then current securities regulations promulgated under the 1933 Act permit conducting an offering on a delayed or continuous basis.

 

2.3.2.                     Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the 1933 Act with respect to the disposition of all securities covered by such registration statement; provided, however, that except as contemplated by Section 2.3.1, the Company shall have no obligation to file an amendment or supplement following the expiration of the period that ends fifteen (15) months after the effective date of the registration statement.

 

2.3.3.                     Furnish to the Holders such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the 1933 Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them.

 

2.3.4.                     In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement.

 

2.3.5.                     Notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the 1933 Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing.

 

2.3.6.                     Cause all Registrable Securities registered pursuant hereunder to be listed on each securities exchange on which similar securities issued by the Company are then listed.

 

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2.3.7.                     Provide a transfer agent and registrar for all Registrable Securities registered pursuant hereunder and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration.

 

2.3.8.  Use its best efforts to register or qualify all of the Registrable Securities under such other securities or blue sky laws of such jurisdiction as each Holder shall reasonably request, and do any and all other acts and things that may be necessary under such securities or blue sky laws to enable such Holder to consummate the public sale or other disposition in such jurisdiction of the Registrable Securities owned by such Holder; provided, however, that the Company shall not be required to (i) qualify to do business as a foreign corporation in any jurisdiction wherein it would not otherwise be required to qualify but for this subparagraph, (ii) subject itself to taxation in any such jurisdiction, (iii) consent to general service of process in any such jurisdiction (provided that Company shall, if required by any such jurisdiction, consent to service of process with respect to matters arising out of the offering of Registrable Securities then being made) or (iv) qualify as a dealer in securities in any such jurisdiction.

 

2.3.9  Make available for inspection by any Holder, any underwriter participating in any disposition pursuant to such registration statements, and any attorney, accountant or other agent retained by any such Holder of at least 5% of the Registrable Securities, all financial and other records, pertinent corporate documents and properties of Company, and cause Company’s officers, directors and employees to supply all information reasonably requested by any such Holder, underwriter, attorney, accountant or agent and reasonably necessary for the purposes of such registration statement.

 

2.3.10  Use its best efforts to furnish, at the request of any Holder requesting registration of Registrable Securities pursuant to this Section 2, on the date that such Registrable Securities are delivered to the underwriters for sale in connection with a registration pursuant to this Section 2 if such securities are being sold through underwriters, or, if such securities are not being sold through underwriters on the date that the registration statement with respect to such securities becomes effective, (i) an opinion, dated such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities and (ii) a letter dated such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities.

 

2.4  Conditions to Participation.

 

No Holder may participate in any underwritten registration hereunder unless (i) such Holder agrees to sell such Holder’s Registrable Securities on the basis provided in any reasonable and customary form of underwriting arrangements approved by Company, (ii) such Holder completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements, and (iii) the Holders of a majority of the Registrable Securities shall have designated a single agent to act for them in connection with the registration.

 

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2.5  Expenses of Registration.

 

All expenses incurred in connection with a registration pursuant to Sections 2.1 or 2.2, including without limitation all registration and qualification fees, printers’ and accounting fees, fees and disbursements of counsel for the Company, and the reasonable fees and disbursements of one counsel, reasonably acceptable to the Company, for the selling Holders (excluding underwriters’ discounts and commissions), shall be borne by the Company; provided, however, that any registration that is withdrawn at the request of the Holders of a majority of the Registrable Securities requested to be registered shall be deemed to be a registration for purposes of the limits on the numbers of registrations specified in Section 2.1.4 unless at the time of the withdrawal, the Holders have learned of a material adverse change in the condition, business or prospects of the Company not known to the Holders at the time of the request for the registration and have withdrawn the request for the registration with reasonable promptness after learning of such material adverse change.

 

Each Holder participating in a registration pursuant to Sections 2.1 or 2.2 shall bear such Holder’s proportionate share (based on the total percentage Shares sold pursuant to such registration for the account of the Holders) of all discounts, commissions or other amounts payable to underwriters or brokers in connection with such registration.

 

2.6  Indemnification.

 

In the event any Registrable Securities are included in a registration statement under this Section 2:

 

2.6.1.                     To the extent permitted by law, the Company will indemnify and hold harmless each Holder, any underwriter (as defined in the Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Act or the 1934 Act, against any losses, claims, damages, or liabilities (joint or several) to which any of them may become subject under the 1933 Act, the 1934 Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations, (collectively a “Violation”): (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Company of the 1933 Act, the 1934 Act, any state securities law or any rule or regulation promulgated under the 1933 Act, the 1934 Act or any state securities law; and the Company will pay to each such Holder, underwriter or controlling person, as incurred, any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the Company shall not be liable in any such case for any such loss, claim, damage, liability, or action to the extent that a Violation occurs solely as a result of written information furnished expressly for use in connection with such registration by any such Holder, underwriter or controlling person.

 

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2.6.2.                     To the extent permitted by law, each selling Holder will indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the registration statement, each person, if any, who controls the Company within the meaning of the Act, any underwriter, any other Holder selling securities in such registration statement and any controlling person of any such underwriter or other Holder, against any losses, claims, damages, or liabilities (joint or several) to which any of the foregoing persons may become subject, under the 1933 Act, the 1934 Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs solely as a result of written information furnished by such Holder expressly for use in connection with such registration; and each such Holder will pay any legal or other expenses reasonably incurred by any person intended to be indemnified pursuant to this subsection 2.6.2, in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that (a) the indemnity agreement contained in this subsection 2.6.2 shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder(which consent shall not be unreasonably withheld), and (b) in no event shall any indemnity obligation under this subsection 2.6.2 exceed the gross proceeds from the offering received by such Holder

 

2.6.3.                     Promptly after receipt by an indemnified party under this subsection 2.6 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this subsection 2.6, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party (together with all other indemnified parties which may be represented without conflict by one counsel) shall have the right to retain one separate counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this subsection 2.6 to the extent of the prejudice incurred, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this subsection 2.6.

 

2.6.4.                     If the indemnification provided for in this subsection 2.6 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage, or expense referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, claim, damage, or expense in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions that resulted in such loss, liability, claim, damage, or expense as well as any other relevant equitable considerations, provided, however, that in no event shall any contribution obligation of a Holder

 

10

 

under this subsection 2.6.4 exceed the gross proceeds from the offering received by the Holder. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties’ relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission.

 

2.6.5.                     Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control.

 

2.6.6.                     The obligations of the Company and Holders under this subsection 2.6 shall survive the completion of any offering of Registrable Securities in a registration statement under this Section 2, and otherwise.

 

2.7  Reports Under Securities Exchange Act of 1934.

 

With a view to making available to the Holders the benefits of Rule 144 promulgated under the 1933 Act and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Company to the public without registration or pursuant to a registration on Form S-3, the Company agrees to:

 

2.7.1.                     make and keep public information available, as those terms are understood and defined in SEC Rule 144, at all times after ninety (90) days after the effective date of the first registration statement relating to the initial public offering filed by the Company;

 

2.7.2.                     take such action, including the voluntary registration of the Shares under Section 12 of the 1934 Act, as is necessary to enable the Holders to utilize Form S-3 for the sale of their Registrable Securities, such action to be taken as soon as practicable after the end of the fiscal year in which the first registration statement relating to the initial public offering filed by the Company is declared effective;

 

2.7.3.                     file with the SEC in a timely manner all reports and other documents required of the Company under the Act and the 1934 Act; and

 

2.7.4.                     furnish to any Holder, so long as the Holder owns any Registrable Securities, forthwith upon request (i) a written statement by the Company that it has complied with the reporting requirements of SEC Rule 144 (at any time after ninety (90) days after the effective date of the first registration statement relating to the initial public offering filed by the Company), the 1933 Act and the 1934 Act (at any time after it has become subject to such reporting requirements), or that it qualifies as a registrant whose securities may be resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the SEC which permits the selling of any such securities without registration or pursuant to such form.

 

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2.8  Assignment/Transfer of Registration Rights.

 

The rights to cause the Company to register Registrable Securities pursuant to this Section 2 may be assigned (but only with all related obligations) by a Holder to a transferee or assignee of such securities, provided: (a) the Company is, within a reasonable time after such transfer, furnished with written notice of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being assigned; (b) such transferee or assignee agrees in writing to be bound by and subject to the terms and conditions of this Section 2; and (c) such assignment shall be effective only if immediately following such transfer the further disposition of such securities by the transferee or assignee is restricted under the 1933 Act.

 

2.9  Limitations on Subsequent Registration Rights.

 

From and after the date of this Agreement, the Company shall not, without the written consent of the holders of a majority in interest of the Registrable Securities, grant to any Person any registration rights with respect to securities of the Company, or enter into any agreement, that would entitle the holder thereof to have securities owned by it included in a registration requested pursuant to Section 2 unless the rights of the holder are subordinate to the rights of the Holders under this Agreement.

 

2.10 Termination of Prior Rights.

 

The provisions of this Section 2 shall be deemed to supercede the provisions of Exhibit B of the Preferred Stock Purchase Agreement dated as of April 29, 1999 between the Company and Edison, and the provisions of Exhibit B of the Class B Preferred Stock Purchase Agreement dated as of July 6, 2001 between the Company and Envest, which shall be deemed of no further force or effect.

 

3.  Right of Co-Sale.

 

3.1  Co-Sale Notice.

 

Hewitt agrees that if he proposes to sell or transfer any of his Shares other than in an transaction described in Section 3.6.3, then he shall promptly give written notice (the “Co-Sale Notice”) to the Investor at least 20 days prior to the closing of such sale or transfer. The Co-Sale Notice shall describe in reasonable detail the proposed sale or transfer including, without limitation, the number of Shares to be sold or transferred, the nature of such sale or transfer, the consideration to be paid, and the name and address of each prospective purchaser or transferee.

 

3.2  Right to Participate.

 

The Investor shall have the right (the “Co-Sale Right”) to participate in such sale or transfer of Shares on the terms and conditions set forth in the Co-Sale Notice. To the extent that the Investor exercises such right of participation in accordance with the terms and conditions set forth below, the number of Shares that Hewitt may sell in the transaction shall be correspondingly reduced.

 

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3.3  Extent of Co-Sale Right.

 

The Investor may sell the number of Shares equal to the product obtained by multiplying (i) the aggregate number of Shares covered by the Co-Sale Notice by (ii) a fraction, the numerator of which is the number of Shares issued or issuable pursuant to the Warrant and owned by the Investor at the time of the sale or transfer and the denominator of which is the sum of (x) the number of Shares issued or issuable pursuant to the Warrant and owned by the Investor at the time of sale or transfer, and (y) the number of Shares owned by Hewitt at the time of the sale or transfer.

 

3.4  Delivery of Shares by Investor.

 

Upon receipt of the Co-Sale Notice, if the Investor elects to participate in such sale or transfer pursuant to this Section 3, the Investor shall effect its participation in the sale by delivering to Hewitt, within 15 days of Investor’s receipt of the Co-Sale Notice, a written notice of Investor’s intent to participate in the sale or transfer and setting forth the number of Shares Investor intends to sell or transfer in exercise of the Co-Sale Right.

 

3.5  Future Exercises of Co-Sale Right.

 

The exercise or non-exercise of the rights of the Investor hereunder to participate in one or more sales of Shares made by Hewitt shall not adversely affect its rights to participate in subsequent sales of Shares pursuant to this Section 3.

 

3.6  Extent of Co-Sale Right.

 

3.6.1.                     The Co-Sale Right will terminate upon the Initial Public Offering of the Company.

 

3.6.2.                     Any new, substituted or additional securities which are by reason of any recapitalizations of the Company distributed with respect to the Shares presently held by Hewitt shall be immediately subject to the Co-Sale Right set forth in this Section 3.

 

3.6.3                        Notwithstanding anything to the contrary in this Section 3,

 

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(a)                                  Hewitt may sell or transfer shares without triggering the Co-Sale Right: (a) to (i) his spouse, parents or lineal descendants (the “Approved Affiliates”), (ii) a trust, the beneficiaries of which are Hewitt and Approved Affiliates, (iii) a corporation, the sole stockholders of which are Hewitt or Approved Affiliates, (iv) a limited partnership, the general partner of which is (x) Hewitt or an Approved Affiliate or (y) a corporation, limited partnership or limited liability company, provided that the majority of the voting power of the limited partnership is owned ultimately by Hewitt or Approved Affiliates, (v) a corporation, limited partnership or limited liability company, the majority of the voting power of which is owned by Hewitt or Approved Affiliates or (vi) an Affiliate of Hewitt; or (b) in the case of Hewitt’s death, by will or by laws of intestate succession to executors, administrators, testamentary trustees, legatees or beneficiaries (each of the foregoing, a “Permitted Transferee”); provided, however, that prior to any Transfer, such Permitted Transferee agrees in writing to be bound by the provisions of this Section 3 as a party.

 

(b)                                 Hewitt may also sell or transfer Shares without triggering the Co-Sale Right, provided that the aggregate amount of any sales or transfers does not exceed ten percent (10%) of the total number of Shares owned (beneficially and of record) by Hewitt as of the date of this Agreement.  Any sale or transfer pursuant to this Section 3.6.3(b) shall permit the Transferee to hold such stock without being subject to any of the provisions of this Agreement.

 

3.6.4.  The Co-Sale Right will be subordinate to the pro rata rights to participate in sales of Shares by Hewitt pursuant to Section 8(b) of each of the Preferred Stock Purchase Agreement dated April 29, 1999 between the Company and Edison, and the Class B Preferred Stock Purchase Agreement dated July 6, 2001 between the Company and Envest.

 

4.  Preemptive Rights.

 

4.1  Preemptive Rights.

 

In the case of the proposed sale or issuance of, or the proposed granting by the Company of, any equity securities of the Company to any third party, other than any Excluded Shares, then each of Investor and the Class A Preferred Holders shall have the right, on the same terms as those of the proposed sale, issuance or grant during a reasonable period of time no more than thirty (30) days after the Company has given notice to each of Investor and the Class A Preferred Holders of such proposed sale, issuance or grant, to purchase a sufficient number of shares of the equity securities proposed to be sold, issued or granted to maintain their respective percentage ownership of the outstanding Shares of the Company (including for purposes of such calculation the shares of Class A Common Stock that Investor would be entitled to receive upon exercise of the Warrant) represented by their then-existing holdings of Registrable Shares (or Warrants or Shares convertible into Registrable Shares) as of the date of such notice.  The price or prices and terms for such equity securities shall be identical to the price or prices and terms at which such equity securities are proposed to be offered for sale or issuance or granted to others.  The obligation of Investor and/or the Class A Preferred Holders to purchase equity securities pursuant to this Section 4.1 will be conditioned upon the actual sale by the Company of the

 

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equity securities to the third parties that are the subject of the Preemptive Rights Notice (as defined below).

 

4.2  Preemptive Rights Notice.

 

If the Company desires to sell or issue any of its equity securities, other than Excluded Shares , the Company shall deliver a notice in the manner specified in Section 8.4 (“Preemptive Rights Notice”) to the Investor and the Class A Preferred Holders stating (i) its bona fide intention to offer such securities for sale, (ii) the number of such securities proposed to be sold if Investor and the Class A Preferred Holders do not exercise their rights under this Section 4, and (iii) the price and terms upon which it proposes to offer such securities for sale.

 

4.3  Termination.

 

(a)                                  The preemptive rights set forth in this Section 4 shall terminate upon the effective date of the registration statement pertaining to a Qualified Public Offering.

 

(b)                                 The provisions set forth in this Section 4 shall be deemed to supersede the provisions of Section 2(b)(viii) of the Preferred Stock Purchase Agreement dated April 29, 1999 between the Company and Edison, and Section 2(b)(viii) of the Class B Preferred Stock Purchase Agreement dated July 6, 2001 between the Company and Envest, which shall be deemed of no further force or effect.

 

5.  Put Right.

 

5.1   Exercise of Put.

 

Upon the occurrence of a “Put Event” (as defined below), the Investor and its affiliates and permitted transferees who hold the Warrant or Shares issued upon exercise of the Warrant or any new, substituted or additional securities or other property which are by reason of any recapitalizations or reorganization of the Company issued or issuable upon exercise of the Warrant or in lieu of or as a replacement for such Shares (collectively, with the Warrant, the “Put Shares”) shall have the right to require the Company to redeem all, but not less than all, of the Put Shares at a price per Share (the “Redemption Price”), whether outstanding or issuable upon exercise of the Warrant , equal to the “Corporate Equity Value” per share of the Put Shares.  For the purposes of this Section 5, the “Corporate Equity Value” of the Company shall be defined as the difference between (1) the “Corporate Value” of the Company and (2) the total outstanding indebtedness of the Company as set forth on the Company’s balance sheet dated as of the last day of the calendar quarter next preceding the month in which the Put Event occurs. “Corporate Value” shall be defined as the product of (X) the Company’s trailing twelve (12) months Earnings Before Interest, Taxes, Depreciation, and Amortization (“EBITDA”) multiplied by (Y) six (6) plus (Z) the Company’s cash on hand as of the last day of the calendar quarter next preceding the month in which the Put Event occurs.  The per share calculation of Corporate Equity Value shall take into account all Shares and the net value of all securities convertible or exercisable into Shares, including the Shares for which any unexercised portion of the Warrant may be converted.

 

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5.1.1                        To exercise this put right, the Investor, affiliate or permitted transferee shall deliver to the Company a written notice of exercise of the Put Right setting forth the Put Event on which such exercise is based. No later than ninety (90) days following the date of such notice (the “Put Date”), the Company shall effect the redemption by paying the Put Price.

 

5.1.2                        In the event that the Company cannot arrange financing for the Put Price on terms reasonably acceptable to it after using commercially reasonable efforts to do so for a period of ninety (90) days following the Put Date, or if payment by the Company of the Put Price for the Put Shares would cause the Company to be in default pursuant to the terms of indebtedness senior in priority to the indebtedness incurred pursuant to the Loan, the Company shall pay the Put Price to the Investor by delivery to the Investor of the Company’s promissory note in the original principal amount of the Put Price and bearing interest at the annual rate of fifteen percent (15%).  This promissory note will be due and payable on the first anniversary date of its issuance, and will be payable on a pari passu basis with the Loan.

 

5.2                               Put Event.

 

For purposes of this Section 5, a “Put Event” shall mean (A) the third anniversary date of this Agreement, or (B) the effective date of an initial public offering of Shares by Issuer registered under the 1933 Act that is not a Qualified Public Offering.  The rights of Investor under this Section 5 shall terminate on the earliest to occur of (i) the tenth anniversary date of this Agreement, or (ii) the effective date of a Qualified Public Offering if the stock price per share in such offering exceeds the Corporate Equity Value per share.

 

6.  Covenants.

 

·                                          Until a Qualified Public Offering, so long as the Warrant is outstanding and/or the Investor holds any Warrant Shares:

 

6.1  Financial Statements and Reports.

 

Until such time as no portion of the Warrant or the Warrant Shares is held by the Investor, the Company shall furnish to the Investor (i) within one hundred twenty (120) days after the end of each fiscal year of the Company, an audited balance sheet of the Company as of the close of such fiscal year, an audited income statement of the Company for such fiscal year, and audited statements of cash flows for the Company for such fiscal year, all in reasonable detail, prepared in accordance with generally accepted accounting principles (“GAAP”) applied on a basis consistent with that of the preceding year, in such form as has customarily been prepared by the Company, audited by the Company’s independent certified public accountants, and, if a management letter is prepared by such accountants, a copy of such management letter; (ii) within forty-five (45) days of the end of each calendar quarter, balance sheets of the Company as of the close of such quarter and an income statement of the Company for such quarter, all in reasonable detail, and prepared on the basis of accounting principles consistently applied; and (iii) with reasonable promptness, such other financial data as the Investor may reasonably request from time to time.

 

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6.2  Maintenance of Books and Records, Inspection.

 

The Company shall maintain financial records in accordance with GAAP, and permit representatives of the Investor to have access to such financial records at reasonable times during normal business hours and to make inspections thereof and such excerpts from such records as such representatives deem necessary.

 

6.3  Insurance.

 

The Company shall maintain, in amounts customary for entities engaged in comparable business activities, life, fire, liability and other forms of insurance on its properties against such hazards and in at least such amounts as are customary in the Company’s business.

 

6.4  Taxes and Assessments.

 

The Company shall duly pay and discharge all taxes, assessments and governmental charges upon it or against its properties prior to the date on which penalties attach unless and to the extent only that such taxes, assessments and governmental charges shall be contested in good faith and by appropriate proceedings by the Company, and the Company shall have set aside on its books such reserves as are required by GAAP, consistently applied, with respect to any such tax, assessment or charge so contested.

 

6.5  Company Existence; Franchises.

 

The Company shall maintain its existence as a corporation in good standing in the state of its incorporation and its qualification and good standing as a foreign corporation in each jurisdiction in which such qualification is required by applicable law. The Company shall keep its corporate franchises, if any, in full force and effect and duly observe and conform to all valid requirements of any governmental authority relative to the conduct of its business and to its property and assets and maintain and keep in force all franchises, licenses and permits necessary to the lawful and proper conduct of its business.

 

6.6  Compliance with Law and Agreements.

 

The Company shall maintain its business operations and property owned or used in connection therewith in compliance in all material respects with (i) all applicable federal, state and local laws, regulations and ordinances governing such business operations and the use and ownership of such property, and (ii) all agreements, licenses, franchises, indentures, mortgages and deeds of trust to which the Company is a party or by which the Company or any of its properties is bound.

 

6.7  Access to Company Representatives.

 

The Company will make appropriate officers of the Company available to Investor on a reasonable basis for consultation with respect to matters related to the business and affairs of the Company, including but not limited to significant changes in and compensation of the management personnel of the Company.

 

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6.8  Notice of Litigation.

 

The Company shall give notice, in writing, to the Investor of (i) any actions, suits or proceedings instituted by any persons whomsoever against the Company that could materially adversely affect the Company, and (ii) any dispute between the Company on the one hand and any governmental regulatory body on the other hand, which dispute might interfere with the normal operations of the Company; provided, however, that the Investor shall not disclose any such information to any third party other than the Investor’s counsel except to the extent compelled to do so by legal process or law or otherwise authorized by the Company.

 

6.9  ERISA Plans.

 

Promptly during each year, Borrower shall pay contributions that in the judgment of the chief financial officer of the Company, after reasonable inquiry, are believed adequate to meet at least the minimum funding standards set forth in Sections 302 through 305 of the Employee Retiree Income Security Act of 1974, as amended (“ERISA”), with respect to each employee benefit pension plan of the Company covered by ERISA (each a “Plan”); file each annual report required to be filed pursuant to Section 103 of ERISA in connection with each such Plan for each year; and promptly notify the Investor of the occurrence of a Reportable Event (as defined in Section 4043 of ERISA) that might constitute grounds for termination of any such Plan by the Pension Benefit Guaranty Corporation or for the appointment by the appropriate United States District Court of a trustee to administer any such Plan.

 

6.10  Merger of the Company.

 

The Company will not merge or consolidate with any person, corporation, limited liability company, partnership, association, or other entity, unless the surviving entity in the merger is the Company or a wholly-owned subsidiary of the Company and the surviving entity in the merger has stockholders equity (or comparable measure of net worth) on a pro forma basis as of the last day of the calendar quarter immediately preceding the consummation of the merger at least equal to the stockholders equity (or comparable measurement of net worth) of the Company as of that date.

 

6.11 Affiliated Transactions

 

The Company will not enter into any transaction with a director or executive officer of the Company, or with any person or entity owned or controlled by or affiliated with a director or executive officer of the Company, other than on an arms-length basis and on terms and conditions no less favorable to the Company than could be obtained from an unrelated person or entity or after approval by a majority of the disinterested members of the Board of Directors of the Company after full disclosure of the terms thereof.

 

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7.  Distribution Restrictions.

 

Investor shall be entitled to receive with respect to each unexercised share represented by the Warrant, as declared by the Board of Directors of the Company for the Class A Common Stock, out of funds legally available for that purpose, dividends in cash, common stock or other property on an equivalent basis with the Class A Common Stock so that each unexercised share will be treated as if it had been converted into share of Class A Common Stock as provided in the Warrant.

 

8.  Miscellaneous

 

8.1  Successors and Assigns.

 

Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties (including transferees of any Registrable Securities). Nothing in this Agreement, express or implied, is intended to confer upon any party, other than the parties hereto or their respective successors and assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.

 

8.2  Governing Law.

 

This Agreement shall be governed by and construed under the internal laws of the Commonwealth of Virginia, without reference to principles of conflicts of laws or choice of laws.

 

8.3  Headings and Captions.

 

The headings and captions used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

 

8.4  Notices.

 

Unless otherwise provided, all notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (i) upon personal delivery to the party to be notified, (ii) when sent by confirmed telex or facsimile if sent during normal business hours of the recipient, if not, then on the next business day; (iii) five days after having been sent by registered or certified mail, return receipt requested, postage prepaid; or (iv) one day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the address as set forth below or at such other address as any party may designate by five days advance written notice provided in accordance with this Section 8.4:

 

	
If to the Holder:
    	
JTH   Tax, Inc.
    
	
 
    	
4575   Bonney Road
    
	
 
    	
Virginia   Beach, Virginia 23462
    
	
 
    	
Attention:   Raymond A. Dunn
    
	
 
    	
Facsimile:   (757) 493-0169
    

 

19

 

	
With a copy to:
    	
Troutman   Sanders Mays & Valentine LLP
    
	
 
    	
2525   Dominion Tower
    
	
 
    	
999   Waterside Drive
    
	
 
    	
Norfolk,   Virginia 23510
    
	
 
    	
Attention:   James J. Wheaton
    
	
 
    	
Facsimile:   (757) 687-7701
    
	
 
    	
 
    
	
If to the Company:
    	
Envest   Ventures I, LLC
    
	
 
    	
2101 Parks Avenue, Suite 401
    
	
 
    	
Virginia Beach, VA 23451
    
	
 
    	
Attention:   John Garel
    
	
 
    	
Facsimile:   (757) 437-3884
    
	
 
    	
 
    
	
With a copy to:
    	
Williams,   Mullen, Clark & Dobbins, P.C.
    
	
 
    	
One Columbus Center, Suite 900
    
	
 
    	
Virginia Beach, VA 23462
    
	
 
    	
Attention: John M. Paris, Jr., Esq.
    
	
 
    	
Facsimile:   (757) 473-0395
    
	
 
    	
 
    
	
If to Edison:
    	
Edison   Venture Fund IV, L.P.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
Attention:
    
	
 
    	
Facsimile:
    
	
 
    	
 
    
	
With a copy to:
    	
Alan   I. Goldberg, Esq.
    
	
 
    	
2828   Charter Road, Suite 101
    
	
 
    	
Philadelphia,   PA 19154
    
	
 
    	
 
    
	
If to Scott Lake:
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
Attention:
    
	
 
    	
Facsimile:
    
	
 
    	
 
    
	
With a copy to:
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
Attention:
    
	
 
    	
Facsimile:
    

 

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8.5  Amendments and Waivers.

 

Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived only with the written consent of the Company and the holders of (a) with respect to any amendment to the rights provided for in Sections 2 and 4, a written consent of the holders of at least seventy-five percent (75%) of the Registrable Securities held, and (b) with respect to any other amendments to this Agreement, the consent of the holders of the seventy-five percent (75%) of the outstanding Investor Shares. Any amendment or waiver effected in accordance with this Section 8.5 shall be binding upon each holder of Registrable Securities then outstanding, each future holder of Registrable Securities and the Company.

 

8.6  Severability.

 

If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms.

 

8.7  Entire Agreement.

 

This Agreement and the documents referred to herein constitute the entire agreement among the parties and no party shall be liable or bound to any other party in any manner by any warranties, representations or covenants except as specifically set forth herein or therein.  However, the parties agree that as except as provided in Sections 2.10 and 4.3(b), this Agreement shall not be deemed to modify or otherwise affect the agreements contained in the Preferred Stock Purchase Agreement dated April 29, 1999 between the Company and Edison, or the Class B Preferred Stock Purchase Agreement dated July 6, 2001 between the Company and Envest.

 

8.8  Counterparts.

 

This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

 

8.9  Termination.

 

Except as otherwise expressly set forth herein with respect to certain sections of this Agreement, this Agreement, other than Sections 2, 4 and those sections necessary to give effect to Sections 2 and 4, shall terminate at such time as the Investor and its permitted transferees and their respective affiliates no longer hold the Warrant or any Shares.

 

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.

 

	
 
    	
JTH   TAX, INC.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   John T. Hewitt
    
	
 
    	
 
    	
John   T. Hewitt
    
	
 
    	
 
    	
President   and Chief Executive Officer
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
ENVEST   VENTURES I, LLC
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   John Garel
    
	
 
    	
 
    	
John   Garel
    
	
 
    	
 
    	
Senior   Managing Director
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
EDISON   VENTURE FUND IV, LLC
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Gary P. Golding
    
	
 
    	
 
    	
Name:   Gary P. Golding
    
	
 
    	
 
    	
Title:   General Partner
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
/s/   John T. Hewitt
    
	
 
    	
 
    
	
 
    	
JOHN   T. HEWITT
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
SCOTT   LAKE HOLDINGS LTD.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   J. Gary Ibbotson
    
	
 
    	
 
    	
J.   Gary Ibbotson
    
	
 
    	
 
    	
President
    

 

22

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00194-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00194-of-00352.parquet"}]]