As Filed With the Securities and Exchange Commission on June 30, 1998
Registration No.______
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
JTH TAX, INC.
(Name of small business issuer in its charter)
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Delaware 7291 54-1828391
(State or Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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2610 Potters Road, Virginia Beach, Virginia 23452 (757) 340-7610
(Address and telephone number of principal executive office)
2610 Potters Road, Virginia Beach, Virginia
23452 (Address of principal place of business or intended
principal place of business)
John T. Hewitt, 2610 Potters Road, Virginia Beach, Virginia 23452 (757) 340-7610
(Name, address and telephone number of agent for service)
Approximate date of proposed sale to the public: As soon as practicable
after this registration statement becomes effective.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] If this Form is a
post-effective amendment filed pursuant to Rule 462(c) under the Securities Act,
check the following box and list the Securities Act registration statement
number of the earlier effective registration statement for the same
offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act check the following box and list the Securities Act
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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Title of each class of Amount to be Proposed maximum Proposed maximum Amount of
securities to be registered registered offering price per unit aggregate offering price registration fee
Class A Common Stock 310,000 $12.50 $3,875,000 $1,143.13
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The registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED June 30, 1998
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Prospectus
310,000 Shares
JTH TAX, INC.
Class A Common Stock
JTH Tax, Inc. (the "Company") is offering a maximum of 310,000 shares
and a minimum of 40,000 shares (the "Shares") of Class A common stock, par value
$1.00 per share (the "Class A Common Stock"), at a price of $12.50 per Share.
There is no public market for any of the Company's securities, and it is not
anticipated that a market will develop for the Shares following the completion
of this offering.
The Shares are being offered for sale in direct transactions to
selected persons. The offering will be made on a best-efforts basis by the
Company through its director and officer, John K. Seal. If at least 40,000
Shares are not sold at a price of at least $12.50 per Share within 30 days of
the date that the registration statement relating to these securities becomes
effective, the proceeds of any sale of Shares will be returned to investors
(with interest) and the offering will be terminated. If at least 40,000 Shares
are sold by that date, subscriber funds received through that date will be
released to the Company. Members of the Company's management may, but are not
obligated to purchase Shares. See "Plan of Distribution." Any Shares purchased
by the Company's management may be counted toward the determination of whether
the minimum offering amount has been met.
INVESTMENT IN THE SHARES OFFERED HEREBY INVOLVES A HIGH
DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING AT PAGE 7.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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Underwriting Proceeds
Price to Public Discounts(1) to Company(2)
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Per Share................. $12.50 -- $12.50
Total Maximum............. $3,875,000 -- $3,875,000
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(1) The offering is being made by the Company through its officer and
director, who will not be separately compensated for doing so.
(2) Before deducting expenses of the offering, estimated to be $100,000.
The date of this Prospectus is July , 1998.
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AVAILABLE INFORMATION............................................. 5
SUMMARY........................................................... 5
RISK FACTORS...................................................... 7
USE OF PROCEEDS................................................... 13
DILUTION ......................................................... 14
PLAN OF DISTRIBUTION.............................................. 14
LEGAL PROCEEDINGS................................................. 16
MANAGEMENT........................................................ 16
EXECUTIVE COMPENSATION............................................ 18
DESCRIPTION OF CAPITAL STOCK...................................... 20
INDEMNIFICATION OF DIRECTORS AND OFFICERS......................... 21
BUSINESS ......................................................... 22
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
.................................................................. 33
REPORTS TO STOCKHOLDERS........................................... 33
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AVAILABLE INFORMATIONAVAILABLE INFORMATION
The Company is not subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form SB-2 (No. 333- ) (together with
any amendments thereto, the "Registration Statement"), under the Securities Act
of 1933, as amended (the "Securities Act"), with respect to the securities
offered hereby. This Prospectus, which constitutes a part of the Registration
Statement, omits certain information contained in the Registration Statement as
permitted by the rules and regulations of the Commission. For further
information with respect to the Company and the securities offered hereby,
reference is made to the Registration Statement and the exhibits and financial
statements, notes and schedules filed as part thereof, which may be inspected at
the public reference facilities of the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional
offices located at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and at Seven World Trade Center, New York, New York
10048. Copies of such documents may also be obtained through the Commission's
Internet address at http://www.sec.gov. Statements made in this Prospectus
concerning the contents of any documents referred to herein are not necessarily
complete, and in each instance are qualified in all respects by reference to the
copy of such document filed as an exhibit to the Registration Statement.
This Prospectus contains certain forward-looking statements which
involve substantial risks and uncertainties. These forward-looking statements
can generally be identified as such because the context of the statement
includes words such as the Company "believes," "anticipates," "expects,"
"estimates," "intends," or other words of similar intent. Similarly, statements
that describe the Company's future plans, objectives and goals are also
forward-looking statements. The Company's actual results, performance or
achievements could differ materially from those expressed or implied in these
forward-looking statements as a result of certain factors, including those set
forth in "Risk Factors" and elsewhere in this Prospectus.
SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus.
The Company
The Company is a Delaware corporation formed in October 1996 to provide
retail income tax return preparation services to taxpayers primarily in the
lower- to middle-income tax brackets. The Company operates in Canada through its
majority-owned subsidiary, Tax Depot Inc., a corporation organized under the
laws of the Province of Manitoba ("Tax Depot"). (Throughout this Prospectus,
references to the Company's Canadian operations and to Tax Depot's operations
are used interchangeably.) Tax Depot currently operates under the trade name
"U&R Tax Depot" but the Company intends to conduct business in both Canada and
the U.S. under the name "Liberty Tax Service" by the 1999 tax season. During the
1998 tax season, there were 207 U&R Tax Depot offices (13 of which were owned by
Tax Depot and the balance of which were owned by franchisees of Tax Depot)
extending from the Maritimes to British Columbia. In addition, the Company owned
and operated five tax preparation offices in Columbus, Ohio during the 1998 tax
season.
The Company seeks competitive advantage in its markets by (i) providing
prompt tax return preparation at a reasonable price, (ii) providing electronic
filing services, (iii) providing ancillary services, such as audit assistance,
tax return checking and taxation seminars, and (iv) offering a refund
anticipation loan program pursuant to which the Company will arrange, for a fee,
loans to customers based upon the size of the customers' tax refunds.
The Company intends to use the proceeds of this offering to expand its
operations in the United States. Until April 30, 1999, the Company's ability to
own or franchise tax preparation offices in the U.S. is limited by certain
restrictive covenants to which John T. Hewitt, the Company's Chairman, Chief
Executive Officer, President and founder, and John K. Seal, Vice President,
Treasurer and director of the Company, are subject. The Company will seek
further expansion of its operations in the United States after the termination
of those restrictive covenants. See "Risk Factors - Existence of Restrictive
Covenants."
The Company's principal executive offices are located at 2610
Potters Road, Virginia Beach, VA 23452 and its telephone number is (757)
340-7610.
The Offering
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Securities offered....................................... 310,000 shares of Class A Common Stock
Securities to be outstanding after
the offering............................................. 710,000 shares of Class A Common Stock
......................................................... 90,000 shares of Class B Common
......................................................... Stock
Use of proceeds.......................................... The proceeds of the offering, after the payment of offering
expenses, are expected to be used by the Company to
purchase existing tax practices in the U.S., establish
up to 30 new tax return preparation offices in the U.S., and
develop software.
Risk factors............................................. An investment in the Shares involves a high degree of risk.
See "Risk Factors" beginning on page 7 hereof for
information that should be considered by prospective
investors.
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RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the
Shares. The cautionary statements set forth below and elsewhere in this
Prospectus should be read as accompanying forward-looking statements included
under "Business" and elsewhere herein. The risks described in the statements set
forth below could cause the Company's results to differ materially from those
expressed in or indicated by such forward-looking statements.
Minimal Operating Revenues and History. The Company's operations
commenced in September 1997 with its purchase of a 60% interest in Tax Depot, an
established provider of tax preparation services in Canada. In addition, the
Company commenced tax preparation operations in Columbus, Ohio in 1998. As a
recently formed entity, the Company has minimal operating history upon which an
evaluation of its future prospects can be made. The Company's future viability,
profitability and growth will depend upon its ability to successfully operate
and expand its Canadian operations and its ability to commercialize its tax
services through establishment of Company-owned and franchised offices in the
United States. The Company's prospects in the U.S. must be considered in light
of the risks, expenses and difficulties frequently encountered in the
establishment and development of a new business, particularly in the tax return
preparation industry which is characterized by intense competition, two dominant
national tax return preparation firms and ease of market entry. There can be no
assurance that any of the Company's efforts will prove successful.
Lack of Public Market for Shares. No active market for the Shares will
exist following the closing of this offering, nor is such a market expected to
develop in the foreseeable future. Therefore, investors should be prepared to
hold their investment in the Shares indefinitely.
Minimum Offering. The consummation of this offering is conditioned upon
a minimum of 40,000 Shares at a price of $12.50 per share (the "Minimum Offering
Amount") being sold within 30 days after the date of effectiveness of the
registration statement for this offering (the "Minimum Offering Date") and
together the "Minimum Conditions"). In the event that the Minimum Conditions are
not met, the Company is required to return the proceeds of any Shares which were
sold in this offering up to the Minimum Offering Date, with interest, and this
offering will be terminated. See "Plan of Distribution - Repayment if Minimum
Conditions Not Met." If, however, the Minimum Conditions are satisfied and the
Company proceeds with this offering, there is a risk that the Company may
receive substantially less than the $3,875,000 sought in this offering. To the
extent that less than the maximum number of Shares is sold, the Company is
subject to increased risk that it will have insufficient funds to open all of
the offices and/or acquire all of the tax service practices that it anticipates
it will fund with the maximum proceeds of this offering, and to operate for the
3-year period that the Company anticipates it can operate if the maximum number
of Shares is sold. See "Risk Factors - Need for Additional Financing."
Need for Additional Financing. Although the Company expects that the
net proceeds of this offering will be sufficient to fund the Company's U.S.
operations for at least three years following its completion, this estimate is
based upon certain assumptions regarding the number of the Company's tax
preparation offices in both Canada and the United States operating during such
period, the cost of establishing and purchasing tax preparation offices,
operating expenses, revenues from tax return preparation in Canada and the
United States and similar matters, including the assumption that the maximum
number of Shares offered hereby is sold. There can be no assurance that such
assumptions will be realized or that unforeseen costs will not be incurred. In
addition, the Company will likely need additional capital in order to expand its
U.S. operations beyond the purchase of the existing practices and the
establishment of the 30 Company-owned offices that the Company plans to fund
through this offering. It is unlikely that cash flow from operations will be
sufficient to support material growth during the next several years of
operations. There can be no assurance that the Company will be able to obtain
capital as and when needed (either for operational purposes or to fund
expansion) upon terms acceptable to it.
Existence of Restrictive Covenants. Mr. Hewitt, the Company's Chairman,
Chief Executive Officer and President, and Mr. Seal, the Company's director,
Vice President of Operations and Treasurer, are subject to covenants not to
compete with their former employer, Jackson Hewitt Inc. ("Jackson Hewitt"), a
national tax return preparation service company, in any city, town or county
within the geographical limits of the United States, its territories and
possessions in which Jackson Hewitt or its franchises, "business partners" or
other business entities bearing its tradename were conducting business as of
December 9, 1996, or in which Jackson Hewitt had made plans or preparations, of
which Mr. Hewitt or Mr. Seal were aware, to locate a franchise or entity prior
to such date. The restrictive covenants expire on April 30, 1999. As of April
30, 1997, Jackson Hewitt had 1,296 franchised offices and 76 company-owned
offices in 41 states. The covenants pertaining to Messrs. Hewitt and Seal
effectively prohibit the Company from establishing offices in most large urban
or suburban areas, and thus from creating a national presence in the United
States, prior to the 2000 tax season. Accordingly, such covenants may adversely
affect the Company's growth, revenues and profitability at least until their
expiration.
In addition, Mr. Hewitt (and, derivatively, the Company) is subject to
covenants prohibiting his use of "confidential and proprietary information"
about or relating to Jackson Hewitt or its customers. As used in the covenant,
the term "confidential and proprietary information" is broadly defined to cover
production processes, marketing techniques, financial information, the "Hewtax"
interactive software package (the tax preparation computer software developed by
Mr. Hewitt and used by Jackson Hewitt), "operating principles," promotional
plans or strategies, sales methods and similar matters. In particular, there can
be no assurance that any proprietary computer software developed by the Company
would not be challenged by Jackson Hewitt as being derivative of the "Hewtax"
software and thus violative of the covenant. Mr. Seal and Martha O'Gorman,
Director of Marketing, are similarly prohibited from using confidential
information or trade secrets of Jackson Hewitt related to its operations and tax
preparation business. The confidentiality covenants of Messrs. Hewitt and Seal
and Ms. O'Gorman are, by their terms, perpetual.
Messrs. Hewitt and Seal and Ms. O'Gorman are also subject to
"non-disparagement covenants" which prohibit them from doing or saying anything
which might reasonably be expected to materially harm the business interests of
Jackson Hewitt. The non-disparagement covenant of Ms. O'Gorman expires on
November 20, 1998 and those of Messrs. Hewitt and Seal expire on April 30, 1999.
Although the Company believes that its proposed operations and the
activities of its officers will not violate these covenants, in view of the
broad nature of the definitions of "confidential and proprietary information"
and "trade secrets" and the breadth of the non-disparagement covenants, there
can be no assurance that Jackson Hewitt will not seek to block one or more
aspects of the Company's operations (whether by seeking injunctive relief or
otherwise) as contravening these covenants. To date, Jackson Hewitt has
commenced one suit against Mr. Hewitt and Mr. Seal, as individuals, alleging
breach of their restrictive covenants and seeking injunctive relief suspending
Messrs. Hewitt's and Seal's activities in connection with the Company's
Columbus, Ohio operations. See "Legal Proceedings." Jackson Hewitt obtained a
voluntary dismissal of the suit shortly after its initial filing, but the
dismissal was without prejudice and therefore Jackson Hewitt may file another
suit asserting the same or similar claims. Although the Company was not a party
to this suit and did not participate in Messrs. Hewitt's and Seal's defense, if
the Company is named a party to any future legal actions brought by Jackson
Hewitt alleging breach, in connection with the Company's business, of the
restrictive covenants binding on Messrs. Hewitt and Seal and Ms. O'Gorman, the
Company will rigorously defend itself. It is likely to be very costly for the
Company to defend such future actions. There can be no assurance that even if
the Company were to mount such defense, it would prevail on the merits. The
granting of an injunction against the Company or any of Mr. Hewitt, Mr. Seal or
Ms. O'Gorman could materially adversely affect the Company's financial condition
and operations and, in certain instances, require the Company to seek
alternatives to its then-current business practices or terminate operations.
Jackson Hewitt could also seek and, if successful, be awarded damages which,
depending upon the nature of the claim, a court's view of the enforceability of
the covenants and the facts relating to such damages, may be substantial.
Accordingly, if Jackson Hewitt were to make a claim, succeed on the merits and
be awarded damages, it is possible that purchasers of the Class A Common Stock
could lose some portion or all of their investment in the Company.
Lack of Copyright Registration of Software Program. The Company does
not expect that it will file for copyright registration for any software
programs it may develop. The Company's competitors could conceivably recreate,
or "reverse engineer," its tax preparation software and begin offering similar
computerized and standardized services. If this were to occur, the Company may
not have any practical legal recourse and could find that, in effect, it would
be forced to compete with its own system. However, because the Company's tax
preparation software will require updating at least annually to reflect changes
in the tax law, the Company believes that it would be difficult for any
unauthorized party to misappropriate the proprietary aspects of its software
programs in a timely and profitable manner.
Importance of Refund Anticipation Loan Program. The Company believes
that its refund anticipation loan program will be an important source of revenue
in both the United States and Canada since members of its targeted market
typically desire tax refunds as quickly as possible. The success of the program
will depend, in part, on the continued availability of third party financing for
the loans. See "Business - Services Offered - Refund Anticipation Loan Program."
To the extent that the Company does not recover the full amount of a refund
anticipation loan from the proceeds of the refund, the Company's revenues may be
adversely affected. While efforts will be made to collect the shortfall from the
customer, there can be no assurance that any or all of the amount would be
recovered.
Dependence on Electronic Filing. An element critical to the Company's
operating strategy, and to the refund anticipation loan program in particular,
is the continuation of the IRS's and Revenue Canada's electronic filing
programs. Although the IRS has established a 98% electronic filing target for
the year 2000, the Company is aware of concerns expressed by the IRS and certain
members of Congress regarding the filing of fraudulent electronic returns. The
IRS has indicated that it has more difficulty catching fraudulent refund claims
from electronic returns than from traditional paper returns. Any decision by
either the IRS or Revenue Canada to suspend, terminate or substantially modify
its respective electronic return filing program could materially adversely
affect the Company's tax return preparation business, given the Company's
expectation that a large percentage of tax returns prepared by the Company will
be filed electronically.
Government Regulation. The Company's future results of operations will
depend in part on its ability to comply with Canadian, provincial, United States
and state regulations affecting tax return preparers. Currently, there are no
onerous Canadian, provincial, United States and state regulations affecting the
Company's operations. However, the Company is aware of at least three states
that have passed laws relating to the implementation of refund anticipation loan
programs, and that others may be considering similar legislation. In addition,
the Company expects that many of its tax return preparers will be hired after
they successfully complete a tax school offered by the Company to the general
public. Some states and provinces have implemented, or are considering
implementing, laws or regulations governing proprietary schools. The Company
does not believe that existing laws and government regulations will materially
affect the Company's operations; however, the Company cannot predict whether a
change will occur in such laws and regulations, and if so, the economic or
business effect of such change. To the extent that any legislation has the
effect of limiting the profitability of the Company's refund anticipation loan
program, or requires the Company to alter its proposed operations to comply with
proprietary school requirements, the Company's operations could be adversely
affected.
Franchise Operations. Although the Company will begin its United States
operations with Company-owned tax preparation offices, the Company anticipates
that it will seek future growth primarily through establishing franchise
operations in the United States and expanding Tax Depot's franchise operations
in Canada. There can be no assurance that the Company will be able to sell
United States franchises or additional Canadian franchises on terms acceptable
to it, or at all, or that franchisees will be able to run franchised offices
profitably. The Company will seek to establish extensive training programs and
quality-control procedures with respect to its franchisees; however, there can
be no assurance that the programs and procedures will be effective in enabling
franchisees to run successful tax preparation businesses. In addition, failure
by a franchisee to provide service at acceptable levels may result in adverse
publicity which can materially adversely affect the Company's ability to compete
in the particular market in which the franchisee is located.
Liability for Franchisee Actions and Obligations. Both the Company and
Tax Depot will grant their franchisees a limited license to use their registered
service marks and, accordingly, there is risk that one or more of the
franchisees may be identified as being controlled by the Company or Tax Depot.
In the event that a franchisee is not adequately identified as a franchisee, the
Company and/or Tax Depot could be held vicariously liable for the debts and
obligations of the franchisee so misidentified.
Regulation of Franchise Operations. During the 1997 fiscal year,
franchise royalties accounted for 90% of Tax Depot's gross revenues. The
profitability of the Company's future operations will depend in large part on
its ability to comply with federal and state franchise regulations and Tax
Depot's continued ability to comply with Canadian and provincial franchise
regulations. While management currently believes that the Company and Tax Depot
will be able to comply with all applicable franchise regulations, there can be
no assurance that such regulations will not change and, if so, that any changes
will not materially adversely affect the Company's business. See "Business
Franchise Operations -Regulation of Franchise Operations."
Need for a Large Pool of Low Cost Seasonal Labor. In conducting their
business operations, the Company, Tax Depot and their franchisees will depend,
in part, on the availability of employees willing to work for little more than
the minimum hourly wage, with minimal benefits, for periods of less than a year.
The Company's success in managing its business and any expansion of it will
depend upon the ability of it and its franchisees to hire, train and supervise
additional personnel, and to deal with turnover rates for lower paid employees,
which may be substantial. Moreover, if the supply of this labor pool is reduced
in the future for reasons within or outside of the Company's control or if the
Company is required to provide its employees more extensive and costly benefits,
either as a result of competition or governmental regulation, the expenses
associated with the Company's operations could be substantially increased
without the Company receiving offsetting increases in revenues.
Importance of Key Employees. The Company's future success will
depend in material part upon the continued services of the Company's senior
management, particularly Mr. Hewitt. The unexpected loss of the services
of any of these management personnel could have a material adverse effect
upon the Company. The Company currently maintains for its benefit a
$1,000,000 key man life insurance policy on the life of Mr. Hewitt but does not
have an employment contract with Mr. Hewitt or any other member of senior
management. See "Management."
Need for Management Personnel. The future growth and success of the
Company will depend upon its ability to attract and retain capable middle
management (such as regional and district directors for Company-owned offices
and consultants for franchised offices, as well as training directors, tax
advisors and computer personnel) with the specific executive skills necessary to
assist the Company and its franchisees. The Company currently employs one
district director in the United States and one district director in Canada. The
Company will face competition for such personnel from numerous other entities,
including competing tax return preparation firms, most of which have
significantly greater resources than the Company. There can be no assurance that
the Company will be able to attract and retain personnel, and the inability to
do so could have a material adverse effect on the Company.
Business is Highly Seasonal. The tax preparation business is highly
seasonal, with the vast bulk of revenues being earned in the January 1 through
April 15 "tax season" in the United States and the January 1 through April 30
"tax season" in Canada in each year. The Company anticipates that 80% or more of
its gross revenues for a fiscal year will be generated in the tax season for
that year. Both the Company and Tax Depot are is on a May 1 to April 30 fiscal
year and may operate at a loss during the first eight months of each fiscal
year. (Tax Depot switched from a calendar fiscal year on December 31, 1997.)
There can be no assurance that the Company's activities during the "off-season"
will not cause the cash resources of the Company to be strained on a regular
basis. If the Company were unable to obtain adequate sources of capital to fund
its operations during the "off-season," it would be forced to curtail any
existing expansions plans, cut back on its work force or take other steps to
address its cash flow needs. Moreover, in view of the very compressed time
period in which the Company's revenues arise in each year, it may have little or
no time to respond to unforeseen changes in competitive conditions, markets,
pricing, new product offerings by its competitors and similar matters which
could materially adversely affect the Company's competitive position during the
relevant tax season.
Competition. The tax return preparation industry is characterized by
intense competition among numerous tax service providers, accounting firms and
others. Most of these competitors are more established than the Company, with
substantially greater marketing, financial, personnel and other resources than
are currently available to the Company. In the low to mid-income taxpayer market
targeted by the Company, competition is dominated in the United States by H&R
Block, Inc. ("H&R Block") and Jackson Hewitt, both of which are large, well
established national service providers. H&R Block also operates and is a major
competitor in Canada; Jackson Hewitt currently has no Canadian operations. The
Company will seek to compete by providing prompt service (generally, the Company
anticipates that a customer's return can be prepared in approximately one hour,
assuming the customer has assembled all appropriate records) at a reasonable
price that is competitive in each geographic market (the Company estimates that
its average charge per return for the 1998 tax season was $90 in the United
States and C$60 in Canada). There are few significant barriers to entry into the
industry, or to the adoption by competitors of some or all of the Company's
marketing or operational strategies.
Changes in Tax Laws. The tax laws of Canada and the United States have
undergone a period of rapid and substantial change, and the Company anticipates
that this will continue for the foreseeable future. Although the Company
believes that the complexity and rapidity of the changes will provide it with an
important marketing tool, it is anticipated that the Company will incur
significant yearly costs in maintaining the currency of its tax return
preparation software and tax preparer materials. In addition, there have been
numerous proposals for simplification of United States tax laws, including "flat
tax" and "modified flat tax" proposals. Adoption of any such proposals could
reduce demand for the Company's services in the United States; adoption of a
strict flat tax could reduce demand substantially.
Costs of Canadian Operations. The costs of opening additional Tax Depot
company offices and supporting franchises in Canada are not expected to be
materially less than the costs of opening or supporting comparable United States
offices. However, the Company anticipates that the average fee per return will
be approximately 33% less in Canada due to the less complex structure of
Canadian tax law. Accordingly, to achieve the same level of revenue per office
as a comparable United States office, a Canadian office will be required to
process more returns than a U.S. office. In addition, because the fees Tax Depot
will charge in Canada will be denominated in Canadian dollars there is risk that
fluctuations in the value of the Canadian dollar relative to the United States
dollar will result in losses from foreign currency exchanges. Canadian sales and
operations may also be affected by factors beyond the Company's control,
including imposition of governmental licensing or other controls or
restrictions, and changes in Canadian tax law.
Control by Principal Stockholder. The Company's common stock is divided
into two classes. Purchasers in this offering will own Class A Common Stock; all
the outstanding Class B Common Stock is owned by Mr. Hewitt. The Company's
certificate of incorporation provides that the Class B stockholders have the
right to elect one more director than may be elected by the Class A
stockholders. As a consequence, Mr. Hewitt will have effective control of the
Board of Directors irrespective of how many shares of Class A Common Stock are
outstanding.
Cash Dividend Policy. Since its inception, the Company has not paid any
cash dividends on the Class A Common Stock or Class B Common Stock. The Company
intends to retain future earnings, if any, to provide funds for the operation of
its business and, accordingly, does not anticipate paying any cash dividends in
the reasonably foreseeable future. The payment of future dividends is within the
discretion of the Board of Directors and will depend upon the Company's future
earnings, if any, its capital requirements, financial condition and other
relevant factors.
Arbitrary Determination of Offering Price. The offering price of the
Shares has been determined arbitrarily by the Company based upon the Company's
capital needs and does not necessarily bear any relationship to the Company's
assets, book value or financial condition, or to any other recognized criterion
of value.
Loss of Goodwill. Tax Depot has been operating under the "U&R Tax
Depot" name since May 1994. In the second half of 1998, the Company expects to
change the name of the Tax Depot owned and franchised offices to "Liberty Tax
Service." Tax Depot may suffer a loss of goodwill associated with the name if
former and potential new customers are not aware of the name change.
USE OF PROCEEDS
Assuming this offering is fully sold, the net proceeds, after deducting
estimated offering expenses of $100,000, will be approximately $3,775,000. The
Company expects to use the net proceeds as follows:
Establishment of new tax preparation
offices (30 offices at $50,000 each): $1,500,000
Purchase of existing tax practices: 1,800,000
Software development: 475,000
$3,775,000
In the event that only the Minimum Offering Amount is sold, the net
proceeds, after deducting estimated offering expenses of $100,000, will be
approximately $400,000. The Company expects to use the net proceeds to purchase
up to eight existing tax practices at $50,000 each. The proceeds of the sale of
additional Shares will be applied to purchasing additional tax practices, then
to software development and finally to the establishment of new tax preparation
offices.
While the foregoing represents the Company's best estimate of its
expected use of net proceeds, the amounts actually expended for the purposes set
forth above may vary significantly depending upon numerous factors, including
the actual costs incurred in purchasing existing tax practices, leasing and
furnishing office space, and personnel costs. The Company reserves the right to
reallocate proceeds among the foregoing uses and for general corporate purposes.
DILUTION
The offering price per Share is more than the price paid per share of
the Company's securities in the past by certain promoters and affiliates of the
Company. However, there will not be a dilution of the equity interest of
purchasers in this offering. In connection with the incorporation of the
Company, Mr. Hewitt purchased 1,000 shares of Class B Common Stock for $.10 per
share. In December 1996, Mr. Hewitt capitalized the Company by contributing to
it certain securities with an aggregate market price at the time of contribution
of $176,000. In return therefor, Mr. Hewitt was issued 44,000 shares of Class B
Common Stock resulting in a price per share of $4.00. In July 1997, the Company
sold 200,000 shares of Class A Common Stock to a select group of investors for a
price of $10.00 per share. On January 10, 1997, the Company declared a stock
dividend of one share of Class A Common Stock or Class B Common Stock for each
such share outstanding, resulting in an aggregate of 400,000 shares of Class A
Common Stock and 90,000 shares of Class B Common Stock being outstanding as of
the date of this Prospectus.
PLAN OF DISTRIBUTION
The Shares are being offered by the Company, on a best efforts basis,
through John K. Seal, a director, Vice President and Treasurer of the Company.
Mr. Seal will not receive any separate compensation for his efforts to sell the
Shares. The Shares are offered subject to prior sale, withdrawal or cancellation
of the offering without notice.
Minimum Offering Amount; Escrow Arrangements. The Minimum Offering
Amount is 40,000 Shares at $12.50 per Share and the Minimum Offering Date is 30
days after the date of effectiveness of the registration statement for this
offering. The Company has entered into an agreement with First Union National
Bank (the "Escrow Agent"), a national bank which is not affiliated with the
Company, Tax Depot, or any of the officers or directors of the Company or Tax
Depot. The Escrow Agent will set up an escrow account (the "Escrow Account")
which will bear interest at an annual rate of 5.2%. The proceeds of any Shares
sold through the Minimum Offering Date will be placed in the Escrow Account.
Officers and directors of the Company may purchase Shares as part of this
offering but are not obligated to do so. Any such purchases will be on terms
identical to those applicable to other investors. The Company has been advised
that officers and directors currently intend to purchase an aggregate of 44,900
Shares in this offering. The purchases of Shares by officers and directors may
be used to meet the Minimum Offering Amount.
Repayment if Minimum Conditions Not Met. In the event that the Minimum
Conditions are not met, either by receipt of proceeds from the sale of the
Minimum Offering Amount or by subscription commitments therefor, the Escrow
Agent will repay the proceeds of the sale of the Shares to the investors with
interest at the rate set forth above. Thereafter, no more Shares will be offered
for sale and any outstanding subscriptions will become null and void.
Satisfaction of Minimum Conditions. The Escrow Agent will determine
that the Minimum Conditions are met if on the Minimum Offering Date, the funds
in the Escrow Account are equal to the Minimum Offering Amount or the Escrow
Agent has firm subscriptions for Shares equal to the Minimum Offering Amount or
a combination thereof. Once the Minimum Conditions have been met, the Escrow
Agent will release the funds in the Escrow Account to the Company and close the
account. Proceeds from subsequent sales of Shares will not be escrowed.
<PAGE>
LEGAL PROCEEDINGS
To date, officers of the Company have been involved in one legal
proceeding which was voluntarily dismissed by the plaintiff without prejudice.
Tax Depot is a party to two actions which arose in the ordinary course of its
business, and management does not believe that such proceedings will,
individually or in the aggregate, have a material adverse effect on the
financial condition or operations of the Company.
In January 1998, Jackson Hewitt filed a complaint in Virginia Beach
Circuit Court against Messrs. Hewitt and Seal in their individual capacities.
The complaint alleged breach of their respective covenants not to compete (see
"Risk Factors - Existence of Restrictive Covenants") in connection with the
operation of the Company's tax preparation offices in Columbus, Ohio. The
complaint also alleged that each of Mr. Hewitt and Mr. Seal had tortiously
interfered with Jackson Hewitt's contract with the other man. Jackson Hewitt
sought a declaratory judgment and a preliminary injunction requiring Messrs.
Hewitt and Seal to suspend their Columbus, Ohio operations. Jackson Hewitt
voluntarily dismissed both suits, without prejudice, in early February 1998.
Although the Company was not a party to the suit and did not participate in
Messrs. Hewitt's and Seal's defense, the Company intends to vigorously defend
itself if named as a party in any future legal actions Jackson Hewitt may bring
alleging breach, in connection with the Company's business, of the restrictive
covenants binding Mr. Hewitt, Mr. Seal and Ms. O'Gorman.
In February 1995, a predecessor to Tax Depot filed a trade mark
application with the Registrar of Trade Marks in Ottawa, Canada for the "Tax
Depot" mark. The registration is opposed by Ms. Heidi Gordash, who alleges prior
use. It is anticipated that Ms. Gordash's opposition will be withdrawn when Tax
Depot begins using "Liberty Tax Service" as its mark. Ms. Gordash also filed a
"passing off" action in June 1996, seeking an injunction and $1.0 million in
damages. Management does not believe that Ms. Gordash has a superior right to
the Tax Depot name and intends to vigorously defend this action.
Finally, a tax rebate discounting agent for Tax Depot, who acted solely
as an agent for Tax Depot in financing tax rebate discounts and not as an
employee or franchisee, has been sued by a group of clients for whom she is
alleged to have prepared inaccurate and/or fraudulent returns in order to
increase their rebates. Both H&R Block and Tax Depot were also named as parties
to this suit. Tax Depot believes it has no liability for the agent's actions and
intends to vigorously defend this suit.
MANAGEMENT
The following sets forth certain information regarding the Company's
directors and executive officers.
<TABLE>
<CAPTION>
Name Age Position with the Company
- ---- --- -------------------------
<S> <C>
John T. Hewitt 49 Chairman of the Board of Directors, Chief Executive Officer and President
John K. Seal 47 Director, Vice President of Operations and Treasurer
Martha O'Gorman 40 Director and Vice President of Marketing
Donna Halligan 46 Director, Vice President of Franchise Operations and Secretary
Kathleen Curry 35 Director, Vice President of Technology and Legal Counsel
Karen Robinson 34 Vice President and Regional Director in the United States
</TABLE>
John T. Hewitt has been Chairman of the Board of Directors, Chief
Executive Officer and President of the Company since its formation in 1996.
Before that, he was the founder of Jackson Hewitt, where he served as Chairman
of the Board of Directors and Chief Executive Officer from 1982 (and President
from 1986) to 1996. During Mr. Hewitt's tenure, Jackson Hewitt grew from six
offices to over 1,300 offices. From 1970 through 1981, Mr. Hewitt was employed
by H&R Block, becoming a Regional Director in charge of over 200 offices in
Pennsylvania, New Jersey and Delaware. Together with his father, Daniel J.
Hewitt, Mr. Hewitt created "Hewtax," the basic tax return preparation software
used by Jackson Hewitt.
John K. Seal has been Vice President of Operations, Treasurer and a
director of the Company since shortly after its formation. From 1993 through
1996, Mr. Seal served as Director of Field Operations for Jackson Hewitt. From
1990 through 1993, Mr. Seal owned and operated seven Jackson Hewitt franchise
offices in the Rochester, New York territory and until 1997, he owned and
operated four franchised Jackson Hewitt offices in Las Vegas, Nevada. Prior to
joining Jackson Hewitt, Mr. Seal served as a financial manager at General Foods
for eight years and also owned and operated a successful mini-storage business.
Martha O'Gorman has been Vice President of Marketing and a director of
the Company since its formation in 1996. From 1989 through 1996, Ms. O'Gorman
served as Director of Communications for Jackson Hewitt. Before that, Ms.
O'Gorman was a partner in an advertising firm in Virginia Beach, Virginia.
Donna Halligan has been Vice President of Franchise Operations,
Secretary and a director of the Company since its formation in 1996. From 1994
to 1996 she was employed by Jackson Hewitt as Director of Training, Director of
Franchisee Operations and, most recently, Divisional Director in charge of
company stores. Prior to joining Jackson Hewitt's headquarters operation, Ms.
Halligan owned and operated six Jackson Hewitt franchise offices in the
Syracuse, New York territory from 1987 to 1994. Before that, Ms. Halligan
operated an independent tax preparation firm and worked for H&R Block for five
years as a tax preparer.
Kathleen Curry has been the Vice President of Technology, Legal Counsel
and a director of the Company since July 1997. From 1992 through 1995, Ms. Curry
served variously as Corporate Attorney, Director of Tax and Software and
Regional Director for Jackson Hewitt. For a brief period during the latter part
of 1995 and early part of 1996, Ms. Curry served as a Product Manager for Best
Programs, Inc.
Karen Robinson has been the United States Regional Director of the
Company since September 1997. From 1992 to 1997, Ms. Robinson held various
positions, including Director of Training, Franchise Operations, Liaison and
Troubleshooter for Jackson Hewitt. In 1997, Ms. Robinson obtained her master's
degree from Old Dominion University, where she served as an Adjunct Professor of
Education from 1995 through 1997.
All directors (except directors appointed to fill vacancies) are elected at
each annual meeting of stockholders for a term of one year, and will hold office
until their successors are elected. See "Description of Capital Stock - General"
for a description of the rights of holders of each class of Common Stock with
respect to the election of directors. Directors receive no compensation for
serving as directors. All officers serve at the discretion of the Board of
Directors.
EXECUTIVE COMPENSATION
No executive officer or director received any compensation during 1996. In
1997, Mr. Hewitt received a salary of $30,000. In 1998, Mr. Hewitt will receive
$30,000 in addition to the stock options to purchase 5,000 shares of Class A
Common Stock at $11 per share that he received earlier in 1998. No executive
officer of the Company has received an aggregate annual compensation in excess
of $100,000 since the Company's formation.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number and percentage of shares of both
Class A Common Stock and Class B Common Stock owned, as of the date of this
Prospectus, by (a) each person who, to the knowledge of the Company, is the
beneficial owner of 5% or more of the outstanding shares of Class A or Class B
Common Stock, (b) each of the Company's directors, (c) each of the Company's
executive officers, and (d) all of the Company's executive officers and
directors as a group.
<PAGE>
<TABLE>
<CAPTION>
Common Stock
Amount Owned Percent of Class
Beneficial Owner Class A Class B Class A Class B
- ---------------- ------- ------- ------- -------
<S> <C>
Directors and Executive
Officers: (1)
John T. Hewitt 141,150(2) 90,000 35% 100%
John K. Seal 13,162(3) 0 4% 0
Martha O'Gorman 4,000(4) 0 1% 0
Donna Halligan 7,000(5) 0 2% 0
Kathleen Curry 4,000(6) 0 1% 0
Karen Robinson 4,000(7) 0 1% 0
All Directors and Executive
Officers as a group
(six persons) 173,312(8) 90,000 41% 100%
Other owners of 5% or
more of outstanding Shares:
Scott Lake Holdings Ltd.(9) 100,000 0 25% 0
</TABLE>
- --------------
(1) The address for each director and executive officer is 2610 Potters Road,
Virginia Beach, Virginia 23452.
(2) includes 5,000 shares of Class A Common Stock issuable pursuant to
outstanding options.
(3) includes 4,000 shares of Class A Common Stock issuable pursuant to
outstanding options.
(4) includes 4,000 shares of Class A Common Stock issuable pursuant to
outstanding options.
(5) includes 4,000 shares of Class A Common Stock issuable pursuant to
outstanding options.
(6) includes 4,000 shares of Class A Common Stock issuable pursuant to
outstanding options.
(7) includes 4,000 shares of Class A Common Stock issuable pursuant to
outstanding options.
(8) includes 25,000 shares of Class A Common Stock issuable pursuant to
outstanding options.
(9) The address for Scott Lake Holdings, Ltd. is 280-6815 8th St. N.E.,
Calgary Alberta T2P7B7.
DESCRIPTION OF CAPITAL STOCK
General. The Company is authorized to issue 1,000,000 shares of capital
stock, consisting of 800,000 shares of Class A Common Stock, 100,000 shares of
Class B Common Stock and 100,000 shares of Preferred Stock, all par value $1.00
per share. As of the date of this Prospectus, there were 400,000 shares of Class
A Common Stock, 90,000 shares of Class B Common Stock and no shares of Preferred
Stock outstanding.
Holders of both Class A and Class B Common Stock are entitled to
dividends when, as and if declared by the Board of Directors and in such amounts
as the Board of Directors may deem advisable. See "Risk Factors - Cash Dividend
Policy." In the event of any liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary, holders of Common Stock are entitled,
after payment or provision for payment of the debts or other liabilities of the
Company, and subject to the prior rights of holders of any Preferred Stock which
may then be outstanding (none is currently designated under the Company's
certificate of incorporation), to share ratably in the remaining assets of the
Company. Neither class of Common Stock possesses preemptive rights.
Holders of Common Stock are entitled to one vote for each share held of
record on each matter submitted to a vote at a meeting of stockholders. However,
with respect to the election of directors, holders of each class of Common
Stock, voting as a class, are entitled to elect directors on a pro rata basis in
proportion to the number of shares outstanding in each class, except that
holders of the Class A Common Stock are entitled to elect one less director than
the number of directors elected by holders of the Class B Common Stock. Voting
in each class is on a non-cumulative basis.
A holder of the Class B Common Stock may, at the holder's option, elect
to convert the Class B into an equal number of fully paid and non-assessable
shares of Class A Common Stock. The right may be exercised with respect to any
portion or all of a holder's shares and at any time. There is no public market
for the Company's securities and it is not anticipated that a market will
develop for the Shares following this offering.
Anti-Takeover Provisions of Delaware Law. As a Delaware corporation,
the Company is subject to certain anti-takeover provisions of the Delaware
General Corporation Law (the "Delaware Law"). Under the business combination
provisions of Section 203 of the Delaware Law ("Section 203"), a Delaware
corporation may not engage in any business combination with any interested
stockholder for a period of three years following the date such stockholder
became an interested stockholder, unless (i) prior to such date, the board of
directors of the corporation approved either the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder, or (ii) upon completion of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced (excluding, for purposes of determining the number of
shares outstanding, (a) shares owned by persons who are directors and also
officers and (b) employee stock plans, in certain instances), or (iii) on or
after such date the business combination is approved by the board of directors
and authorized at an annual or special meeting of stockholders by at least 66%
of the outstanding voting stock that is not owned by the interested stockholder.
Section 203 defines an interested stockholder to be any person who (i) owns,
directly or indirectly, 15% or more of the outstanding voting stock of the
corporation or (ii) is an affiliate or associate of the corporation and was the
owner of 15% or more of the outstanding voting stock of the corporation at any
time within the three-year period immediately before the date on which it is
sought to be determined whether such person (and the affiliates and the
associates of such person) is an interested stockholder. Section 203 defines
business combinations to include certain mergers, consolidations, asset sales,
transfers and other transactions resulting in a financial benefit to the
interested stockholder.
The restrictions imposed by Section 203 do not apply to a corporation
if (i) the corporation's original certificate of incorporation contains a
provision expressly electing not to be governed by Section 203 or (ii) the
corporation, by the action of stockholders holding a majority of outstanding
stock, adopts an amendment to its certificate of incorporation or by-laws
expressly electing not to be governed by Section 203 (such amendment will not be
effective until 12 months after adoption and does not apply to any business
combination between the corporation and any person who became an interested
stockholder of the corporation on or before such adoption). The Company has not
elected out of Section 203. Section 203 could make it more difficult for a third
party to gain control of the Company, and have a depressive effect on the price
obtainable for the Class A Common Stock.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by Section 102(b)(7) of the Delaware Law, the Company's
certificate of incorporation provides that directors of the Company will not be
personally liable to the Company or its stockholders for monetary damages for
breach of fiduciary duty as a director, except for liability (i) for any breach
of the director's duty of loyalty to the Company or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware Law, relating
to prohibited dividends or distributions or the repurchase or redemption of
stock, or (iv) for any transaction in which the director derives an improper
personal benefit. In addition, the Company's bylaws provide for indemnification
of the Company's officers and directors to the fullest extent permitted under
Delaware law. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons controlling
the Company pursuant to the foregoing provisions or otherwise, the Company has
been informed that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
The Company maintains directors' and officers' liability insurance
against any actual or alleged error, misstatement, misleading statement, act,
omission, neglect or breach of duty by any director or officer, excluding
certain matters including fraudulent, dishonest or criminal acts or
self-dealing.
BUSINESS
General
The Company is a Delaware corporation formed in October 1996 to provide
retail income tax return preparation services for taxpayers primarily in the
lower- to middle-income tax brackets. The Company intends to provide its
services through both Company-owned and franchised offices in selected
locations. The Company seeks competitive advantage in its markets by (i)
providing prompt tax return preparation at a reasonable price, (ii) providing
electronic filing services, (iii) providing ancillary services, such as audit
assistance, tax return checking and taxation seminars, and (iv) offering a
refund anticipation loan program under which the Company will arrange, for a
fee, loans to customers based upon the size of the customers' expected tax
refunds.
The Company owns a majority interest in Tax Depot, which has been
providing tax preparation services in Canada since 1972. During the 1998 tax
season, there were 207 Tax Depot offices, 13 of which were owned by Tax Depot
and the remainder of which were owned by Tax Depot franchisees. In addition, the
Company operated five tax preparation offices in Columbus, Ohio. All Tax Depot
offices currently operate under the "U&R Tax Depot" name, while the Company's
Columbus, Ohio offices operate under the "Liberty Tax Service" name. The Company
expects that, pursuant to a license agreement that Tax Depot will enter into
with the Company, Tax Depot and its franchisees will also operate their tax
return preparation offices under this service mark beginning in the third or
fourth quarter of 1998.
As of April 30, 1998, the Company had 32 employees and Tax Depot had
52 employees. Due to the conclusion of the tax season, as of May 15, 1998, the
Company had 21 employees and Tax Depot had 15 employees.
Tax Depot. Tax Depot is a closely-held corporation incorporated under
the law of the Province of Manitoba in Winnipeg. Tax Depot was formed in May
1994 as a wholly-owned subsidiary of Datatax Business Services, Ltd. ("Datatax")
which was also the franchisor for U&R Tax Services, Ltd. Datatax assigned and
licensed those franchises to Tax Depot which then changed the name of the
franchises to U&R Tax Depot. The Company purchased its 60% interest in Tax Depot
from Datatax in September 1997. Datatax still owns the remaining 40% interest in
Tax Depot. Pursuant to a Shareholders Agreement entered into at the time of the
Company's investment in Tax Depot, the Company has the right to nominate two of
Tax Depot's three directors, while the other shareholder has the right to
nominate one director. During the 1998 tax season, Tax Depot prepared 93,224 tax
returns and had net revenues of C$2,143,624.
Tax Depot recently entered into a management agreement with Save-Smart
Insurance and Financial Services, Inc. ("Save Smart") to share office space with
it in selected Wal-Mart stores in Canada under the name "Save Smart Tax Depot."
Tax Depot provides tax return preparation services (either directly from Tax
Depot or from one of its franchisees) while Save Smart provides insurance
products. Tax Depot pays Save Smart a monthly fee equal to the greater of
C$2,500 or 10% of its net revenues for each Save Smart Tax Depot location plus
an additional 5% of such net revenues. Most of the locations will be leased by
Tax Depot on behalf of its franchisees who will reimburse Tax Depot for the
monthly fee paid to Save Smart. The term of the management agreement is until
January 2000, subject to renewal for an additional two-year period, unless
earlier terminated because of a termination of Save Smart's agreement with
Wal-Mart. During the 1998 tax season, there were 33 Save Smart Tax Depot
offices, 28 of which were franchises. The Company expects to expand to between
60 and 80 Save Smart Tax Depot locations within the next two years, most of
which will be franchise locations. Once Tax Depot begins using the name "Liberty
Tax Service," these locations will operate under the name "Save Smart Liberty
Tax Service."
Liberty Tax Service. In December 1997, the Company purchased one
existing tax preparation office in Columbus, Ohio. During the 1998 tax season,
the Company opened four more offices in that area which operated under the
"Devore Tax Service" name. In May 1998, the Company changed the name of the
offices to "Liberty Tax Service." Liberty Tax Service provides tax return
preparation services, electronic filing services, audit assistance, tax return
checking, refund loans and tax seminars to its customers.
Services Offered
Tax Preparation. There are approximately 120,000,000 and 20,000,000
individual tax returns filed annually in the United States and Canada,
respectively. The Company will offer tax return preparation services to the
public, focussing its efforts on marketing to persons with incomes of less than
$35,000/C$35,000 per year. Based upon management's prior experience in the
industry, the Company anticipates that over 60% of its customers will have
incomes below $35,000/C$35,000, and that over 30% will have incomes below
$20,000/C$20,000 per year. The Company believes that there is a significant
market of people in these income brackets that do not wish to prepare their own
returns, or who may face relatively complex situations (such as divorce,
multiple jurisdiction filings, multiple deductions or other considerations) but
who are unwilling or unable to pay the level of fees charged by accountants or
tax attorneys.
The Company's tax preparers use personal computer based software to
conduct comprehensive client interviews and to prepare tax returns. Tax Depot
offices prepare tax returns using Tax Depot proprietary software. The average
amount of time required to prepare tax returns in Canada is approximately
one-half hour, assuming the customer has all relevant records and is able to
answer all questions asked. Tax Depot is currently in the process of rewriting
and updating that software in order to keep pace with recent technological
developments. The Company used off-the-shelf software to prepare U.S. tax
returns during the 1998 tax season and plans to use similar software during the
1999 season, with appropriate updates and modifications. The Company prepares
U.S. tax returns on average in approximately one hour. The Company is in the
process of determining how to meet its software needs for the 2000 tax season:
it may develop software on its own or with a joint venture partner or it may
continue to use off-the-shelf software.
In assessing its software needs, the Company focuses on meeting four
requirements: (i) enabling the Company to provide consistent, high quality tax
preparation services, (ii) enabling the Company to utilize persons as tax return
preparers who are not as dependent upon technical tax skills as may be required
in other operations, (iii) allowing tax return preparers to concentrate more
closely upon providing quick and friendly service to customers, and (iv)
enabling the Company to electronically file a customer's tax return more rapidly
and efficiently in order to allow the customer to obtain a tax refund more
quickly.
Electronic Filing. The Company offers electronic filing services to its
customers in Canada and in the U.S. at no extra cost. Because an electronically
filed return is handled on a priority basis by both the IRS and Revenue Canada,
a client receives a tax refund much more quickly than if the return is manually
filed. The Company anticipates that speedy refunds will be a major marketing
tool for the Company both in the United States and Canada. The customer will
also receive speedy IRS or Revenue Canada acknowledgement that the return is
mathematically correct. In management's experience, over 80% of returns which
are filed electronically receive refund checks within 21 days in Canada and
within 14 days in the United States. The Company anticipates that over 80% of
the returns it prepares will be filed electronically. The Company will also, for
a fee, electronically file returns prepared by non-client taxpayers or other tax
preparers.
Refund Anticipation Loan Program. Because the Company believes that the
speed of obtaining a refund, or cash in anticipation of a refund, will be
important to the Company's targeted market, and in order to compete with other
tax return preparation firms, the Company will offer a refund anticipation loan
service. A refund anticipation loan is a loan made to a taxpayer, secured by the
anticipated tax refund payment, and with full recourse to the taxpayer. Refund
loans will either be provided directly by the Company using line of credit
financing or will be provided by a third party lender through the Company's
assistance. These loans will enable the Company's customers to receive their
refunds in as little as 24 hours from the time the return is filed with the IRS
or Revenue Canada. The Company anticipates that as many as 25% of the Company's
customers will utilize this service.
The procedure with respect to third party refund loans will generally
be as follows:
o The customer's return is prepared;
o The customer completes a refund anticipation loan application
(in which the taxpayer/borrower assigns the rights to the
refund to the lending institution);
o The tax preparer or other office worker electronically
transmits the customer's tax return to Company headquarters
which files the tax returns electronically with the IRS or
Revenue Canada;
o Revenue Canada or the IRS acknowledge that the return is
mathematically correct and Revenue Canada acknowledges that no
government liens exist against the customer;
o Once approved by the IRS or Revenue Canada, the tax
return is electronically messengered to the participating
bank for final approval;
o Upon confirmation from the bank of a loan approval, the
Company electronically advises the originating office of the
approval; and
o The originating office prints out a check for the amount of
the approved loan (the refund amount less bank charges and the
Company's return preparation fee which includes a loan
application fee), which can then be distributed to the
customer.
Substantially the same procedures will be followed when the Company
provides the loan directly, except that no third party approval of the loan will
be required and no bank fee will be charged.
Typically within two to three weeks from the electronic filing, the IRS
or Revenue Canada wires the refund amount directly to the lender. Fees for the
loan and the preparation of the return are deducted from the check amount,
thereby requiring no cash outlay by the taxpayer and assuring payment to the
Company. The costs of writing off bad debt that may be incurred in the program
are factored into the fees charged for the loans. See "Risk Factors - Importance
of Refund Anticipation Program."
During the 1998 tax season, the Company had arrangements with the Bank
of Montreal (for Canadian loans) and Bank One (for U.S. loans). The Bank of
Montreal provided Tax Depot with a $9.25 million line of credit to fund refund
loans. The facility bore interest at the prime rate as reported in The Wall
Street Journal plus 1%, and was personally guaranteed by Mr. Hewitt and Gary
Ibbotson, one of Tax Depot's directors. The facility expired in May 1998, but
the Company expects to renew it in January 1999 for the 1999 tax season. The
line of credit allowed Tax Depot to make refund anticipation loans which
generated revenues of 15% of the first C$300 loaned and 5% of the balance. (If
the loan was made by a franchisee using Tax Depot's line of credit, Tax Depot
received 48% of this revenue.) The Company's arrangement with Bank One was
established through Drake Software, a third party provider of tax preparation
software. Under the arrangement, Bank One funded the loans for a fee of $70-80
per refund; Drake Software received a fee of $2 per refund for its IRS
transmittal services and the Company received a de minimis referral fee from
Bank One plus the $25 loan application fee from each customer.
Training Programs and Other Ancillary Services. The Company provides
extensive training for tax preparers at Company-owned offices. These employee
training sessions cover substantive tax law, policies and procedures for office
conduct, use of computer software and client interaction. Additionally, the
Company provides training to franchisees. These sessions are devoted to
operational aspects of the business. Training of franchisee employees with
respect to tax law, policies and procedures and software use is provided by the
franchisee after he or she has completed the Company's training. The Company
does not train franchisee employees.
The Company will also offer certain ancillary services which will be
covered by the initial fee paid by the customer, including audit assistance, tax
return checking, taxation seminars and schools.
Growth Strategy
The Company intends to follow a growth strategy involving the
establishment of both Company- and franchisee-owned offices as well as the
acquisition of independent tax practices. Initially, the Company intends to open
up to 30 Company-owned offices in the United States for operation during the
1999 tax season. See "Use of Proceeds." Thereafter the Company will seek to
implement a franchise program which it anticipates will be the primary source of
its growth. See "Business - Franchise Operations" and "Risk Factors - Franchise
Operations." The Company will also seek to grow through the acquisition of
existing tax return preparation practices. The Company anticipates that, for the
immediate future, any such acquisitions will be for cash (see "Use of
Proceeds"); however, the Company is not restricted from using securities of the
Company for such acquisitions and may do so if the opportunity arises. The
Company anticipates that growth of Tax Depot's operations will be through
franchising; Tax Depot expects to grant up to 120 new franchises for the 1999
tax season.
The Company's ability to open additional Company-owned offices and to
acquire additional tax practices will depend upon the Company's ability to
generate funds through operations, to obtain financing or to attract additional
capital, while the Company's ability to establish a franchise program will
depend upon the Company's ability to develop a franchising structure and to
attract desirable franchisees. There can be no assurance that the Company will
be successful in any such endeavors. See "Risk Factors - Minimal Operating
Revenues and History," " - Need for Additional Financing," " - Competition" and
" - Franchise Operations."
As a result of certain restrictive covenants binding upon John T.
Hewitt, the Company's Chairman, Chief Executive Officer and President, and John
K. Seal, the Company's Director of Operations and Treasurer, the Company will
only seek to expand, through the 1999 tax season, in selected regional markets
in the United States, although such markets have not been determined as of the
date hereof. See "Risk Factors - Existence of Restrictive Covenants" for a
description of the restrictive covenants pertaining to Messrs. Hewitt and Seal.
The Company will, however, be able to focus its business activities more broadly
in the Canadian market.
A second aspect of the Company's growth strategy involves achieving
"critical mass" in any market it enters, defined by the Company as having at
least one office for every 200,000 residents in the market area. The Company
believes that it is necessary to achieve this critical mass in order to provide
efficient marketing and advertising programs, and to effectively develop market
share. The Company intends to enter a particular market only when it believes it
can attain critical mass within one year. As a consequence of the foregoing, the
Company anticipates that it will seek to expand regionally rather than
attempting to establish a national presence.
Management Structure
Both Tax Depot's and the Company's managerial control system is based
upon a central office-regional management format. The central office is
responsible for overall policy, advertising, marketing, training, software
updating and franchising. Tax Depot currently has two management offices in
Canada and the Company has its management office at the Virginia Beach
headquarters. As the Company's U.S. operations expand, the Company intends to
implement its policies through regional and district managers (who will
supervise groups of Company-owned offices) and franchise consultants (who will
supervise groups of franchised offices). Each Company-owned office will be
overseen by an office manager. Thereafter, the management structure will be
implemented as the growth in the number of Company-owned and franchised offices
requires.
Fees
The Company anticipates that revenues will be derived from (i) fees for
tax preparation services, (ii) fees for electronically filing tax forms for
non-customers, (iii) fees from customers for initiating tax refund loans (and
possibly referral fees from lenders), (iv) fees and royalties from franchisees,
and (v) proceeds from selling purchased practices to franchisees.
The Company's fees for specific tax services will differ by region and
by franchisee. The Company will provide franchisees with a listing of suggested
prices for all tax preparation services provided by its offices. Franchisees,
however, will have complete pricing autonomy. Company-owned stores will adhere
to the price schedules which management recommends for their markets. The
Company estimates that the average fee per tax return will be approximately $90
in the United States and C$60 in Canada. For individuals who prepare their own
returns or have them prepared elsewhere, the Company will charge a fee,
currently C$30 in Canada and estimated to be $35 in the United States, for the
electronic filing of the return. The Company does not charge customers in
Canada, and will not charge customers in the United States, an additional fee
for filing electronically if the Company prepares the return.
The Company anticipates that it will charge customers a fee of
approximately $70 to $80 for arranging refund anticipation loans, which the
Company will pay to the bank providing the funding. If the Company provides the
loan directly through line of credit financing, it will not charge this bank
fee. In either case, however, the Company will keep the $25 loan application fee
which will be included in the tax return preparation fee paid by the customer.
The actual amount of such fees will depend upon local competitive conditions,
the level of bank fees actually charged and customer acceptance. In Canada, the
Tax Rebate Accounting Act limits the amount that a tax service provider or
lender may charge for these loans: the taxpayer must receive not less than 85%
of the first C$300 of the anticipated refund and 95% of the balance. Most of
these loans are made by Tax Depot franchisees under an arrangement where Tax
Depot funds the loan and keeps 48% of the fee while the other 52% is kept by the
franchisees (franchisees may instead fund the loans themselves and pay royalties
to Tax Depot although it is expected that less than 10% will request this
arrangement).
Property
The Company leases its Virginia Beach headquarters, consisting of 3,000
square feet of office space, at a monthly rental of $2,700 (including heat,
utilities and janitorial services). The lease expires in April 2000. Tax Depot
leases two management offices in Canada: the main office in Winnipeg, Manitoba,
consisting of approximately 2,800 square feet, at a rent of C$1,875 per month,
and a regional office in Calgary, Alberta, consisting of 600 square feet, at a
rent of C$400 per month. In addition, the Company currently leases 4 local tax
preparation offices (one in Canada and three in Columbus, Ohio). These offices
range between 400 and 600 square feet in size at rentals of between C$400 and
$1,755 per month. The Company believes that these offices are adequate for its
current needs. However, depending upon the expansion of the Company's
operations, the Company may require additional office space for its headquarters
and/or small amounts of space for its regional offices.
The Company has established certain criteria for local tax preparation
offices in the United States and Canada as follows: offices will typically have
from 400 to 600 square feet of office space, and will be able to accommodate
anywhere from three to ten desks. As with any retail operation, the location of
an office will be important to its ultimate financial success. For this reason,
the Company will maintain control over the site selection process for all
offices (including franchisee operated offices) and will require that each
office have good visibility from a major intersection or busy street, high foot
traffic volume and proximity to shopping malls or other major food or clothing
retailers (preferably discounters). For all locations, the Company will seek
leases with terms that coincide with the tax season in order to reduce fixed
costs.
The Company will also seek to place smaller offices in shopping malls
through arrangements with large discount retail stores, similar to Tax Depot's
current arrangement with Save Smart. See "Business - General - Tax Depot."
Franchise Operations
The Company expects to expand Tax Depot's franchise program (except
that the Company does not anticipate selling franchises in Quebec) and to
develop a franchise program in the United States. In addition, the Company
intends to offer some or all of the existing tax practices it acquires to
franchisees. The following discussion is a summary of the key features of the
Company's program. The program may change as it is rolled out.
General. The Company will offer franchisees the right to operate in a
specified geographic area. The initial term of the Company's standard franchise
agreement will be for five years, with successive renewals exercisable at the
option of the franchisee for additional five-year periods as long as the terms
of the franchise agreement continue to be met. The Company does not expect it
will limit the number of offices a franchisee may open in the franchisee's
territory; however, franchisees will be required to obtain the Company's prior
approval for each location and to keep at least one office location open
throughout the year in each territory to ensure that customers in each territory
have access to a tax preparer for matters relating to late filings or any
questions they have regarding the prior or forthcoming tax year. Each franchisee
will also be required to hold tax seminars which will be offered to the general
public to attract prospective seasonal tax preparers and to enhance name
recognition in the market. (Canadian franchisees who executed franchise
agreements before July 1997 are not required to maintain off-season hours or to
provide tax seminars.)
The Company has been and intends to continue to be selective in its
choice of franchisees. In addition to customary personal and financial
background checks of a franchise candidate and interviews by management
personnel, each franchise candidate will be required to successfully complete a
week-long training course. At the conclusion of the course, management will make
a final evaluation of the candidate and determine whether to accept the
candidate as a franchisee.
Franchise Fees, Royalties and Other Charges. The Company currently does
not charge Canadian franchisees an initial franchise fee. Effective January 1,
1999, it expects to charge Canadian franchisees a C$10,000 initial franchise
fee. The fee will be assessed based on each geographic area licensed by the
franchisee, rather than based on the number of office locations the franchisee
operates. In addition, the Company will require (i) a C$2,000 franchise security
deposit, which will be refundable upon the expiration of the franchise agreement
provided that the franchisee is current with all amounts due to the Company and
has been open for business by February 1 of each year, (ii) an ongoing
advertising fee of 3% of gross receipts per month (defined as gross revenues
less customer discounts and G.S.T.) and an additional advertising fee of C$3,000
if the franchisee does not prepare at least 500 tax returns per territory during
its first tax season and at least 750 tax returns during its second tax season
(the Company also recommends that franchisees spend an additional
C$3,000-C$5,000 each year on advertising), and (iii) a fee for participating in
the income tax rebate program. Franchisees currently pay a royalty to the
Company of 14% of gross receipts, reduced to 12% for gross receipts over
C$50,000, or a minimum of C$3,000 per tax season, except that franchisees who
executed franchise agreements before March 1998 pay a 10% royalty or a minimum
of C$1,500 per tax season.
The Company is currently in the process of determining the fee
structure for its United States franchise program. The Company does not
anticipate it will have any franchisees in the United States until the 2000 tax
season.
In return for the fees paid, the Company may provide some or all of the
following products and services to its franchisees: (i) a minimum of four days
of initial training in business operations, (ii) the use of the Company's tax
return preparation software and regular updates to the software, (iii) a joint
advertising program which will be funded through the advertising fees paid by
both franchisee and Company operated offices, (iv) annual tax training programs
which assist franchisees in training seasonal tax preparation employees, (v)
standardized operating manuals, (vi) field support in the areas of management,
systems, software and questions regarding tax law interpretation, and (vii)
access to the Company's refund anticipation loan program. Franchisees will be
subject to a quality control system to be developed by the Company, which will
include statistical measurements, office visits and customer interviews by
Company personnel.
Regulation of Franchise Operations. The Company's United States
franchising activities will be subject both to federal and state laws and
regulations. Federal law and rules require a franchisor to give all prospective
franchisees disclosure about the nature of the franchise investment in the form
of an offering circular on the earlier of (i) the first personal meeting, (ii)
10 business days before any binding agreement is signed, or (iii) 10 business
days before any consideration is paid. The offering circular may be prepared in
accordance with the format designated by the North American Securities
Administrators Association called the Uniform Franchise Offering Circular
("UFOC"). In addition, at least five business days before signing any binding
agreement, the franchisor must provide the prospective franchisee with a
franchise agreement that reflects the specific terms on which the franchisee
will be licensed to do business. There is no private right of action available
to franchisees and prospective franchisees under the federal rules. Franchisees
who claim violations must bring their complaints to the Federal Trade
Commission. Violators are subject to civil penalties of up to $10,000 per
violation.
Federal law and rules govern franchisor conduct in all states. In
addition, California, Hawaii, Illinois, Indiana, Maryland, Michigan, Minnesota,
New York, North Dakota, South Dakota, Virginia, Washington and Wisconsin have
enacted state franchise laws. Federal law and rules permit state laws to govern
franchising if they provide protection that is greater than or equal to that
provided by federal law and rules. Most of these state laws require franchisors
to provide specific disclosure to franchisees, generally in the UFOC format
document.
Most state laws provide franchisees with a private right of action, in
addition to administrative penalties, if a franchisor fails to comply with a
state's franchising laws. Moreover, some states, like California, have laws that
govern the relationship between franchisor and franchisee after the franchise
agreement is signed, such as laws that (i) mandate "notice" and "right to cure"
periods before termination, (ii) restrict the grounds for termination without
the opportunity to "cure" a default, and (iii) restrict the franchisor's ability
to enforce agreements not to compete with the franchisor following termination.
Both the federal rules and the UFOC format require a franchisor to
update its offering circular to include new financial statements and in the
event of material changes, such as significant changes in financial condition,
changes to major fee structures, or a change in the business opportunity being
offered.
There are no federal franchise laws in Canada. Alberta has provincial
laws requiring use of a disclosure document similar to the UFOC format document.
The Company provides every potential Canadian franchisee with a disclosure
document.
Tax Return Preparers
The Company and its franchisees will utilize the services of part-time
tax preparers. The bulk of these preparers will be hired for the January through
April tax season with the number of preparers at any given time being adjusted
to the demands of that office. Peak employment is expected to occur in February.
The Company anticipates that a typical office will increase the number of tax
preparers from as few as one during the off-season to as many as ten during the
peak of tax season. See "Risk Factors - Business Is Highly Seasonal" and - "Need
for a Large Pool of Low Cost Seasonal Labor."
The Company anticipates that its tax preparers will be individuals
seeking to supplement their incomes and who have flexible schedules, such as
retirees, undergraduate and graduate students and part-time employees of other
firms. The Company anticipates that many of its seasonal employees will have had
prior experience with other tax return service companies, and further
anticipates recruiting persons taking the Company's tax preparation training
programs. See "Business - Training Programs."
Although wages will vary depending on an office's regional location,
the Company expects that the average wage for seasonal tax preparers will be
approximately $6 per hour (C$6), increasing by 5% a year for each year of
service. Tax preparers will also receive 5% of the gross dollar volume they
generate as a bonus paid on April 30, effectively giving most preparers the
ability to earn from $8 to $15 (C$8 to C$15 in Canada) an hour.
Regulation
Both United States law and Canadian law require income tax return
preparers, among other things, to identify themselves as paid preparers on all
tax returns which they prepare, to provide customers with copies of their tax
returns and to retain copies of the returns they prepare for three years.
Failure to comply with these requirements may result in the imposition of
penalties. The laws also provide for assessment of penalties against a preparer
who (i) negligently or intentionally disregards federal tax rules or
regulations, (ii) takes a position on a tax return which does not have a
realistic possibility of being sustained on its merits, (iii) willfully attempts
to understate a taxpayer's tax liability or (iv) aids or abets in the
understatement of such tax liability. In addition, several states of the United
States have enacted or are considering enactment of legislation which would
regulate tax return preparers.
The Company will be subject to regulation in connection with its
franchise operations in the United States and in the Province of Alberta, Canada
(see "Business - Franchise Operations: Regulation of Franchise Operations" and
"Risk Factors - Regulation of Franchise Operations"). In addition, refund
anticipation loan programs and proprietary schools (such as the Company's
proposed tax training programs) are regulated in some states. See "Risk Factors
- - Government Regulation."
Competition
The tax return preparation and electronic filing business is highly
competitive. The Company believes that its competition will come primarily from
three sources: (i) large return preparation services such as H&R Block and
Jackson Hewitt, (ii) numerous small or seasonal tax preparation services,
including accounting and law firms, and (iii) individuals who prepare their own
returns. Many of the firms offering tax preparation services, and many firms not
otherwise in the tax preparation business, provide electronic filing and refund
loan services to the public. In particular, both H&R Block and Jackson Hewitt
have programs, including refund anticipation loan programs, that are
substantially similar to those the Company proposes to provide. Commercial tax
return preparers and electronic filers are highly competitive with regard to
price, service and reputation for quality. This competitiveness may restrict
growth opportunities for the Company and the prices the Company can charge for
its services.
H&R Block dominates the industry. As of April 30, 1997, the date of its
most current annual report on Form 10-K, H&R Block had 9,937 offices in
operation in the United States, Canada, Australia and Europe, of which 4,722
were owned by franchisees. In the United States alone, H&R Block operated 8,554
offices. H&R Block also estimated that during its fiscal year ended April 30,
1997, it served approximately 18,190,000 taxpayers world-wide, of which
approximately 15,600,000 were in the United States, and prepared approximately
14,302,000 individual United States income tax returns (of which approximately
7,279,000 were filed electronically), constituting about 13% of the IRS's
estimate of total United States individual income tax returns filed during 1997.
In addition, as of that date H&R Block operated 1,021 offices in Canada, and
filed approximately 2,156,000 Canadian returns with Revenue Canada during the
fiscal year ended April 30, 1997. Because of its size, wide-spread name
recognition and the availability of capital to it, the Company believes that H&R
Block will offer formidable competition to the Company's efforts to establish
and expand its tax return preparation business.
Jackson Hewitt is the second largest provider of retail income tax
preparation services in the United States. According to its Annual Report on
Form 10-KSB for the fiscal year ended April 30, 1997, Jackson Hewitt had 1,296
franchised offices and 76 company-owned offices in 41 states as of that date.
Jackson Hewitt filed 875,000 tax returns in its fiscal year ended April 30,
1997, 735,000 of which were filed electronically. Although Jackson Hewitt has no
operations in Canada, the Company believes that once the Company is able to
establish a broader base of offices in the United States (upon the expiration of
the restrictive covenants pertaining to Mr. Hewitt; see "Risk Factors Existence
of Restrictive Covenants"), Jackson Hewitt will offer strong competition in many
of the markets which the Company will seek to enter.
Computer Systems and Year 2000 Issue
The "year 2000 issue" is the result of computer programs being written
using two digits, rather than four digits, to identify the year in a date field.
Any computer programs using such a system, and which have date sensitive
software, will not be able to distinguish between the year 2000 and the year
1900. This could result in miscalculations or an inability to process
transactions, send invoices or engage in similar normal business activities.
Based upon a recent assessment by the Company, the Company has in place
year 2000 capable systems. Any software purchased or developed by the Company in
the future will be year 2000 capable.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no public market for any of the Company's securities, and,
following this offering, it is not anticipated that a market will develop for
the Class A Common Stock offered hereby. As of the date of this Prospectus,
there were 34 holders of record of the Class A Common Stock and one holder of
record of the Class B Common Stock. All of the shares of Class A Common Stock
and Class B Common Stock outstanding as of the date of this Prospectus are
"restricted securities" as defined under Rule 144 of the Securities Act, and
none of such securities may be resold pursuant to Rule 144. As of the date of
this Prospectus, there were 31,900 shares issuable pursuant to outstanding
options.
REPORTS TO STOCKHOLDERS
The Company provides annual reports with audited financial statements
to its stockholders.
<PAGE>
JTH TAX INC.
CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED APRIL 30, 1998
<PAGE>
TABLE OF CONTENTS
ACCOUNTANT'S REPORT ............................................. 3
FINANCIAL STATEMENTS
Balance Sheet ............................................. 4-5
Statement of Changes in Stockholder's Equity............... 6
Statement of operations.................................... 7
Schedule of Operating Expenses............................. 8
Statement of Cash Flows ................................... 9
Notes to Financial Statements ............................. 10-13
<PAGE>
Hamilton Dwyer
& Company, P.C.
Certified Public Accountants
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
of JTH Tax Inc.
We have audited the accompanying consolidated balance sheet of JTH Tax
Inc. (a Corporation) as of April 30, 1998, and the related statement of
income, retained earnings, and cash flows for the year then ended.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audit. We did not audit the financial
statements of Tax Depot Inc., a subsidiary, which statements reflect
total assets and revenues constituting 37 percent and 81 percent,
respectively, of the related consolidated totals. Those statements were
audited by other auditors whose report has been furnished to us, and
our opinion, insofar as it relates to the amounts included for Tax
Depot Inc., is based solely on the report of other auditors.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit and
the report of the other auditors provides a reasonable basis for our
opinion.
In our opinion, based on our audit and the report of the other
auditors, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of JTH
Tax Inc. as of April 30, 1998 and the results of its operations and its
cash flows for the year then ended in conformity with generally
accepted accounting principles.
June 10, 1998
Member American Institute Certified Public Accountants, Tax Division
Member of Virginia Society Certified Public Accountants
-----------------------------------------------------------------
3800 Poplar Hill Rd, Chesapeake, VA 23321 P. O. Box 6189, Ports VA 23703
(757) 483-3555 Fax (757) 484-7493
<PAGE>
JTH TAX INC.
CONSOLIDATED BALANCE SHEET
APRIL 30, 1998
---------------------------------------------
ASSETS
CURRENT ASSETS:
Cash $ 686,871
Accounts receivable 1,009,788
Trading securities (Note 3) 504,507
Employee advances 94,697
Prepaid expenses 27,538
Prepaid income taxes (Note 1) 280,727
-------------
Total current assets 2,604,128
FIXED ASSETS: (Note 1)
Furniture and fixtures 179,893
Leasehold improvements 9,895
Accumulated depreciation 36,222
--------------
Net fixed assets 153,566
OTHER ASSETS:
Available for sale securities (Note 3) 230,391
Utility deposit 850
Intangibles, net of accumulated
amortization of $8,125 394,770
Stock offering cost 57,921
---------------
Total other assets 683,932
TOTAL ASSETS $ 3,441,626
------------
See accompanying notes and accountant's report.
- 4 -
<PAGE>
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable $ 336,943
Franchise deposits 85,609
Capital lease 10,112
Total current liabilities 432,664
LONG-TERM LIABILITIES:
Deferred income taxes 47,186
STOCKHOLDER'S EQUITY (Note 4)
Common stock, class A 200,000
Common stock, class B 45,000
Additional paid in capital 1,931,100
Unrealized gain (Note 3) 2,541
Minority interest in subsidiary 180,285
Equity adjustment from foreign
currency translation (Note 1) (45,201)
Retained earnings 648,051
----------
Total stockholder's equity 2,961,776
TOTAL LIABILITIES AND
STOCKHOLDERS EQUITY $ 3,441,626
===========
- 5 -
<PAGE>
JTH TAX INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
YEAR ENDED APRIL 30, 1998
<TABLE>
<CAPTION>
A B Additional
Common Common Paid In Retained
Stock Stock Capital Earnings
----- ----- ------- --------
<S> <C>
Stock issued for
cash through
April 30, 1997 $ - $ 45,000 $ 131,100 $ -
Prior years
Net income - - - (5,999)
-------- ------- --------- -------
Balance at
April 30, 1997 - 45,000 131,100 (5,999)
Stock issued
for cash in
current year 198,500 - 1,786,500 -
Stock issued for
services in
current year 1,500 - 13,500 -
Net income for the
current year - - - 654,050
-------- ------- --------- --------
BALANCE AT
APRIL 30, 1998 $ 200,000 $ 45,000 $ 1,931,100 $ 648,051
========== ========= =========== =========
</TABLE>
See accompanying notes and accountant's report.
- 6 -
<PAGE>
JTH TAX INC.
CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED APRIL 30, 1998
REVENUE:
Tax preparation $1,438,217
Franchise royalties 278,342
Tuition 57,923
Franchise sales 20,065
Commission income 29,135
Miscellaneous income 16,032
------------
Total revenue 1,839,714
------------
OPERATING EXPENSES (see schedule) 2,643,863
------------
NET LOSS FROM OPERATIONS (804,149)
------------
OTHER INCOME AND (EXPENSES):
Interest income 19,417
Dividends 41,924
Gain on investment 1,665,494
Interest expense (8,787)
------------
Total other income and expenses 1,718,048
------------
INCOME BEFORE INCOME TAXES
AND MINORITY INTEREST 913,899
Provision for Income Taxes (Note 6) 371,459
-----------
INCOME BEFORE MINORITY INTEREST 542,440
Minority interest in subsidiaries' loss 111,610
------------
NET INCOME $ 654,050
===========
See accompanying notes and accountant's report.
- 7 -
<PAGE>
JTH TAX INC.
CONSOLIDATED SCHULEDULE OF OPERATING EXPENSES
YEAR ENDED APRIL 30, 1998
OPERATING EXPENSES:
Advertising $ 312,700
Amortization 24,466
Bad debts 35,882
Bank Charges 33,847
Depreciation 15,227
Discounts 691,439
Equipment rental 14,641
Insurance 65,990
License and taxes 36,014
Miscellaneous 14,797
Office supplies 23,545
Operating lease 2,017
Payroll 734,768
Postage 58,621
Practice development 8,513
Printing 8,359
Professional development 9,617
Professional fees 79,349
Repairs and maintenance 8,340
Rent 66,500
Supplies 119,645
Telephone 96,870
Temporary service 37,987
Travel 134,330
Utilities 10,399
--------------
Total operating expense $ 2,643,863
==============
See accompanying notes and accountant's report.
- 8 -
<PAGE>
JTH TAX INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED APRIL 30, 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 654,050
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 43,815
Foreign currency translation (45,201)
Net realized gains on securities (261,459)
Minority interest in subsidiaries loss (111,610)
Changes in operation assets and liabilities:
Accounts receivable (1,009,788)
Prepaid expenses (27,538)
Prepaid income taxes (280,727)
Employee advances (94,697)
Franchise deposits 85,608
Acounts payable 286,676
Income taxes payable 47,186
-------------
NET CASH USED BY OPERATING ACTIVITIES (713,685)
-------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture and equipment (178,282)
Cost of stock offering (57,117)
Purchase of tax service (106,000)
Sales of trading securities 4,343,722
Purchases of trading securities (4,400,364)
Purchases of available-for-sale securities (230,391)
--------------
NET CASH USED IN INVESTING ACTIVITIES (628,432)
-------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of stock 2,000,000
Proceeds from short-term debt 10,112
--------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,010,112
------------
NET INCREASE IN CASH 667,995
CASH AT BEGINNING OF YEAR 18,876
------------
CASH AT END OF YEAR $ 686,871
============
Supplemental disclosures of cash flow information:
Cash paid during the year
for:
Interest paid (net of amount capitalized) $ 13,912
============
Income taxes paid $ 605,000
============
See accompanying notes and accountant's report.
- 9 -
<PAGE>
JTH TAX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1998
Note 1 - SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
JTH Tax, Inc. a Delaware corporation and it's subsidiary Tax Depot, Inc. is
incorporated under the Companies Act of Manitoba, Canada. Both companies are
engaged in providing services including personal income tax return preparation
and personal income tax refund discounting as well as sales of franchise to
provide these services in Canada and the United States. These services are
provided through company-owned operations and franchised agents.
BASIS OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of the
parent company JTH Tax, Inc. and its subsidiary Tax Depot, Inc. (60% ownership)
after elimination of significant intercompany accounts and transactions. These
financial statements have been prepared using the purchase method of
consolidation. All significant intercompany transactions and balances have been
eliminated on consolidation.
ACCOUNTING METHOD
The financial statements have been prepared on the accrual method of accounting
which means revenue is recognized when earned, rather than when received and
expenses are recognized when incurred rather than when paid.
TRANSLATION OF FOREIGN CURRENCIES
The financial statement is stated in United States currency. The Tax Depot,
Inc. was translated to United States dollars as of April 30, 1998 at the rate of
0.696 per dollar. A foreign currency translation adjustment of ($45,201.) is
reflected in the equity section of the Balance Sheet to recognize the changes
for the current year.
INCOME TAXES
Deferred income taxes have been provided under the liability method. Deferred
tax assets and liabilities are determined based upon the estimated future tax
effects of differences between the financial statement and tax bases of assets
and liabilities, as measured by the current enacted tax rates. Deferred tax
expense is the result of changes in the deferred tax asset and liability. - 10 -
<PAGE>
- 10 -
JTH TAX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1998
Note 1 - SIGNIFICANT ACCOUNTING POLICIES (continued)
JTH Tax, Inc. had previously elected S Corporation status that was effective
with the first fiscal year ending April 30, 1997. An S Corporation pays no
federal or state income taxes. Its separately stated items of income, loss,
deduction or credit pass through to the stockholders' and is reported on their
personal federal and state income tax returns. However, as of July 30, 1997 a
second class of stock was issued and automatically revoked the Subchapter S
election. Accordingly, the C Corporation pays federal and state income taxes on
it's profits using the cash basis of accounting. A provision for income taxes
has been established on the accompanying statements for the tax related to the
income from the last nine months of the year.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Expenditures for maintenance and
repairs are charged against operations, renewals and betterments that materially
extend the life of the assets are capitalized. Gains or losses on dispositions
of property and equipment are included in operations in the year of disposal.
Depreciation is computed using the straight line method..
Note 2 - RELATED PARTY TRANSACTIONS
The Tax Depot, Inc. has a liability of $376,634, Canadian currency, ($262,135
United States currency) that has arisen from the sale and purchase of services
from JTH Tax Inc. There is also an outstanding loan of $400,000, Canadian
currency ($280,800 United States currency) at year end. These items have been
eliminated on consolidation.
Note 3 - MARKETABLE SECURITIES
The Companies' marketable securities consist of debt and equity securities that
have a readily determinable fair market value. Management determines the
appropriate classification of its investments at the time of purchase and
re-evaluates such determinations at each balance sheet date.
Securities have been classified in the balance sheet according to management's
intent as either available for sale, held to maturity or trading securities.
Unrealized holding gains and losses for trading securities are included in
earnings. Unrealized holding gains and losses for available-for-sale and held to
maturity securities are reported as a component of stockholders' equity.
- 11 -
<PAGE>
JTH TAX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1998
Note 3 - MARKETABLE SECURITIES (continued)
Since the Company does not intend to sell certain securities in the near term,
they have been classified as "available for sale" and accordingly, are carried
at fair value, with unrealized gains and losses, net of tax, reported as a
separate component within the stockholders' equity section of the balance sheet.
Realized gains and losses on all marketable securities are determined by
specific identification and are charged or credited to current earnings.
Cost and fair value of marketable securities available for sale at April 30,
1998 are as follows:
Unrealized Unrealized Fair
Cost Gains Loss Value
Securities $ 227,849 $ 2,541 $ - $ 230,391
Note 4 - CAPITAL STOCK
JTH Tax, Inc. is authorized to issue 1,000,000 shares of capital stock,
consisting of 800,000 shares of Class A Common Stock, par value $0.50 per share,
100,000 shares of Class B Common Stock, par value $1.00 per share and 100,000
shares of Preferred Stock, par value $1.00 per share. As of the date of this
report, there are 400,000 shares of Class A Common Stock, 45,000 shares of Class
B Common Stock and no shares of Preferred Stock outstanding.
In the second quarter of the fiscal year the Company issued 200,000 shares of
Class A Common Stock at $10.00 per share totaling $2,000,000.
In 1998 the Board of Directors authorized a one-for-one stock split of the A
Shares to be distributed on January 10, 1998, to shareholders of record. The par
value of the A shares was reduced accordingly from $1.00 per share to $0.50 per
share.
Note 5 - PURCHASE OF SUBSIDIARY
On September 1, 1997 the Company acquired a 60% interest in the Tax Depot, Inc.,
a Canadian corporation, at the cost of $728,463. The subsidiary's financial
information is accounted for in the accompanying statements using the purchase
method. The acquisition resulted in goodwill of $290,621 which is being
amortized over forty years.
- 12 -
<PAGE>
JTH TAX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1998
Note 6 - INCOME TAXES
The provision for income taxes for JTH Tax Inc. consists of the following:
Current tax expense:
Federal $ 272,827
State 51,446
------------
Total current 324,273
------------
Deferred tax expense:
Federal 40,281
State 6,905
------------
Total deferred 47,186
------------
Total provision for income taxes $ 371,459
============
Tax Depot Inc. (a subsidiary) had a loss from it's current operations in Canada
and that loss is available for income tax purposes as a loss carry-forward until
April 30, 2005.
- 13 -
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK
- 14 -
<PAGE>
JTH TAX INC.
A DEVELOPMENT STAGE COMPANY
BALANCE SHEET
APRIL 30, 1997
- --------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash $ 18,876
Prepaid expenses 850
Investment Securities:
Trading Securities 7,864
Available-for-sale securities 440,000
----------
Total Current Assets 467,590
----------
FIXED ASSETS:
Furniture and fixtures 16,506
Accumulated Depreciation 532
----------
Net fixed assets 15,974
----------
OTHER ASSETS 804
----------
TOTAL ASSETS $ 484,368
==========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable
$ 267
Loans from related parties 50,000
----------
Total current liabilities 50,267
----------
STOCKHOLDER'S EQUITY:
Common Stock 4,500
Paid in Capital 171,600
Unrealized gain on securities
available-for-sale 264,000
Retained earnings (deficit) (5,999)
----------
Total stockholder's equity 434,101
----------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $ 484,368
==========
- 15 -
<PAGE>
JTH TAX INC.
A DEVELOPMENT STAGE COMPANY
STATEMENT OF OPERATIONS
SEVEN MONTHS ENDED APRIL 30, 1997
- --------------------------------------------------------------------------------
REVENUE $ -
----------
OPERATION EXPENSES:
Payroll 1,513
Advertising 200
Business taxes & license 372
Cleaning and janitoral 240
Depreciation 532
Equipment Rental 599
Insurance 488
Miscellaneous 100
Occupancy 3,160
Printing 570
Postage 640
Professional fees 1,290
Supplies 473
Telephone 907
Travel 6,048
Utilities 368
----------
Total Expenses 17,500
----------
OTHER INCOME
Gain on security sales 11,501
----------
Total Net Income (5,999)
----------
RETAINED EARNINGS - BEGINNING OF THE PERIOD -
----------
RETAINED EARNINGS - END OF PERIOD $ (5,999)
----------
- 16 -
<PAGE>
JTH TAX INC.
A DEVELOPMENT STAGE COMPANY
STATEMENT OF CASH FLOWS
SEVEN MONTHS ENDED APRIL 30, 1997
- --------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ (5,999)
Adjustments to reconcile total net income to
Net cash provided by operating activities:
Depreciation and amortization 532
Net realized gains on securities 264,000
(Increase) in prepaid expenses (1,654)
Increase in accounts payable 267
----------
NET CASH PROVIDED (USED)
BY OPERATING ACTIVITIES 257,146
----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of furniture and equipment (16,506)
Purchases of trading securities (7,864)
Purchases of available-for-sale securities (440,000)
----------
NET CASH (USED) IN
INVESTING ACTIVITIES (464,370)
----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term debt 50,000
Proceeds from sale of stock 176,100
----------
NET CASH PROVIDED BY
FINANCING ACTIVITES 226,100
----------
NET INCREASE IN CASH AND EQUIVALENTS 18,876
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD -
----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 18,876
==========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest paid (not of amount capitalized) $ -
==========
Income taxes paid $ -
==========
- 17 -
<PAGE>
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
See "Indemnification of Directors and Officers" in Prospectus
Item 25. Other Expenses of Issuance and Distribution
Registration and filing fees:
Securities and Exchange Commission: $ 1,143
Blue Sky: * 11,170
Printing: * 6,500
Accounting: * 10,000
Total other expenses: * 71,187
-------
Total expenses: *$100,000
*____________________
*estimated
Item 26. Recent Sales of Unregistered Securities
In connection with incorporation of the Company in October 1996,
John Hewitt purchased 1,000 shares of Class B Common Stock for $.10 per share.
In December 1996, Mr. Hewitt contributed securities having an aggregate market
value of $176,000 in exchange for 44,000 shares of Class B Common Stock. In July
1997, the Company sold 200,000 shares of Class A Common Stock, at $10.00 per
share, to accredited investors in a private offering pursuant to Rule 506
promulgated under the Securities Act.
Item 27. Exhibits
3.1 Certificate of Incorporation of JTH Tax, Inc.
3.2 Bylaws of JTH Tax, Inc.
4 See Section 6 of
5 Opinion of Ledgewood Law Firm, P.C.
10.1 Subscription Agreement by and among Tax Depot Inc., JTH
Tax, Inc. and Datatax .Business Services Limited
10.2 Shareholders Agreement by and among Datatax Business
Services Limited, JTH Tax, Inc. and Tax Depot Inc.
10.3 Letter Agreement by and between Save-Smart Insurance and
Financial Services Inc. and U&R Tax Depot, Inc.
21 Registrants only subsidiary is Tax Depot Inc., a corporation
incorporated under the laws of the Province of Manitoba,
Canada, which currently does business under the name "U&R Tax
Depot."
23.1 Consent of Hamilton Dwyer & Company, P.C.
23.3 Consent of Ledgewood Law Firm, P.C. (included in Exhibit 5)
24 Power of Attorney (included as part of signature pages of this
Registration Statement)
27 Financial data schedule
99.1 Form of Subscription Agreement
Item 28. Undertakings
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the small business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the small business
issuer will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned thereunto duly
authorized, in the City of Virginia Beach, Commonwealth of Virginia, on
6/22, 1998.
JTH TAX, INC.
By: /s/ John T. Hewitt
___________________________
JOHN T. HEWITT, Chairman,
Chief Executive Officer and President
<PAGE>
POWER OF ATTORNEY
Each person whose signature appears below in so signing also makes,
constitutes and appoints John T. Hewitt and Kathleen Curry, and each of them
acting alone, his or her true and lawful attorney-in-fact, with full power of
substitution, for him or her in any and all capacities to execute and cause to
be filed with the Securities and Exchange Commission any and all amendments and
post-effective amendments to this registration statement with exhibits thereto
and other documents in connection therewith, and hereby ratifies and confirms
all that said attorney-in-fact or said attorney-in-fact's substitute or
substitutes may do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
/s/ John T. Hewitt
_____________________________________ Date: 6/22, 1998
JOHN T. HEWITT, Chairman, Chief
Executive Officer and President
/s/ John K. Seal
_____________________________________ Date: 6/22, 1998
JOHN K. SEAL, Vice President of
Operations, Treasurer (Chief
Financial Officer and Chief
Accounting Officer) and Director
/s/ Martha O'Gorman
______________________________________ Date: June 22, 1998
MARTHA O'GORMAN, Vice President of
Marketing, and Director
/s/ Donna Halligan
______________________________________ Date: June 22, 1998
DONNA HALLIGAN, Vice President of
Franchise Support, Secretary
and Director
/s/ Kathleen Curry
_____________________________________ Date: 6/22/98, 1998
KATHLEEN CURRY, Vice President of
Technology, Legal Counsel and Director
Exhibit 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
JTH TAX, INC.
JTH TAX, INC., a corporation incorporated under the name JTH Tax, Inc.,
on October 23, 1996, and existing under and by virtue of the General Corporation
Law of the State of Delaware (the "Company"), does hereby certify:
FIRST: That by written consent of the Board of Directors dated April
10, 1997, a resolution was duly adopted setting forth a proposed
Amendment and Restatement of the Certificate of Incorporation
("Amendment and Restatement") of the Company, declaring said Amendment
and Restatement to be advisable and calling for consideration of said
proposed Amendment and Restatement by the stockholder of the Company.
The resolution setting forth the Amendment and Restatement is as
follows:
RESOLVED, that the Certificate of Incorporation of the Company
be restated and integrated and also further amended to read as
set forth in Exhibit A attached hereto.
SECOND: That thereafter, pursuant to the resolution of the Board of
Directors, the proposed Amendment and Restatement was approved by the
stockholders of the Company by written consent dated April 10, 1997.
THIRD: That said Amendment and Restatement was duly adopted in
accordance with the provisions of Sections 242, 245 and 228 of the
General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the Company has caused this Amended and Restated
Certificate of Incorporation to be executed by John T. Hewitt, its President and
Secretary, this 10th day of April, 1997.
JTH TAX, INC.
By: /s/ John T. Hewitt
---------------------------------
John T. Hewitt, President JTH
TAX, INC.
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
JTH TAX, INC.
Pursuant to the provisions of the Delaware General Corporation Law, the
undersigned incorporator executes the following Certificate of Incorporation:
1. Name. The name of this corporation is JTH Tax, Inc.
2. Registered Office and Agent. The address of the Corporation's
registered office in the State of Delaware is Corporation Trust Company, 1209
Orange Street, Wilmington, DE 19801.
3. Purpose. The corporation is incorporated under the Delaware
General Corporation Law and shall have unlimited power to engage in all lawful
business for which corporations may be incorporated under the Delaware
General Corporation Law.
4. Authorized Capital. The aggregate number of shares of stock
which the Corporation shall have authority to issue is One Million (1,000,000)
shares divided into two (2) classes consisting of (a) 100,000 shares of
Preferred Stock, par value $1.00 per share ("Preferred Stock"), (b) 800,000
shares of Class A Common Stock, $1.00 par value and 100,000 shares of
Class B Common Stock, par value $1.00.
a. At any time, and from time to time, the Preferred Stock of
the Corporation may be divided into and issued in one or more classes of further
classes of shares, or one or more series of shares, each of which classes or
series shall be so designated as to distinguish the shares thereof from the
shares of all other classes or series. All shares within any class of Preferred
Stock shall be identical except as to the following relative rights and
preferences, in respect of any or all of which there may be variations between
different series of such class, namely, the rate of dividend, the right of
redemption, and the price at which, and the terms and conditions on which,
shares may be redeemed, the amounts payable upon shares in event of voluntary or
involuntary liquidation, sinking fund provisions for the redemption or purchase
of shares, the right of conversion, the terms and conditions on which shares may
be converted in the event the shares of any class or series of stock are issued
with the privilege of conversion, and the voting rights.
b. The Board of Directors of the Corporation is hereby
expressly vested with the authority, by resolution, from time to time to divide
the Preferred Stock of the corporation into one or more classes or series as
aforesaid, to fix and determine the variable rights and preferences of any class
or series so established.
5. Initial Board of Directors. The number of directors which shall
constitute the board of directors shall be no less than one, and no greater than
nine. The name and address of the person who is to serve as the initial director
is John T. Hewitt, 3742 Virginia Beach Boulevard, Virginia Beach, VA 23452.
6. a. Class A Common Stock.
(1) Election of Directors. So long as there are
any shares of Class B common stock issued and outstanding, at all shareholders'
meetings for the election of directors, the holders of Class A common stock,
voting separately as a class, shall be entitled to elect a number of
directors being one (1) less than the number of directors elected by Class B
common stock.
(2) Non-Cumulative Voting. Voting for directors
by the holders of Class A common stock shall be on a non-cumulative basis.
(3) Elimination of Designation. At such time as
all Class B common stock shall have been converted to Class A common stock, no
additional Class B common stock shall be issued and all Class A common stock
shall become common stock of the Corporation without further designation and
all provisions herein relating separately to Class B common stock shall have no
further force and effect.
b. Class B Common Stock.
(1) Election of Directors. Subject to paragraph
6.a.(1) above, at all shareholders' meetings for the election of directors,
the holders of Class B common stock, voting separately as a class, shall be
entitled to elect one director more than the holders of Class A common stock
voting separately as a class of the directors.
(2) Non-cumulative Voting. Voting for directors
by the holders of Class B common stock shall be on a non-cumulative basis.
(3) Optional Conversion. The holder of any
Class B common shares may at his option convert any such shares into an
equal number of fully paid and non-assessable shares of Class A common
stock.
7. Incorporator. The name and mailing address of the incorporator is
John T. Hewitt, JTH Tax, Inc., 2214 Commerce Parkway, Virginia Beach, VA 23454.
8. Voting Rights. Except as otherwise provided in Paragraph 6, every
stockholder shall have the right at every meeting of stockholders to one vote
for every share standing in the name of such stockholder on the books of the
Company which is entitled to vote at such meeting. Every stockholder may vote
either in person or by proxy.
<PAGE>
-1-
9. Limitation on Liability. The directors of the Corporation shall be
entitled to the benefits of all limitations on the liability of directors
generally that are now or hereafter become available under the General
Corporation Law of Delaware. Without limiting the generality of the foregoing,
no director of the Corporation shall be liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law, or (iv) for any transaction
from which the director derived an improper personal benefit. Any repeal or
modification of this Section 9 shall be prospective only, and shall not affect,
to the detriment of any director, any limitation on the personal liability of a
director of the Corporation existing at the time of such repeal or modification.
<PAGE>
JTH Tax, Inc.
By: /s/ John T. Hewitt
---------------------------------
Dated:____________________ John T. Hewitt, President
-6-
Exhibit 3.2
BYLAWS
OF
JTH TAX, INC.
ARTICLE I
STOCKHOLDERS
<PAGE>
1.1 Meetings.
1.1.1 Place. Meetings of the stockholders shall be held at such place
as may be designated by the board of directors.
1.1.2 Annual Meeting. An annual meeting of the stockholders for the
election of directors and for other business shall be held on such date and at
such time as may be fixed by the board of directors.
1.1.3 Special Meetings. Special meetings of the stockholders may be
called at any time by the president, or the board of directors, or the holders
of a majority of the outstanding shares of stock of the Company entitled to vote
at the meeting.
1.1.4 Quorum. The presence, in person or by proxy, of the holders of a
majority of the outstanding shares of stock of the Company entitled to vote on a
particular matter shall constitute a quorum for the purpose of considering such
matter.
1.1.5 Authorized Capital. The aggregate number of shares of stock which
the Corporation shall have authority to issue is One Million (1,000,000) shares
divided into two (2) classes consisting of (a) 100,000 shares of Preferred
Stock, par value $1.00 per share ("Preferred Stock"), (b) 800,000 shares of
Class A Common Stock, $1.00 par value and 100,000 shares of Class B Common
Stock, par value $1.00.
1.1.5.1 At any time, and from time to time, the Preferred
Stock of the Corporation may be divided into and issued in one or more classes
of further classes of shares, or one or more series of shares, each of which
classes or series shall be so designated as to distinguish the shares thereof
from the shares of all other classes or series. All shares within any class of
Preferred Stock shall be identical except as to the following relative rights
and preferences, in respect of any or all of which there may be variations
between different series of such class, namely, the rate of dividend, the right
of redemption, and the price at which, and the terms and conditions on which,
shares may be redeemed, the amounts payable upon shares in event of voluntary or
involuntary liquidation, sinking fund provisions for the redemption or purchase
of shares, the right of conversion, the terms and conditions on which shares may
be converted in the event the shares of any class or series of stock are issued
with the privilege of conversion, and the voting rights.
1.1.5.2 The Board of Directors of the Corporation is hereby
expressly vested with the authority, by resolution, from time to time to divide
the Preferred Stock of the corporation into one or more classes or series as
aforesaid, to fix and determine the variable rights and preferences of any class
or series so established.
1.1.6 Initial Board of Directors. The number of directors which shall
constitute the board of directors shall be no less than one, and no greater than
nine. The name and address of the person who is to serve as the initial director
is John T. Hewitt, 3742 Virginia Beach Boulevard, Virginia Beach, VA 23452.
1.1.7 Class A Common Stock.
1.1.7.1 Election of Directors. So long as there are any shares
of Class B common stock issued and outstanding, at all shareholders' meetings
for the election of directors, the holders of Class A common stock, voting
separately as a class, shall be entitled to elect a number of directors being
one (1) less than the number of directors elected by Class B common stock.
1.1.7.2 Non-Cumulative Voting. Voting for directors by the
holders of Class A common stock shall be on a non-cumulative basis.
1.1.7.3 Elimination of Designation. At such time as all Class
B common stock shall have been converted to Class A common stock, no additional
Class B common stock shall be issued and all Class A common stock shall become
common stock of the Corporation without further designation and all provisions
herein relating separately to Class B common stock shall have no further force
and effect.
1.1.8 Class B Common Stock.
1.1.8.1 Election of Directors. Subject to paragraph 6.a.(1)
above, at all shareholders' meetings for the election of directors, the holders
of Class B common stock, voting separately as a class, shall be entitled to
elect one director more than the holders of Class A common stock voting
separately as a class of the directors.
1.1.8.2 Non-cumulative Voting. Voting for directors by the
holders of Class B common stock shall be on a non-cumulative basis.
1.1.8.3 Optional Conversion. The holder of any Class B common
shares may at his option convert any such shares into an equal number of fully
paid and non-assessable shares of Class A common stock.
1.1.9 Voting Rights. Except as otherwise provided in Sections 1.1.7.1
and 1.1.8.1, in the certificate of incorporation or by law, every stockholder
shall have the right at every meeting of stockholders to one vote for every
share standing in the name of such stockholder on the books of the Company which
is entitled to vote at such meeting. Every stockholder may vote either in person
or by proxy.
ARTICLE II
DIRECTORS
<PAGE>
2.1 Number and Term. The board of directors shall have authority to (i)
determine the number of directors to constitute the board and (ii) fix the terms
of office of the directors.
2.2 Meetings.
2.2.1 Place. Meetings of the board of directors shall be held at such
place as may be designated by the board or in the notice of the meeting.
2.2.2 Regular Meetings. Regular meetings of the board of directors
shall be held at such times as the board may designate. Notice of regular
meetings need not be given.
2.2.3 Special Meetings. Special meetings of the board may be called by
direction of the president or any two members of the board on three days' notice
to each director, either personally or by mail, telegram or facsimile
transmission.
2.2.4 Quorum. A majority of all the directors in office shall
constitute a quorum for the transaction of business at any meeting.
2.2.5 Voting. Except as otherwise provided herein, in the certificate
of incorporation or by law, the vote of a majority of the directors present at
any meeting at which a quorum is present shall constitute the act of the board
of directors.
2.2.6 Committees. The board of directors may, by resolution adopted by
a majority of the whole board, designate one or more committees, each committee
to consist of one or more directors and such alternate members (also directors)
as may be designated by the board. Unless otherwise provided herein, in the
absence or disqualification of any member of a committee, the member or members
thereof present at any meeting and not disqualified from voting, whether or not
such member or members constitute a quorum, may unanimously appoint another
director to act at the meeting in the place of any such absent or disqualified
member. Except as otherwise provided herein, in the certificate of incorporation
or by law, any such committee shall have and may exercise the powers of the full
board of directors to the extent provided in the resolution of the board
directing the committee.
ARTICLE III
OFFICERS
<PAGE>
3.1 Election. At its first meeting after each annual meeting of the
stockholders, the board of directors shall elect a president, treasurer,
secretary and such other officers as it deems advisable.
3.2 Authority, Duties and Compensation. The officers shall have such authority,
perform such duties and serve for such compensation as may be determined by
resolution of the board of directors. Except as otherwise provided by board
resolution, (i) the president shall be the chief executive officer of the
Company, shall have general supervision over the business and operations of the
Company, may perform any act and execute any instrument for the conduct of such
business and operations and shall preside at all meetings of the board and
stockholders, (ii) the other officers shall have the duties customarily related
to their respective offices, and (iii) any vice president, or vice presidents in
the order determined by the board, shall in the absence of the president have
the authority and perform the duties of the president.
ARTICLE IV
INDEMNIFICATION
<PAGE>
4.1 Right to Indemnification. The Company shall indemnify any person who was or
is party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (a "proceeding"), by reason of the fact that such person is or was
a director or officer of the Company or a constituent corporation absorbed in a
consolidation or merger, or is or was serving at the request of the Company or a
constituent corporation absorbed in a consolidation or merger, as a director or
officer of another corporation, partnership, joint venture, trust or other
enterprise, or is or was a director or officer of the Company serving at its
request as an administrator, trustee or other fiduciary of one or more of the
employee benefit plans of the Company or other enterprise, against expenses
(including attorneys' fees), liability and loss actually and reasonably incurred
or suffered by such person in connection with such proceeding, whether or not
the indemnified liability arises or arose from any threatened, pending or
completed proceeding by or in the right of the Company, except to the extent
that such indemnification is prohibited by applicable law.
4.2 Advance of Expenses. Expenses incurred by a director or officer of the
Company in defending a proceeding shall be paid by the Company in advance of the
final disposition of such proceeding subject to the provisions of any applicable
statute.
4.3 Procedure for Determining Permissibility. To determine whether any
indemnification or advance of expenses under this Article IV is permissible, the
board of directors by a majority vote of a quorum consisting of directors not
parties to such proceeding may, and on request of any person seeking
indemnification or advance of expenses shall be required to, determine in each
case whether the applicable standards in any applicable statute have been met,
or such determination shall be made by independent legal counsel if such quorum
is not obtainable, or, even if obtainable, a majority vote of a quorum of
disinterested directors so directs, provided that, if there has been a change in
control of the Company between the time of the action or failure to act giving
rise to the claim for indemnification or advance of expenses and the time such
claim is made, at the option of the person seeking indemnification or advance of
expenses, the permissibility of indemnification or advance of expenses shall be
determined by independent legal counsel. The reasonable expenses of any director
or officer in prosecuting a successful claim for indemnification, and the fees
and expenses of any special legal counsel engaged to determine permissibility of
indemnification or advance of expenses, shall be borne by the Company.
4.4 Contractual Obligation. The obligations of the Company to indemnify a
director or officer under this Article IV, including the duty to advance
expenses, shall be considered a contract between the Company and such director
or officer, and no modification or repeal of any provision of this Article IV
shall affect, to the detriment of the director or officer, such obligations of
the Company in connection with a claim based on any act or failure to act
occurring before such modification or repeal.
4.5 Indemnification Not Exclusive; Inuring of Benefit. The indemnification
and advance of expenses provided by this Article IV shall not be deemed
exclusive of any other right to which one indemnified may be entitled under
any statute, provision of the Certificate of Incorporation, these bylaws,
agreement, vote of stockholders or disinterested directors or otherwise, both
as to action in such person's official capacity and as to action in another
capacity while holding such office, and shall inure to the benefit of the
heirs, executors and administrators of any such person.
4.6 Insurance and Other Indemnification. The board of directors shall have
the power to (i) authorize the Company to purchase and maintain, at the
Company's expense, insurance on behalf of the Company and on behalf of
others to the extent that power to do so has not been prohibited by statute,
(ii) create any fund of any nature, whether or not under the control of a
trustee, or otherwise secure any of its indemnification obligations, and
(iii) give other indemnification to the extent permitted by statute.
ARTICLE V
TRANSFER OF SHARE CERTIFICATES
Transfers of share certificates and the shares represented thereby
shall be made on the books of the Company only by the registered holder or by
duly authorized attorney. Transfers shall be made only on surrender of the share
certificate or certificates.
ARTICLE VI
AMENDMENTS
These bylaws may be amended or repealed at any regular or special
meeting of the board of directors by vote of a majority of all directors in
office or at any annual or special meeting of stockholders by vote of holders of
a majority of the outstanding stock entitled to vote. Notice of any such annual
or special meeting of stockholders shall set forth the proposed change or a
summary thereof.
JTH Tax, Inc.
June 19, 1998
Page 1
<PAGE>
Exhibit 5
JTH Tax, Inc.
June 19, 1998
Page 2
June 19, 1998
JTH Tax, Inc.
2610 Potters Road
Virginia Beach, VA 23452
Gentlemen/Ladies:
We have acted as counsel to JTH Tax, Inc. ("JTH Tax") in connection
with the preparation and filing by JTH Tax of a registration statement (the
"Registration Statement") on Form SB-2 under the Securities Act of 1933, as
amended (the "Act"), with respect to the offer and sale of up to 310,000 shares
of the common stock of JTH Tax, par value $1.00 per share (the "Common Stock").
In connection therewith, you have requested our opinion as to certain matters
referred to below.
In our capacity as such counsel, we have familiarized ourselves with
the actions taken by JTH Tax in connection with the registration of the Common
Stock. We have examined the originals or certified copies of such records,
agreements, certificates of public officials and others, and such other
documents, including the Registration Statement and the amendment thereof, as we
have deemed relevant and necessary as a basis for the opinions hereinafter
expressed. In such examination, we have assumed the genuineness of all
signatures on original documents and the authenticity of all documents submitted
to us as originals, the conformity to original documents of all copies submitted
to us as conformed or photostatic copies, and the authenticity of the originals
of such latter documents.
Based upon and subject to the foregoing, we are of the opinion that
the Common Stock has been validly issued and is fully paid and non-assessable.
<PAGE>
We consent to the references to this opinion and to Ledgewood Law
Firm, P.C. in the Prospectus included as part of the Registration Statement, and
to the inclusion of this opinion as an exhibit to the Registration Statement.
Very truly yours,
LEDGEWOOD LAW FIRM, P.C.
Exhibit 10.1
SUBSCRIPTION
AGREEMENT
BETWEEN
TAX DEPOT INC.
AND
JTH TAX, INC.
AND
DATATAX BUSINESS SERVICES LIMITED
MADE AS OF
MAY 31ST, 1997
SHARE SUBSCRIPTION AGREEMENT
THIS AGREEMENT made as of May 3 1 st, 1997;
BETWEEN:
TAX DEPOT INC., a corporation incorporated under the laws of the Province of
Manitoba (hereinafter referred to as the "Tax Depot").
OF THE FIRST PART
- and -
JTH TAX, INC., a corporation incorporated under the laws of the State of
Delaware (hereinafter referred to as the "Purchaser")
OF THE SECOND PART
- and -
DATATAX BUSINESS SERVICES LIMITED, a corporation incorporated under the laws of
the Province of Ontario (hereinafter referred to as the "Datatax")
OF THE THIRD PART
WHEREAS Tax Depot was incorporated by Articles of Incorporation issued pursuant
to the Corporations Act of Manitoba dated May 5th, 1994;
AND WHEREAS the authorized capital of Tax Depot consists of an unlimited number
of common shares (the "Common Shares");
AND WHEREAS Datatax is the sole shareholder of Tax Depot having been issued 100
Common Shares;
AND WHEREAS the Purchaser wishes to subscribe for and purchase 150 Common Shares
from the treasury of Tax Depot;
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the premises
hereto and the covenants and agreements herein contained the parties hereto
covenant and agree as follows:
ARTICLE 1
INTERPRETATION
Definitions
1.1 In this Agreement, including the recitals and any schedules hereto, unless
otherwise stated or unless the context otherwise requires:
(a) "Agreement", "herein", "hereto", "hereof' and similar expressions means this
agreement and includes any agreement amending this agreement or any agreementor
instrument which is supplemental or ancillary hereto;
(b) "Closing" means the completion of the issue and allotment by Tax Depot to
the Purchaser of the Subscribed Shares and the payment by the Purchaser to Tax
Depot of the Subscription Price and the completion of all matters incidental
hereto;
(c) "Closing Date" means September 2, 1997 or such other date as the parties
hereto mutually agree upon in writing as the date upon which the Closing is to
take place;
(d) "Effective Date" means May 31, 1997; (e) "Financial Statements" means
the audited consolidated financial statements of Tax Depot and the consolidated
balance sheet, statements of consolidated revenue, retained earnings,
changes in financial position, for the year ending August 31, 1996 and all
notes thereto and the Auditors' Comments on Supplementary Financial
Information dated January 31, 1997;
(f) "Indebtedness" includes:
(i) all liabilities of Tax Depot for borrowed money which would be
included in determining total liabilities as shown in the liability section of a
balance sheet at the date on which indebtedness is to be determined; and
(ii) all liabilities of others which Tax Depot has directly or
indirectly guaranteed, or in respect of which Tax Depot has otherwise become
directly or indirectly liable or in respect of which the Tax Depot has provided
any financial support pursuant to any agreement, commitment, undertaking or
other document of whatsoever nature and kind or any combination thereof
(g) "Shareholders Agreement" means that certain shareholders agreement dated
even date hereof among Tax Depot, the Purchaser and Datatax;
(h) "Subscribed Shares" means the 150 Common Shares to be issued and sold to the
Purchaser pursuant to the terms hereof, and
(i) "Subscription Price" means a total subscription price for the Subscribed
Shares of $1,000,000.00, being $6,666.66 per share.
Time
1.2 Time shall be of the essence hereof.
Governing Law
1.3 This Agreement shall in all respects be subject to and be interpreted and
construed in accordance with the laws of the Province of Manitoba and Canada.
Clause References
1.4 The division of this Agreement into table of contents, headings, sections,
subsections, subclauses, and paragraphs and the provisions of headings for all
or any thereof is for convenience and reference only and shall not affect the
interpretation of this Agreement.
Expanded Meanings
1.5 In this Agreement, unless there is something in the subject matter or
context inconsistent therewith: (a) words importing the singular shall include
the plural and vice versa; (b) words importing gender shall include the
masculine, feminine and neuter genders; and (c) references to any statute shall
extend to and include any orders-in-council or regulations passed under the laws
of Canada or any Province thereof, or any amendment or re-enactment of such
statute, orders-in-council or regulations, or any statute, orders-in-council or
regulations substantially in replacement thereof.
Currency and Payment
1.6 All references to currency, unless otherwise specified, are in lawful money
of Canada. All payments contemplated by this Agreement shall be by certified
cheque or bank draft issued by a Canadian chartered bank or other such wire
transfer of immediately available funds as may be acceptable to Tax Depot.
Amendment
1.7 No amendments or modification of this Agreement shall be binding unless in
writing and signed by all parties hereto.
Entire Agreement
1.8 This Agreement constitutes the entire agreement between the parties relating
to the purchase and sale of the Subscribed Shares and supercedes and replaces
all prior agreements, understandings, negotiations and discussions, whether oral
or written.
Invalidity of Provisions
1.9 In the event that any of the provisions of this Agreement should be invalid,
illegal or unenforceable in any respect, the validity or legality or
enforceability of the remaining provisions contained herein shall not in any way
be affected or impaired thereby.
ARTICLE 2
SUBSCRIPTION AND PURCHASE OF SUBSCRIBED SECURITIES
Subscriptions for Subscribed Securities
2.1 Subject to the terms and conditions of this Agreement, the Purchaser hereby
subscribes for and agrees to purchase and Tax Depot agrees to allot and issue to
the Purchaser the Subscribed Shares in consideration of the Subscription Price.
Completion of Purchase
2.2 The purchase and sale of the Subscribed Shares shall be completed by way of
one payment by cash or certified cheque in the amount of $ 1,000,000.00 on the
Closing Date.
ARTICLE 3
TAX DEPOT'S REPRESENTATIONS AND WARRANTIES
Tax Depot's Representations and Warranties
3.1 Tax Depot covenants with, represents and warrants to the Purchaser that the
following are true as of the Effective Date hereof and will be true on the
Closing Date, and acknowledges that the Purchaser is strictly relying upon such
representations and warranties in connection with the purchase of the Subscribed
Shares:
(a) Tax Depot has been duly incorporated and is validly subsisting under the
laws of its jurisdiction of incorporation; has all necessary corporate power,
authority and capacity to own or otherwise hold its property and assets and to
carry on its business as presently conducted; is duly qualified as a corporation
to do business and is in good standing in each jurisdiction in which the nature
of the business conducted by it or the property and assets owned by it makes
such qualification necessary;
(b) the authorized share capital of Tax Depot consists of an unlimited number of
Common Shares, of which prior to the issuance of the Subscribed Shares as herein
contemplated, 100 Common Shares have been validly issued and are currently
outstanding as fully paid and non-assessable shares of Tax Depot;
(c) all necessary corporate action has been taken or will be taken by Tax Depot
prior to the Closing Date to duly authorize the allotment, issue and sale of the
Subscribed Shares such that, upon receipt of the Subscription Price for the
Subscribed Shares by Tax Depot, the 150 Subscribed Shares will be validly issued
and outstanding as fully paid and non-assessable;
(d) Tax Depot has full corporate power and authority to enter into and perform
its obligations under this Agreement and the transactions contemplated hereby
will not result in the violation of any terms and provisions of the constating
documents or by-laws of Tax Depot, and will not constitute a breach or default
under any indenture or other agreements, written or oral, to which Tax Depot may
be a party, or by which it or any of its assets are bound;
(e) except as provided in this Agreement, no person, firm or corporation has any
agreement or option or any right or privilege, whether by law, pre-emptive or
contractual, capable of becoming an agreement or option for the purchase,
subscription, allotment or issuance from Tax Depot of any shares in the capital
of Tax Depot;
(f) the issuance and the sale of the Subscribed Shares is exempt from the
registration and prospectus requirements of the applicable securities laws and
no filing proceeding, approval, consent or authorization is required to be taken
or obtained to qualify the Subscribed Shares for sale to the Purchaser;
(g) the execution and delivery of this Agreement has been duly authorized by Tax
Depot and this Agreement constitutes a valid and binding obligation of Tax Depot
enforceable in accordance with its terms, subject to the qualification that
enforceability may be limited by bankruptcy, insolvency or similar laws
affecting creditor's rights generally and to the extent that remedies of
specific performance and injunction, being equitable remedies, may only be
granted in the discretion of a court having jurisdiction;
(h) the Financial Statements have been prepared in accordance with applicable
laws and Canadian generally accepted accounting principles consistently applied
in each of the financial years or other reporting periods covered in the
Financial Statements; the Financial Statements fairly present the financial
condition of Tax Depot as at the dates, and the results of the operations of Tax
Depot for each of the financial years which are identified in the Financial
Statements, all in accordance with generally accepted accounting principles
consistently applied, and since August 31, 1996 there has been no material
adverse change in the condition, financial or otherwise, of Tax Depot; since
August 31, 1996, Tax Depot has not incurred any Indebtedness including debt
due to Datatax or its related parties in an amount in an excess of $500,000 and
other than Indebtedness incurred in the ordinary course of business; except for
obligations contained in Schedule "A", Tax Depot is not party to or bound by
any agreement of guarantee, indemnification, assumption or endorsement or any
other like commitment of the obligations, liabilities, contingent or
otherwise, or indebtedness of any other person, or corporation;
(k) since August 31, 1996, there has been no material adverse change in the
condition or operations of the business, assets or prospects of Tax Depot or any
circumstance which might reasonably be expected to result in any such material
adverse change;
(l) to the knowledge of Tax Depot, the corporate, accounting and tax records and
minute books of Tax Depot have been fully and properly prepared and maintained
and contain complete and accurate records of all its activities in all material
respects;
(m) except as disclosed on Schedule "B", there are no actions, suits or
proceedings pending or affecting it at law or in equity or before or by any
federal, provincial, municipal or other governmental department, commission,
board, bureau or agency which if enforced or adjudicated against Tax Depot, or
any of its directors or officers could have a material adverse effect on the
business, properties, future prospects or financial condition of Tax Depot; the
Tax Depot is not now aware of any existing ground on which any such action, suit
or proceeding might be commenced and there is not presently outstanding against
Tax Depot or any of its directors or officers any judgment, decree, injunction,
rule or order of any court, governmental department, commission, agency, or
arbitrator which is material and none of Tax Depot, its directors, or its
officers has given any undertaking or other commitment to any such body outside
the ordinary course of business which is material;
(n) except to the extent reflected in or reserved against in the Financial
Statements or disclosed to the Purchaser, to the knowledge of Tax Depot: (1)Tax
Depot is not liable for any material amount of any Canadian federal,foreign,
provincial or municipal or local taxes, assessments or other amounts due and
unpaid at the date hereof in respect of its income, business or property or
for the payment of any installment due in respect of its current taxation
year;
(i) Tax Depot is not liable for any material amount of any Canadian
federal, foreign, provincial or municipal or local taxes, assessments or other
amounts due and unpaid at the date hereof in respect of its income, business or
property or for the payment of any instalment due in respect of its current
taxation year;
(ii) there are currently no outstanding disputes, reassessments or
questions which have been issued or raised by any governmental authority
relating to any tax returns or other filings or elections by Tax Depot.
ARTICLE 4
PURCHASER'S REPRESENTATIONS AND WARRANTIES
Purchaser's Representations and Warranties
4.1 The Purchaser hereby covenants with, represents and warrants to Tax Depot
that the following are true as of the Effective Date hereof and will be true on
the Closing Date and acknowledges that Tax Depot is relying thereon:
(a) the Purchaser had been duly incorporated and is validly subsisting under the
laws of its jurisdiction of incorporation;
(b) the Purchaser has good right, full power and authority to purchase the
Subscribed Shares on the terms described herein and in the manner contemplated
by this Agreement;
(c) neither the execution and delivery of this Agreement by the Purchaser, nor
the performance of the Purchaser's obligations hereunder will be in conflict
with, or result in the breach of or constitute a default by the Purchaser under
this constating documents or any document of any kind of which the Purchaser is
a party, or to the best of the Purchaser's knowledge, under any judgments,
decree, order, law, statute, rule or regulation applicable to the Purchaser; and
(d) this Agreement has been duly executed and delivered by the Purchaser and all
documents required hereunder to be executed and delivered by it shall have been
duly executed and delivered by the Purchaser and this Agreement does and such
documents and instruments shall, constitute valid and binding obligations of the
Purchaser enforceable in accordance with their respective terms, subject to the
qualification that enforceability may be limited by bankruptcy, insolvency or
similar laws affecting creditor's rights generally and to the extent that
remedies of specific performance and injunction, being equitable remedies, may
only be granted in the discretion of a court having jurisdiction.
ARTICLE 5
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
Survival of Representations and Warranties
5.1 The representations and warranties of Tax Depot and the Purchaser contained
in this Agreement or any document or certificate given pursuant hereto shall
survive the final Closing and notwithstanding such Closing, shall continue in
full force and effect for a period of one year from the final Closing Date,
except with respect to tax matters (which continue for a period of three years
or earlier, if the limitation period under the applicable taxing statute has
expired).
ARTICLE 6
CLOSING
Closing
6.1 The Closing of the within transaction shall take place on the relevant
Closing Date, at the offices of Tax Depot or such other place as the parties
hereto may otherwise agree.
6.2 At Closing, Tax Depot shall deliver to the Purchaser:
(a) a certificate registered in the name of the Purchaser
representing the number of Subscribed Shares being issued at
such Closing;
(b) certified copies of Tax Depot's constating documents and the
resolutions passed by the board of directors approving this
Agreement;
(c) the closing documents necessary to satisfy the condition
precedents set forth in Article 7. 1; and all other documents
necessary or desirable to carry out the intent of this
Agreement.
6.3 At Closing, the Purchaser shall deliver to Tax Depot:
(a) the Subscription Price for the Subscribed Shares which is to
be paid and satisfied by bank draft, certified cheque or wire
transfer in immediately available funds at Closing;
(b) the closing documentation necessary to satisfy the conditions
precedent as set out in Article 7.3; and
(c) all other documents necessary or desirable to carry out the
intent of this Agreement.
6.4 Immediately following the Closing, Tax Depot shall, from the monies
received for the Subscription Price, pay to Datatax at Closing a maximum amount
of $500,000.00, in payment of all outstanding shareholder loans, or
intercorporate amounts due or receivable between Datatax and Tax Depot and
adjusted at the fiscal year end including any amounts due to Datatax by Tax
Depot pursuant to the terms of the Management Services Agreement between Datatax
and Tax Depot dated May 13, 1994 (the "Debt due to Datatax") currently estimated
by Tax Depot to be approximately $432,481.00 as outlined in the Projected
Balance Sheet as of August 31, 1997, attached hereto as Schedule "C".
6.5 Immediately following the Closing, Tax Depot shall use its best efforts to
release or obtain the release of all guarantees given by Datatax or persons
related to Datatax on behalf of Tax Depot and failing such release, the
Purchaser and Datatax shall guarantee the obligations of Tax Depot proportionate
to their shareholdings in Tax Depot. Unless and until all releases are obtained,
the Purchaser and Datatax shall indemnify Tax Depot with respect to all such
guarantees pursuant to the terms of this paragraph.
ARTICLE 7
CONDITIONS PRECEDENT
Conditions to Obligations of the Purchaser
7.1 The obligations of the Purchaser to consummate the transactions contemplated
under this Agreement are subject to the satisfaction, on or before the Closing,
of the following conditions:
(a) the representations and warranties of Tax Depot contained in Article 3 are
true in all material respects immediately prior to the Closing with the same
effect as those such representations and warranties had been made at and as of
such time and the Purchaser has received a certificate to that effect dated the
Closing Date from Gary Ibbotson or another director of Tax Depot, which
certificate shall be based upon his best information and belief after having
made reasonable enquiries;
(b) the Purchaser has received a favourable opinion of counsel to Tax Depot with
respect to the matters described in Article 3. 1 (a) (b)(c)(d)(f) and (g), which
opinion may rely on certificates of an officer or officers of Tax Depot or
public officials as to matters of fact and, as to matters involving the laws of
jurisdiction in which such counsel is not qualified to practice, on opinions of
recognized local counsel in such jurisdictions;
(c) a bank facility will have been arranged for Tax Depot in relation to the
discounting of tax returns, in an amount at least 50% greater than the existing
facility of Seven Million Dollars available to Tax Depot through Datatax and
such facility shall:
(i) not be subject to the guarantee of the Purchaser or Datatax, or their
respective shareholders; or
(ii) be subject to the guarantee of the Purchaser and Datatax, or their
respective shareholders, in proportion to their shareholdings in Tax Depot
following the Closing, on terms acceptable to the Purchaser; or
(iii) be subject to the guarantee of Datatax or its shareholders(s), who shall
receive from Tax Depot an annual fee for the provision of the guarantee, to be
negotiated and agreed to by the parties as a percentage of the amount of the
guarantee.
The conditions described in this Article 7.1 are for the exclusive benefit of
the Purchaser and may be asserted by the Purchaser regardless of circumstances
or may be waived by the Purchaser in their sole discretion, in whole or in part,
at any time and from time to time without prejudice to any other rights which
the Purchaser may have.
7.2 Upon the Closing of the transactions contemplated herein and except as
provided in Article 7.3, Tax Depot shall and does hereby agree to indemnify and
save harmless the Purchaser from and against any and all claims, actions, causes
of action, liabilities, losses, damages, costs, charges, expenses, legal fees,
and disbursements, fines and penalties to which it may be put, incur, suffer or
be liable for, directly or indirectly, by or as a result of any undertaking,
representation or warranty set forth in Article 3 being incorrect or breached.
7.3 Tax Depot shall not be obligated to indemnify the Purchaser from or against
any losses or in connection with any claim of the Purchaser by or as a result of
any undertaking, representation or warranty set forth in Article 3 being
incorrect or breached except to the extent that such losses exceed an aggregate
amount of Ten Thousand ($10,000.00) Dollars.
Conditions to Obligations of the Vendor
7.4 The obligations of Tax Depot to consummate the transactions contemplated
under this Agreement are subject to the satisfaction, on closing that Gary
Ibbotson or his assignee shall have completed a simultaneous subscription for
50,000 Class A Shares of the Purchaser for the sum of FIVE HUNDRED THOUSAND
($500,000.00 U.S.) U.S. DOLLARS.
ARTICLE 8
GENERAL
Notice
8.1 Any notice required or permitted hereunder to be given shall be given
by personal delivery, prepaid registered mail or facsimile communication to
the respective parties at the addresses set forth below or at such other
addresses as the parties may designate in writing from time to time:
To Tax Depot:
6815 - 8th Street N.E.
Suite 280
Calgary, Alberta
T2E 71-17
Attention: Mr. Gary Ibbotson
Facsimile No: (403) 274-1542
with a copy to:
Siskind Cromarty, Ivey & Dowler
Barristers and Solicitors
680 Waterloo Street
London, Ontario
N6A 3V8
Attention: J. Richard Lockwood
Facsimile No: (519) 672-9296
To Purchaser:
JTH Tax Inc.
2214 Commerce Parkway
Virginia Beach, Virginia, U.S.A.
23454
Attention: John Hewitt
Facsimile No: (757) 340-7612
with a copy to:
Howard, Mackie
1000 Canterra Tower 400 - 3rd Avenue S.W.
Calgary, Alberta T2P 4H2
Attention: Ruth M. Spetz Facsimile No: (403) 266-1395
To Datatax
680 Industrial Road London, Ontario N5V 1V1
Attention: Mr. Gary Ibbotson Facsimile No: (403) 274-1542
with a copy to:
Siskind Cromarty, Ivey & Dowler
Barristers and Solicitors
680 Waterloo Street
London, Ontario
N6A 3V8
Attention: J. Richard Lockwood
Facsimile No: (519) 672-9296
Any notice, direction or other instrument aforesaid if delivered shall be deemed
to have been given or made on the date on which it was delivered, if mailed,
shall be deemed to have been given or made on the 5th business day following the
date on which it was mailed and if sent by facsimile, shall be deemed to have
been given or made on the next business day following the date on which it was
sent. Saturdays, Sundays and statutory holidays excepted. Either party hereto
may change its address for service from time to time by written notice given in
accordance with the foregoing. Notice by mail shall not be effective during any
postal strike or slowdown.
Assignment
8.2 (a) This Agreement shall not be assigned by the parties hereto
without the prior written consent of all other parties hereto,
which consent may not be unreasonably withheld or arbitrarily
withheld; and
(b) Any assignment of this Agreement or any obligations under this
Agreement shall not release any party hereto from its full
obligations hereunder, without the prior written consent of
the other parties hereto.
Enurement
8.3 This Agreement shall enure to the benefit of and be binding upon the parties
and their respective permitted successors and assigns.
Expenses and Legal Fees
8.4 Each of the parties shall be responsible for and shall pay all of their
respective costs and expenses incidental to the preparation and carrying out of
this Agreement, whether or not the transactions contemplated hereby are
consummated.
Public Announcements
8.5 (a) No news releases or public announcement respecting the
subject matter of this Agreement shall be made by either party
without the prior approval of the other party which approval
shall not be unreasonably withheld;
(b) Notwithstanding the foregoing, the parties may disclose any
information required to be disclosed to any federal,
provincial, state or local government or governmental branch,
board, agency or instrumentality necessary to comply with
relevant timely disclosure laws or the requirements of
regulatory authorities, including stock exchanges, having
jurisdiction in respect of the securities of the parties.
Further Assurances
8.6 The parties hereto agree that they will execute or cause to be executed and
delivered all such further and other documents and assurances and do mid cause
to be done all such further acts and things as may be necessary or desirable to
carry out this Agreement according to its hue intent.
8.7 This Agreement may be executed in any number of counterparts each of which
when so executed and delivered shall be deemed an original, and such
counterparts together shall constitute one and the some instrument.
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be duly
executed and delivered as of the day and year first above written.
TAX DEPOT INC.
Per: /s/ Gary Ibbotson
--------------------------------------------------
JTH TAX, INC.
Per: /s/ John Hewitt
--------------------------------------------------
DATATAX BUSINESS SERVICES LIMITED
Per: /s/ Gary Ibbotson
--------------------------------------------------
<PAGE>
SCHEDULE"A"
I Guarantee given by Tax Depot to the Bank of Montreal in support of a
$10,000,000.00 Operating Line of Credit granted to Datatax by the Bank of
Montreal.
2. General Assignment of Book Debts given by Tax Depot to the Bank of Montreal
as additional security for the said Guarantee.
<PAGE>
SCHEDULE"B"
I Passing off action commenced by Heidi Gordash against Tax Depot Inc. in the
Ontario Court (General Division) as Action No. T- 1476-96.
2. Threatened action against Tax Depot Inc. by a number of residents of Fogo
Island, Newfoundland re Clarence Ford and Lori Ann Ford.
TAX DEPOT INC.
Projected Consolidated Balance Sheet
As of August 31, 1997
1997 1996
ASSETS
Current Assets
Cash $0.00 $0.00
Accounts Receivable 380,168.00 422,622.00
Prepaid Expenses 20,313.00 20,313.00
Total Current Assets $400,481.00 $442,935.00
Fixed Assets $104,925.00 $ 0.00
Total Fixed Assets $104,925.00 $ 0.00
Total Assets $505,406.00 $442,935.00
----------- -----------
LIABILITIES
Current Liabilities
Bank Overdraft $ 25,998.00 $ 25,998.00
Accounts Payable 44,562.00 44,562.00
Income Taxes Payable 2,048.00 2,048.00
Payable to Datatax $432,481.00 $370,110.00
Total Current Liabilities $505,089.00 $442,718.00
Shareholders' Equity
Share Capital $ 100.00 $ 100.00
Retained Earnings 217.00 117.00
Total Shareholders' Equity 317.00 217.00
TOTAL LIABILITIES AND EQUITY $ 505406.00 $442,935.00
=========== ===========
Exhibit 10.2
SHAREHOLDERS AGREEMENT
THIS AGREEMENT made as of the 31 st day of May, 1997.
BETWEEN:
DATATAX BUSINESS SERVICES LIMITED
a corporation incorporated pursuant to the laws of the Province of Ontario
(hereinafter referred to as "Datatax")
OF THE FIRST PART
- - and -
JTH TAX, INC.
a corporation incorporated pursuant to the laws of the State of Delaware
(hereinafter referred to as "JTH")
OF THE SECOND PART
- - and -
TAX DEPOT INC.
a corporation incorporated pursuant to the laws of the Province of Manitoba
(hereinafter referred to as the "Corporation")
OF THE THIRD PART
WHEREAS the authorized capital of the Corporation consists of an unlimited
number of common shares, of which 100 are issued and outstanding;
AND WHEREAS at the date hereof all of the issued shares of the Corporation are
beneficially owned as follows: Datatax 100 Common
AND WHEREAS JTH and the Corporation are entering into a Subscription Agreement
as of the date hereof, which subscription will be completed on September 2, 1997
whereby JTH will acquire 150 Common Shares of the Corporation;
AND WHEREAS this Agreement is being entered as a condition of the Subscription
Agreement, and is effective as of the date hereof;
AND WHEREAS the shareholders of the Corporation have agreed to enter into this
Agreement as being in their respective best interests and for the purpose of
providing for the operation of the Corporation.
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the premises and
the mutual covenants and agreements herein contained the parties hereto agree as
follows:
ARTICLE ONE - INTERPRETATION
1.1 Definitions
In this Agreement, unless something in the subject matter or context is
inconsistent therewith:
(a)"Accountant" means the auditor or accountant, as the case may be, of the
Corporation appointed from time to time;
(b) "Agreement" means this agreement and all schedules attached hereto and all
amendments made hereto and thereto by written agreement between the Shareholders
and the Corporation;
(c)"Business Corporations Act" means the Manitoba Business Corporations Act, as
now enacted or as the same may from time to time be amended, re-enacted or
replaced;
(d) "Business Day" means a day other than a Saturday, Sunday or
statutory holiday in Manitoba;
(e) "Communication" has the meaning set out in Section 5.7;
(f) "Notice" has the meaning set out in Section 3.3 and 5.7;
(g) "Notified Shareholder" has the meaning set out in Section 3.3;
(h) "Offer" has the meaning set out in Section 3.3;
(i) "Offeree" has the meaning set out in Section 3.3 and 3.6;
(j) "Offeror" has the meaning set out in Sections 3.3, and 3.6;
(k) "Shareholders" means Datatax and JTG, together with such other persons as
may become parties to this Agreement, collectively and "Shareholder" means any
one of such persons individually;
(1) "Shares" should mean 100 Common Shares issued to Datatax and 150 Common
Shares issued to JTH, together with any additional shares issued to the
Shareholders pursuant to Section 4. 1;
1.2 Sections and Headings
The division of this Agreement into Articles and Sections and the insertion of
headings are for the convenience of reference only and shall not affect the
construction or interpretation of this Agreement. The terms "this Agreement",
"hereof, "hereunder" and similar expressions refer to this Agreement and not to
any particular Article, Section or other portion hereof and include any
agreement or instrument supplemental or ancillary hereto. Unless something in
the subject matter or context is inconsistent therewith, references herein to
Articles and Sections are to Articles and Sections of this Agreement.
1.3 Number
Words importing the singular number only shall include the plural and vice
versa, words importing the masculine gender shall include the feminine and
neuter genders and vice versa and words importing persons shall include
individuals, partnerships, associations, trusts, unincorporated organizations
and corporations and vice versa.
1.4 Accounting Principles
Wherever in this Agreement reference is made to "generally accepted accounting
principles", such reference shall be deemed to be the generally accepted
accounting principles from time to time approved by the Canadian Institute of
Chartered Accountants, or any successor institute, applicable as at the date on
which such calculation is made or required to be made in accordance with
generally accepted accounting principles.
1.5 Unanimous Shareholder Agreement
To the extent that this Agreement specifies that any matters may only be or
shall be dealt with or approved by or shall require action by the Shareholders,
the discretion and powers of the directors of the Corporation to manage and to
supervise the management of the business and affairs of the Corporation with
respect to such matters are correspondingly restricted.
ARTICLE TWO - MANAGEMENT
2.1 Carrying out of the Agreement
The Shareholders shall at all times carry out and cause the Corporation to carry
out the provisions of this Agreement and agree to remove any director who is
their nominee that does not comply with this Agreement.
2.2 Idem
The Corporation confirms its knowledge of this Agreement and will carry out and
be bound by the provisions of this Agreement to the full extent that it has the
capacity and power at law to do so.
2.3 Directors
The board of directors of the Corporation shall consist of three directors and
Datatax. shall be entitled to one nominee on the board of directors and JTH
shall be entitled to two nominees on the board of directors. Datatax and JTH at
any time may appoint a new nominee to the board of directors, immediately upon
the resignation of their existing nominee or nominees.
2.4 Accountant
BD0 Dunwoody Limited shall be appointed the accountant of the
Corporation unless, prior to tie- other person as accountant of the Corporation,
all of the Shareholders have consented in writing to such person being appointed
and a copy of such consent has been filed with the Corporation.
2.5 Approval of Matters
None of the following actions may be undertaken unless approved by all of the
Shareholders of the Corporation.
(a) any change in the articles or by-laws of the Corporation;
(b) any change in the authorized or issued capital of the Corporation;
(c) the entering into of any agreement or the making of any offer or the
granting of any right capable of becoming an agreement to allot or issue any
shares of the Corporation;
(d) any action which may lead to or result in a material change in the nature of
the business of the Corporation;
(e) the entering into of any agreement other than in the ordinary course of the
Corporation's business;
(f) the taking of any steps to wind up or terminate the corporate existence of
the Corporation;
(g) the sale, lease, exchange or disposition of the entire undertaking or
property or assets of the Corporation or any substantial part thereof;
(h) the making of, directly or indirectly, loans or advances to, or the giving
of security for or the guaranteeing of the debts of any person, other than in
the ordinary course of business and other than any transactions involving a
franchisee.
(i) the taking, holding, subscribing for or agreeing to purchase or acquire
shares in the capital of any body corporate;
(j) the entering into of a partnership or of any arrangement for the sharing of
profits, union of interests, joint venture or reciprocal concession with any
person;
(k) the entering into of an amalgamation, merger or consolidation with any other
body corporate;
(l) the payment of salaries, bonuses and other remuneration (the "Remuneration")
to personnel (including all employees, officers, directors, consultants or
contractors) of the Corporation and its subsidiaries, which total Remuneration
exceeds:
(i) 25% of the annual gross revenues of the Corporation determined on a
consolidated basis for the fiscal year-end of the Corporation ending in 1998 and
1999; and
(ii) 20% of the annual gross revenues of the Corporation determined on a
consolidated basis for the fiscal year of the Corporation ending in 2000 and
subsequent years.
2.6 Budgets and Financial Statements
(a) Commencing with the fiscal year ended May 31st, 1999, the Corporation
shall, thirty (30) days prior to the commencement of any fiscal year, provide an
annual budget and business plan to the Shareholders, for their review.
(b) Commencing with the fiscal quarter (1/4) year for the period ending November
30, 1997, the Corporation shall within thirty (30) days following the end of
each fiscal quarter (1/4), provide the Shareholders with an interim Consolidated
Balance Sheet and an interim Consolidated Statements of Operations.
ARTICLE THREE - DEALING WITH SHARES
3.1 No Transfer of Shares
Except as expressly provided for in this Section 3, the Shareholders shall not
sell, transfer, assign, pledge, charge, mortgage or in any other way dispose of
or encumber their Shares or their rights under this Agreement without first
complying with all of the provisions of this Agreement unless, prior to the
disposition or encumbrance of their Shares, all of the Shareholders have
consented in writing to such disposition or encumbrance.
3.2 Endorsement on Certificates
Share certificates of the Corporation shall bear the following language either
as an endorsement or on the face thereof:
"The shares represented by this certificate are subject to all the terms and
conditions of an agreement made as of May 31st, 1997, a copy of which is on file
at the registered office of the Corporation".
3.3 First Right of Refusal and Tag-Along Sale Rights
(a) If either Datatax or JTH shall at any time desire to sell all of its Shares,
such shareholder (the "Offeree") shall first obtain a bona fide written offer
from a prospective purchaser (the "Offeror") which it desires to accept (the
"Offer") to purchase all but not less than all, of its Shares of the Offeree for
a fixed cash price. The Offer shall set forth its date, the proposed price per
Share and all other terms and conditions upon which the purchase is proposed to
be made, as well as the name and address of the Offeror. The Offeree shall
transmit a copy of the Offer to the other Shareholder (the "Notified
Shareholder") within five (5) days of its receipt of the offer.
(b) Transmittal of the Offer to the Notified Shareholder shall constitute an
offer by the Offeree to sell all but not less than all, of its Common Shares to
the Notified Shareholder at the price and upon the terms set forth in the Offer.
For a period of fourteen (14) days after the submission of the Offer to the
Notified Shareholder, the Notified Shareholder shall have an option exercisable
by written notice to the Offeree to accept the Offer. If, at the end the
fourteen (14) day period, the option has not been exercised by the Notified
Shareholder to purchase all of the Offeree's Shares, the option shall terminate
and the Offeree shall be free for a period of one hundred twenty (120) days
thereafter to sell all, but not less than all, of its Shares to the Offeror on
the terms contained in the Offer. If such Shares are not so sold within the one
hundred twenty day (120) period, the Offeree will not be permitted to sell such
Shares without again complying with this Section 3.4;
(c) If the Notified Shareholder does not exercise the option to purchase the
Offeree's Shares as provided in Subsection (b) above, then the Notified
Shareholder has the right to participate in the sale of such Shares pursuant to
the Offer, to a maximum amount of the percentage of the Shares in the
Corporation owned by the Notified Shareholder multiplied by the number of Shares
in the Offer. The Shareholders each acknowledge that such opportunity may result
in the Offeree selling fewer of its own Shares than would have been sold had the
Notified Shareholder not joined in such sale. Such right to participate in such
sale shall be exercised in the manner set forth in Subsection (b) above and
within the fourteen (14) day option period.
Example:
If the Offer is for the 150 Common Shares owned by JTH; and Datatax. (the
Notified Shareholder) does not exercise the option in Section 3.4(b); then
Datatax. shall have the right to sell 100/250 x 150 = 60 Common Shares pursuant
to the Offer, and JTH would have the right to sell 90 Shares pursuant to the
Offer.
3.4 Pledge of Shares
Any Shareholder may pledge, charge, mortgage or otherwise specifically encumber
his Shares to a bank or other financial institution for the purpose of securing
any borrowings by such Shareholder, provided that such bank or financial
institution acknowledges to the parties to this Agreement in writing that the
pledge, charge, mortgage or encumbrance of such Shares shall at all times be
subject to all the terms and conditions of this Agreement.
3.5 Insolvency of a Shareholder
(1) If any Shareholder makes an assignment for the benefit of creditors or is
the subject of any proceedings under any bankruptcy or insolvency law,
(hereinafter in this Section referred to as the "Offeror"), the other
Shareholder (hereinafter in this Section 3.5 referred to as the "Offeree") shall
have the right to purchase all, but not less than all, of the Shares
beneficially owned by the Offeror.
(2) The Offeree shall be entitled to purchase the Shares beneficially owned by
the Offeror at the price to be determined in accordance with the provisions of
Section 3.5(3).
(3) The price of the Shares shall be the fair market value of such Shares as
determined by the Accountant in accordance with generally accepted accounting
principles as at the end of the fiscal quarter of the Corporation immediately
preceding the fiscal quarter in which the event referred to in Section 3.5.(1)
occurred. Such determination shall be made in writing and given to each of the
Shareholders and to the Corporation within twenty Business Days of the date of
the event referred to in Section 3.5(l) or as soon thereafter as may be
reasonably possible.
(4) In the event the Offeree purchases the shares of the Offeror pursuant to
this Section, the closing of such purchase shall be completed within thirty (30)
days of the receipt of the accountant's report referred to in Section 3.5(3).
ARTICLE FOUR - FUNDING
4.1 Additional Capital
(1) Notwithstanding any other provision contained in this Agreement, if
requested by the board of directors of the Corporation, as evidenced by a
resolution duly passed by the directors, the Shareholders may each contribute
additional capital to the Corporation, pro rata based upon the number of Shares
beneficially owned by the Shareholders, by way of subscription for shares, loan
or otherwise, as determined by the board of directors. Such contribution shall
be at the discretion of the individual Shareholders.
(2) If additional capital is to be contributed by way of subscription for shares
pursuant to Section 4. 1 (1) and if such shares are not taken up by any
Shareholder within twenty Business Days after receipt of a request to subscribe
for such shares from the Corporation, such shares may be taken up by the other
Shareholders.
(3) If additional capital is to be contributed by way of loan or otherwise than
by way of a subscription for shares pursuant to Section 4. 1 (1) and any
Shareholder is unable or unwilling to contribute his portion, any Shareholder
who contributed a portion of such additional capital shall be entitled to
repayment of the amount so contributed and/or to indemnification against
liability on any guarantee or other liability incurred by such Shareholder in
connection therewith by the Corporation in priority to any repayment by the
Corporation of any indebtedness of the Corporation to any Shareholder who did
not contribute additional capital at such time.
ARTICLE FIVE - GENERAL
5.1 Benefit of the Agreement
This Agreement shall entire to the benefit of and be binding upon the respective
heirs, executors, administrators, successors an permitted assigns of the parties
hereto.
5.2 Entire Agreement
This Agreement constitutes the entire agreement between the parties hereto with
respect to the subject matter hereof and cancels and supersedes any prior
understandings and agreements between the parties hereto with respect thereto.
There are no representations, warranties, terms, conditions, undertakings or
collateral agreements, express, implied or statutory, between the parties other
than as expressly set forth in this Agreement.
5.3 Amendments and Waivers
No amendment to this Agreement shall be valid or binding unless set forth in
writing and duly execute by all of the parties hereto. No waiver of any breach
of any provision of this Agreement shall be effective or binding unless made in
writing and signed by the party purporting to give the same and, unless
otherwise provided in the written waiver shall be limited to the specific breach
waived.
5.4 Assignment
Except as may be expressly provided in this Agreement, none of the parties
hereto may assign his rights or obligations under this Agreement without the
prior written consent of all of the parties hereto.
5.5 Termination
This Agreement shall terminate upon:
(a) the written agreement of all of the Shareholders;
(b) the dissolution or bankruptcy of the Corporation or the making by the
Corporation of an assignment under the provisions of the Bankruptcy and
Insolvency Act; or
(c) one Shareholder becoming the beneficial owner of all of the Shares;
(d) upon the completion of a Public Offering by the Corporation.
5.6 Severability
If any provision of this Agreement is determined to be invalid or unenforceable
in whole or in part, such invalidity or unenforceability shall attach only to
such provision or part thereof and the remaining part of such provision and all
other provisions hereof shall continue in full force and effect.
5.7 Notices
Any demand, notice or other communication (hereinafter in this Section 5.7
referred to as a "Communication") to be given in connection with this Agreement
shall be given in writing and may be given by personal delivery, by registered
mail or by transmittal by telex addressed to the recipient as follows:
TO: DATATAX BUSINESS SERVICES LIMITED
680 Industrial Road
London, Ontario
N5V IV1
Attention: Gary Ibbotson
Telecopier: (519) 455-1934
TO: JTH TAX, INC.
2214 Commerce Parkway
Virginia Beach, Virginia
U.S.A. 23454
Attention: John Hewitt
Telecopier: (757) 340-7612
TO: TAX DEPOT INC.
Suite 280
6815 8th Street N.E.
Calgary, Alberta
T2E 7H7
Attention: Gary Ibbotson
Telecopier: (403) 274-1542
or such other address, telex number or individual as may be designated by notice
by any party to the other. Any Communication given by personal delivery shall be
conclusively deemed to have been given on the day of actual delivery thereof
and, if given by registered mail, on the third Business Day following the
deposit thereof in the mail and, if given by telex, on the day of transmittal
thereof. If the party giving any Communication knows or reasonably to know of
any difficulties with the postal system which might affect the delivery of mail,
any such Communication shall not be mailed but shall be given by personal
delivery or by telex.
5.8 Governing Law
This Agreement shall be governed by and construed in accordance with the laws of
the Province of Manitoba and the laws of Canada applicable therein.
IN WITNESS WHEREOF the parties have executed this Agreement.
DATATAX BUSINESS SERVICES LIMITED
/s/ Gary Ibbotson
----------------------------
Per: Gary Ibbotson - President
JTH TAX, INC
/s/ John T. Hewitt
-----------------------------
Per: John Hewitt - President
TAX DEPOT INC.
/s/ Gary Ibbotson
-----------------------------
Per: Gary Ibbotson-Director
Exhibit 10.3
MANAGEMENT AGREEMENT
SAVE-SMART U&R TAX DEPOT
THIS MANAGEMENT AGREEMENT ("Agreement") is entered into as of the
12th day of December, 1997 by SAVE-SMART INSURANCE AND FINANCIAL SERVICES INC.
("Save-Smart"), an Ontario Corporation and U&R TAX DEPOT INC. ("Tax Depot"), a
Manitoba Corporation.
Save-Smart and Tax Depot (collectively, the "Parties") hereby mutually agree as
follows:
SERVICES
1. (a) Tax Depot is in the business of providing tax return
preparation, accounting and related services and has both expertise and a
marketing plan for that business. Tax Depot shall be solely responsible for the
management and operation of the tax return preparation, accounting and related
services offered pursuant to this Agreement.
(b) Save-Smart is in the business of providing insurance, financial and
related services and has both expertise and a marketing plan for that business.
Save-Smart shall be solely responsible for the management and operation of the
insurance, financial and related services offered pursuant to this Agreement.
(c) Save-Smart has a pre-existing agreement with Wal-Mart Canada Inc.
made the 17th day of August 1995, a copy of which agreement without schedules
attached has been received by Tax Depot, whereby Save-Smart has the right to
conduct and operate certain insurance and financial services offices within
selected Wal-Mart retail stores (the "Wal-Mart Agreement"). The term of the
Wal-Mart Agreement extends to December 30, 2001. Save-Smart has received the
approval of Wal-Mart to finalize this Agreement, if such approval is required by
the Wal-Mart Agreement.
(d) Save-Smart hereby grants Tax Depot the exclusive right to conduct
and operate, and Tax Depot shall conduct and operate, pursuant to the terms,
provisions and conditions contained in this Agreement, a business for the
provision of tax return preparation, accounting and related services ("Tax
Return Preparation", "Tax Return Preparation Service(s)", the "Business") in
designated Wal-Mart retail stores in conjunction with, and subject to the terms
of, the Wal-Mart Agreement.
(e) Designated Wal-Mart retail stores ("Stores", "Locations") shall be mutually
agreed upon and designated by the Parties from time to time but no later than
December 15th of each year for the following calendar year.
(f) The name of such Tax Return Preparation Service shall appear as Save-Smart U
& R Tax Depot in all advertising and in store signage relating to the Business.
(g) The Tax Return Preparation Services as defined herein shall be
performed only on Wal-Mart premises. However, auxiliary computer services
required in connection with Tax Return Preparation Services may be performed at
other Tax Depot locations.
TERM
2. (a) The term of this Agreement shall be for a period beginning on February
1,1998 and ending at the close of business on January 31, 2000. This Agreement
may be renewed for an additional one year period provided that the Parties agree
to such a renewal. Written notice of intent to renew must be given by Tax Depot
to Save-Smart no later than May 31, 1998.
(b) For those Locations wherein Save-Smart operates an insurance and
financial services office during the period extending from February 1, 1998
through April 30, 1998, Save-Smart may terminate this Agreement effective
January 31, 1999. Written notice of intent to terminate this Agreement with
respect to those Locations must be given by Save-Smart to Tax Depot no later
than May 31, 1998.
(c) In the event that the Wal-Mart Agreement expires, is not renewed,
or is terminated for any reason, this Agreement terminates immediately without
notice.
REPRESENTATIONS
3. (a) Save-Smart makes no promises or representations whatsoever as to the
potential of income Tax Depot can expect at any time during the term of this
Agreement. Except as otherwise provided in this Agreement, Tax Depot is solely
responsible for any expenses incurred related to Tax Return Preparation Services
provided pursuant to this Agreement.
(b) Tax Depot makes no promises or representations whatsoever as to the
potential of income Save-Smart can expect at any time during the term of this
Agreement. Except as otherwise provided in this Agreement, Save-Smart is solely
responsible for any expenses it incurs related to insurance and financial
services provided pursuant to this Agreement.
SAVE-SMART COMMISSION
4. (a) Save-Smart shall be entitled to receive, in respect of each Location, the
greater of a commission (the "Save-Smart Commission") in an amount equal to ten
percent (10%) of Tax Depot's "Net Revenues" from Tax Return Preparation Services
in respect of such Location or the sum of Two Thousand Five Hundred Dollars
($2,500). Net Revenues means all payments ("Gross Revenues") received by Tax
Depot from its customers from services provided in Locations operated pursuant
to this Agreement, less GST, refunds and allowances. Save-Smart shall be
entitled to receive a further commission in respect of each Location (the
"Supplementary Save-Smart Commission") in an amount equal to five percent (5%)
of Tax Depot's "Net Revenue" from Tax Return Preparation Services in respect of
such Location.
(b) A commission deposit in the amount of Two Thousand Five Hundred Dollars
($2,500.00) Canadian per Location ("Commission Deposit") shall be due and
payable by Tax Depot to Save-Smart on February 1st of each year.
(c) For Save-Smart Locations in which a tax return preparation office was
operated during the period extending from February 1997 through April 1997, Tax
Depot will pay an additional commission of five percent (5%) of Net Revenue from
Tax Return Preparation Services; provided, however, that such additional
commission shall not be paid on Net Revenue which exceeds the Net Revenue earned
by the Save-Smart tax return preparation office during the period extending from
February 1, 1997 through April 30, 1997. The Save-Smart Locations for which the
additional commission applies, along with the 1997 Net Revenue, shall be noted
on Schedule A of this Agreement.
(d) The Save-Smart Commission and the Supplementary Save-Smart Commission on Net
Revenues from each Location shall be reported by Tax Depot to Save-Smart by the
tenth day of each month for revenues collected in the preceding month. The
monthly Save-Smart Commission shall be applied as a debit against the Commission
Deposit until such time as the aggregate Save-Smart Commission exceeds the
Commission Deposit. Each month, Tax Depot shall remit to Save-Smart both the
Save-Smart Commission which is in excess of the Commission Deposit and the
Supplementary Save-Smart Commission.
(e) In the event that the year-to-date Save-Smart Commission for a given
Location is less than Two Thousand Five Hundred Dollars as of April 30th,
Save-Smart shall be entitled to retain a portion of the Commission Deposit such
that the total commission paid to Save-Smart for that Location shall be equal to
Two Thousand Five Hundred Dollars Canadian ("Minimum Commission").
(f) The monthly report and the Save-Smart Commission check (payable to
Save-Smart) shall be sent to:
Save-Smart Insurance and Financial Services Inc.
4120 Yonge Street, Suite 314
North York, ON M2P 2B8
Attn: Ralph Bozzo
(g) If required by the Wal-Mart Agreement, Save-Smart will report revenues to
Wal-Mart in conjunction with Save-Smart's monthly reporting process.
TAX CUSTOMERS
5. (a) Within ten days of the date of this Agreement, Save-Smart will provide
Tax Depot with all information relating to customers who patronized those
Save-Smart locations in which a tax return preparation office was operated
during the period extending from February 1997 through April 1997 ("Tax
Customers"). The relevant customer information shall include, but not be limited
to, names, addresses, SINs, telephone numbers, tax returns, Revenue Canada
forms, receipts and bookkeeping information, regardless of whether such
information is complete, incomplete or in progress.
(b) Save-Smart grants to Tax Depot the exclusive right to market all
tax return preparation products and services and all accounting products and
services to these Tax Customers during the term of this Agreement.
(c) Upon the expiration or termination of this Agreement for any
reason, Tax Depot shall return to Save-Smart all information which relates to
the Tax Customers.
AUDIT
6. Save-Smart, at its own expense, shall have the right at any reasonable time
to inspect and audit books and records of Tax Depot relating to Tax Depot's
revenues from Locations operated pursuant to this Agreement.
SPACE
7. (a) In consideration of the Save-Smart Commission paid by Tax Depot
hereunder, Save-Smart and Wal-Mart shall provide space for the operation of the
Tax Return Preparation Service within each Wal-Mart Location.
(b) In selected locations ("Shared Locations"), Tax Depot and Save-Smart will
share office space within Wal-Mart. In Shared Locations, during the period
February 1st through April 30th of each year, Save-Smart will provide Tax Depot
with the number of tax preparation desks as listed in Schedule A to this
Agreement. Save-Smart will provide Tax Depot with adequate space for one tax
preparation desk per Shared Location during the period May 1st through January
31st.
(c) In Shared Locations, Save-Smart will provide, at Save-Smart's expense, all
desks, chairs and filing cabinets required for Tax Return Preparation Services.
Tax Depot will provide, at Tax Depot expense, all supplies and equipment
including computers, laser printers, and signs required by Tax Depot. Tax Depot
will not provide any furniture, equipment, signs, supplies or other items
required for Save-Smart operations.
(d) In Shared Locations, Tax Depot and Save-Smart signs and banners shall be
mounted or placed in the same location and in such a manner that each receives
equal visibility.
(e) In Shared Locations, Tax Depot customers and Save-Smart customers shall
utilize a common waiting area.
(f) In selected Locations, Tax Depot may occupy office space within Wal-Mart
individually, without sharing space with Save-Smart. In such Locations, Tax
Depot will provide all furniture, equipment, phones, signs, supplies and
advertising required for Tax Return Preparation Services. In the event that a
Save-Smart store later enters a Location previously occupied by Tax Depot,
Save-Smart will provide, at Save-Smart expense, all desks, chairs, signs,
telephones, telephone lines, filing cabinets, and all other furniture, equipment
and supplies required for all Save-Smart operations.
(g) All items furnished by Tax Depot shall be deemed to be "Tax Depot's
Equipment". All items furnished by Save Smart shall be deemed to be
"Save-Smart's Equipment".
UNAUTHORIZED SALES
8. (a) The Wal-Mart retail store space occupied by Tax Depot shall be used only
for the provision of tax return preparation, accounting and related services and
for no other business.
(b) Tax Depot shall not offer, directly or indirectly, any insurance, financial
or related services. Save-Smart shall not offer, directly or indirectly, any tax
return preparation, accounting or related services.
CONDITION OF PREMISES
9. Tax Depot shall use its best efforts keep the Locations in a clean and neat
condition.
HOURS, RULES
10. (a) During the period February 1 through April 30 of each year, the Tax
Return Preparation Service shall be kept open for business and operated during
the regular business hours that the Wal-Mart retail store is open for business,
except to the extent prevented by circumstances beyond the control of Wal-Mart
or Tax Depot. During the period May 1 through January 31, the Tax Return
Preparation Service shall be kept open for business eight hours per week in
respect of a Shared Location. During the period May 1 through January 31, Tax
Depot shall provide Save-Smart with a schedule outlining the hours of operation
for the week and the individual responsible for conducting business during these
hours.
(b) Tax Depot agrees to conduct the Tax Return Preparation Service hereunder in
an honest, courteous and efficient manner and to abide by the rules and
regulations in effect in Wal-Mart stores. Likewise, Save-Smart agrees to conduct
the insurance and financial service hereunder in an honest, courteous and
efficient manner and to abide by the rules and regulations in effect in Wal-Mart
stores.
(c) Tax Depot acknowledges having read the Wal-Mart Agreement and agrees that
the terms and conditions of the Wal-Mart Agreement as they relate to how Tax
Depot and Save-Smart may carry on their respective businesses shall be deemed
incorporated mutatis mutandis into this Agreement for the benefit of both
Save-Smart and Tax Depot. A breach of any provision of the Wal-Mart Agreement by
either Save-Smart or Tax Depot shall be deemed a breach of this Agreement.
TELEPHONE
11. (a) In Shared Locations, Save-Smart will arrange for and pay for local
telephone service by providing Direct Inward Dial lines for the Locations. In
Locations where Tax Depot occupies office space within Wal-Mart individually,
without sharing space with Save-Smart, Tax Depot will arrange for and pay for
one local telephone line by providing a Direct Inward Dial line for the
Location.
(b) During the period February 1st through April 30th, Tax Depot shall pay all
costs associated with one Direct Inward Dial line and shall have full and
unrestricted access to this line. From May 1st through January 31st, Save-Smart
shall pay all costs associated with all telephones; provided, however, that Tax
Depot shall pay for all long distance calls initiated by Tax Depot.
(c) Tax Depot shall pay the entire cost of the installation, maintenance and
use of the data lines furnished to the Shared Locations for use by Tax Depot.
(d) Tax Depot shall provide, at Tax Depot's expense, a toll free
telephone number for Tax Depot customer inquiries and for Save-Smart inquiries
relating to Tax Return Preparation Services.
TITLE TO PROPERTY
12. (a) All items furnished by Save-Smart shall be and remain the property of
Save-Smart. Save-Smart shall pay all costs of insuring, delivering, installing,
maintaining, repairing and removing the items it furnishes, and any item may be
replaced by Save-Smart with a comparable item at any time upon reasonable notice
to Tax Depot. Tax Depot shall surrender possession of all such items to
Save-Smart promptly upon written request.
(b) All items furnished by Tax Depot shall be and remain the property of Tax
Depot. Tax Depot shall pay all costs of insuring, delivering, installing,
maintaining, repairing and removing the items it furnishes, and any item may be
replaced by Tax Depot with a comparable item at any time upon reasonable notice
to Save-Smart. Save-Smart shall surrender possession of all such items to Tax
Depot promptly upon written request.
PROHIBITED LIENS
13. (a) Tax Depot shall not allow, suffer or permit any liens, claims or
encumbrances to attach to or against any of Tax Depot's Equipment, or, by reason
of the installation of any of Tax Depot's Equipment, to or against the premises
in or upon which Tax Depot's Equipment shall have been installed. In the event
any lien, claim or encumbrance attaches to any of Tax Depot's Equipment or such
premises, Tax Depot shall immediately take all such steps as may be necessary to
cause such lien or encumbrance to be released and discharged.
(b) Save-Smart shall not allow, suffer or permit any liens, claims or
encumbrances to attach to or against any of Save-Smart's Equipment or, by reason
of the installation of any of Save-Smart's Equipment, to or against the premises
in or upon which Save-Smart's Equipment shall have been installed. In the event
any lien, claim or encumbrance attaches to any of Save-Smart's Equipment or such
premises, Save-Smart shall immediately take all such steps as may be necessary
to cause such lien or encumbrance to be released and discharged.
EMPLOYEES
14. (a)(1) Tax Depot shall have sole and exclusive control over its
labor relations policies and procedures relating to wages, hours, working
conditions and conditions of employment of its employees; provided, however,
that Tax Depot shall have no authority to employ persons on behalf of Save-Smart
and no employees or agents of Tax Depot shall be deemed to be employees or
agents of Save-Smart. Tax Depot shall have the sole and exclusive right to hire,
transfer, suspend, lay off, promote, assign, discipline, adjust grievances and
discharge its employees. Save-Smart will not knowingly solicit or recruit
current or former Tax Depot employees, except if the Tax Depot employee was a
Save-Smart employee who worked in a tax preparation office operated by
Save-Smart on or prior to November 1, 1997.
(2) Save-Smart shall have sole and exclusive control over its labor relations
policies and procedures relating to wages, hours, working conditions and
conditions of employment of its employees; provided, however, that Save-Smart
shall have no authority to employ persons on behalf of Tax Depot and no
employees or agents of Save-Smart shall be deemed to be employees or agents of
Tax Depot. Save-Smart shall have the sole and exclusive right to hire, transfer,
suspend, lay off, promote, assign, discipline, adjust grievances and discharge
its employees. Tax Depot will not knowingly solicit or recruit current or former
Save-Smart employees.
(3) Tax Depot agrees to assume complete responsibility for all salaries and
other compensation of all Tax Depot employees and will make all necessary
deductions and withholdings from its employees' salaries and other compensation,
and assumes full responsibility for payment of any and all contributions, taxes
and assessments and agree to meet all other requirements of the Canadian and
provincial governments.
(4) Save-Smart agrees to assume complete responsibility for all salaries and
other compensation of all Save-Smart employees and will make all necessary
deductions and withholdings from its employees' salaries and other compensation,
and assumes full responsibility for payment of any and all contributions, taxes
and assessments and agree to meet all other requirements of the Canadian and
provincial governments.
(5) Tax Depot further agrees and warrants that Tax Depot will comply with any
other law or regulation regarding compensation, hours of work or other
conditions of employment including but not limited to laws or regulations
regarding minimum compensation, overtime and equal opportunities for employment.
(6) Save-Smart further agrees and warrants that Save-Smart will comply with any
other law or regulation regarding compensation, hours of work or other
conditions of employment including but not limited to laws or regulations
regarding minimum compensation, overtime and equal opportunities for employment.
(b) Tax Depot agrees and warrants that its employees while present in
Wal-Mart stores will comply with any and all laws, regulations and ordinances
applicable to Tax Depot. Save-Smart agrees and warrants that its employees while
present in Wal-Mart stores will comply with any and all laws, regulations and
ordinances applicable to Save-Smart.
(c) In order to protect its relationship with Wal-Mart, Save-Smart
reserves the right to request that Tax Depot remove any Tax Depot manager or
employee of any Location in the event that such manager or employee exhibits
unprofessional conduct, as determined by Save-Smart.
CONFIDENTIAL INFORMATION
15. (a) Tax Depot shall allow Save-Smart to access to a database
containing Tax Depot's customers' names and addresses. Tax Depot agrees to
enhance its computer software relating to Tax Depot's customers to allow it to
collect information regarding unused RRSP contributions, the expiration date of
home and automobile insurance, and whether a person is self-employed and to
allow Save-Smart access to a database containing such information, to the extent
permitted by law. Save-Smart reserves the exclusive right to market all
insurance products and services and all financial products and services to these
customers. Tax Depot reserves the exclusive right to market all tax return
preparation products and services and all accounting products and services to
these customers. To the extent permitted by law, Save-Smart and Tax Depot can
utilize the database for marketing purposes. Nothing herein shall require Tax
Depot to disclose any information to Save-Smart which Tax Depot is prohibited by
law from disclosing.
(b) Information regarding the customers of Tax Depot is proprietary and
confidential. Save-Smart agrees to maintain the absolute confidentiality of
customer information both during and after the term of this Agreement. Tax Depot
customer information may not be used or disclosed in any manner which is not
expressly authorized by Tax Depot in advance.
(c) Save-Smart shall allow Tax Depot to access a database containing
Save-Smart's customers' names and addresses. Save-Smart reserves the exclusive
right to market all insurance products and services and all financial products
and services to these customers. Tax Depot reserves the exclusive right to
market all tax return preparation products and services and all accounting
products and services to these customers. To the extent permitted by law,
Save-Smart and Tax Depot can utilize the database for marketing purposes.
Nothing herein shall require Save-Smart to disclose any information to Tax Depot
which Save-Smart is prohibited by law from disclosing.
(d) Information regarding the customers of Save-Smart is proprietary
and confidential. Tax Depot agrees to maintain the absolute confidentiality of
customer information both during and after the term of this Agreement.
Save-Smart customer information may not be used or disclosed in any manner which
is not expressly authorized by Save-Smart in advance.
ADVERTISING
16. (a) Tax Depot shall advertise and promote the Tax Return
Preparation Service authorized by this Agreement at Tax Depot expense. If and
when Tax Depot utilizes print media to promote Tax Return Preparation Services,
Tax Depot shall include in such printed advertisements, at Tax Depot expense, an
explicit reference to the availability of Save-Smart insurance and financial
service products at select Locations. Tax Depot shall pay all expenses related
to the advertising of the Tax Return Preparation Services and, except as
otherwise provided in this Agreement, shall not be obligated to refer to
Save-Smart in such advertising.
(b) Save-Smart shall advertise and promote the insurance and financial
services authorized by this Agreement at Save-Smart expense. If and when
Save-Smart utilizes print media to promote insurance or financial services,
Save-Smart shall include in such printed advertisements, at Save-Smart expense,
an explicit reference to the availability of Tax Depot Tax Return Preparation
Services at select Locations. Save-Smart shall pay all expenses related to the
advertising of insurance and financial services and, except as otherwise
provided in this Agreement, shall not be obligated to refer to Tax Depot in such
advertising.
(c) Tax Depot agrees to reimburse Save-Smart for all costs incurred by
Save-Smart in advertising its tax preparation service in the 1997-1998 "Yellow
Pages Directory".
USE OF SAVE-SMART TRADE NAME
17. (a) Tax Depot agrees that it will use the name of Save-Smart, or
such other trade name and service mark as designated by Save Smart including the
name "Save-Smart U & R Tax Depot", only in connection with the conduct and
operation of the services offered pursuant to this Agreement. Tax Depot
expressly recognizes and acknowledges that the use of Save-Smart trademarks,
service marks or trade names shall not confer upon Tax Depot any proprietary
rights to such trademarks, service marks or trade names. Upon expiration or upon
termination of Tax Depot's rights to use the Save-Smart trademarks, service
marks or trade names pursuant to this Agreement for any cause, Tax Depot shall
immediately cease all use of the licensed trademarks, service marks or trade
names and will not use the same thereafter. Tax Depot agrees not to question,
contest or challenge such ownership by Save-Smart during the term of this
Agreement or thereafter. Tax Depot will claim no right, title or interest in
such trademark, service mark or trade name, except the right to use the same
pursuant to the terms and conditions of this Agreement, and will not seek to
register the same. Tax Depot agrees that upon expiration or termination of
rights to use the Save-Smart trademarks, service marks or trade names pursuant
to this Agreement for any cause, it will execute all necessary or appropriate
documents to confirm Save-Smart ownership or to transfer any rights it may have
acquired from Save-Smart.
(b) Tax Depot recognizes that the trademarks, service marks or trade names
registered by Save-Smart possess a special unique and extraordinary character
which makes it difficult to assess the monetary damage which Save-Smart would
sustain in the event of unauthorized use. Tax Depot expressly recognizes and
agrees that irreparable injury would be caused to Save-Smart by such
unauthorized use, and agrees that preliminary or permanent injunctive relief
would be appropriate in the event of breach of this Agreement by Tax Depot,
provided that such remedy shall not be exclusive of other legal remedies
otherwise available.
USE OF TAX DEPOT TRADE NAME
18. (a) Save-Smart agrees that it will use the name of Tax Depot, or such other
trade name and service mark as designated by Tax Depot including the name
"Save-Smart U & R Tax Depot", only in connection with the conduct and operation
of the services offered pursuant to this Agreement. Save-Smart expressly
recognizes and acknowledges that the use of Tax Depot trademarks, service marks
or trade names shall not confer upon Save-Smart any proprietary rights to such
trademarks, service marks or trade names. Upon expiration or upon termination of
Save-Smart's rights to use the Tax Depot trademarks, service marks or trade
names pursuant to this Agreement for any cause, Save-Smart shall immediately
cease all use of the licensed trademarks, service marks or trade names and will
not use the same thereafter. Save-Smart agrees not to question, contest or
challenge such ownership by Tax Depot during the term of this Agreement or
thereafter. Save-Smart will claim no right, title or interest in such trademark,
service mark or trade name, except the right to use the same pursuant to the
terms and conditions of this Agreement, and will not seek to register the same.
Save-Smart agrees that upon expiration or termination of rights to use the Tax
Depot trademarks, service marks or trade names pursuant to this Agreement for
any cause, it will execute all necessary or appropriate documents to confirm Tax
Depot ownership or to transfer any rights it may have acquired from Tax Depot.
(b) Save-Smart recognizes that the trademarks, service marks or trade names
registered by Tax Depot possess a special, unique and extraordinary character
which makes it difficult to assess the monetary damage which Tax Depot would
sustain in the event of unauthorized use. Save-Smart expressly recognizes and
agrees that irreparable injury would be caused to Tax Depot by such unauthorized
use, and agrees that preliminary or permanent injunctive relief would be
appropriate in the event of breach of this Agreement by Save-Smart, provided
that such remedy shall not be exclusive of other legal remedies otherwise
available.
PURCHASES BY THE PARTIES
19. (a) Tax Depot shall promptly pay all the obligations of Tax Depot and will
hold Save-Smart free and harmless from any and all claims and liabilities
incurred by Tax Depot in the conduct and operation of Tax Depot business. Under
no circumstances will Tax Depot make any purchases or incur any obligation or
expense of any kind in the name of Save-Smart.
(b) Save-Smart shall promptly pay all the obligations of Save-Smart and will
hold Tax Depot free and harmless from any and all claims and liabilities
incurred by Save-Smart in the conduct and operation of Save-Smart business.
Under no circumstances will Save-Smart make any purchases or incur any
obligation or expense of any kind in the name of Tax Depot.
REIMBURSEMENT
20. Tax Depot hereby agrees to reimburse Save-Smart for all expenses, including
but not limited to advertising, incurred by Save-Smart at the request of Tax
Depot in writing, within thirty (30) days. Save-Smart hereby agrees to reimburse
Tax Depot for all expenses, including but not limited to advertising, incurred
by Tax Depot at the request of Save-Smart in writing, within thirty (30) days.
FRANCHISE OPERATIONS
21.(a) Tax Depot may operate the Tax Return Preparation Service hereunder at
various Locations through operators franchised by Tax Depot. Tax Depot shall
make the terms and conditions of this Agreement known to all such franchise
operators and secure such franchise operators' written agreement to comply with
all the terms and conditions hereof and to assume all of Tax Depot's obligations
hereunder in the performance of the Tax Return Preparation Service on Wal-Mart'
premises. Tax Depot agrees to include in any and all agreements with its
franchise operators a provision that Tax Depot and its franchise operators
acknowledge that Save-Smart and Wal-Mart are third party beneficiaries of all
Tax Depot's rights and Tax Depot's franchise operators' obligations under the
agreement between Tax Depot and its franchise operators which directly or
indirectly pertain to the control, protection and maintenance of Save-Smart and
Wal-Mart trademarks, service marks, trade names, and the good will pertaining
thereto. Tax Depot agrees to provide Save-Smart with a copy of the franchise
agreement used in connection with the services offered pursuant to this
Agreement. Accordingly, Save-Smart shall have the right to require compliance by
Tax Depot's franchise operators and to enforce directly against the franchise
operators all provisions of the agreement between Tax Depot and its franchise
operators which directly or indirectly pertain to Save-Smart and Wal-Mart third
party beneficiary rights hereunder. Such provisions shall pertain only to the
control, protection and maintenance of Save-Smart and Wal-Mart trademarks,
service marks, trade names, and the good will pertaining thereto, and are not to
be construed as granting Save-Smart any right or power to control the details of
the daily operation of the Tax Return Preparation Services. Tax Depot shall
closely monitor the operations of such franchise operators and take all steps
necessary to assure such franchise operators' compliance with the terms and
conditions of this Agreement. If this Agreement is terminated for any reason as
to one or more Locations, then any agreement between the Tax Depot and a
franchise operator of Tax Depot to operate the Tax Return Preparation Service at
such Location shall also terminate simultaneously and neither Tax Depot nor Tax
Depot's franchise operations shall be entitled to damages, if any, as a result
of such termination. Notwithstanding the foregoing, Tax Depot shall at all times
continue to be fully and primarily responsible for the faithful performance of
all the terms and conditions of this Agreement by Tax Depot's franchise
operators.
(b) Tax Depot agrees that in respect of the Locations in which a tax return
preparation office was operated during the period extending from February 1997
through April 1997, Save-Smart and Tax Depot will make arrangements mutually
agreeable to both of them with respect to employees who previously worked for
Save-Smart in the tax preparation business. This could include employment by Tax
Depot or their becoming a franchise operator under a franchise from Tax Dept.
PERIODIC REPORTS
22. (a) Tax Depot shall provide Save-Smart a monthly report of revenue.
Save-Smart shall not release to third parties any reports of revenue or other
information related to the revenue generated by or number of returns prepared by
the Tax Return Preparation Service without the written approval of Tax Depot.
(b) Tax Depot shall submit to Save-Smart annually, within one hundred twenty
(120) days after the close of its fiscal year, its financial report, which shall
be certified by an accountant or by an officer of Tax Depot in the event that no
audit is performed. Such report shall include, but not be limited to, its profit
and loss statement and balance sheet. Save-Smart shall keep all such information
confidential.
FEES, TAXES
23. (a) Tax Depot shall, at its expense, pay and discharge all fees,
taxes or assessments which may be charged or levied by reason of anything done,
contained, or used in the conduct of the Tax Return Preparation Service and in
the performance of this Agreement, excluding, however, all taxes and assessments
applicable to Save-Smart from Save-Smart Commission and Supplementary Save-Smart
Commission hereunder or applicable to Save-Smart property. Tax Depot will,
however, be responsible to pay all value-added taxes, including goods and
services tax, applicable to Save-Smart from Save-Smart Commission and
Supplementary Save-Smart Commission hereunder.
(b) Save-Smart shall, at its expense, pay and discharge all fees, taxes or
assessments which may be charged or levied by reason of anything done,
contained, or used in the conduct of the insurance and financial service and in
the performance of this Agreement.
RIGHT TO TERMINATE
24. (a) This Agreement is not transferable by Tax Depot in whole or in part
without Save-Smart's prior written consent. Any transfer or attempt to transfer
this Agreement by Tax Depot, either expressly or by operation of law, without
Save-Smart's prior written consent, shall, at the option of Save-Smart, without
any notice whatsoever, immediately terminate this Agreement. The sale of Tax
Depot's business or any other transaction which shifts rights or liabilities of
Tax Depot to another controlling interest shall, except as provided in
Paragraphs 21 and 24 (c) of this Agreement, be such a transfer. In the event any
bankruptcy or insolvency proceedings are commenced by or against Tax Depot, or
if any property of Tax Depot passes onto the hands of any receiver, assignee,
officer of the law or creditor; or if Tax Depot vacates, abandons, or ceases to
operate under this Agreement, or if Tax Depot fails to comply with any material
provision or condition of this Agreement and fails to cure such default after
fifteen (15) days written notice from Save-Smart, in any such event Save-Smart
shall have the right immediately to terminate this Agreement, to exclude Tax
Depot from Wal-Mart premises, and at Tax Depot's expense, to remove from
Wal-Mart premises all Tax Depot's property (unless prohibited by law) without,
however, affecting any other rights or remedies which Save-Smart may have by
reason thereof.
(b) In the event that the Wal-Mart Agreement expires, is not renewed, or is
terminated for any reason, this Agreement shall, without any notice whatsoever,
terminates immediately. In the event any bankruptcy or insolvency proceedings
are commenced by or against Save-Smart, or if any property of Save-Smart passes
onto the hands of any receiver, assignee, officer of the law or creditor; or if
Save-Smart vacates, abandons, or ceases to operate under this Agreement, or if
Save-Smart fails to comply with any material provision or condition of this
Agreement and fails to cure such default after fifteen (15) days written notice
from Tax Depot, in any such event Tax Depot shall have the right immediately to
terminate this Agreement.
(c) Tax Depot's assignment of the performance of this Agreement to any
of its related income tax return entities or franchisees for the purpose set
forth in Paragraph 21 of this Agreement is expressly permitted.
INDEMNITY
25. (a) Tax Depot agrees that it will protect, defend, hold harmless and
indemnify Save-Smart, its directors, officers and employees, from and against
any and all expenses, claims, actions, liabilities, damages or losses of any
kind whatsoever (including, without limitation of the foregoing, death of or
injury to persons and damage to property), actually or allegedly resulting from
or connected with the operation of the Tax Return Preparation Service including
from the omission or commission of any act, lawful or unlawful, by Tax Depot or
its agents or employees, whether or not such act is within the scope of the
employment of such agents or employees. Notwithstanding anything contained in
the foregoing, Tax Depot shall not be liable for damage to third parties which
is caused by the primary negligence of Save-Smart, its agents, or employees; or
damages caused by individuals employed by Tax Depot, but whose activities are
not actually or allegedly resulting from or connected with the operation of the
Tax Return Preparation Service.
(b) Save-Smart agrees that it will protect, defend, hold harmless and indemnify
Tax Depot, its directors, officers and employees, from and against any and all
expenses, claims, actions, liabilities, damages or losses of any kind whatsoever
(including, without limitation of the foregoing, death of or injury to persons
and damage to property), actually or allegedly resulting from or connected with
the operation of the insurance or financial services including from the omission
or commission of any act, lawful or unlawful, by Save-Smart or its agents or
employees, whether or not such act is within the scope of the employment of such
agents or employees. Notwithstanding anything contained in the foregoing,
Save-Smart shall not be liable for damage to third parties which is caused by
the primary negligence of Tax Depot, its agents, or employees; or damages caused
by individuals employed by Save-Smart, but whose activities are not actually or
allegedly resulting from or connected with the operation of the insurance and
financial services business.
INSURANCE
26. (a) Tax Depot hereby agrees and covenants that it shall, at its sole
expense, obtain and maintain during the term of this Agreement the following
policies of insurance and adequate to fully protect Save-Smart as well as Tax
Depot from and against all expenses, claims, actions, liabilities and losses
arising out of the subjects covered by such policies of insurance: (1)
Comprehensive General Liability Insurance containing a Contractual Liability
Endorsement specifically covering the indemnity provisions in the Agreement,
with limits of not less than $2,000,000 per occurrence.
(b) Save-Smart hereby agrees and covenants that it shall, at its sole expense,
obtain and maintain during the term of this Agreement the following policies of
insurance and adequate to fully protect Tax Depot as well as Save-Smart from and
against all expenses, claims, actions, liabilities and losses arising out of the
subjects covered by such policies of insurance: (1) Comprehensive General
Liability Insurance containing a Contractual Liability Endorsement specifically
covering the indemnity provisions in the Agreement, with limits of not less than
$2,000,000 per occurrence.
NOTICES
27. All notices herein provided for or which may be given in connection with
this Agreement shall be in writing and given by certified or registered mail
with postage prepaid and return receipt requested or by overnight courier. If
the party giving any notice hereunder knows or ought reasonably to know of any
difficulties with the postal system which might affect the delivery of mail, any
such notice shall not be mailed but shall be given by overnight courier. If any
such notice is given by Save-Smart to Tax Depot, it shall be addressed to:
John Hewitt
U&R Tax Depot
2610 Potters Road
Virginia Beach, VA 23452
Notices given by Tax Depot to Save-Smart shall be addressed to:
Ralph Bozzo
Save-Smart Insurance and Financial Services Inc.
4120 Yonge Street, Suite 314
North York, ON M2P 2B8
And such notices if so sent by mail shall be deemed to have been given the
fourth day after having been deposited in the mail.
CONTINUING OBLIGATIONS
28. Tax Depot and Save-Smart obligations with respect to Paragraphs 15(b),
15(d), 17, 18, 19, 23, and 25 extend beyond the term of this Agreement and
survive its termination.
29. Tax Depot agrees that in the event the Save-Smart Tax Depot agreement is not
renewed that it will not provide Tax Return Preparation Services in any Wal-Mart
in Canada for twelve months from the date of the expiry of this Agreement for
any reason including within three (3) kilometres of a Location as contemplated
in section 6.11 of the Wal-Mart Agreement.
ASSIGNS
30. The provisions of this Agreement shall be binding upon Tax Depot and upon
Tax Depot's successors and assigns and shall be binding upon and inure to the
benefit of Save-Smart, its successors and assigns. However, the Parties agree
that nothing herein contained shall authorize the assignment or sublicense of
this Agreement or delegation of any duties hereunder by Tax Depot without
Save-Smart's prior written consent, except as provided in Paragraph 21 and 24(c)
of this Agreement. The provisions of this Agreement shall be binding upon
Save-Smart and upon Save-Smart's successors and assigns and shall be binding
upon and inure to the benefit of Tax Depot, its successors and assigns.
RELATIONSHIP
32. Nothing herein nor any acts of or arrangements between the parties hereto
shall be construed to mean or imply that the parties are carrying on business as
a joint venture, in partnership, as principal and agent, or master and servant,
or under any relationship other than as independent contractors.
ILLEGAL PROVISION
33. If any provision in this Agreement shall be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision hereof, and this Agreement shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained herein.
GOVERNING LAWS
34. This Agreement shall be interpreted under and governed by the laws of
Manitoba.
REMEDIES CUMULATIVE
35. It is agreed that the remedies herein provided in case of any default or
breach by Tax Depot of this Agreement are cumulative and shall not effect in any
manner any other remedies that Save-Smart may have by reason for such default or
breach by Tax Depot. It is agreed that the remedies herein provided in case of
any default or breach by Save-Smart of this Agreement are cumulative and shall
not effect in any manner any other remedies that Tax Depot may have by reason
for such default or breach by Save-Smart.
ENTIRE AGREEMENT
36. This Agreement sets forth the entire agreement and understanding between the
Parties hereto with respect to the subject matter hereof and this Agreement
hereby amends, modifies and replaces all prior agreements and amendments thereto
between the Parties. The Agreement shall not be supplemented, modified or
amended except by a written instrument signed by a duly authorized officer of
Tax Depot and by a duly authorized officer of Save-Smart, and no person has or
shall have the authority to supplement, modify or amend this Agreement in any
other manner.
PARAGRAPH TITLES
37. The paragraph titles in this Agreement have been placed thereon for the mere
convenience of the Parties, and shall not be considered in any construction or
interpretation of this Agreement.
IN WITNESS WHEREOF, the parties have this day set their hands as of the
day and year first above written by their proper officers duly authorized
thereunto.
Save-Smart Insurance and Financial Services Inc.
By: /s/ Steve Sardo
-------------------------------------------
Date: 12/12/97
U&R Tax Depot Inc.
By: /s/ John Hewitt
-------------------------------------------
Date: 12/12/97
- PAGE 10-
Exhibit 23.1
Consent of Hamilton Dwyer & Company, P.C.
We have issued our reports dated June 10, 1998 accompanying the consolidated
financial statements and schedules of JTH Tax, Inc. and subsidiaries as of April
30, 1998 which are incorporated by reference in this Registration Statement. We
consent to the incorporation by reference in the Registration Statement of the
aforementioned reports and to the use of our name as it appears under the
caption "Experts."
/s/ Hamilton Dwyer & Company, P.C.
Hamilton Dwyer & Company, P.C.
/s/ Hamilton Dwyer & Company, P.C.
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Virginia Beach, Virginia
June19, 1998
Exhibit 99.1
JTH TAX, INC.
SUBSCRIPTION AGREEMENT
JTH Tax, Inc.
2610 Potters Road
Virginia Beach, VA 23452
Re: Purchase of Shares of Class A Common Stock
(the "Shares") of JTH Tax, Inc. (the "Company")
at $12.50 per Share
Ladies and Gentlemen:
Reference is made to the Prospectus dated June , 1998 with respect to
the offering of the Shares (the "Offering"). Such Prospectus, together with any
amendments thereto, delivered to the undersigned is herein called the
"Prospectus". Capitalized terms used but not defined herein shall have the
respective meanings given them in the Prospectus.
For the purpose of subscribing for the Shares, and intending to be
legally bound hereby, the undersigned prospective purchaser of the Shares (the
"Purchaser") hereby agrees as follows:
1. Subscription for Shares.
Upon the terms and conditions set forth herein and in the
Prospectus, the Purchaser hereby subscribes for and agrees to acquire that
number of Shares as set forth in Section 7 hereof, and agrees to tender the
Subscription Price (as defined and set forth in Section 6 hereof) at such time
as Purchaser is notified that the Subscription Price is due. Upon acceptance of
this Subscription Agreement by the Company in accordance with the provisions
hereof, this Subscription Agreement shall become a binding contract between the
parties hereto.
2. Acceptance or Rejection of Subscription; Tender of Funds.
The Offering is subject to a minimum amount of 40,000 Shares
being purchased at a price of $12.50 per Share by the close of business on the
30th day after the registration statement in respect of the Offering becomes
effective (the "Minimum Conditions"). If in the event that the Minimum
Conditions are met, the Company will advise the Purchaser that the subscription
has been accepted and that the Subscription Price is due and payable within
business days.
If the Minimum Conditions are not satisfied or if the Offering
is terminated for any other reason, the subscription will be rejected and the
Subscription Price will not become due and payable.
Purchasers may, however, tender the Subscription Price
simultaneous with the delivery of the Subscription Agreement. In that instance,
the tendered funds will be held, together with the funds transmitted by other
Purchasers who have made similar commitments in respect to the purchase of
Shares, in a separate interest bearing escrow account (the "Escrow Account") at
First Union National Bank (the "Escrow Agent"). Securities delivered in respect
to the purchase of Shares will be held in escrow by the Company. If the Minimum
Conditions are not met or if this subscription is rejected in whole or in part
(to the extent rejected), the Subscription Price paid will be promptly returned,
with interest thereon, and this Subscription Agreement shall have no further
force or effect. The funds will be held in the Escrow Account until , 1998. If
the Minimum Conditions are met, and proof thereof is given to the Escrow Agent,
within fifteen (15) business days thereafter, the Escrow Agent will deliver the
funds held in the Escrow Account to the Company and the Company will release the
securities and process appropriate transfers.
3. Certain Representations and Warranties of the Purchaser.
The Purchaser hereby represents and warrants as follows to the
Company, and each person who acquires Shares in the Company, and the Purchaser
acknowledges that the Purchaser has full knowledge that such persons intend to
rely on such representations and warranties:
THE PURCHASER HAS READ CAREFULLY AND UNDERSTANDS THE
PROSPECTUS AND HAS CONSULTED HIS OWN ATTORNEY, ACCOUNTANT OR PURCHASER
REPRESENTATIVE WITH RESPECT TO THE INVESTMENT CONTEMPLATED HEREBY AND ITS
SUITABILITY FOR THE PURCHASER. ANY SPECIFIC ACKNOWLEDGMENT SET FORTH BELOW WITH
RESPECT TO ANY STATEMENT CONTAINED IN THE PROSPECTUS SHALL NOT BE DEEMED TO
LIMIT THE GENERALITY OF THIS REPRESENTATION AND WARRANTY.
The foregoing representations and warranties are true and complete as
of the date hereof and will be true and complete as of the date of the
acceptance hereof by the Company. If such representations and warranties cease,
in any respect, to be true and complete prior thereto, the Purchaser will give
written notice of such fact to the Company, specifying which representations and
warranties are not true and complete and the reasons therefor.
4. Acknowledgements of the Purchaser.
The Purchaser understands and acknowledges that:
(a) The subscription for the Shares contained herein may be
accepted or rejected, in whole or in part, in the sole and absolute discretion
of the Company.
(b) The subscription for the Shares will be rejected if the
Minimum Conditions, as described in Section 2, are not met.
(c) Upon the delivery of this Subscription Agreement to the
Company, the subscription evidenced hereby is and shall be irrevocable (subject
to applicable securities laws and regulations), except that the Purchaser shall
have no obligation hereunder if the subscription is for any reason rejected or
the offering of Shares by the Company is for any reason cancelled or withdrawn.
(d) No federal or state agency has made any finding or
determination as to the fairness of the offering of Shares for investment or any
recommendation or endorsement of the Shares.
(e) There is no public market for the Shares and it is not
anticipated that a market will develop for the Shares following this Offering.
(f) The foregoing acknowledgements, representations,
warranties and agreements shall survive the consummation of the offering
contemplated by the Prospectus.
5. General.
(a) This Subscription Agreement (i) may not be assigned
without the consent of the Company, which consent may be withheld in its sole
discretion, (ii) shall be binding upon the Purchaser and the heirs, legal
representatives, successors and assigns of the Purchaser, (iii) shall be
governed, construed and enforced in accordance with the laws of the Commonwealth
of Virginia (except insofar as affected by the state securities laws of the
jurisdiction in which the offering described herein may have been made to the
Purchaser), (iv) shall survive the acceptance by the Company of this
Subscription Agreement and the consummation of the offering contemplated by the
Offering Memorandum, and (v) contains the entire agreement of the parties, and
there are no representations, covenants or other agreements except as stated or
referred to herein.
(b) If the Purchaser is more than one person, their
obligations hereunder shall be joint and several.
(c) If any provision of this Subscription Agreement, or a part
thereof, shall be determined to be invalid or unenforceable by a court of
competent jurisdiction, the remainder of this Subscription Agreement shall
continue in full force and effect, as though such provision, or part thereof,
was not a part of this Subscription Agreement.
6. Subscription.
The undersigned hereby subscribes for and agrees to pay for
____ Shares at a price of $12.50 per Share (the "Subscription Price"). The
Subscription Price will be due and payable within business days after
notification by the Company that the subscription has been accepted. The
Subscription Price may, however, be paid simultaneously with the execution of
this Subscription Agreement in cash or a check drawn on a bank in the United
States. If the Subscription Price is paid for with a check, it should be made
payable to "JTH Tax, Inc. Escrow." The cash or check should be delivered or
mailed to the Company, at its address set forth in Section 7 hereof.
7. Notices.
Any notices and other communications required or permitted
hereunder shall be in writing and shall be sent by certified mail, return
receipt requested, addressed as follows or to such other addresses as the
parties hereto shall have given notice pursuant hereto:
If to Company:
JTH Tax, Inc.
2610 Potters Road
Virginia Beach, VA 23452
If to Purchaser:
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Attention:______________________
All such notices to the Company shall be effective only upon actual
receipt by the Company. All such notices to the Purchaser shall be deemed to be
given on the second business day following deposit thereof with the carrier.
This Subscription Agreement will be deemed to have been executed for
all purposes when the Purchaser signs the signature page provided within. If
this subscription is accepted, the undersigned acknowledges and agrees that the
undersigned will be a stockholder in the Company.
Type of Ownership (Check One):
____ Individual ____ Trust
____ Corporation ____ Other (please specify below)
____ Company ____ Partnership
IN WITNESS WHEREOF, the undersigned has executed this Subscription
Agreement as of the date set forth below.
Date: __________________, 1998
<PAGE>
Signature Form for Individuals
_________________________ (Seal)
(Signature)
Print Name:_____________________
_________________________ (Seal)
(Signature of Joint Owner, if any)
Print Name:______________________
Signature Form for Corporations
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(Print Name of Corporation)
[Corporate Seal] By:_______________________________
(Signature of Authorized Officer)
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Print Name and Title
Signature Form for Company
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(Print Name of Company)
By: ______________________________
(Signature of Authorized Officer)
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Print Name and Title
(SIGNATURES CONTINUED ON FOLLOWING PAGE)
Signature Form for Partnership
By its Partners:
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(Signature of Partner)
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Print Name
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(Signature of Partner)
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Print Name
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(Signature of Partner)
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Print Name
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(Signature of Partner)
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Print Name
Signature Form for Trusts
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(Print Name of Trust)
By:______________________, as
(Signature of Trustee)
Trustee under the Trust Agreement
dated____________________________
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Print Name
Other
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